Carpetright : Interim Results Announcement

Carpetright plc

Interim Results Announcement for the 26 weeks ended 25 October 2014

Carpetright plc, Europe's leading specialist carpet and floor coverings retailer, today announces its interim results for the 26 week trading period ended 25 October 2014.

Group Financial Summary

Highlights

Group

·     Solid first half with total sales growth of 2.6%

·     Underlying profit before tax of £6.7m, up by 123.3%

·     Profit before tax up from £1.9m to £6.7m, an increase of 252.6%

·     Improved trading performance, tight control on capital expenditure and robust working capital management moved the Group into a net cash position of £3.2m at period end

·     Strategic review in progress following appointment of new Chief Executive

·     Plans to revitalise the Carpetright brand, while retaining our well-established value heritage, being finalised, for implementation in 2015

·     Full year underlying profit before tax now expected to be towards the upper end of current market expectations (Note 6)

UK

·     Like-for-like revenues increased by 6.5%

·     Gross profit percentage reduced by 140 basis points to 61.7% (H1 FY14: 63.1%)

·     Stores estate reduced by a net nine during the period to 463, trading from 4.0m sq ft, being 2.2% lower year-on-year

·     290 stores now modernised, 63% of the estate

Rest of Europe

·     Like-for-like sales down by 3.3% in local currency terms

·     Gross profit percentage increased by 270 basis points to 60.5% (H1 FY14: 57.8%)

·     Improvement in underlying operating profit of £1.5m to £0.1m, reversing the losses experienced in the first half of the prior year

·     The number of stores reduced by a net three during the period to 139, trading from 1.6m sqft, being 2.8% lower year-on-year

Commenting on the results, Wilf Walsh, Chief Executive, said:

"I am pleased to report that the Group grew profits during the first half, with an encouraging increase in UK like-for-like sales, a return to underlying profit in the Rest of Europe and a net cash position at the end of the period.  Having made a solid start to the year, we now expect full year underlying pre-tax profits to be towards the upper end of current market expectations.

"We believe that, with a well researched and well executed strategy, we can begin to reshape Carpetright to ensure the business fully capitalises on its market leading position.

"These changes will take time to take full effect but we are absolutely focused on maintaining the recent improvements in the performance of the Group, as well as devoting our energies to revitalising our brand and operations in line with contemporary customer expectations.  As a team we are excited by the potential that exists and are concentrating hard on execution of this new strategy as we enter 2015."

Notes

1.    All sales figures are quoted after deducting VAT.

2.    'Underlying' excludes exceptional items and related tax.

3.    Like-for-like sales calculated as this year's net sales compared to last year's net sales for all stores that are at least 12 months old at the beginning of our current financial year.  Stores closed during the year are excluded from both years.  No account is taken of changes to store size or introduction of third party concessions. 

4.    Exceptional items in H1 FY14 comprised of net losses on disposal of properties of £1.1m.

5.    Net cash/(debt) is calculated as the total of cash-in-hand, or at bank, offset by borrowings, finance leases and unamortised fees.

6.    Current range of market expectations for the year ending 2 May 2015 is for Group underlying profit before tax to be £8.0m to £11.0m.

7.    Comparative period for the year is the 26 week period ended 26 October 2013.

Results presentation

Carpetright plc will hold a presentation to analysts and investors at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB at 09:00 today.

A listen only conference call facility is available on Tel: +44(0) 1452 580733, conference ID: 50525825

A copy of this interim statement can be found on our websitewww.carpetright.plc.uk

For further enquiries please contact:

Carpetright plc

Wilf Walsh, Chief Executive

Neil Page, Group Finance Director

Tel: 01708 802000

Citigate Dewe Rogerson

Kevin Smith

Nick Hayns

Tel: 020 7638 9571

Forthcoming News flow:

Carpetright will release its Interim Management Statement for the third quarter on
27 January 2015.

Certain statements in this report are forward looking.  Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Interim Results

A summary of the reported financial results for the 26 weeks ended 25 October 2014 is set out below:

Note -  Where this review makes reference to "Underlying" these relate to profit / earnings before exceptional items.

Overview

Group sales increased by 2.6% to £227.9m, with the UK business up 5.0% and a decline of 9.4% in the Rest of Europe.  During the half year, the Group opened nine stores and closed 21, a net decrease of twelve stores, to give a total store base of 602.  Total store space declined by 1.7% to 5.6 million square feet.

Whilst the retail environment in the UK continues to be challenging, improving economic data has begun to feed through into consumer confidence and this is being reflected in consumer spending in our categories.  Our continued focus on market beating promotions delivered solid sales growth throughout the period, with like-for-like growth of 6.5%.  This price investment was the primary factor in a decline in the gross profit percentage, which decreased by 140 basis points to 61.7%.  Although we are continuing to work with suppliers to mitigate this impact, our revised guidance for the full year is for a reduction in gross profit percentage in the range of 100-150 basis points below the prior year.

Trading across our Rest of Europe business has continued to improve and sales in local currency were broadly flat year-on-year in the second quarter, arresting the very significant decline seen over the last 30 months, particularly in our Netherlands business.   Sales in local currency were down 3.7%, with like-for-like sales down 3.3%.  Taking into account the depreciation of Sterling relative to the Euro, this translates to a total sales decline of 9.4%.  A focus on improved sourcing resulted in an increase in the gross profit percentage of 270 basis points to 60.5% and this, along with lower operating costs, reversed the reported losses experienced in the first half of the prior year into an underlying profit.

Overall, Group underlying operating profit increased by 80.5% to £7.4m.  Net finance charges were £0.4m lower at £0.7m, primarily the result of a lower level of net debt.   These factors combined to generate a 123.3% improvement in underlying profit before tax to £6.7m (H1 FY14: £3.0m).

This improvement in profit was reflected in a 171.4% increase in basic earnings per share to 7.6p (H1 FY14: 2.8p).

The combination of cash flow from continued underlying profitability, the tightly controlled level of net capital expenditure and robust working capital management, enabled the Group to report a net cash position of £3.2m at period end (H1 FY14: net debt of £14.3m).  The cash flow strength of the Group is highlighted by the fact that the net debt of £97.1m outstanding as at May 2009, has been eliminated over the past five and half years.

Chief Executive Review

Following my appointment as Chief Executive in July 2014, I have focused my time on building a thorough understanding of the business; maximising the opportunity of the three month hand over period with Lord Harris, before he retired from the Board at the end of October; and completing a review of the Group's strategy and operations towards the end of the period.  The review confirmed my initial assessment of Carpetright as a fundamentally sound business with a strong operational base and high brand awareness, but also one that requires some updating and repositioning to capitalise fully on its market leadership position. 

The opportunity to revitalise Carpetright after a period of sustained economic turbulence is significant and the executive team is currently finalising a detailed strategic plan for implementation in 2015, based on the key areas of focus outlined below.  Central to this thinking is an opportunity to broaden the appeal of the brand by placing a greater emphasis on the unrivalled breadth and quality of our product range, the expertise of our colleagues, and the role floor coverings play in transforming our customers' homes, while retaining our well-established value heritage.  The key areas of focus are:

1.    Revitalise the Carpetright brand

2.    Unbeatable value

3.    Unrivalled choice of floor coverings

4.    Providing an outstanding customer experience

5.    Multi-channel convenience

6.    Managing the store portfolio

1.    Revitalise the Carpetright brand

As part of the strategic review we commissioned a market research survey to evaluate consumer perceptions of the Carpetright brand.  The research confirmed high brand awareness and a strong reputation for value within our core customer base but also identified a number of negative perceptions around the brand that are a deterrent to certain customer segments from shopping with us.  In particular, these potential customers felt that the brand was too value focused and preferred to shop elsewhere, particularly the independent sector, which they saw as more in tune with their aspirations and lifestyle.

Broadening the appeal of the brand, while retaining its traditional customer base, is at the heart of plans to revitalise the business.  Success in improving our brand perception will both increase the number of people who would consider shopping with Carpetright and drive our average transaction values and cash margins higher.  We are currently conducting a comprehensive review of our brand, sub brands, tone of voice and identity to deliver an updated brand positioning more suited to the contemporary retail market.

2.    Unbeatable Value

As the market leader in floor coverings, we have the strongest purchasing power, enabling us to pass on the best value deals to our customers.  Our renewed focus on market leading promotions stimulated demand and delivered sales growth during the period and we will continue with this successful approach.  However, we are also keeping discount levels under regular review, as an absolute focus on price may obscure some of the other important consumer messages we wish to emphasise.

In addition, we have recently completed a review of our value messaging.  Historically, Carpetright has not offered Interest Free Credit but the review identified a potential opportunity in this area and the decision was taken to run a twelve week trial in our Scottish region.  The trial proved to be successful in driving additional sales and margin, and we now plan to roll-out an Interest Free Credit offer across our UK store base from Boxing Day.  This new initiative will be supported by our well established "Price Promise", where we will match competitor deals on the same product, and our regular promotions and offers.

3.    Unrivalled choice of floor coverings

Carpetright offers the broadest range of carpets in the market, including premium and specialist lines, but our research suggests that this message could be better communicated to a wider group of potential customers.  To address this, we are at the early stages of repositioning our ranges and our sales approach.  Our objective is to move away from a simple functional carpet sale to a broader message which recognises our role in helping to transform our customers' homes.  We are therefore working on a revision of our ranges to ensure they are optimised across the price and quality spectrum.  Greater design input, with a focus on inspiring our customers, will be an enduring theme for the rest of the year.  We believe that by focussing our range and marketing messages on our unbeatable combination of quality, staff expertise, inspiration and value we can increase our average transaction value.

4.    Providing an outstanding customer experience

Customers' expectations of service standards have risen significantly over the last decade and, while the review identified a significant improvement in Carpetright's service performance in recent years, it also identified a need for greater consistency in this area.  In January 2015, we will be introducing a new web based Customer Service programme entitled "Do We Measure Up?" across the entire UK store network.   This important initiative will reinforce our commitment to meeting the needs and aspirations of our customers, driving service standards higher and helping to improve our online ratings.

We continued the programme of store refurbishments across the UK store estate, introducing our updated store design, in which it is easier for customers to shop.  A total of 290 stores have now been completed, representing 63% of the estate.

While the refurbishment programme undertaken over the last 36 months has addressed issues arising from a long period of under-investment, we believe there is further work that can be done to develop our stores and broadening the appeal of the brand.  As an initial step, in the second half of the year, we will be trialling a new High Street, sample only, premium product concept which is in the very early stages of development.

5.    Multi-channel convenience

Physical stores remain crucial in the flooring market, with customers wanting a sensory experience, where they are able to touch and view the product, prior to making a purchase.  In addition, stores represent a route to receiving specialist advice on what is a relatively infrequent purchase.  However, the internet has become a vital research tool for many customers and the rapid growth of smart phone and tablet use has made an effective and integrated multi-channel proposition a necessity.  With over 400 stores, we see the opportunity to leverage the accessibility of our estate, combined with the strength of our marketing voice and supported by an inspirational website, a key advantage when compared to the competition.

By the end of the first half, on a weekly basis we were achieving an average of over 92,000 unique visitors to our website, an 8% increase on the same period last year, and this has produced a corresponding increase in appointment leads and sample requests.  We have also continued to focus on improving our conversion to sales ratio, through a call centre and improved follow-up at store level.  Sales from this combination of the call centre and an online capability have grown significantly during the period and by October 2014 were the equivalent of one of our top ten stores.

We are continuing to invest in this area, with an updated and more inspirational website launching in Spring 2015, designed to drive more customers who have done their research online to our stores.

6.    Managing the store portfolio

At the end of October 2014 the Group had 463 stores trading in the UK, opening eight stores and closing 17 in the period.  This net reduction is primarily the result of completing the initial phase of the previously announced plan to eliminate store overlaps, where having more than one store in a town was not beneficial to profit or cash flow.  We will continue to take advantage of similar opportunities.  In addition, in the past six months we have negotiated exits from four locations where we had onerous leases, removing us from all future liabilities associated with those properties.

We continue to take a robust view at lease renewal, which provides an opportunity to secure lower rents for future years.  In the period we achieved an average rent reduction at lease renewal of over 10%.  Within the next five years 27% of the estate has a lease renewal scheduled, providing further opportunity to reduce the fixed store operating costs.  As at October 2014 the average length of lease had fallen to 7.7 years (H1 FY14: 8.7 years).

In the Rest of Europe we had 139 stores trading as at the end of October 2014, opening one and closing four in the period.  In line with the UK activity, discussions are being held with landlords in respect of lease renewals and this process is delivering rental reductions.  The potential to secure reductions is generally dictated by the average length of lease remaining, with this being 3.7 years in the Netherlands and 2.2 years in Belgium.  In the Republic of Ireland this period is 11.2 years, reflecting the agreement of long term deals during the expansion into this market in the period from 2001 to 2008.

Across the Group we continued to take opportunities to reduce our store size and we now have 98 stores operating as 'sample only', which delivers lower operating costs without negatively affecting customer choice.  Greater use of this smaller store format is allowing us to reduce fixed occupancy costs by either sub-letting or handing back space to the landlord, benefiting profitability.  We see further potential in this programme and are examining opportunities to accelerate our activity in this area.

Leadership Team

During my review, we identified a need to strengthen operational management in a number of key areas.  We are therefore pleased to confirm that Fiona Hilton will join the Group as Commercial Director on 5 January 2015. In this newly created senior executive role, Fiona will be responsible for Buying, Marketing and Digital Operations.  Fiona has extensive experience with a number of leading consumer businesses including Liz Earle, Wolseley, Boots and Kingfisher.  The Group also expects to announce a number of new appointments within its Creative and Visual Design functions as part of plans to revitalise our brand image and product offer.

Lord Harris of Peckham retired from the business on 31 October 2014 and we are looking to build on the strong legacy and culture developed in the business he founded over 26 years ago.  We were pleased to welcome Bob Ivell, who has extensive public company and consumer sector experience, to the Board as the Group's new Chairman with effect from 1 November 2014.

Dividend

The Board has decided not to pay an interim dividend (H1 FY14: nil).  In taking this decision, the Board considered that whilst there has been an improvement in profitability during the first half there remains a degree of uncertainty in the retail environment.  That said, whether to recommend a final dividend will be re-visited at the end of our financial year.

Summary and Outlook

The period since the onset of the financial crisis has been a difficult few years for Carpetright along with other European 'home-focused' retailers, as consumer spending declined significantly during the extended period of austerity.

It is therefore pleasing to report that the Group grew profits during the first half, with an encouraging increase in UK like-for-like sales, a return to profit in the Rest of Europe and a net cash position at the end of the period.  Our full year outcome is clearly dependent on our second half performance, and, while there remains significant uncertainty over consumer spending in the coming months, with a general election and a slowdown in housing transactions in the UK, and weakening economic conditions in Continental Europe, we remain confident the Group will continue to make progress during this time.

We believe that, with a well researched and well executed strategy, we can begin to reshape Carpetright to ensure the business better capitalises on its market leading position.  These changes will take time to take full effect but we are absolutely focused on maintaining the recent improvements in the performance of the Group, as well as devoting our energies to revitalising our brand and operations in line with contemporary customer expectations.  As a team we are excited by the potential that exists and are concentrating hard on execution of this new strategy as we enter 2015.

Wilf Walsh

Chief Executive

12 December 2014

Financial review

UK

Key financial results for the UK:

UK store portfolio:

In an improving, yet volatile, trading environment total revenue increased 5.0% in the first half to £194.2m. We opened eight and closed 17 stores during the period, which translated into net space decline of 55,000 sq ft, a decrease of 1.4%.  After taking into account the movement in the number of stores, like-for-like sales for the half year increased by 6.5%, with the first quarter increase of 6.1% followed by a marginally stronger second quarter, being an increase of 7.0%.

Gross profit increased by £3.3m to £119.9m, representing 61.7% of sales, a decrease of 140 basis points.  The decline in margin rate was a result of:

·    Implementing market beating promotions to drive footfall and top line sales volumes.

·    An increase in bed sales, which have a lower gross margin, resulting in an adverse mix impact.

The total UK cost base increased by 1.4% compared with the prior year to £112.6m.  Costs as a percentage of sales were 57.9%, which compared favourably to 60.1% in the prior year, reflecting the operational gearing of the business.  The movement in costs was a combination of:

·     An increase in store payroll costs reflecting commission payments associated with the stronger sales growth.

·     A reduction in occupancy costs from a reduction in the number of stores, offset by inflationary increases particularly in rates and utilities, along with higher depreciation from the modernisation programme.

The culmination of the above factors lead to underlying operating profit increasing by 32.7% to £7.3m.

Rest of Europe

Key financial results for the Rest of Europe

Rest of Europe store portfolio:

The flooring market in the Netherlands and Belgium remained weak over the course of the first half, impacted by government austerity measures restricting customers' disposable income and low consumer confidence.  That said, improvements in a number of recent economic indicators, such as rising housing transactions in the Netherlands, give grounds for cautious optimism for the future.  Recently, sales across our Rest of Europe business units have shown signs of improvement, with a reduction in the rate of decline in local currency terms from 3.6% in the first quarter to a 0.5% decline in the second quarter of the financial year.

Our Rest of Europe portfolio reduced by a net three stores during the first half, a result of exiting three poor performing sites and relocating one store in the Netherlands.  The estate is now trading from 139 stores.

In local currency terms, the three businesses combined to produce a total sales decline of 3.7%, with like-for-like sales decreasing by 3.3%.After exchange rate movements, total sales fell by 9.4% in reported currency

Gross profit percentage increased 270 basis points to 60.5% resulting principally from improved sourcing and operational disciplines curtailing local discounting.  The improvement in margin rate was sufficient to offset the impact of lower sales volumes resulting in an increase in gross profit of 0.8%.  However, after taking into account exchange rate movements this resulted in a decline of 5.1% in reported currency.

Operating costs in local currency reduced by 6.3%.  The majority of the savings were driven by the consolidation of our offices in Europe and a reduction in advertising spend.  This was reflected in the decline in the costs as a percentage of sales to 60.2%, a reduction on the prior year figure of 61.6%.  In reported currency, this was a reduction in costs of 11.4% to £20.3m.

The net result was an improvement in underlying operating profit of £1.5m to £0.1m, reversing the losses experienced in the first half of the prior year.

Group financial review

Net finance charges and taxation

Underlying net finance charges for the period were £0.4m lower at £0.7m (H1 FY14: £1.1m) primarily as a result of having lower levels of net debt in the period.

The taxation charge on profit for the half year was £1.5m (H1 FY14: £nil).  This is based on a full year effective tax rate of 22.9% (H1 FY14: 0.5%), which is close to the UK corporation tax rate of 21.0% as the net effects of non-deductible items, overseas tax rates and other permanent differences offset one another.  The increase on last year's rate is due to the effects of a one off credit recognised for deferred tax in the prior year.

Exceptional items

We continued to trade our property portfolio and generated a net profit of £0.1m on the disposal of properties in the UK, this was offset by a £0.1m loss on the disposal of property in our Rest of Europe business.  There were no other exceptional items in the period.  This compared to a £1.1m charge in the prior year, all relating to a net loss on disposal of properties.

At 26 April 2014 there were 22 vacant properties in the UK and three in the Republic of Ireland classed as onerous leases, against which we carried a provision.  During the first half, we successfully disposed of four of these, removing us from all associated future liabilities associated with these properties.  There were no additions during the half year.  The net impact of these disposals is not significant, resulting in no charge occurring in the financial statements.

Earnings per share

Basic earnings per share was 7.6 pence (H1 FY14: 2.8 pence).  Underlying earnings per share increased to 7.6 pence (H1 FY14: 3.2 pence).

Dividend

The Board has decided not to pay an interim dividend (H1 FY14: nil).

Balance sheet

The Group has net assets of £64.3m (Year end FY14: £61.1m) an increase of £3.2m since 26 April 2014.

Summary Balance sheet

The Group owns a significant property portfolio, most of which is used for retail purposes.  The carrying values are supported by a combination of value in use and independent valuations.

Net debt and cash flow

The Group has net cash at 25 October 2014 of £3.2m, an improvement of £14.3m from the year end FY14 net debt position of £11.1m.

This turnaround was driven by an improvement in the underlying operating profit performance, accompanied by the following other major movements:

·    A £2.7m increase in stock, associated with range changes and higher sales volume;

·    A cash outflow of £2.8m related to previously made provisions;

·    Contributions to closed defined benefit pension schemes of £0.5m; and

·    A decrease in working capital of £9.2m, a consequence of a favourable movement in trade creditors aligned to increasing sales volumes and supplier mix.

The resulting net inflow of cash generated by operations of £17.9m (H1 FY14: £1.1m) was offset by net capital expenditure, corporation tax refunds and interest outflows totalling £3.8m (H1 FY14: £5.3m).

The Group's average cost of funding was 5.4% (H1 FY14: 6.5%) with an average net debt of £10.8m (H1 FY14:  £19.1m).

Summary cash flow

Gross capital expenditure was £4.6m (H1 FY14: £4.6m), with the majority of this spend relating to the store refurbishment programme.  After allowing for proceeds from property disposals, net capital expenditure was £3.4m (H1 FY14: £4.2m). 

Current liquidity

At the half year the Group held cash balances of £8.3m (H1 FY14: £6.0m), principally a combination of Sterling and Euros.

Gross bank borrowings (excluding unamortised fees) at the balance sheet date were £2.9m (H1 FY14: £18.2m) of which £0.5m was term based, with the balance of £2.4m being drawn down from overdraft facilities .  The Group had further undrawn facilities of £58.7m at the balance sheet date.  In October 2014 the Group secured an extension to the maturity date of its principal banking facilities through to July 2016, extended from July 2015, with terms and covenants relating to the facilities unchanged.  This extension is in anticipation of completing a full refinancing of the Group's borrowing facilities in 2015.  The facilities contain financial covenants which are believed to be appropriate in the current economic climate, against which the Group monitors actual and prospective compliance.  The Group has sufficient headroom to enable it to comply with the covenants on its existing borrowings.

Pensions

At 25 October 2014 the IAS 19 net retirement benefit deficit was £3.3m (26 April 2014: £3.3m).  The half year discount rate was 3.9% (26 April 2014: 4.2%), reflecting prevailing corporate bond rates.  The higher market value of plan assets and additional Company contributions were entirely offset by increases in the value of scheme liabilities, leading to no net change in the calculation of the net pension liability for accounting purposes at 25 October 2014.  As previously announced, the Company scheme was closed to future accrual with effect from 1 May 2010.

The Company agreed a recovery plan with the Trustees in 2012 and this will be reviewed following the completion a triennial valuation, which is being performed with a valuation date of 5 April 2014.

Neil Page

Group Finance Director

12 December 2014

Condensed consolidated income statement

for 26 weeks ended 25 October 2014

All material items in the income statement arise from continuing operations.

Condensed consolidated statement of comprehensive income

for 26 weeks ended 25 October 2014

The notes on pages 20 to 25 form an integral part of this consolidated interim financial information.

Condensed consolidated statement of changes in equity

for 26 weeks ended 25 October 2014

The notes on pages 20 to 25 form an integral part of this consolidated interim financial information.

Condensed consolidated balance sheet

as at 25 October 2014

The notes on pages 20 to 25 form an integral part of this consolidated interim financial information.

Condensed consolidated statement of cash flows

for 26 weeks ended 25 October 2014

For the purposes of the cash flow statement, cash and cash equivalents are reported net of overdrafts repayable on demand.  Overdrafts are excluded from the definition of cash and cash equivalents disclosed in the balance sheet.

The notes on pages 20 to 25 form an integral part of this consolidated interim financial information.

Notes to the financial statements

1.  General information

This unaudited condensed consolidated half-yearly information was approved for issue on 12 December 2014 .

This interim report does not comprise statutory financial statements within the meaning of Section 434(3) of the Companies Act 2006.  It has been reviewed but not audited by the Group's auditors. The unaudited condensed consolidated half-yearly financial information comprises the results for the 26 weeks ended 25 October 2014 and the 26 weeks ended 26 October 2013, and the audited consolidated results for the 52 weeks ended 26 April 2014. The audited information for the 52 weeks ended 26 April 2014 have been extracted from Carpetright plc's Annual Report and Financial Statements, which were approved by the Board of Directors on 23 June 2014 and delivered to the Registrar of Companies.  The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2.  Basis of preparation

The unaudited interim financial report for the 26 weeks ended 25 October 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.  It should be read in conjunction with the annual financial statements for the 52 weeks ended 26 April 2014, which have been prepared in accordance with IFRSs as adopted by the European Union.

The Directors, after reviewing the Group's operating budgets, forecasts and financing arrangement, consider that the Group has, at the date of this report, sufficient financing available for the estimated requirements for the foreseeable future.  Accordingly, the Directors are satisfied that it is appropriate for these financial statements to be prepared on a going concern basis.

Financial assets and liabilities and foreign operations are translated at the following rates of exchange:

3.  Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the 52 weeks ended 26 April 2014, as described in those annual financial statements except  where set out below:

There are no new standards, amendments to existing standards or interpretations that are effective for the first time in the financial year beginning on 27 April 2014 that would be expected to have a material impact on the Group's result.

Taxes on income for interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The financial statements for the year end April 2014 included a restatement in the prior period to reflect the reclassification of contractual rent uplifts from trade and other payables within current liabilities to non-current liabilities.  At the half year, the October 2013 balance sheet has been restated to reflect a reclassification of £8.3m from trade and other payables within current liabilities to non-current liabilities.

4.  Segmental analysis

The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. 

The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds.  Central costs are incurred principally in the UK.  As such these costs are included within the UK segment.  Sales between segments are carried out at arm's length.

The segment information provided to the Board for the reportable segments for the 26 weeks ended 25 October 2014 is as follows:

Carpetright plc is domiciled in the UK.  The Group's revenue from external customers in the UK is £ 194.2 m (H1 FY14: £185.0m) and the total revenue from external customers from other countries is £ 33.7m (H1 FY14: £37.2m).  The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is £ 150.4m (H1 FY14: £152.1m) and the total of those located in other countries is £ 71.2m (H1 FY14: £81.1m).

Carpetright's trade has historically shown no distinct pattern of seasonality with trade cycles more closely following economic indicators such as consumer confidence and mortgage approvals.

5.  Exceptional items

We continued to trade our property portfolio and generated a net profit of £0.1m on the disposal of properties in the UK, this was offset by a £0.1m loss on the disposal of property in our Rest of Europe business.  There were no other exceptional items in the period.  This compared to a £1.1m charge in the prior year, all relating a net loss on disposal of properties.

In accordance with IAS 36 assets are reviewed for impairment whenever changes in circumstances indicate that the carrying value may not be recoverable.  No impairments were recognised in the 26 weeks to 25 October 2014 and the prior half year.

6.  Finance costs

7.  Income Tax

The Income tax expense is recognised based on management's best estimate of the full year weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period.

The taxation charge on profit for the half year was £1.5m (H1 FY14: £nil).  This is based on a full year effective tax rate of 22.9% (H1 FY14: 0.5%), which is close to the UK corporation tax rate of 21.0% as the net effects of non-deductible items, overseas tax rates and other permanent differences offset one another. 

The full year FY14 effective tax rate was a credit of 52.0% arising from a combination of the impact of a fall in the UK statutory tax rate and losses incurred overseas, generating a tax credit during the year.

8.  Earnings per share

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held by the Group's LTIP Trust which are treated as cancelled.

In order to compute diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares.  Those share options granted to employees and Executive Directors where the exercise price is less than the average market price of the Company's ordinary shares during the period, represent potentially dilutive ordinary shares.

The Directors have presented an additional measure of earnings per share based on underlying earnings.  This is in accordance with the practice adopted by most major retailers.  Underlying earnings is defined as profit excluding exceptional items and related tax.

9.  Financial instruments

The condensed interim financial statements do not include all the financial risks management information and disclosures required in the annual financial statements, this should be read in conjunction with the Group's annual financial statements as at 26 April 2014.  There have been no changes in the risk management since the year end.

The Group has no financial assets or liabilities that are measured at fair value. 

Borrowings are measured at amortised costs, and the Directors are of the opinion that the carrying value of the borrowings are approximate to their fair value. The carrying amount of all other financial assets and liabilities approximate their fair value.

10.  Movement in cash and net debt

11 Provisions

12.  Dividends

No dividends were paid or proposed in the 26 weeks to 25 October 2014 or in the 26 weeks to 26 October 2013.

13.  Capital expenditure

During the period, additions were £ 1.0 m (H1 FY14: £0.1m) on intangible assets and £3.6m (H1 FY14: £5.4m) on the acquisition and fit out of stores. Net proceeds from the sale of assets during the period are £ 1.2 m (H1 FY14: £0.4m).

Capital commitments contracted but not provided for at the end of the period are £0.2m (H1 FY14: £2.1m) principally for store fit outs.

14.  Retirement benefit obligation

The key assumptions used, determined in conjunction with independent qualified actuaries, are:

The mortality rates assumptions are taken from the S1NXA with medium cohort improvements, at a minimum of 1% pa.

The amount of the deficit varies if the main financial assumptions change, particularly the discount rate.  If the discount rate increased/decreased by 0.1% the IAS 19 deficit would decrease/increase by approximately £ 0.4 m.

15.  Related party transactions

The group related parties are companies of which Lord Harris and/or M J Harris is a director and/or in which Lord Harris and/or M J Harris holds a material interest are set out below:

As at 25 October 2014 the Group owed related parties £ nil (H1 FY14: £nil).

16.  Events after the reporting period

There have been no events after the reporting period that require further disclosure or have a material impact on the interim financial statements.

Principal risks and uncertainties

The Group operates a structured risk management process which identifies and evaluates risks and uncertainties and reviews mitigating activity.

The Board considers that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining 26 weeks of the financial year remain the same as those stated on pages 15 to 16 of the 2014 Annual Report and Accounts, which are available on our websitewww.carpetright.plc.uk.

Forward looking statements

Certain statements in this half year report are forward looking.  Although the Group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.  Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.  We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Statement of Directors' responsibilities

The Directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      Material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report

The Directors of Carpetright plc are listed in the Carpetright plc Annual Report for 26 April 2014, with the exception of Wilf Walsh who was appointed to the Board as the Chief Executive Officer on 21 July 2014 and Robert Ivell who joined the Board as its Chairman on 1 November 2014, following Lord Harris stepping down from the Board on 31 October 2014. Martin Harris, Baroness Noakes and Alan Dickinson all stepped down from the Board on the 4 September 2014.

The Directors of Carpetright plc are listed on the Group's corporate websitewww.carpetright.plc.uk.

Independent review report to Carpetright plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed the condensed consolidated interim financial statements, defined below, in the half-yearly financial report of Carpetright Plc for the 26 week period ended 25 October 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed consolidated interim financial statements, which are prepared by Carpetright plc, comprise:

·      the Condensed consolidated balance sheet as at 25 October 2014;

·      the Condensed consolidated income statement and Condensed consolidated statement of comprehensive income for the period then ended;

·      the Condensed consolidated statement of changes in equity for the period then ended;

·      the Condensed consolidated statement of cash flows for the period then ended; and

·      the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Responsibilities for the condensed interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly financial report, including the condensed consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

12 December 2014

1 Embankment Place, London, WC2N 6RH

Notes:

a.          The maintenance and integrity of the Carpetright plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b.          Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.