Carpetright : FY19-Interim-results

Carpetright plc

Interims Results Announcement for the 26 weeks ended 27 October 2018

"RESTRUCTURING PROGRAMME ON SCHEDULE AND IN LINE WITH MANAGEMENT EXPECTATIONS"

Strategic progress

•  In a transitional year, on track to deliver £19m annualised cash savings:

  • o Legacy property issues being addressed with 65 underperforming UK stores closed in the period

  • o Implementation of restructuring activity reducing the Group's overhead costs

•  In the UK, average store lease length has been reduced to 3.5 years, with 52% having an option to break within two years, providing further flexibility to reduce store size and/or relocate in a fast changing retail environment

•  Refurbished stores continue to outperform the uninvested estate

•  Strengthened product ranges across all categories, particularly hard flooring with launch of own brand laminate and luxury vinyl tile ranges

•  Further investment in digital technology to improve both the online and in-store experience with planned implementation in Spring 2019

Financial Headlines

Group

•  Group revenue decreased 15.7% to £191.1m (H1 FY18: £226.6m)

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Underlying EBITDA loss of £1.7m (H1 FY18: profit of £8.6m) Statutory loss before tax of £11.7m (H1 FY18: loss of £0.6m)

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Period end net debt of £12.4m (Year end 28 April 2018: net debt of £53.0m) reflecting:

• o Proceeds received from June's equity issue

• o Tight management of working capital and capital expenditure

• o Implementation of restructuring activity

• o Headroom in bank facilities of £58.8m

UK

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Like-for-like sales declined 12.7% over the half but with a marked sequential improvement, with the second quarter down 8.9%, this followed a 16.8% fall in the first quarter which reflected the challenges around stock availability, negative sentiment associated with the restructuring process and weak consumer demand Underlying EBITDA loss of £2.1m (H1 FY18: profit of £8.4m)

Rest of Europe

•  Following management changes, like-for-like sales increased by 0.5% (H1 FY18: growth of 6.5%) - a significant improvement from the decline experienced in the second half of the previous financial year

•  Underlying EBITDA of £0.4m (H1 FY18: £0.2m)

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

"This is a transitional year for Carpetright as we work through our restructuring plan. We remain on schedule and are confident that this activity is already starting to yield benefits. This is the first stage in returning the Group to sustainable long term profitability."

Group financial summary

H1 FY19	H1 FY18 (note 7)
£m	£m	Change
BUSINESS PERFORMANCE
Group revenue	191.1	226.6	(15.7%)
 UK	149.6	184.6	(19.0%)
 Rest of Europe	41.5	42.0	(1.2%)
Underlying EBITDA	(1.7)	8.6	(119.8%)
 UK	(2.1)	8.4	(125.0%)
 Rest of Europe	0.4	0.2	100.0%
Underlying (loss)/profit before tax	(12.4)	1.2
Underlying (loss)/earnings per share	(5.0p)	0.7p
Net debt	(12.4)	(22.8)
STATUTORY REPORTING
Separately reported items	0.7	(1.8)
Loss before tax	(11.7)	(0.6)
Basic loss per share	(4.8p)	(1.8p)
Notes

• 1. Revenue represents amounts payable by customers for goods and services after deducting VAT and other charges.

• 2. 'Underlying' excludes separately reported items and related tax.

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

• 4. Sales represents amounts payable by customers for goods and services before deducting VAT and other charges.

• 5. Like-for-like sales are defined as those stores which categorised within the CVA process as 'A' and 'B' and those stores outside the CVA process (e.g. freeholds) that have been trading continuously during the period and for a full 12 months at the start of the current financial year.

• 6. Comparative period is the 26-week period ended 28 October 2017.

• 7. The Group adopted IFRS 15 - "Revenue from Contracts with Customers" from 29 April 2018. The accounting standard has been retrospectively applied resulting in restatements to prior year comparatives. Under the new standard, the point at which revenue is recognised has changed and due to IFRS 15's definition of 'transfer of control', revenue will be deferred and recognised at a later date

  than previously recorded under IAS 18. Underlying profit before tax for H1 2018 has decreased by £0.9m, from a profit of £2.1m to £1.2m. This revenue has been subsequently recognised in the second half of FY 2018, with the overall full year impact on the income statement being a £0.3m reduction in the underlying loss before tax from £8.7m to £8.4m. This deferral of revenue also impacts the previous period and therefore the period on period impact is not considered to be material.

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. The Group undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Results presentation

Carpetright plc will hold a presentation to analysts at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M 5SY at 09:00 today.

A copy of this statement and the presentation will be made available on our websitewww.carpetright.plc.uk

For further enquiries please contact:

Carpetright plc

Wilf Walsh, Chief Executive Officer Neil Page, Chief Financial Officer Tel: [phone]

Citigate Dewe Rogerson Kevin Smith / Nick Hayns Tel: [phone]

Notes to Editors

Carpetright plc is Europe's leading specialist floor coverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising The Netherlands, Belgium and the Republic of Ireland).

Chief Executive's Review

The restructuring activity undertaken during the period is addressing the fundamental financial challenge facing the Group - legacy property costs which had become an increasingly unsupportable burden over recent years.

This process is necessary to resolve the significant historical UK property issues and to improve liquidity. I would like to thank shareholders, lending banks, landlords, suppliers and colleagues for the support they have given to the Group during this difficult period.

The results for the first half reflect a challenging six months. Having secured the necessary creditor approvals and financing, the implementation phase of the restructuring process commenced in earnest during the second quarter. While these measures inevitably impacted on our financial performance in the period, I am pleased to say that our plans to realise £19m of annualised savings are on schedule.

This is the first stage in returning the Group to sustainable long term profitability.

UK

The restructuring activity was concentrated on our UK store estate, against a backdrop of turmoil across the UK retail sector. It would be wrong to blame the media for reporting the facts that we issued two profit warnings and implemented a Company Voluntary Arrangement ("CVA"). However, we must recognise that negative headlines did impact on both our colleagues' and customers' confidence in our brand. Unlike other retailers going through a similar process, you don't generally pick a product up from the shelves in our stores - we ask customers to leave a deposit ahead of delivery and this clearly became a significant issue for some during this period. This uncertainty can be seen in our UK performance with like-for-like sales being down 16.8% in the first quarter. The rate of decline reduced to 8.9% in quarter two as the negative brand impact reduced and we increased our

investment in advertising with a clear message, "carpetright.for life" - brand perception has improved since the campaign launch and we remain the clear market leader.

In terms of our legacy property portfolio, of the 81 trading stores designated as Category C within the CVA, we closed 54 in the period, with a further two stores expected to close in the second half. The balance of 25 stores are anticipated to continue to trade on nil rent as these landlords have opted to let us to continue to pay the business rates, while avoiding an empty unit on their retail park (these stores remain under a 60-day notice period). In addition, a further eleven Category B stores have closed where the landlord has exercised an option to take back the lease, with an expectation of a further nine closures in the second half. Over 52% of our UK stores now have an option to break within two years, providing further flexibility to downsize and/or relocate in a fast changing retail environment.

The store closure programme has been extensive along with, regrettably, a number of redundancies in both stores and our head office as we rebase the business in line with the reduced store estate.

During the period we continued to focus on developing our authority in the hard flooring category. We have launched our own brand "Tegola" ranges in both laminate and luxury vinyl tiles, alongside extended zones to display a wider range in the category. The initial results are encouraging and we aim to expand this activity in the second half.

Margins were under pressure during the period, with reduced footfall and an increasingly competitive market place. This led us to increase in the size of promotional discounts as we sought to maintain sales volumes. This reduction in the margin rate was in line with our guidance for the period given in June 2018.

As previously announced, a withdrawal of credit insurance by certain providers caused us some stock problems early in the period. However, I am pleased to report that our maintained position as market leader is now ensuringwe are moving closer to the terms we enjoyed with the majority of our suppliers prior to the implementation of the CVA.

We have continued to invest in digital technology to improve both the online and in-store experience. I am excited about the transformational effect this will have on sales and service. This project will go live in Spring 2019.

We have paused the store refurbishment programme temporarily, while we achieve clarity on the shape of our UK store portfolio. The introduction of our new branding and contemporary store fit, creating a modern shopping environment for our customers, remains central to the recovery plan. The strategic sense of this investment is evident in the store sales figures, with refurbished stores outperforming the uninvested estate. As at the period end date, we have 188 stores trading under the new brand. We intend to re-start the refurbishment activity in the second half.

Rest of Europe

Under new leadership, our European business delivered like-for-like sales growth of 0.5% in the first half driven by the larger Netherlands business. Improved promotional planning and stronger retail discipline have been established and, consistent with the experience of the UK, refurbished stores are performing ahead of the rest of the estate. We are confident that activity is now in place to improve profitability.

Outlook

This is a transitional year for Carpetright as we work through our restructuring plan. We remain on schedule and are confident that this activity is already starting to yield benefits as we exit a historically underinvested, poorly sited and over rented property portfolio and tackle competition threats across the estate, while growing our digital capability.

In the near term, the strength of consumer spending and confidence, along with the uncertainty relating to the

UK's exit from the European Union, remain concerns for any retail business. However, we believe that as market leader, and having taken decisive action to reduce our cost base significantly, we are structurally best placed in the floorcoverings sector to deal with the challenges these headwinds might present and return the business to sustainable long term profitability.

We are Carpetright.

Wilf Walsh

Chief Executive Officer 11 December 2018