Annual report and accounts 2010
Europe’s leading floor coverings retailer
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Harris House
Purfleet Bypass
Purfleet, Essex RM19 1TT
Telephone +44 (0)1708 802000
www.carpetright.co.uk
www.carpetright.plc.uk
Carpetright plc is Europe’s leading
specialist floor coverings retailer.
Since the first store was opened
in 1988 the business has followed
a controlled store expansion
programme developing both
organically and, in recent years,
through acquisition within the
UK and other European countries.
The Group trades from 703 stores
across Europe and employs
approximately 4,000 staff. The Group
is organised into two geographical
regions, the UK & RoI (comprising
the UK and the Republic of Ireland)
and the Rest of Europe (comprising
The Netherlands and Belgium).
Overview
Financial highlights
Business overview
Chairman’s statement
Directors’ report: Business review
Principal activities
1
2
4
5
Business objective and strategies 5
Operational and financial review
Group financial review
Key performance indicators
Principal risks and uncertainties
Employees
Corporate social responsibility
Directors’ report: Governance
Board of Directors
Corporate governance
Audit Committee report
Directors’ remuneration report
Other information
Statement of
Directors’ responsibilities
Financial statements
Financial statements
Notes to the accounts
Group five year
financial summary
Independent auditors’ report
Calendar
Advisers
6
9
10
11
12
13
15
16
19
20
25
27
29
33
66
67
68
68
www.carpetright.plc.uk
1
Overview
Financial highlights
Revenue
Underlying profit before tax
Profit before tax
Underlying earnings per share
Basic earnings per share
Dividend per share
52 weeks ending
1 May 2010
52 weeks ending
2 May 2009
£516.6m
£28.2m
£22.3m
31.6p
23.5p
16.0p
£482.8m
£17.2m
£16.7m
18.2p
17.6p
8.0p
Change
7.0%
64.0%
33.5%
73.6%
33.5%
100.0%
Where this review makes reference to ‘Underlying’ these relate to profit/earnings before exceptional items.
Revenue (£m)
Underlying profit before tax (£m)
Profit before tax (£m)
600
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2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Underlying earnings per share (p)
Basic earnings per share (p)
Dividend per share (p)
70
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6
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5
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2007
2008
2009
2010
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2009
2010
2006
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2008
2009
2010
www.carpetright.plc.uk
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Business overview
Strong market positions and geographic regions
Store portfolio at 1 May 2010
UK & RoI
Standalone
Concessions
Total
Rest of Europe
The Netherlands
Belgium
Total
Group total
Sites
537
49
586
89
28
117
703
Sq ft
4,689
119
4,808
1,063
335
1,398
6,206
Close to
4,000
People
4
Countries
703
Sites
RoI
25
Stores
Carpetright plc Annual report and accounts 2010
Netherlands
89
Stores
UK
561
Stores
Belgium
28
Stores
3
Regional performance
UK & RoI
Revenue
Underlying operating profi t
Trading space sq ft ’000
Rest of Europe1
Revenue
Underlying operating profi t
Trading space sq ft ’000
1. Th e Netherlands and Belgium only.
52 weeks ending
1 May 2010
£425.2m
£26.2m
4,808
52 weeks ending
2 May 2009
£394.1m
£15.6m
4,632
£89.2m
£9.6m
1,398
£85.7m
£8.7m
1,400
Revenue contribution: Group %
Profi t contribution: Group %
17.3%
26.8%
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82.7%
73.2%
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Store portfolio: Regional % (sites)
Store portfolio: Regional % (sq ft)
16.6%
22.5%
83.4%
77.5%
UK & RoI
Rest of Europe
www.carpetright.plc.uk
4
Chairman’s statement
Lord Harris of Peckham
Chairman and Chief Executive
Significant recovery
in profitability
Carpetright plc Annual report and accounts 2010
In a challenging year, I am pleased to report that Carpetright has
delivered an improved performance. The Group has grown sales and
commenced the development of new revenue streams in the house
building and insurance sectors, helping to deliver a significant
recovery in profitability over the depressed level reported in
the prior year.
Total revenue for the 52 weeks ended 1 May 2010 increased by 7.0%
to £516.6m. Underlying profit before tax increased by 64.0% to £28.2m.
After the impact of exceptional items, reported profit before tax
increased to £22.3m. Underlying earnings per share have risen
by 73.6% to 31.6p and basic earnings per share increased to 23.5p.
Our focus on debt reduction has delivered results, with strong free
cash flow of £32.0m, reducing net debt by £25.8m to £71.3m.
This solid performance has led the Board to recommend a final
dividend of 8.0p per share. Having previously paid an interim
dividend of 8.0p per share the total dividend for the period will
therefore be 16.0p per share, an increase of 100% on the previous year.
These results have been delivered through a period of economic
recession, with fears of unemployment and tax increases adversely
affecting consumer confidence. Throughout the period we continued
to manage the business by exerting tight control over all costs, capital
expenditure, stock and cash flow.
Our businesses in the UK and Republic of Ireland have returned
to growth, with underlying operating profits up 67.9% to £26.2m,
although I recognise this is only the start of a journey to return
to previous levels of profitability. In Europe, our businesses in The
Netherlands and Belgium have continued to grow with underlying
operating profits up 10.3% to a record level of £9.6m. During the year
we took the decision to withdraw from trading in Poland. Since its
launch four years ago, the business had failed to establish sufficient
trading momentum and critical mass, and the resulting performance
had been disappointing. This exit was completed by the year end.
I would like to thank all our employees for their continued
commitment, contribution and loyalty throughout the year.
It is people who make retail businesses and I believe we have a
fantastic team of loyal, hard working staff at Carpetright. It is this
team which has collectively been responsible for the progress the
Group has made and I look forward to working with them in
the year ahead.
Geoff Brady is leaving the Board on 31 August 2010 after three years.
I would like to thank him for his contribution over that period.
Although we are planning for consumer demand across Europe
to remain subdued, we have market leading positions in all our
geographical areas with strong value led retail brands. I believe this
enables us to look confidently to the future as and when the economic
conditions improve.
Lord Harris of Peckham
Chairman and Chief Executive
Directors’ report: Business review
5
The Directors present their Annual Report to the shareholders together with the
audited financial statements for the financial year ended 1 May 2010. This report,
together with the Chairman’s Statement describe the results and activity for the
period, future plans, trends and factors affecting the development, position
and performance of the business.
Principal activities
Carpetright plc is Europe’s leading specialist floor
covering retailer, selling a wide range of carpets,
rugs, vinyls and laminates together with associated
accessories. In addition, the product offering was
extended to selling beds in the UK following the
acquisition of Sleepright in December 2008.
The Group trades from 703 stores organised
and managed in two geographical segments.
These are the ‘UK & RoI’ (comprising the UK and
the Republic of Ireland) and the ‘Rest of Europe’
(comprising The Netherlands and Belgium).
Business objective and strategies
The primary financial objective of the Group is to
deliver long-term sustainable growth in earnings per
share and cash flow. We aim to achieve this through
the following strategies:
Primary focus on floor coverings
Ensuring we continually improve and develop our product ranges
to provide consumers with a market leading product choice which
offers great value, backed up by excellent customer service.
Develop a competitive bed proposition
To grow the sales of beds and associated products, following
the same principles of choice, value and service.
Manage our store portfolio
To grow our store base into local markets where we are not
represented and to continually exploit opportunities which deliver
better overall profitability.
Expansion into European countries
To identify and pursue opportunities to grow Group profitability
by extending the brand strengths across Europe.
Reaching more customers through additional channels
To extend the reach of Carpetright’s brand by growing sales through
the insurance replacement market, becoming the preferred supplier
of floor covering for new homes and developing our online business.
We aim to act responsibly towards all our
stakeholders, including customers, suppliers,
employees and the communities in which we
operate. Our annual Corporate Responsibility
Report is available at www.carpetright.plc.uk
with a summary of our approach on pages 13
and 14 of this report.
www.carpetright.plc.uk
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6
Operational and financial review
Financial highlights
A summary of the reported financial results for the year ended
1 May 2010 is set out below:
Revenue
Underlying* operating
profit
Net finance charges
Underlying* profit before tax
Exceptional items
Profit before tax
Earnings per share (pence)
underlying*
basic
Dividends per share (pence)
Net debt
2010
£m
516.6
34.1
(5.9)
28.2
(5.9)
22.3
31.6
23.5
16.0
(71.3)
2009
£m
482.8
22.8
(5.6)
17.2
(0.5)
16.7
18.2
17.6
8.0
(97.1)
Change
7.0%
49.6%
(5.4)%
64.0%
33.5%
73.6%
33.5%
100.0%
£25.8m
*
Where this review makes reference to ‘Underlying’ these relate to profit/earnings
before exceptional items.
Overview
Total sales increased by 7.0% to £516.6m, with all continuing
businesses showing growth. During the year, the Group opened
53 stores and closed 45 which gave a net increase of eight stores
and a total store base of 703. The total store space grew by 0.8%
to 6.2 million square feet.
The return to sales growth of the UK & Republic of Ireland business
was the key driver for the improvement in underlying operating profit
to £34.1m, an increase of 49.6% on the last year. Net finance charges
were £0.3m higher at £5.9m, reflecting the full year impact of the
refinancing arrangements completed in April 2009. These combined
to generate an underlying profit before tax of £28.2m, an increase
of 64.0% on the prior year.
Exceptional charges totalled £5.9m (2009: £0.5m) and were principally
a combination of the cost of exiting the Polish market and non-cash
store impairment charges.
As a result, profit before tax increased by 33.5% to £22.3m.
Basic earnings per share increased by 33.5% to 23.5p reflecting
the increase in post tax earnings.
Performance by business
For year to 1 May 2010
Revenue
UK & RoI
The Netherlands and Belgium
Revenue excluding Poland
Poland
Total revenue
Underlying operating profit2
UK & RoI
The Netherlands and Belgium
Underlying profit excluding Poland
Poland
Total underlying operating profit
Underlying operating profit %
UK & RoI
The Netherlands and Belgium
Operating profit excluding Poland
Poland
Total underlying operating profit
Total
£m
425.2
89.2
514.4
2.2
516.6
26.2
9.6
35.8
(1.7)
34.1
6.2%
10.8%
7.0%
(77.3%)
6.6%
Year-on-year growth
Reported
Local currency
Like-for-like1
3.1%
(1.0%)
7.9%
(1.7%)
(23.0%)
67.9%
4.9%
(14.7%)
7.9%
4.1%
7.2%
(26.7%)
7.0%
67.9%
10.3%
49.7%
(13.3%)
49.6%
+2.2pp
+0.6pp
+1.9pp
n/a
+1.9pp
1. Like-for-like sales growth – calculated as this year’s net sales divided by last year’s net sales for all stores that are at least 12 months old at the beginning of our financial year. Stores closed
during the year are excluded from both years. No account is taken of changes to store size or the introduction of third party concessions. Sales from insurance and house building
contracts are supplied through the stores and included in their figures.
2. Underlying operating profits – operating profit, excluding exceptional items.
Carpetright plc Annual report and accounts 2010
Key financial results
Revenue
Like-for-like sales
Gross profit
Gross profit %
Underlying operating profit
Underlying operating profit %
UK & RoI portfolio
Standalone
Concessions
Total
7
UK & Republic of Ireland performance review
2010
£m
425.2
3.1%
263.7
62.0%
26.2
6.2%
2009
£m
394.1
(13.5%)
244.6
62.1%
15.6
4.0%
Change
7.9%
7.8%
(0.1pp)
67.9%
2.2pp
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Store numbers
Sq ft (’000)
2 May
2009
510
57
567
Openings
Closures
36
15
51
(9)
(23)
(32)
1 May
2010
537
49
586
2 May
2009
4,516
116
4,632
1 May
2010
4,689
119
4,808
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In the UK & RoI, total revenue increased year-on-year by 7.9% to
£425.2m. The inclusion of Sleepright for its first full year contributed
2.0% of this increase. We have opened 51 new stores adding 328k sq ft
of selling space during the year. Including the impact of 32 closures,
this translated into net space growth of 176k sq ft, an increase of
3.8% since the start of the year.
The year saw a return to positive sales growth in the first quarter which
accelerated to double digit growth in the period up to December 2009.
Sales since January were more subdued, resulting in a full year
like-for-like performance of +3.1%. This growth reflects an underlying
recovery in mortgage approval figures and the impact of the contraction
of a competitor in the UK, Allied Carpets, in the period since July 2009.
The increase in UK sales has been predominantly carpet, where the
proportion of cut length business has increased relative to the ‘pay and
take’ roll stock. The vinyl business has also grown. Sales of laminate/
wood categories have continued to decline, which we believe is a
reflection of the growing customer appreciation of the benefits
of vinyl and a trend back to carpet.
The fragile state of the economy in the Republic of Ireland inevitably
impacted our business there. We remain committed to continuing to trade
in this geographic market and, in the light of the prevailing economic
conditions, have reduced our prices with the aim of increasing volumes.
We believe much of Carpetright’s success is attributed to our focus on
offering the widest range of carpet at the keenest prices. This view was
supported during the year by externally conducted market research
which indicated both strong recognition of the Carpetright brand
and a strong association with being the ‘first choice’ for fitted carpet.
This research has also provided insight into areas for development.
As an example of activity being undertaken, we have independently
assessed 536 independent fitters within the last year to ensure they
are appropriately qualified to carry out their role on our behalf.
In the Autumn of 2009 we re-launched our websites. These offer the
consumer the ability to order samples, book a consultation appointment
and order products on-line. The sites are generating over 40,000 unique
visitors each week, which represents a powerful method of accessing
and converting potential customers.
The development and integration of the Sleepright bedding business
continued throughout the year. The focus has been on the product,
promotional offers and reducing delivery times. The introduction
of beds to our offer presents an opportunity to capitalise on the
accessibility of our store locations and grow sales per square foot.
We have continued to focus on gaining additional sales through
the insurance replacement business. This has proved successful,
with contracts secured from three of the largest domestic insurance
providers in the country. These contracts commenced during the year
and, after positive feedback about the quality of our products and
service, the volume of business through this channel, although still
small relative to the Group’s total revenue, continues to grow.
During the year significant activity was devoted to developing an
appropriate offer for the house builder market. This is for both the
‘contract’ side, where floor coverings are laid in communal areas, and by
introducing a ‘voucher’ offer for individuals to select products for their
own new home. Although the sales to date have been minimal due to
the longer lead time in the development of new homes, we believe we
have the foundations to grow this significantly in the coming year.
Gross profit increased by 7.8% to £263.7m, representing a gross profit
margin of 62.0% (2009: 62.1%). The introduction and development
of beds into the product mix accounted for a 0.7 percentage point
decline, as this part of the business operates on a lower gross margin than
floor coverings. The growth of the insurance business also had a dilutive
effect of 0.4 percentage points. This was offset by an improvement in the
underlying floor covering margin of one percentage point, achieved
www.carpetright.plc.uk
8
Operational and financial review continued
through a combination of management of promotions, negotiation with
suppliers and increased productivity in the Purfleet cutting facility.
The total UK & RoI cost base increased by 3.7% compared to last year
to £237.5m. This included the impact of the first full year of Sleepright,
which accounted for 1.4% of the growth. In like-for-like stores, the
overall costs were level with the prior year. Store payroll costs continue
to be managed closely to the volume of sales, rent in like-for-like stores
increased by a modest 2.2% reflecting a weakening of the property
market in the current economic climate and we continued to increase
our advertising spend which was up £1.1m to £11.4m, as we believe
it continues to drive consumers to our stores.
Underlying operating profit increased by 67.9% to £26.2m.
The Netherlands and Belgium performance review
Key financial results
Revenue
Like-for-like sales
Gross profit
Gross profit %
Underlying operating profit
Underlying operating profit %
2010
£m
89.2
(1.0%)
51.6
57.8%
9.6
10.8%
2009
£m
85.7
2.7%
49.5
57.8%
8.7
10.2%
Change
(Reported)
4.1%
4.2%
Level
10.3%
0.6pp
Change
(Constant Currency)
(1.7%)
(1.5%)
4.9%
0.6pp
In The Netherlands and Belgium, total reported revenue increased
year-on-year by 4.1% to £89.2m benefiting from a favourable move
on exchange rates. Sales in local currency declined 1.7%. We opened
two new stores adding 17k sq ft of selling space during the year.
The second of these was a trial of a ‘sample only’ store, which is trading
ahead of our expectations and may provide an opportunity for future
store growth. Including the impact of one closure, this translated
into net space decline of 2k sq ft, a decrease of 0.2% since the start
of the year. The number of stores trading at the end of the year was
117 (2009: 116). Like-for-like sales in the first half declined by 3.6%,
but an encouraging recovery in the second half resulted in a full year
performance down only 1.0%. Operationally, we have introduced new
products and adapted our promotional offer to consumer demand,
resulting in a growth in sales of both laminate and vinyl.
Gross profit increased in both countries on the back of improved
rebates and effective management of the promotional mix. Reported
operating costs increased by 2.9% to £42.0m, demonstrating the
impact of the movement in exchange rates. In local currency terms,
costs declined by 2.8% despite inherent inflationary pressures
on employment and occupancy costs. This reflected the tight
management control and focus on achieving efficiencies within
the whole operation.
The net result was an underlying operating profit of £9.6m, an increase
of 10.3%. In local currency terms, the underlying profit increased
by 4.9%.
Poland
The reported underlying loss in Poland was £1.7m, an increase
of £0.2m on the previous year.
As previously announced, following a review of the Polish business by
the Board in the Autumn of 2009, the decision was taken to withdraw
from trading in this market. In the period since its launch four years ago,
the business had failed to establish sufficient trading momentum and
critical mass, and the resulting performance had been disappointing.
All the stores have now been closed. This has resulted in a non-recurring
cost of £3.5m, which is a combination of a non-cash write down
of the fixed assets to their realised value and other costs incurred
specifically for the closure. This is reported within exceptional items.
Carpetright plc Annual report and accounts 2010
Group financial review
Net finance costs and taxation
Net finance charges were £5.9m (2009: £5.6m) reflecting lower
deposit rates on cash balances. The effective tax rate on profits
is 29.5% (2009: 29.8%). This has decreased due to the impact
of overseas tax movements.
Exceptional items
The Group recorded a net charge of £5.9m (2009: £0.5m) in the year.
We have continued to trade our property portfolio, although market
conditions have made this more challenging. A loss of £0.7m was
incurred (2009: gain of £1.8m).
As a result of the challenging retail environment we have reviewed
the carrying value of the store assets in our balance sheet. The models
used to value these assets include a number of assumptions relating
to market growth and inflationary expectations. The tests have led
to a net impairment of £1.4m (2009: £0.9m) in relation to 13 stores,
principally located in the Republic of Ireland. In addition, there is
one vacant leased property and two properties which are occupied by
tenants at a rent below the head lease costs. An onerous lease provision
has been made on the basis of the difference between the expected
inflows and outflows for these properties.
As disclosed earlier, the costs of withdrawing from Poland total
£3.5m. The non-recurring pre-opening costs of the Purfleet cutting
and distribution centre recognised in 2007/08 were over-provided
by £1.1m and have been released.
Exceptional items
Profit/(Loss) on disposal of properties
UK & RoI Store Impairment charge
UK & RoI Onerous leases
Poland: Store Impairment Charge
Closure costs
Over-provision from pre-opening
cost of Purfleet
Re-organisation cost
of acquired businesses
Impairment of investment
in joint venture
(Charge)/gain
2010
£m
(0.7)
(1.4)
(1.4)
(1.8)
(1.7)
1.1
–
–
(5.9)
2009
£m
1.8
(0.9)
–
–
–
–
(1.2)
(0.2)
(0.5)
9
Dividend
Whilst the underlying profitability has improved in 2009/10, there
remains continued uncertainty on the economic outlook. Balancing
these two facts, the Board believes it is appropriate to increase the final
dividend for the year. The Board has proposed a final dividend of 8.0
pence per share (2009: 4.0 pence), bringing the full year dividend to
16.0 pence (2009: 8.0 pence), a 100.0% increase. The final dividend
will be paid on 24 September 2010 to shareholders on the register on
10 September 2010. Dividend cover, based on basic earnings per share,
is 1.5 times (2009: 2.2 times).
Balance sheet and cash flow
The Group had net assets of £71.2m (2009: £67.2m) at the end of
the year, an increase of £4.0m since 2 May 2009. The cash generative
nature of the business in the year has been one of the strengths of the
Group, with free cash flow of £32.0m generated in the period (2009:
an outflow of £12.1m).
Cash flow
Trading profit
Depreciation and other
non-cash items
Exceptional items
(Increase)/Decrease in stock
(Increase)/Decrease in working capital
Cash generated from operations
Net interest paid
Corporation tax paid
Net capital expenditure
Free cash flow
Dividends paid
Other
Movement in net debt
Opening net debt
Closing net debt
2010
£m
34.1
18.6
(1.7)
1.5
5.8
58.3
(6.8)
(9.9)
(9.6)
32.0
(8.1)
1.9
25.8
(97.1)
(71.3)
2009
£m
22.8
20.5
(1.2)
2.7
(18.6)
26.2
(5.5)
(12.2)
(20.6)
(12.1)
(22.8)
(4.7)
(39.6)
(57.5)
(97.1)
The Group’s operating cash flow was positive at £58.3m (2009: £26.2m).
The increase was predominantly attributable to the improved profitability.
Net capital expenditure was £9.6m (2009: £20.6m). This can be broken
down into the following principal categories:
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After the repayment of borrowings and payment of dividend, net debt
decreased by £25.8m to £71.3m at the year end (2009: £97.1m).
www.carpetright.plc.uk
Earnings per share
Basic earnings per share increased by 33.5% to 23.5 pence, reflecting
a similar increase in post tax earnings. Underlying earnings per share
increased to 31.6 pence.
Core capital expenditure
Freehold properties
Acquisitions of new businesses
Proceeds from property disposals
2010
£m
10.1
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9.6
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4.3
7.3
(3.0)
20.6
10
Group financial review continued
Property
The Group owns a significant property portfolio, most of which is used
for trading purposes. These are estimated by management to have a
market value of £139.5m at the year end (2009: £127.1m), compared
to a net book value of £108.6m recorded in the financial statements.
Pensions
At the year end, the Group had a deficit of £4.8m in relation to defined
benefit pension arrangements (2009: £2.4m). The approach used to
prepare the pension valuation is in line with current market practice
and international accounting standards. Following the triennial valuation
in April 2008, a revised deficit funding schedule of around £0.3m per
annum for seven years was agreed with the Trustees. With effect from
the 1 May 2010, the UK defined benefit scheme was closed to future
accrual. This has been completed after a period of consultation with the
affected employees and will reduce the Group’s exposure accordingly.
Current liquidity
At the year end the Group held cash balances of £8.3m (2009: £17.4m)
in a combination of Sterling, Euros and Polish Zlotys.
Gross bank borrowings at the balance sheet date were £75.5m (2009:
£108.3m) of which £62.2m is term based, with the balance of £13.3m
being drawn down from overdraft facilities. The Group had further
undrawn, committed facilities of £38.1m at the balance sheet date.
The current banking facilities provide approximately £110m of debt
capacity split between amortising loans, revolving credit facilities and
overdrafts in a mixture of Sterling and Euro currencies. The term of
these facilities are to July 2012 and involved combined arrangement
fees and legal costs of £1.5m. Although paid in cash at the outset,
these are being amortised over the life of the facility. The facilities
are accompanied by a number of covenants which are believed to be
appropriate in the current economic climate. The Group monitors
actual and prospective compliance with these on a regular basis.
Outlook
The last year has seen a growth in profit performance, despite
challenging trading conditions. Looking forward, we expect the
consumer environment to remain difficult and have adapted our
plans accordingly.
Key performance indicators
We monitor our performance by reference to a limited number of indicators. The key ones are:
Store numbers
The number of stores trading.
Store space
(’000 sq ft)
Like-for-like sales
Store gross area, including both selling and
warehouse space. Space occupied by sublet
tenants is excluded.
Calculated as this year’s net sales divided by last year’s
net sales for all stores that are at least 12 months old
at the beginning of our financial year. Stores closed
during the year are excluded from both years.
No account is taken of changes to store size or the
introduction of third party concessions. Sales from
insurance and house building contracts are supplied
through the stores and included in their figures.
UK & RoI
The Netherlands & Belgium
UK & RoI
The Netherlands & Belgium
2010
586
117
4,808
1,398
2009
567
116
4,632
1,400
2008
559
105
4,471
1,230
UK & RoI
The Netherlands & Belgium
3.1% (13.5%)
2.7%
(1.0%)
(2.7%)
6.7%
Gross profit %
Gross profit as a percentage of net sales.
Underlying operating
profit %
Net debt (£m)
Operating profit, excluding exceptional items,
as a percentage of net sales.
The Group’s overall net debt position at year end.
UK & RoI
The Netherlands & Belgium
UK & RoI
The Netherlands & Belgium
Carpetright plc Annual report and accounts 2010
62.0% 62.1% 62.8%
57.8% 57.7% 56.9%
4.0% 12.8%
10.8% 10.2% 10.2%
57.5
97.1
6.2%
71.4
11
Principal risks and uncertainties
The Board has a policy of continuous identification and review of key business risks
and oversees the development of processes to ensure that these risks are managed
appropriately. In the day-to-day operation of our businesses and the development of
the Group, both in existing and new markets, we face risks and uncertainties, some
of which are unique to the sector in which we operate. The risk factors addressed
below are those which we believe could adversely affect us, potentially impacting
the operations, revenue, profit, cash flow or assets of the Group. Additional risks
and uncertainties currently unknown to us, or which we currently believe are
immaterial, may also have an adverse affect on the Group.
We use our risk management process to identify, monitor, evaluate and escalate
such issues as they emerge, enabling the Board to take appropriate action wherever
possible in order to control them.
Economic and market conditions
The economy is a major influence on consumer spending with trends
in housing transactions, consumer confidence, mortgage approvals,
consumer debt levels and interest rates impacting consumer demand
for discretionary spending on the home. Uncertainty surrounding
current economic conditions present a difficult trading outlook
across our sector. We remain committed to the measures
implemented to date, to ensure the Group is appropriately
managed in this environment.
Business strategy development and implementation
If the Board adopts the wrong business strategy or does not implement
its strategies effectively the business may suffer. The Board needs to
understand and properly manage strategic risk in order to deliver
long-term growth for the benefit of all Carpetright’s shareholders.
The Board holds an annual strategy review day and monitors
agreed actions throughout the year.
Employee risk
Carpetright’s businesses depend on a high level of input from all levels
of staff. The employee risks are split between:
• Management Risk – The Group relies on key personnel including
the Executive Directors, Senior Managers and Store Managers.
Procedures are in place to identify and retain key personnel and the
Board regularly reviews succession planning for senior roles.
• Customer Service Risk – Carpetright customers expect and receive
a high level of customer service. The Group employs close to 4,000
staff, mostly based in stores, and uses the services of over 2,000
independent carpet fitters. The Group continues to ensure that all
staff are properly recruited, trained and rewarded so that high levels
of customer service are maintained.
new geographical markets, could have an adverse impact on the Group.
The Group only enters new markets where the Board believes the
potential long-term growth and returns outweigh the risks.
Cost inflation
The location of the principal carpet manufacturers in Europe means
the Group is exposed to fluctuations in the value of the Euro. The
Group seeks to mitigate this risk by putting in place appropriate
arrangements with manufacturers and proactively managing its selling
prices to maintain margins.
There are a number of significant cost pressures affecting all retailers.
Many of these costs are growing by more than the rate of inflation,
putting continued pressure on operating margins. The strategy of
introducing space for beds/concessions, moving to smaller stores
and driving benefits from our supply chain and IT investments helps
mitigate some of the risk.
Supply chain and business continuity
Carpetright’s revenues and cash flows are dependent on the continued
operation of its cutting and distribution facilities. Business continuity
plans have been documented and arrangements made to mitigate
significant risks arising.
IT systems
Carpetright is dependent upon the continued availability and integrity
of its computer systems. The systems implemented within the UK &
RoI are more robust than those that were replaced and have improved
the overall controls over data integrity. The central systems are
mirrored in a separate location as part of a systems business continuity
plan. By using the experience from the UK & RoI, similar system
developments are planned for the European operation.
Entering new markets
Expansion into additional European countries provides the opportunity
for substantial long-term growth and economic returns for shareholders.
This represents a good opportunity for the Group but exposes it to new
cultural and regulatory risks. Failure to identify, conduct appropriate due
diligence and appropriately integrate acquisitions, particularly in
Management of liquidity risk and financing
Carpetright is dependent on debt financing facilities to be available
at a commercially viable rate. We have introduced robust processes
to ensure we effectively manage working capital and maintain
ongoing measurement to ensure the Group can meet its financing
requirements and is compliant with banking covenants.
www.carpetright.plc.uk
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Principal risks and
uncertainties continued
Employees
The Group’s Treasury policy is intended to ensure that there are
adequate financial resources for the development and growth of
the business whilst financing its operations at the lowest cost and
minimising foreign exchange and interest rate risk. The objective is
to achieve this without operational disruption or recourse to complex
financial instruments.
The strategy and policies are approved by the Board. The Group does
not engage in speculative transactions. The key financial risks relate to
meeting debt repayments as they fall due, interest rate risk and limited
foreign currency exposure.
The Group’s term based borrowings are a direct result of the
acquisition of businesses in the UK and Europe and the strategic
investment in new systems and the warehouse and cutting facility.
The borrowings are denominated in Sterling and Euros. The Group
anticipates that there will be sufficient Euro cash flow to pay both
the interest on the Euro borrowings as well as the capital repayment
amounts due over the life of the underlying loan. The Group fixes the
interest rate on at least 75% of term borrowings via interest rate swap
arrangements to provide interest cost certainty and reduce risk.
Any current account deposits generated from the strong operational
cash flows of the Group are invested in the currency in which they are
received unless there is a clear need for conversion. During the year
the Group invested these deposits in a combination of overnight and
longer-term investment graded accounts arranged via the Group’s
principal bankers in the countries in which it trades.
Legislative and regulatory risk
Whilst Carpetright’s industry is not regulated, Carpetright is always
mindful of its legal and regulatory obligations. The Group’s Legal
Director is responsible for identifying prospective changes to laws
and regulations and to bring those changes to the appropriate forum
so that the emerging risk can be addressed. Of particular note are risks
relating to health and safety, competition law and price promotion.
In each case the Company has developed clear policies and guidelines
and, where necessary, a compliance programme to mitigate the risks.
The Group employs approximately 4,000
people and is proud of being regarded
as a responsible and respected employer.
Equal opportunities
The Board believes in creating throughout the Company a culture
that is free from discrimination and harassment and will not
permit or tolerate discrimination in any form. The Group operates
a whistleblowing hotline through a third-party provider enabling
employees to raise matters of concern with the Company on a named,
or anonymous, basis. The Company gives full and fair consideration
to applications for employment when these are received from disabled
people and employs disabled people whenever suitable vacancies arise.
Should an employee become disabled while working for the Company,
efforts are made to continue their employment and retraining is
provided, if necessary.
Training and development
Our training and development programmes are focused on giving
our staff the skills they need to move up to new roles, enabling them
to develop their careers and ensuring that there is a pipeline of talent
within the Group.
Employee engagement
There are a number of communication channels in place to help
people develop their knowledge of, and enhance their involvement
with, the Group. These channels include staff surveys, the Group’s
annual conference, management briefings, weekly briefings from the
Chairman and Chief Executive broadcast to stores and offices and
other less formal communications. Additionally all annual results
and interim management statements are made available to employees
through the intranet. Directors and senior management regularly
visit stores and discuss matters of current interest and concern
with employees.
Employee share ownership
The Directors believe it is in the interests of both the Group and the
employees for staff to have an opportunity to invest in the Company’s
shares and operates two all-employee share schemes, namely an All
Employee Share Ownership Plan and a Savings Related Share Option
Scheme. Approximately 580 employees participate in these schemes.
Carpetright plc Annual report and accounts 2010
13
Corporate social responsibility
Our Corporate Social Responsibility (CSR) policy is designed to meet the long-term
expectations of our customers and other stakeholders and ensure the sustainable
development of our business. It is clear that protecting the environment and running
our business ethically makes good commercial sense and apart from improving
the environment for both our staff and our customers, will also help us to enhance
shareholder returns. Neil Page reports to the Board on CSR matters and co-ordinates
the group’s CSR policies and activities. He is supported by a team providing support
and advice to develop the business policies and approach.
Our key measures within this area are:
Issue
Indicator
Providing great service
Developing committed people
Complaints per £1m of sales
% of employees with > 3 year service
Creating a safe place to work and shop Number of reportable accidents
2010
13.1
35%
15
Progress
2009
13.6
27% 29.6% improvement
3.7% fewer complaints
in staff retention
11 A disappointing increase, although
Respect for the environment
Energy efficiency – kWh/m2
of sales space
Energy efficiency – km/litre
of delivery fleet
Recycling in tonnes
240.7
249.2
this remains below the long-term
average of 31 pa
3.4% less gas/electricity used
3.36
3.35
0.3% increase in efficiency
2,131
1,342
58.8% more polythene sheet
and cardboard recycled
More detailed information, notably performance data and future targets, is available in our full CSR Report, available to view at www.carpetright.plc.uk.
Over the last four years we have been developing and improving
policies to cover the following:
Providing great service
Our aim is to provide outstanding customer service by selling a
comprehensive range of flooring products at the keenest prices,
supported by excellent store staff and, where required, by organising
a high quality carpet fitting service.
We have now equipped mobile fitter training pods enabling us to
offer all of our recommended fitters access to the Flooring Industry
Trade Association (FITA) assessment and additional training
where required to meet FITA’s exacting standards. We are now
able to recommend over 2,600 registered fitters who have attained
FITA qualifications, 536 of whom have attained the FITA fitting
qualification in the past 12 months.
We commissioned consumer research looking at the service offering
in our stores and will continue to work on the findings over the next
12 months increasing service training in our stores.
Developing committed people
We employ close to 4,000 people in stores, depots and offices
throughout the UK & RoI and Europe. Our aims are to ensure
everyone has the right skills and knowledge to do their jobs; to offer
our people a good range of incentives and benefits and to value and
promote the diversity of our workforce.
To ensure we understand our staff ’s expectations and fully take
advantage of their experiences and opinions, we have conducted
an employee survey in the UK & RoI and followed up the results
with a series of ‘Have Your Say’ workshops where staff have had
the opportunity to voice their concerns and contribute ideas
towards the continuing development of the Carpetright brand.
The outcome of these workshops is still being evaluated but
the business has already made significant changes as a result
of the employee feedback and this will be an ongoing part
of the company’s people agenda.
Staff stability is important to us as a measure of employee loyalty
and satisfaction and we track retention rates continually.
Sourcing great products
We are committed to buying great products from suppliers who
operate in a responsible manner. Our aims are to ensure suppliers are
subject to vetting for satisfactory ethics and procedures; to insist our
supply chain partners sign up to the Carpetright ‘Codes of Conduct’
and to ensure we act in a responsible and ethical manner.
All of our suppliers have now signed up to compliance with our
Ethical and Environmental policies. We have additionally introduced
a timber policy to ensure all timber floor covering products are
manufactured from sustainable resources.
www.carpetright.plc.uk
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Corporate social responsibility continued
Creating a safe place to work and shop
We are committed to achieving high standards of health and safety
in all operational areas.
We have reviewed our policies and procedures and implemented a
new way of managing health and safety, particularly within our stores.
There were 15 reportable accidents in the period (2009: 11), the largest
proportion of which were manual handling related.
We remain committed to eliminating all heavy manual handling from
our stores. Wherever possible, each of our branches has a pedestrian
operated boom truck to unload and move carpet and vinyl deliveries
and where it has not been possible to provide a truck we have arranged
a series of nearby ‘buddy’ branches to accept deliveries. We have also
been involved in the design and development of a new lifting device
to lift carpet onto roll stock stands and after successful trials have now
ordered 200 of these devices to be delivered through 2010 – 2011
and anticipate ordering a further 200 the following year.
Respect for the environment
We are committed to taking steps to control and minimise any
damage our operations may cause to the environment through
manufacturing processes, transport, energy usage and packaging.
In particular we are aware of the issue of climate change and we
want to understand and minimise our carbon emissions.
We have now calculated the carbon footprint of our UK and
Republic of Ireland operation and will be in a position to publish
that information once the methodology and calculations have
been externally assured. This information will be published
on the corporate website when available.
We are particularly proud of our recycling record and have improved
this by almost 59% against the previous year. All cardboard tubes and
sheet polythene wrapping is now returned to our central distribution
centre where it is compacted and sent for recycling. This cardboard
and polythene was previously sent to landfill.
Donations
Charitable donations of £6,647 (2009: £nil) were made during the year.
No political donations were made (2009: £nil).
Carpetright plc Annual report and accounts 2010
15
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Director’s report: Governance
Board of Directors
Lord Harris of Peckham (67)
Chairman and Chief Executive
Lord Harris is now in his 53rd year in carpet retailing and is one of
the best known names in the business. He was Chairman and Chief
Executive of Harris Queensway plc from 1964 until the company
was taken over in 1988. Lord Harris is a Non-Executive Director of
Arsenal Holdings plc and Arsenal Football Club plc. He was a Non-
Executive Director of Great Universal Stores plc for 18 years until
July 2004 and was a Non-Executive Director of Matalan Plc for two
years until January 2007.
Christian Sollesse (51)
Managing Director, UK and Republic of Ireland
Christian Sollesse joined Carpetright in 1995 having worked for
many years in senior retail management roles in Harris Queensway
and Harris Interiors. Christian was appointed Sales Director in 1997
with responsibility for sales and retail management. In June 2005
Christian was appointed Managing Director, UK and Republic of
Ireland, taking responsibility for trading operations.
Martin Harris (41)
Group Commercial Director
Martin Harris joined Carpetright in 1991, previously having been an
Executive Director of Harveys Furnishing Group Limited. Martin
became Marketing Director in 1997, resigning to become a Non-
Executive Director in 1998. In November 2002 Martin resumed
Executive Director responsibilities as Buying Director and was
appointed Commercial Director when he assumed responsibility
for Marketing in 2003. Martin took on responsibility for supply
chain and logistics in June 2005 and was responsible for the move
to Carpetright’s new central cutting and distribution centre and
offices in early 2008.
Neil Page (47)
Group Finance Director
Neil Page joined Carpetright in July 2008 as Group Finance
Director. Neil began his career with British Rail and Marks and
Spencer. He joined Superdrug in 1991, holding a variety of finance
and operational positions before taking up the role of Finance and
IT Director for AS Watson (Health & Beauty) UK Ltd in July 2002.
He is an associate member of the Chartered Institute of
Management Accountants.
Baroness Noakes (61)
Non-Executive Director
Baroness Noakes, a chartered accountant, joined the Board in 2001.
Baroness Noakes is a Non-Executive Director of Severn Trent plc
and a trustee of the Thomson-Reuters Founders Share Company.
Previously she was with KPMG for 30 years and was the Senior
Non-Executive Director of the Bank of England and a Non-Executive
Director of Hanson plc and ICI plc. Baroness Noakes chairs the Audit
and Nomination Committees and is the Senior Independent Director.
Simon Metcalf (67)
Non-Executive Director
Simon Metcalf joined the Board in 2004. He is a chartered accountant
and worked in corporate finance as a director of County Bank and
its successor organisations for over 25 years, latterly as Vice Chairman
of Hawkpoint Partners. He is currently a Non-Executive Director of
The Collinson Group, Professional Travel Insurance Limited and a
number of other private companies. He is a trustee of the Bankside
Gallery. Simon chairs the Remuneration Committee.
Guy Weston (49)
Non-Executive Director
Guy Weston joined the Board in 2005. Guy began his career as a
management tutor and business analyst before entering the food
and beverage industry, working for R Twining & Co., Jacksons of
Piccadilly and The Ryvita Company. Currently Guy is Chairman
of Heal’s PLC and Wittington Investments Ltd, a Director of the
Thrombosis Research Institute and a Trustee of the Garfield
Weston Foundation.
Geoff Brady (56)
Non-Executive Director
Geoff Brady joined the Board in March 2008. He has had a career of
over 35 years in the retail sector including Chief Executive Officer of
Allied Carpets plc, Managing Director of Daimler Chrysler Retail
UK and Commercial Director of Superdrug plc. He was a Deputy
Chairman of Matalan Plc and a Non-Executive Director of Floors-2-
Go Plc, prior to both companies’ return to private ownership. He is
currently Non-Executive Chairman of both Robert Dyas and Harvey
Jones Kitchens and a Non-Executive director of Saul D Harrison Plc.
www.carpetright.plc.uk
16
Corporate governance
The Group recognises the importance of high standards of corporate
governance, and is committed to operating within an effective
corporate governance framework through the operation of Board
committees, internal procedures and Group policies. This report, the
Audit Committee Report and the Directors’ Remuneration Report,
explain how the Company has applied the principles set out in the
UK Financial Reporting Council’s 2008 Combined Code on
Corporate Governance (the Combined Code).
The Board
The Board consists of four Executive and four Non-Executive
Directors, brief biographies of whom can be found on page 15.
Geoff Brady, one of the Non-Executive Directors, has announced
his intention to stand down from the Board on 31 August 2010. A
search is currently underway to appoint a replacement. There is a
formal, rigorous and transparent procedure for the appointment
of new directors to the Board and this is described in the section
concerning the Nomination Committee on page 17.
Guy Weston and Christian Sollesse both retire from office, having
completed three years service since last being re-elected to the Board
and, being eligible, both offer themselves for re-election at the
forthcoming Annual General Meeting (‘AGM’). Baroness Noakes
retires from office, having completed nine years service as a Non-
Executive Director, and offers herself for re-election at the AGM.
The Board believes that the current structure of the Board is of an
appropriate size and structure to manage the Group in an effective
and successful manner.
The Non-Executive Directors of the Company play a key governance
role and bring an extra dimension to the Board’s deliberations. The
Board has considered the independence of each Non-Executive
Director against the criteria specified in the Combined Code and
determined that each remains fully independent. The Board in
particular considered the independence of Baroness Noakes, who
is considered by the Board to be independent in character and
judgment notwithstanding that she has served as a Director of
the Company for more than nine years from the date of her
first election.
Under the Company’s Articles of Association every Director will
submit himself or herself for re-election every third year. Additionally,
under the Company’s Articles of Association and in accordance with
the Combined Code, every Non-Executive Director who has served
as a Director for nine years or more is subject to annual re-election
as a Director.
The position of Chairman is combined with the role of Chief Executive.
The Board does not at present consider it necessary to separate the
two roles. The Chairman is one of the leading figures in the industry
both in the UK and Europe and the Board believe that it is in
shareholders’ interests that he should be seen to take the leading
role in the Company’s affairs. He also has extensive listed company
experience at board level. The Chairman was a member of the
Nomination Committee during the year under review, and he
attends the Remuneration and Audit Committee meetings by
invitation. The Board recognises that with a combined Chairman
and Chief Executive the role of the Senior Independent Director
(‘SID’) is of enhanced importance. In particular, the SID plays a
significant role in determining the Board agenda and Board appraisal
process and in ensuring that any issues raised by the Non-Executive
Directors are fully dealt with. Baroness Noakes has been the SID
since June 2004.
A process of evaluation of the Board and its Audit and Remuneration
Committees has been undertaken. The exercise to evaluate the
performance of the Board was led by the SID, and those of the Audit
and Remuneration Committees was led by the chairmen of those
committees. The results of these assessments have been considered
by the Board and confirmed the strength of leadership within the
business and a sound governance framework.
The Non-Executive Directors generally meet privately with the
Chairman and Chief Executive at least twice each year. The Non-
Executive Directors meet, with no Executive Directors present,
at least once each year inter alia to review the performance of
the Chairman and Chief Executive.
The full Board met six times during the year with full attendance.
Six meetings are scheduled for the current year.
The Board is responsible for setting the Group’s objectives and
policies, providing effective leadership and control and for approving
the Group strategy, budgets, business plans and major capital
expenditure. It has responsibility for the management, direction
and performance of the Group and is accountable to the Company’s
shareholders for the proper conduct of its business. The Board has a
formal schedule of matters which sets out those matters requiring
Board approval and specifically reserved to it for decision. Day-to-
day management is delegated to the Chief Executive and the
Executive Directors.
Directors receive monthly trading results, commentary, briefing
notes and reports for their consideration in advance of each Board
meeting, including reports on the Group’s operations to ensure that
they remain briefed on the latest developments and are able to make
fully informed decisions.
All Directors have access to the advice and services of the Company
Secretary and the Board has established a procedure whereby Directors
may take independent professional advice at the Company’s expense.
In addition, such advice may include training in order to enable them
to discharge their roles and responsibilities as a Director. All new
Directors receive an induction tailored to their particular requirements.
Board committees
The Board has three Committees, each of which has written terms
of reference which are available on the Company’s corporate website
(www.carpetright.plc.uk).
The Board periodically reviews the membership of its Committees
to ensure that Committee membership is refreshed. The Company
provides the Committees with sufficient resources to undertake their
duties. The Company Secretary acts as Secretary to each Committee.
The role of the Audit Committee, its members and details of how
it carried out its duties are set out in the Audit Committee report
on page 19.
Carpetright plc Annual report and accounts 2010
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The role of the Remuneration Committee, its members and
details of how it carried out its duties are set out in the Directors’
remuneration report on pages 20 to 24.
The Nomination Committee is chaired by Baroness Noakes and its
other members are Lord Harris and Guy Weston. The Committee
met three times during the year with full attendance.
The role of the Nomination Committee is to identify and nominate
candidates for the approval of the Board, to fill vacancies and make
recommendations to the Board on Board composition and balance.
External search consultants assist in the search process for all
new Board appointees. The Committee considers the skills
and competencies of the existing Directors when drawing up
a specification for new appointments and is ensuring that the
development needs of Executive Directors and other senior
managers are addressed appropriately.
The Committee also considers whether Directors due to retire by
rotation should be recommended for re-appointment, and whether
the appointment of Non-Executive Directors reaching the end of
their three-year term should be renewed. Committee members do
not vote on their own reappointment.
Risk Management and Internal Controls
The Board has overall responsibility for the Group’s system of
internal control and for reviewing its effectiveness. In order to fulfil
this responsibility and safeguard shareholder investment and the
Company’s and the Group’s assets, the Directors have established
an organisational framework with clear operational procedures,
lines of responsibility and delegated authority which has operated
throughout the year under review and up to the date of approval
of the Annual Report and Financial Statements.
The system of internal control is designed to identify, evaluate and
manage significant risks associated with the achievement of the
Group’s objectives. Because of the limitations inherent in any system
of internal control, this system is designed to meet the Group’s
particular needs and the risks to which it is exposed rather than
eliminate risk altogether. Consequently it can only provide reasonable
and not absolute assurance against material misstatement or loss.
The Board has reviewed the Group’s systems of internal controls
including financial, operational and compliance controls as well as
risk management, and is satisfied that these accord with the guidance
on internal controls set out in Internal Control: Revised Guidance
for Directors on the Combined Code, issued by the Financial
Reporting Council in October 2005.
The day-to-day responsibility for managing risk and the maintenance
of the Group’s system of internal control is collectively assumed by
the Executive Directors. The Board has established an Executive
Directors’ Group (‘EDs Group’) comprising the Executive Directors
and senior managers who review key risk and control issues. The
EDs Group meets quarterly.
Several key processes exist within the Group to ensure a sound
system of internal control which is described below:
Identification of business risks
The Board is responsible for identifying the major business risks
faced by the Group, and determining a suitable response. The EDs
Group identifies and assesses risks to the Group’s medium-term
strategy. The EDs Group directs both the UK and European Risk
Management Committees to address each of the identified risks,
formulate a mitigation strategy and assess the likely impact of such
risk occurring, and provides regular reports to the Audit Committee.
The UK Risk Management Committee and the European Risk
Management Committee each comprise a small number of the
senior management team as regular members, who are able to call
on the expertise of other managers as required. Each Committee,
which meets at least quarterly, regularly reviews the risk management
and control process within its territory and considers the response
to the significant risks which have been identified by management
and others and monitors the maintenance of a control environment
directed towards the proper management of risk. Both risk
management committees report to the EDs Group.
Additionally there are working groups covering Corporate
Responsibility, Stock Management and Business Continuity
and, in Europe, Health and Safety. These report to the UK Risk
Management Committee or the European Risk Management
Committee as appropriate.
The principal risks and uncertainties affecting the business are
set out on pages 11 and 12.
Health and safety
Enforcing the health and safety policy is a high priority for
management and fully descriptive manuals are available to all staff,
supported by a training programme for stores, distribution centres
and the central support office. Risk assessments are undertaken for
all procedures and safe systems of work devised for all procedures
involving physical risk. Failure to adhere to safe systems of work or
following unsafe working practices will be subject to review and, if
necessary, disciplinary proceedings. Health and safety issues are
included as part of the internal audit review of all premises.
Internal audit
The internal audit function:
• works to develop, improve and embed risk management tools
and processes within the business operations;
• undertakes its work, both on central functions and in the field,
based on a risk assessment model;
• ensures that business risks are identified, managed and regularly
reviewed by management at all levels of the Group and that
Directors are periodically appraised of key risks;
• provides the Audit Committee and the Board with objective
assurance on the control environment across the Group; and
• monitors adherence to the Group’s key policies and principles.
www.carpetright.plc.uk
18
Corporate governance continued
Planning
The Group’s planning process underpins the development of the
annual budget. The budget is reviewed and approved formally by
the Board. Actual performance is reported on a monthly basis and
measured against the budget and the prior year and a detailed
explanation of significant variances is provided. Key performance
indicators are monitored weekly.
Control procedures
The Group has control procedures designed to provide a complete
and accurate record of financial transactions, to ensure correct
accounting and to minimise the possible exposure to fraudulent
transactions. The Board believes that the measures taken, including
physical controls, separation of duties and management reviews
provide suitable assurance. Any issues raised by the Group’s auditors
or the internal audit function are fully reviewed and considered.
Statement of Compliance
During the period ended 1 May 2010 the Company complied with
the provisions set out in section 1 of the Combined Code except
provision A.2.1 as the roles of Chairman and Chief Executive are
combined, an explanation for which is set out above. The Board
does not at present consider it necessary to separate the two roles.
Carpetright plc Annual report and accounts 2010
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Audit Committee report
The Audit Committee is appointed by the Board from the Non-
Executive Directors of the Company. The terms of reference are
regularly reviewed by the Audit Committee and are then referred to
the Board for approval. These are available at www.carpetright.plc.uk.
The Audit Committee is chaired by Baroness Noakes, who has recent
and relevant financial experience, and its other members are Simon
Metcalf and Geoff Brady, both of whom are independent Non-
Executive Directors. The Committee met four times during the
year with full attendance.
At the invitation of the Committee, the Chairman and Chief Executive,
the Group Finance Director, the Head of Internal Audit and
representatives from the external auditors regularly attended
meetings. Other Directors and senior managers also attend if
required. There were also regular private meetings with the
external and internal auditors without management present.
The Audit Committee has an agenda linked to events in the Group’s
financial calendar. During the period ended 1 May 2010, the Audit
Committee discharged its responsibilities by:
• reviewing the Group’s draft annual results announcement
and financial statements and the interim statement prior to
Board approval and reviewing the external auditors detailed
reports thereon;
• reviewing the consistency of and any changes to the Group’s
accounting policies, the application of appropriate accounting
standards and methods used to account for significant or
unusual transactions;
• reviewing the independence, objectivity and effectiveness of the
external auditors and, on the basis of that review, recommending
to the Board their reappointment at the AGM;
• reviewing the Group’s Corporate and Social responsibility report;
• approving the audit fees paid to the external auditors and reviewing
the application of the policy on non-audit work performed by
them together with the non-audit fees payable to them;
• reviewing the external auditors’ plan for the audit of the Group’s
accounts, and approving the terms of engagement for the audit;
• reviewing the process for ensuring that senior management confirm
that they have supplied the auditors with relevant audit information;
• reviewing the internal audit plan, monitoring the delivery of that
plan during the year and reviewing the effectiveness of the
internal audit function;
• reviewing the work of the ED’s Group, which oversees the
identification and management of the risks to the business,
together with reports on the Group’s systems of internal
control, and reporting the results of this review to the Board;
• reviewing its terms of reference and effectiveness; and
• reviewing the whistleblowing policy and relevant items
reported under that policy.
The Audit Committee and Board place great emphasis
on the independence and objectivity of the Group’s auditors,
PricewaterhouseCoopers LLP, when performing their role in the
Group’s reporting to shareholders. The external auditors report
to the Audit Committee annually on their independence from
the Company.
The Audit Committee reviews independence, objectivity and
performance of the auditors annually, including the annual report on
the auditors produced by the Audit Inspection Unit of the Financial
Reporting Council. On the basis of that review, the Audit Committee
recommends the reappointment of the auditors to the Board.
PricewaterhouseCoopers LLP have been auditors to the Company
since 2005 when they were appointed following a competitive tender.
The Board has also adopted a formal policy on the Company’s
relationship with its auditor in respect of non-audit work. The
auditors may only provide such services provided that such advice
does not conflict with their statutory responsibilities and ethical
guidance. The Audit Committee Chairman’s pre-approval is required
before the Company uses non-audit services that exceed financial
limits set out by that policy. Details of the auditor’s remuneration
for audit work and non-audit fees for the periods ended 1 May 2010
are disclosed in note 3 to the Financial Statements.
The Statement of Directors’ Responsibilities in relation to the accounts
is set out on pages 27 to 28. The Statement by the Auditors on their
responsibilities in respect of the accounts is contained in their
report on page 67.
The Chairman of the Audit Committee will be available at the
Annual General Meeting.
www.carpetright.plc.uk
20
Directors’ remuneration report
This report is made by the Board on the recommendation of the
Remuneration Committee. The first part of the report provides details
of the Remuneration Committee and remuneration policy. The
second part provides details of the remuneration, pensions and share
plan interests of the Directors for the 52 weeks ended 1 May 2010.
Remuneration Committee
The Remuneration Committee is chaired by Simon Metcalf and its
other members are Guy Weston and Geoff Brady, all of whom are
independent Non-Executive Directors and served throughout the
course of the year. The Committee met four times during the year
with full attendance.
At the invitation of the Committee, the Chairman and Chief
Executive, Group Finance Director and Group Human Resources
Director regularly attend Committee meetings. The Committee
considers their views when reviewing the remuneration of the
Executive Directors and Senior Executives. They are not involved
in discussions concerning their own remuneration.
The responsibilities of the Committee include:
• determining and agreeing with the Board the broad remuneration
policy for the Chairman, Executive Directors and the Senior
Executives;
• setting individual remuneration arrangements for the Chairman
and Executive Directors;
• recommending and monitoring the level and structure of
remuneration for those members of senior management
within the scope of the Committee; and
• approving the service agreements of each Executive Director,
including termination arrangements.
The Committee’s terms of reference are available on the Company’s
website (www.carpetright.plc.uk).
The Committee is authorised by the Board to appoint external advisers
if it considers this beneficial. Over the course of the year, the
Committee was advised by the Hay Group and Hewitt New
Bridge Street. The Committee’s advisers attended one of the four
Committee meetings and received copies of the relevant papers for
all meetings. Neither Hay nor Hewitt New Bridge Street provided
other services to the Company. Hay Group and Hewitt New
Bridge Street are signatories to the Code of Conduct for
Remuneration Advisers.
Remuneration policy
The Committee’s policy is to provide remuneration packages for the
Executive Directors which include an appropriate balance between
the fixed and variable elements of pay, and which reflect their
responsibilities relative to the size and nature of the business. It is
committed to ensuring the management teams are rewarded for
delivering the Company’s growth plans and long-term shareholder
value. The Committee aims to set levels of fixed pay that are
competitive within the market within which it competes for talent
and short- and long-term incentive opportunity at a level that is
sufficient to motivate Executives to achieve the Company’s short-
and long-term goals without encouraging inappropriate behaviours.
Carpetright plc Annual report and accounts 2010
Currently, for on-target performance, approximately half of total
remuneration is fixed and half is performance related.
In line with the Association of British Insurers’ Guidelines on
Responsible Investment Disclosure, the Committee will ensure
that the incentive structure for Executive Directors and senior
management will not raise environmental, social or governance
risks by inadvertently motivating irresponsible behaviour. More
generally, the Committee will ensure that the overall remuneration
policy does not encourage inappropriate operational risk-taking.
Remuneration review
Since the publication of last year’s report on Director’s remuneration,
the Committee has:
• formally adopted the changes to the Long-Term Incentive Plan
which were approved by shareholders at the 2009 AGM;
• held a review of the Remuneration Committee’s remuneration
advisers;
• conducted a review of the remuneration arrangements of the
Executive Directors and senior Executives;
• determined the bonus award for the 2010 financial year;
• approved the salary increases for the Executive Directors
and other Senior Executives for 2010;
• reviewed its own terms of reference; and
• conducted its annual evaluation of its own performance.
Components of remuneration
The main remuneration components for the Executive Directors
comprise basic salary, incentive plans, pensions and benefits which
are set out below:
i) Basic salary
Basic salary for each Executive Director is determined by the
Committee, taking account of the responsibilities, performance
and experience of the individual. The Committee also reviews
other Senior Executives salaries taking similar factors into account.
The Committee considers salary levels in comparable companies
by referring to relevant pay data in the UK Retail Sector, in
companies with annual sales revenues of around £500m and a
market capitalisation of around £600m. When reviewing the salaries
of the Executive Directors, the Committee also has regard to the
impact on the cost of pension provision and pay and conditions
elsewhere in the Group. In particular, the Committee takes account
of the level of salary increases awarded to other employees of the
Group when deciding on increases for Executive Directors.
The Executive Directors’ basic salaries were not increased in 2009,
consistent with the level applied to management and central staff.
The Committee approved the following basic salaries for the
Executive Directors in 2010:
• Martin Harris has been a key contributor to the Board and in May
2008, he voluntarily declined his approved salary increase and
consequently this represents his first increase since May 2007.
His basic salary was increased to £280,000 per annum (previously
£253,853: 10.7% uplift).
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• Since his appointment in July 2008, Neil Page has delivered
an excellent contribution to the Group and developed into
an extremely able Group Finance Director of a publicly listed
company. The Committee considers his salary was no longer
commensurate with his role and increased experience and has
increased his basic salary to £280,000 per annum (previously
£260,000: 7.7% uplift).
• The basic salaries of Lord Harris and Christian Sollesse are
left unchanged at £481,832 per annum and £280,000 per
annum respectively.
The above changes result in the total annual salary increase for
the Executive Directors being 3.6%. The combined annual salary
increase for all central staff and management was 2.8%.
ii) Annual incentives
Executive Directors are eligible to receive an annual performance
bonus. The bonus is a proportion of salary based on the achievement
of the annual budgeted profit. The maximum bonus opportunity for
Executive Directors in the financial year just ended was 120% of
basic salary, with 70% of salary payable for on-target performance.
The performance targets for 2010 were set by reference to budgeted
levels of profit before tax. A bonus of 36.7% will be paid, which is
30.6% of the bonus opportunity (2009: 0%), reflecting the very
stretching nature of the profit performance targets set for 2010.
Bonuses are paid in cash and do not form part of the Directors’
pensionable earnings.
iii) Long-term incentives
Executive Directors and other Senior Executives are eligible to
participate in the Company’s Long-Term Incentive Plan (the
‘LTIP’). Awards under the LTIP consist of conditional awards of
shares that vest three years after grant to the extent that performance
conditions have been met over a three year performance period.
Awards under the LTIP are capped at 300% of salary per annum;
however, the Committee’s policy is to operate within a normal
maximum of 100% of salary per annum for awards to Executive
Directors. The LTIP was not operated in 2007 or 2008 and, in order
to address this absence the 2009 award was made at 200% of salary.
The Remuneration Committee has decided that award levels will
revert to 100% of salary for 2010.
Awards made in 2009 were subject to stretching performance
conditions requiring growth in the Company’s underlying Earnings
per Share (‘EPS’) before exceptional items. EPS was chosen as it
provides strong alignment with returns to shareholders. None of
the 2009 awards vest if growth in EPS is less than 25% per annum
over the three financial years measured from the financial year
immediately preceding the year in which the award is granted. For
growth of 25% per annum, 30% of the award vests and for growth
of 50% per annum, all of the award vests. For growth between these
two points between 30% and 100% vests on a sliding scale.
Following the remuneration review, the Committee has determined
that the 2010 award will again be subject to an EPS growth performance
condition based on growth in the Company’s underlying EPS before
exceptional items. In light of the significantly higher level of profit
achieved in 2010 than in 2009, which results in a higher base point
from which EPS growth will be measured under the plan, the
Committee has revised the EPS growth targets for the 2010 awards.
None of the 2010 awards vest if growth in EPS is less than 17.5% per
annum over the three financial years measured from the financial
year immediately preceding the year in which the award is granted.
For growth of 17.5% per annum, 25% of the award vests and for
growth of 35% per annum, all of the award vests. For growth
between these two points between 25% and 100% vests on a sliding
scale. In setting these revised targets the Committee satisfied itself
that the revised targets were at least as challenging in the current
environment as those set for the 2009 awards and has reduced the
threshold award down to 25% from 30% reflecting current market
and best practice.
The Chairman and Chief Executive voluntarily declined an award
under the plan for 2009 and has indicated he will do so again in
2010. It is the Company’s current policy that awards under the
LTIP will be satisfied using shares purchased in the market.
iv) Pensions
For the 2010 Financial Year, Martin Harris and Christian Sollesse
were members of the Carpetright plc Pension Plan, which is a
contributory defined benefit scheme. The Company reviewed its
pension policy during the year and as a result closed the Plan to
all future accruals from 30 April 2010. As a result of this review,
Executive Directors are offered an allowance of 20% of their base
salary to fund their own pension provision. The individual is able
to choose whether this allowance is paid to the Company’s defined
contribution Group Personal Pension Plan (‘GPPP’). Martin Harris
now takes his allowance as a salary supplement. Christian Sollesse
has split his allowance between a contribution to the GPPP scheme
and a salary supplement.
During the year, Neil Page received an allowance of 20% of his base
salary which was paid in to the GPPP and this arrangement has
continued. Lord Harris has been receiving a salary supplement
equivalent to the Company’s contributions to the Plan on his behalf.
During the year, this was £18,349 and this ceased on 30 April 2010.
v) Benefits
The Executive Directors are eligible for car benefits, life assurance
and private medical cover.
Shareholding guidelines
The Committee intends to introduce share ownership guidelines to
create greater alignment with the interests of shareholders and to be
consistent with one of the objectives of the incentive framework. The
Committee has proposed that all Executive Directors should build
up a shareholding in the Company over a five-year period starting
from 2010 that is equal to their annual basic salary and maintain it
thereafter. At the year end, Lord Harris, Martin Harris and Christian
Sollesse were all above this level. Neil Page, who joined on 14 July
2008, held 9,318 shares and based on the year end share price of
868p, this represented 28.9% of his salary.
www.carpetright.plc.uk
22
Directors’ remuneration report continued
Performance graph
The graph below shows the TSR performance of an investment of £100 in Carpetright plc shares over the last five years compared to an
equivalent investment in the FTSE mid-250 Index and the FTSE 350 General Retail Index, which the Directors believe to be the most suitable
broad comparators.
Total shareholder return
)
£
(
e
u
l
a
V
200
180
160
140
120
100
80
60
40
20
0
30 April 2005
29 April 2006
28 April 2007
3 May 2008
2 May 2009
1 May 2010
Carpetright
FTSE 250 Index
FTSE 350 General Retailers
Source: Thomas Reuters
This graph shows the value, by the 1 May 2010, of £100 invested in Carpetright plc on 30 April 2005 compared with that of £100 invested
in the FTSE 250 Index or the FTSE 350 General Retailers Index. The other points plotted are the values at intervening financial year-ends.
Service contracts
It is the Company’s policy to employ Executive Directors under contracts with an indefinite term subject to termination by notice given
by either party, normally of 12 months. If the Company terminates employment without giving full notice to the Director, the Company
has the option to either:
• pay damages calculated by reference to common law principles, including an obligation on the Director to mitigate loss; or
• to make a payment in lieu of notice calculated by reference to basic salary and benefits only. Other than in the case of Martin Harris, this
payment would be reduced or terminated if alternative employment was secured during the notice period and there is a requirement to
mitigate loss.
The Executive Directors’ service contracts became effective on the following dates:
Lord Harris
Martin Harris
Neil Page
Christian Sollesse
Contract Date
20 November 2006
30 June 2003
2 March 2009
20 November 2006
Notice Period
12 months
12 months
12 months
12 months
External appointments
Executive Directors retain remuneration from outside non-Executive directorships. During the year Lord Harris waived his fees payable by
Arsenal Holdings plc and Arsenal Football Club plc, totalling £25,000. Martin Harris received £13,333 as a Non-Executive Director of Harris
Ventures Limited.
Non-Executive Directors
Non-Executive Directors do not have service contracts. They are appointed for an initial three year period and in accordance with the Articles
of Association will submit him/herself for re-election every third year. Every Non-Executive Director who has served as a Director for nine
years or more is subject to annual re-election.
The Non-Executive Directors’ letters of appointment became effective on the following dates:
Geoff Brady
Simon Metcalf
Baroness Noakes
Guy Weston
Carpetright plc Annual report and accounts 2010
Appointment date
1 March 2007
1 June 2004
1 February 2001
1 February 2005
Date of Re-appointment
19 February 2010
24 June 2010
19 February 2010
17 January 2008
Unexpired term at the
date of this report
2 months
35 months
7 months
7 months
23
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The fees of the Non-Executive Directors are determined by the Board. It is the Board’s policy to set these fees according to the recommendations
made by the Chairman and Chief Executive and the Group Finance Director who make such recommendations with reference to external data on
fee levels in similar businesses and having taken account of the responsibilities of individual Directors and their expected annual time commitment.
The Non-Executive Directors are not eligible for any of the Company’s variable pay arrangements.
The fees of the Non-Executive Directors were last reviewed in June 2010. As a result of this review the fees of the Non-Executive Directors
were unchanged.
The following section provides details of the remuneration, pension and share plan interests of the Directors for the 52 week period
ended 1 May 2010 and has been audited.
i) Directors’ emoluments
The remuneration of the Directors for the year was a follows:
Lord Harris
Martin Harris
Neil Page
Christian Sollesse
Geoff Brady
Simon Metcalf
Baroness Noakes
Guy Weston
Total 2010
Total 2009
Notes
1, 2
3, 4
5
6
Salary/Fees
£000
482
254
260
280
36
41
51
36
1,440
1,706
Bonus
£000
193
102
149
112
–
–
–
–
556
–
Pension
Supplement
£000
18
–
–
–
–
–
–
–
18
18
Benefits
£000
44
33
27
36
–
–
–
–
140
148
Total 2010
£000
737
389
436
428
36
41
51
36
2,154
Total 2009
£000
532
285
231
315
36
41
51
36
1,872
1. Highest paid Director.
2. Lord Harris receives a salary supplement in lieu of pension of £18,349.
3. Neil Page received a cash bonus of £45,000 on the first anniversary of his appointment in lieu of bonus arrangements from his previous employer.
4. Neil Page’s remuneration in 2009 reflects his service from the date of his appointment on 14 July 2008 to 2 May 2009.
5.
In addition, Christian Sollesse received a payment of £200,000 during the year from Harris Ventures Limited, a shareholder whose shares are included within Lord Harris’ declared
shareholding. This was the final payment under this arrangement.
6. Totals include payments to Directors who left the Board before the start of the financial year.
7. No emoluments were waived during the period.
ii) Long-term incentive plans
The table below shows the conditional 2009 awards granted under this plan, which would be released if the Company achieves maximum vesting:
Martin Harris
Neil Page
Christian Sollesse
Date of Grant
18 Sept 2009
18 Sept 2009
18 Sept 2009
Maximum
Share Award
59,480
60,961
65,650
Share Price
at date of
Award Pence
853
853
853
First exercise
date
Sept 2012
Sept 2012
Sept 2012
Last exercise
date
Mar 2013
Mar 2013
Mar 2013
For the award made in September 2006, an absolute earnings per share (‘EPS’) performance and a relative total shareholder return (‘TSR’)
performance against a peer group, over a three year period each determined one half of the award.
Total Shareholder Returns
Peer Group Ranking
50th percentile and below
51st percentile
75th percentile or greater
Vested Award (% of salary)
0%
12%
40%
Earnings per Share
Annualised performance
Below RPI + 3%
RPI + 3%
RPI + 5%
Vested Award (% of salary)
0%
12%
40%
Vesting of the TSR-based award achieved 26.4%, the EPS target was not achieved. The following table shows the options which vested from
this award. The awards were made based on a share price of £11.45.
Lord Harris
Martin Harris
Christian Sollesse
Number
Originally Awarded
31,580
16,788
17,117
Lapsed
Number
23,243
12,356
12,599
Vested
Number
8,337
4,432
4,518
Value at
Vesting Date
£
70,323
37,384
38,109
Gain
£
70,239
37,340
38,064
www.carpetright.plc.uk
24
Directors’ remuneration report continued
iii) Sharesave options
At the end of the year, the Directors’ SAYE share options were as follows:
Lord Harris
Martin Harris
Neil Page
Christian Sollesse (1)
As at
2 May 2009
5,491
5,491
5,491
5,491
Granted
during year
–
–
–
–
Lapsed
during year
–
–
–
–
As at
1 May 2010
5,491
5,491
5,491
5,491
Exercise price
pence
295
295
295
295
First
exercise date
Apr 2014
Apr 2014
Apr 2014
Apr 2014
Last
exercise date
Oct 2014
Oct 2014
Oct 2014
Oct 2014
1. An option of 5,491 shares was also granted to Mrs Caroline Sollesse, an employee of the Company.
2. The market price of Carpetright shares was 868 pence on 1 May 2010 (2 May 2009: 565 pence). During the period ended 1 May 2010, the shares of Carpetright plc traded between
a low of 553 pence and a high of 985 pence.
iv) All Employee Share Ownership Plan
Carpetright operates an AESOP under which staff may contribute up to £125 per month from pre-tax salary to purchase Carpetright shares.
All of the Executive Directors participate in the AESOP, contributing £125 per month.
v) Directors’ Pensions Benefits
Only the Executive Directors’ basic salaries are pensionable. During the year, Martin Harris and Christian Sollesse were members of the
Carpetright plc Pension Plan, which is a defined benefit scheme (subject to a notional earnings cap as published by HMRC).
Details of pensions earned by the Executive Directors are shown below:
Pension
accrued at
1 May 2010
£000 pa
28
16
34
Accrued Pension
Transfer Value
Increase in
accrued pension
during the year
Increase in pension
during the year net of
inflation (1)
Cost to the Plan of the
increase in pension in
excess of contributions
As at
1 May 2010 (4)
As at
2 May 2009
Increase in transfer value
net of Directors’
contributions (2)
£000 pa
1
3
3
£000
1
3
4
£000
–
31
59
£000
524
203
594
£000
517
153
491
£000
7
44
97
Lord Harris (3)
M J Harris
C G Sollesse
1. The cost to the Plan of the increase represents the incremental value to the Director of his service during the period, calculated on service to 30 April 2010. It is based on the increase
in accrued pension net of inflation after deducting the Director’s contribution.
2. The total change in value includes the effects of fluctuations in the transfer value due to factors beyond the control of the Company and the Directors, such as stock market
movements. It is calculated after deducting Directors’ contributions.
3. Lord Harris has been in receipt of pension since September 2007.
4. The transfer value basis was changed during the year.
On 30 April 2010 the Carpetright plc pension plan closed to future accrual.
Employer contributions of £52,000 (2009: £39,000) were made to the defined contribution scheme in relation to Neil Page’s service during the year.
Shareholder Approval
A resolution to approve the Remuneration Report is being proposed at the Annual General Meeting. The Chairman of the Remuneration
Committee will be available at the Annual General Meeting.
By order of the Board:
Simon Metcalf
Chairman of the Remuneration Committee
28 June 2010
Carpetright plc Annual report and accounts 2010
25
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Other information
Directors’ Interests
The beneficial interests of the Directors and their immediate families in the ordinary shares of the Company are set out below.
Lord Harris
Martin Harris
Neil Page
Christian Sollesse
Geoff Brady
Simon Metcalf
Baroness Noakes
Guy Weston
1 May 2010
12,567,874
3,964,447
9,318
42,396
1,000
2,000
32,225
12,000
2 May 2009
12,649,321
3,939,809
6,077
39,312
1,000
2,000
32,225
12,000
In addition, Lord Harris has a non-beneficial interest in 229,514 shares (2009: 209,514). 139,000 of these shares are included within Martin
Harris’s beneficial interests. The Executive Directors have an indirect interest in 17,869 shares held in trust under the Long-Term Incentive
Plan (‘LTIP’). Save as disclosed in this section, none of the Directors has any non-beneficial interests in the shares of the Company.
Between 1 May 2010 and the date of this report 32 shares have been purchased for each of Lord Harris and Christian Sollesse, and 33 shares
have been purchased for each of Martin Harris and Neil Page and under the Company’s All Employee Share Ownership Plan (‘AESOP’). In
addition, 33 shares were purchased for Mrs Sollesse under the AESOP and these form part of Christian Sollesse’s beneficial holding. There
have been no other changes to the above shareholdings.
Save as disclosed herein, no Director had a material interest in any contract or arrangement with the Company during the year, other than
through their respective service contracts.
Details of transactions during the period with companies of which Lord Harris and/or Martin Harris is a Director and/or in which Lord Harris
holds a material interest are noted below. All of these transactions are on normal commercial terms.
Clacton Property Investments Ltd
Edinburgh Retail LLP
Glenrothes Retail LLP
Greenock Retail Ltd
Harris Ventures Ltd
Hull Unit Trust
Islandview Properties Ltd
Neath Retail LLP
Wick Retail Ltd
Lease and concession
agreement payments made
Lease and concession
agreement payments received
Supplies of goods/ services
payments made
2010
£000
233
441
187
225
199
354
248
150
54
2009
£000
156
457
187
225
261
354
272
150
54
2010
£000
–
–
–
–
375
–
–
–
–
2009
£000
–
–
–
–
–
–
–
–
–
2010
£000
–
–
–
–
59
–
–
–
–
2009
£000
–
–
–
–
57
–
–
–
–
As at 1 May 2010 the Group owed related parties £nil (2009: £719).
Directors’ indemnity arrangements
The Company has provided qualifying third-party indemnities for the benefit of each Director and former Director who held office during
the 2009/10 financial year. The Company has also purchased and maintained Directors’ and Officers’ liability insurance throughout 2009/10.
Creditors’ payment policy
While the Group does not follow any formal code or standard on payment practice, it agrees terms and conditions for its business transactions
when orders for goods and services are placed, and includes the relevant terms in contracts where appropriate. These arrangements are adhered to
when making payments subject to the terms and conditions being met by suppliers. The number of trade creditor days outstanding at the
period end for the Company was 57 days (2009: 56 days).
Significant agreements – change of control
There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid,
such as bank loan agreements and employee share plans. None of these are deemed to be significant in terms of their potential impact on
the business of the Group as a whole except for:
• a term loan and revolving facilities agreement dated 19 March 2008, as amended and restated on both 25 September 2008 and 24 April 2009
for term loans of €23.5 million and £33 million and a revolving credit facility of £45 million, which provides that on a change of control all
lenders’ commitments are cancelled and all outstanding loans, together with accrued interest, will become immediately due and payable;
www.carpetright.plc.uk
26
Other information continued
Significant agreements – change of control continued
• a €5 million term loan agreement dated 4 July 2005, subject to an addendum roll over agreement dated 6 June 2008, which provides that
if there is a substantial change in ownership the bank is entitled to accelerate repayment of the loan; and
• under the Company’s all-employee and discretionary share schemes, a change of control of the Company would normally be a vesting
event, facilitating the exercise or transfer of awards, subject to any relevant performance conditions being satisfied.
The Company does not have agreements with any Director or officer that would provide compensation for loss of office or employment resulting
from a takeover, except that provisions in the Company’s share plans may cause options and awards granted under such plans to vest on a takeover.
There is no information that the Company would be required to disclose about persons with whom it has contractual or other arrangements
which are essential to the business of the Company.
Share capital
Details of the Company’s issued share capital can be found in note 24 to the consolidated financial statements. All of the Company’s issued
ordinary shares are fully paid up and rank equally in all respects.
The rights and obligations attaching to the Company’s ordinary shares, in addition to those conferred on their holders by law, are contained in
the Company’s Articles of Association, copies of which can be obtained from Companies House in the UK or by writing to the Company Secretary.
The holders of ordinary shares are entitled to receive the Company’s report and accounts, to attend and speak at general meetings of the Company,
to appoint proxies and to exercise voting rights.
There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them, except (i) where the Company
has exercised its right to suspend their voting rights or to prohibit their transfer following the omission of their holder or any person interested
in them to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006 or (ii) where their
holder is precluded from exercising voting rights by the FSA’s Listing Rules or the City Code on Takeovers and Mergers.
The Company is not aware of any agreements between shareholders that might result in the restriction of transfer or voting rights in relation
to the shares held by such shareholders.
Shares acquired through Carpetright’s employee share schemes rank equally with all other ordinary shares in issue and have no special rights.
The Trustee of the Company’s Employee Benefit Trust (‘EBT’) has waived its rights to dividends on shares held by the EBT and does not
exercise its right to vote in respect of such shares. Shares held in trust on behalf of participants in the All Employee Share Ownership Plan are
voted by the Trustee as directed by the participants. Details of share-based payments, including information regarding the shares held
by the EBT can be found in notes 24 and 25 to the financial statements on page 60 and 61.
Substantial shareholdings
As at 28 June 2010, the Company has been notified of the following substantial shareholdings, other than those of the Directors, in the issued
share capital of the Company:
The Olayan Group
Harris Associates Inc
Cascade Investments LLP
Franklin Templeton Institutional, LLC
Artisan Partners LP
MF Global UK Ltd
A R Bull, as a trustee jointly with
Lord Harris (1)
Lord Harris and P J Saunders (2)
C W Harris and P Scott
A H Palmer and E A O’Keeffe
D J Stockwell and S L Harris
A H Palmer and E A O’Keeffe (3)
Number of
shares held
Total number
of shares held
10,099,000
5,380,062
3,427,957
3,358,053
3,358,107
3,276,576
Percentage
of shares held
15.0%
8.0%
5.1%
5.0%
5.0%
4.9%
48,000
59,000
10,000
1,750,000
957,500
2,824,500
873,000
4.2%
1.3%
1. These shares are also included in Lord Harris’s non-beneficial holding reported on page 25.
2. These shares are also included in Martin Harris’s beneficial holdings and Lord Harris’s non-beneficial holdings reported on page 25.
3. Of these shares, 793,000 are held on behalf of Martin Harris and so are also included in his reported holding on page 25. These shares are in addition to the shares held jointly
with Mr Bull. The total number of shares in which Ms Palmer and Mr O’Keeffe have a non-beneficial interest is 2,623,000, representing 3.9% of the issued share capital.
Carpetright plc Annual report and accounts 2010
27
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Investor relations
There is a formal investor relations programme based around the results presentations and interim management statements. All of the
Non-Executive Directors are available to attend meetings at shareholder request. The Chairman and Executive Directors feed back any
investor comments to the Board. All Directors normally attend the Annual General Meeting and are available to answer any questions that
shareholders may raise.
All shareholders will have at least 20 working days’ notice of the Annual General Meeting. As required by the Code the Board will, at the
2010 Annual General Meeting, announce the proxy votes in favour of and against each resolution following a vote by a show of hands,
and the votes cast will be posted on the corporate website.
Authority to purchase own shares
At the 2009 Annual General Meeting shareholders gave the Company renewed authority to purchase a maximum of 6,721,755 shares of one penny
each. This resolution remains valid until the date of this year’s Annual General Meeting. As at 1 May 2010, the Directors had not used this authority.
The Company’s present intention is to cancel any shares acquired under such authority, unless purchased to satisfy outstanding awards under
employee share incentive plans. A resolution seeking renewal of the authority will be proposed at this year’s Annual General Meeting.
Annual General Meeting
The 2010 Annual General Meeting of the Company will be held on 9 September 2010 at Harris House, Purfleet Bypass, Purfleet,
Essex RM19 1TT at 12.00 noon. A full description of the business to be conducted at the meeting is set out in the separate Notice
of Annual General Meeting.
The Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance
with applicable law and regulations.
UK company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company
and the Group and of the profit or loss of the Company and Group for that period.
In preparing those financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state that the financial statements comply with IFRSs as adopted by the European Union; and
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business,
in which case there should be supporting assumptions or qualifications as necessary.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position
of the Company and the Group and to enable them to ensure that the financial statements and the Directors’ Remuneration Report comply
with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s websites (www.carpetright.co.uk and www.carpetright.plc.uk).
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
Going concern
The Directors confirm that, after reviewing expenditure commitments, expected cash flows and borrowing facilities, they have a reasonable
expectation that the Company and the Group have adequate resources to continue in operational existence for the next financial year and the
foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Further details of the
Group’s liquidity are detailed in the financial review on page 10.
Disclosure of information to auditors
Each of the Directors of the Company has confirmed that as far as they are aware, there is no relevant audit information of which the auditors
are unaware and that each Director has taken all steps to make themselves aware of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
www.carpetright.plc.uk
28
Other information continued
Responsibility Statement
We confirm that to the best of our knowledge:
• the financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the business review, which is incorporated into the Directors’ report, includes a fair review of the development and performance of the
business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
This Director’s Report, including the Statement of Directors’ responsibilities, has been approved by the Board.
By order of the Board
Lord Harris
Chairman and Chief Executive
28 June 2010
Carpetright plc Annual report and accounts 2010
Financial statements
Consolidated income statement
for 52 weeks ended 1 May 2010
Revenue
Cost of sales
Gross profit
Other operating income
Administration expenses
Operating profit
Operating profit before exceptional items
Exceptional items
Finance costs
Finance income
Profit before tax
Tax
Profit for the financial period attributable to equity shareholders of the Company
Basic earnings per share
Diluted earnings per share
All material items in the income statement arise from continuing operations.
Notes
2
2
2, 3
2
2, 5
6
6
7
9
9
Consolidated statement of comprehensive income
for 52 weeks ended 1 May 2010
Profit for the financial period
Actuarial loss on defined benefit pension scheme
Fair value loss in respect of cash flow hedges
Exchange gain/(loss) in respect of hedged equity investments
Tax on components of other comprehensive income
Other comprehensive income for the period
Total comprehensive income for the period attributable to equity shareholders of the Company
The notes on pages 33 to 65 form an integral part of the financial statements.
29
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52 weeks to
1 May 2010
£m
516.6
(200.6)
316.0
2.4
(290.2)
28.2
34.1
(5.9)
(6.8)
0.9
22.3
(6.5)
15.8
Group
52 weeks to
2 May 2009
£m
482.8
(187.0)
295.8
1.8
(275.3)
22.3
22.8
(0.5)
(7.2)
1.6
16.7
(4.9)
11.8
23.5
23.5
17.6
17.6
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52 weeks to
1 May 2010
£m
15.8
(3.0)
–
(1.7)
0.6
(4.1)
Group
52 weeks to
2 May 2009
£m
11.8
(1.1)
(2.3)
7.2
0.2
4.0
11.7
15.8
www.carpetright.plc.uk
30
Consolidated statement of changes in equity
for 52 weeks ended 1 May 2010
Group
At 3 May 2008
Total comprehensive income for the financial period
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
Share-based payments and related tax
Dividends paid to Group shareholders
At 2 May 2009
Total comprehensive income for the financial period
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
Share-based payments and related tax
Dividends paid to Group shareholders
At 1 May 2010
Company
At 3 May 2008
Profit for the financial period
Actuarial loss on defined benefit pension scheme
Fair value loss in respect of cash flow hedges
Exchange loss in respect of hedged equity investments
Tax on components of other comprehensive income
Other comprehensive income for the period
Total comprehensive income for the financial period
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
Share-based payments and related tax
Dividends paid to Group shareholders
At 2 May 2009
Profit for the financial period
Actuarial loss on defined benefit pension scheme
Fair value gain/(loss) in respect of cash flow hedges
Exchange gain in respect of hedged equity investments
Tax on components of other comprehensive income
Other comprehensive income for the period
Total comprehensive income for the financial period
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
Share-based payments and related tax
Dividends paid to Group shareholders
At 1 May 2010
Share capital
£m
0.7
–
–
–
–
–
0.7
–
–
–
–
–
0.7
Share capital
£m
0.7
–
–
–
–
–
–
–
–
–
–
–
0.7
–
–
–
–
–
–
–
–
–
–
–
0.7
Share
premium
£m
15.4
–
–
–
–
–
15.4
–
–
–
–
–
15.4
Share
premium
£m
15.4
–
–
–
–
–
–
–
–
–
–
–
15.4
–
–
–
–
–
–
–
–
–
–
–
15.4
Treasury
shares
£m
(0.2)
–
(0.2)
0.3
–
–
(0.1)
–
(0.2)
0.1
–
–
(0.2)
Capital
redemption
reserve
£m
0.1
–
–
–
–
–
0.1
–
–
–
–
–
0.1
Translation
reserve
£m
4.7
7.2
–
–
–
–
11.9
(1.7)
–
–
–
–
10.2
Treasury
shares
£m
(0.2)
–
–
–
–
–
–
–
(0.2)
0.3
–
–
(0.1)
–
–
–
–
–
–
–
(0.2)
0.1
–
–
(0.2)
Capital
redemption
reserve
£m
0.1
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
0.1
Translation
reserve
£m
2.5
–
–
–
(5.1)
–
(5.1)
(5.1)
–
–
–
–
(2.6)
–
–
–
0.3
–
0.3
0.3
–
–
–
–
(2.3)
Hedging
reserve
£m
–
(2.3)
–
–
–
–
(2.3)
1.1
–
–
–
–
(1.2)
Hedging
reserve
£m
–
–
–
(2.3)
–
–
(2.3)
(2.3)
–
–
–
–
(2.3)
–
–
1.1
–
–
1.1
1.1
–
–
–
–
(1.2)
Retained
earnings
£m
53.6
10.9
–
(0.3)
0.1
(22.8)
41.5
12.3
–
(0.1)
0.6
(8.1)
46.2
Retained
earnings
£m
53.9
8.4
(1.1)
–
–
0.2
(0.9)
7.5
–
(0.3)
0.1
(22.8)
38.4
1.9
(3.0)
(1.1)
–
0.6
(3.5)
(1.6)
–
(0.1)
0.6
(8.1)
29.2
Total
£m
74.3
15.8
(0.2)
–
0.1
(22.8)
67.2
11.7
(0.2)
–
0.6
(8.1)
71.2
Total
£m
72.4
8.4
(1.1)
(2.3)
(5.1)
0.2
(8.3)
0.1
(0.2)
–
0.1
(22.8)
49.6
1.9
(3.0)
–
0.3
0.6
(2.1)
(0.2)
(0.2)
–
0.6
(8.1)
41.7
The notes on pages 33 to 65 form an integral part of the financial statements.
Carpetright plc Annual report and accounts 2010
31
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Consolidated balance sheet
as at 1 May 2010
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in subsidiary undertakings
Deferred tax assets
Trade and other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Obligations under finance leases
Borrowings and overdrafts
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Obligations under finance leases
Borrowings
Derivative financial instruments
Provisions for liabilities and charges
Deferred tax liabilities
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Net assets
Group
2010
£m
Group
2009
£m
Company
2010
£m
Company
2009
£m
Notes
10
11
12
13
21
15
14
15
16
17
18
19
17
18
19
23 (iii)
20
21
22 (i) (a) (2)
67.2
149.5
26.1
–
2.9
1.4
247.1
41.3
38.1
8.3
87.7
71.2
164.7
25.3
–
3.3
1.3
265.8
43.2
34.4
17.4
95.0
16.1
97.8
7.7
36.4
–
51.2
209.2
32.4
31.1
3.6
67.1
16.2
105.8
7.5
39.1
–
61.7
230.3
31.7
26.2
10.5
68.4
334.8
360.8
276.3
298.7
(114.2)
(0.1)
(22.2)
(5.6)
(142.1)
(34.2)
(2.9)
(53.3)
(1.1)
(1.8)
(23.4)
(4.8)
(121.5)
(110.8)
(0.9)
(17.1)
(5.7)
(134.5)
(31.5)
(3.0)
(91.2)
(2.3)
(0.8)
(27.9)
(2.4)
(159.1)
(95.8)
(0.1)
(17.9)
(4.7)
(118.5)
(43.9)
(1.9)
(49.0)
(1.1)
(1.8)
(13.6)
(4.8)
(116.1)
(88.6)
(0.9)
(5.5)
(4.2)
(99.2)
(35.6)
(2.0)
(88.5)
(2.3)
(0.8)
(18.3)
(2.4)
(149.9)
(263.6)
(293.6)
(234.6)
(249.1)
71.2
67.2
41.7
49.6
Equity
Share capital
Share premium
Treasury shares
Other reserves
Total equity attributable to equity shareholders of the Company
The notes on pages 33 to 65 form an integral part of the financial statements.
24
24
24
0.7
15.4
(0.2)
55.3
71.2
0.7
15.4
(0.1)
51.2
67.2
0.7
15.4
(0.2)
25.8
41.7
0.7
15.4
(0.1)
33.6
49.6
These financial statements from pages 29 to 65 were approved by the Board of Directors on 28 June 2010 and were signed on its behalf by:
Lord Harris of Peckham
Directors
Neil Page
www.carpetright.plc.uk
32
Consolidated statement of cash flow
for 52 weeks ended 1 May 2010
Cash flows from operating activities
Profit before tax
Adjusted for:
Depreciation and amortisation
(Profit)/loss on property disposals
Exceptional non-cash items
Other non-cash items
Net finance costs
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated by operations
Interest paid
Corporation taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment and investment property
Purchases of intangible assets
Purchases of property, plant and equipment and investment property
Acquisition of businesses net of cash acquired
Interest received
Net cash used in investing activities
Cash flows from financing activities
Purchase of Treasury shares by Employee Share Trust
Repayment of borrowings
New loans advanced
Inter-company loans
Repayment of obligations under finance leases
Dividends paid to Group shareholders
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents in the period
Cash and cash equivalents at the beginning of the period
Exchange differences
Cash and cash equivalents at the end of the period
The notes on pages 33 to 65 form an integral part of the financial statements.
Group
52 weeks to
1 May 2010
£m
Group
52 weeks to
2 May 2009
£m
Company
52 weeks to
1 May 2010
£m
Company
52 weeks to
2 May 2009
£m
22.3
19.1
0.7
3.5
(0.5)
5.9
51.0
1.5
(3.8)
9.6
58.3
(7.0)
(9.9)
41.4
0.5
(1.1)
(9.0)
–
0.2
(9.4)
(0.2)
(43.6)
2.7
–
(0.9)
(8.1)
(50.1)
(18.1)
13.0
0.1
(5.0)
16.7
20.4
(1.8)
1.1
0.1
5.6
42.1
2.7
(0.9)
(17.7)
26.2
(6.2)
(12.2)
7.8
3.0
(2.0)
(14.3)
(7.3)
0.7
(19.9)
(0.2)
(20.5)
72.0
–
(0.8)
(22.8)
27.7
15.6
(2.2)
(0.4)
13.0
6.0
15.3
0.7
12.7
(0.5)
5.6
39.8
(0.8)
(4.8)
11.9
46.1
(6.5)
(7.5)
32.1
0.5
(1.1)
(7.4)
–
–
(8.0)
(0.2)
(35.5)
–
5.1
(0.9)
(8.1)
(39.6)
(15.5)
10.5
(0.4)
(5.4)
11.4
16.2
(1.8)
1.1
0.1
4.7
31.7
(0.6)
(9.4)
(13.9)
7.8
(5.5)
(8.3)
(6.0)
3.0
(2.0)
(9.3)
(1.5)
0.7
(9.1)
(0.2)
(13.3)
69.0
–
(0.8)
(22.8)
31.9
16.8
(5.3)
(1.0)
10.5
Notes
2, 3
6
8
16, 29
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.
Carpetright plc Annual report and accounts 2010
33
Notes to the accounts
1 Principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented unless otherwise stated.
Basis of preparation
The financial statements of the Group are made up to the Saturday nearest to 30 April. The financial year for 2010 represents the 52 weeks
ended 1 May 2010. The comparative financial year for 2009 was 52 weeks ended 2 May 2009.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International
Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by the European Union, together with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments, pension
assets and liabilities and share-based payments which are measured at fair value. The principal accounting policies set out below have been
consistently applied to all periods presented unless otherwise stated.
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Basis of consolidation
The consolidated financial statements include the Company and its subsidiary undertakings. The acquisition of subsidiaries is accounted
for using the purchase method. The results of subsidiaries acquired or disposed of in the period are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal respectively.
Inter-company transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Changes to accounting standards
The following new standards and amendments to standards, which are mandatory for the first time in the financial year beginning
3 May 2009, are relevant for the Group:
IAS 1 (revised)
Presentation of financial statements Requires non-owner changes in equity to be shown in either one performance
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IFRS 2 (amendment) Share-based payments – vesting
conditions and cancellations
IFRS 8
Operating segments
statement (the statement of comprehensive income) or two statements (the
income statement and the statement of comprehensive income). The Group
has elected to present two statements. Owner changes in equity are required
to be shown in a statement of changes in equity.
Clarifies the vesting conditions that are service conditions and performance
conditions only. Other features that are not vesting conditions are required to
be included in the grant date fair value. This has had no material impact on the
results presented.
IFRS 8 replaces IAS 14 ‘Segment reporting’. It requires a ‘management approach’
under which segmental information is presented on the same basis as that used
for internal reporting purposes. The Chief Operating decision maker, who is
responsible for resource allocation and assessing performance of the operating
segments, has been identified as the Board of Directors. As a result of IFRS 8
The Netherlands is being shown as a separate operating segment with the
remainder of what was previously reported as ‘Rest of Europe’ being included
under ‘all other segments’.
Where applicable comparative amounts have been restated to conform with current presentation.
The following amendment to a standard which is mandatory for the first time in the financial year beginning 3 May 2009, is relevant but
was already applied by the Group:
IAS 23, ‘Borrowing costs (revised)’
The following amendments to standards and IFRIC interpretations, which are mandatory for the first time in the financial year beginning
3 May 2009, are either not currently relevant or material for the Group:
IAS 32 (amendment), ‘Puttable financial instruments and obligations arising on liquidation’;
IAS 39 (amendment), ‘Financial instruments: Recognition and measurement’;
IAS 39 and IFRS 7 (amendment), ‘Reclassification of financial assets’;
IFRIC 13, ‘Customer loyalty programmes’;
IFRIC 14, ‘IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction’, and
IFRIC 15, ‘Agreements for the construction of real estate’.
www.carpetright.plc.uk
34
Notes to the accounts continued
1 Principal accounting policies continued
Exchange differences
The consolidated financial statements are presented in pounds sterling, which is the Company’s functional and presentational currency.
Transactions in foreign currencies, which are those other than the functional currency of an entity, are recorded at the opening rate for the
month in which the transaction occurs which is used as a reasonable approximation to the rate at the transaction date. Monetary assets and
liabilities denominated in foreign currency are translated at the rates ruling at the balance sheet date. Resulting exchange gains or losses are
recognised in the income statement for the period except where they are part of a net foreign investment hedge when they are recognised in equity.
On consolidation the assets and liabilities of the Group’s foreign operations are translated at the rate of exchange ruling at the balance sheet
date. Income and expenses of foreign operations are translated at the average rate during the period. Differences on translation are recognised
as a separate component of equity. On disposal of a foreign operation the cumulative exchange differences for that operation are recognised in
the income statement as part of the profit or loss on disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of that operation
and are translated at the rate ruling at the balance sheet date.
Segment reporting
Segmental information is presented using a ‘management approach’ on the same basis as that used for internal reporting to the Chief
Operating decision maker. The Chief Operating decision maker, who is responsible for resource allocation and assessing performance
of the operating segments, has been identified as the Board of Directors.
Revenue
Revenue is measured at the fair value of the consideration received or receivable for the provision of goods and services to customers outside
the Group net of returns, sales allowances and value added and other sales based taxes. Revenue from goods and services is recognised at the
point the Group fulfils its commercial obligations to the customer, the revenue and costs in respect of the transaction can be measured reliably
and collectability is reasonably assured.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. The fair value of the employee services received in exchange for
the grant of options is recognised as an expense and is calculated using Black-Scholes and Monte-Carlo models. The value of the charge is
adjusted to reflect expected and actual levels of options vesting. The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted, excluding the impact of any service and performance conditions that are included in the
assumptions about the number of options which are expected to become exercisable.
At each balance sheet date the Group revises its estimates of the number of options which are expected to become exercisable. It recognises the
impact of the revision of original estimates, if any, in the income statement and a corresponding adjustment to equity over the vesting period.
Impairment
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed for indications of impairment at each balance sheet date. If there is an indication of impairment
the recoverable amount of either the asset or the cash-generating unit to which it belongs is estimated. Cash-generating units are used where
an individual asset does not generate cash flows which are independent of other assets. The recoverable amount of a non-financial asset is the
higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived
from the asset or cash-generating unit.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or cash-generating unit exceeds its
recoverable amount.
Non-financial assets other than goodwill that suffer an impairment are reviewed for possible reversal of impairment at each reporting date.
Other operating income
Rental income earned on investment property is recognised, in other operating income, in accordance with the substance of the relevant
rental agreements.
Profits or losses on the disposal of property, plant and equipment represent the difference between the net proceeds and the net carrying
value at the date of sale. Disposals are accounted for when there has been an unconditional exchange of contracts except where payment
or completion is expected to occur significantly after exchange.
Carpetright plc Annual report and accounts 2010
35
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Exceptional items
Profits/losses on property disposals and non-recurring transactions which are material by virtue of their size or incidence such as major
reorganisation costs and impairments are disclosed as exceptional items.
Tax
Current tax liabilities are measured at the amount expected to be paid, based on tax rates and laws that are enacted or substantively enacted
at the balance sheet date in the countries where the Company’s subsidiaries operate and generate taxable income.
Deferred tax expected to be payable or recoverable on differences at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes is accounted for using the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred
tax is calculated at the rates of tax that are expected to apply when the asset or liability is settled, based on tax rates that have been enacted or
substantively enacted by the balance sheet date, and is not discounted.
Tax is charged or credited directly to equity if it relates to items that are credited or charged to equity, otherwise it is recognised in the
income statement.
Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements in the period in which the
dividends are approved by the Company’s shareholders or, in the case of interim dividends, paid.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
entity. Goodwill is not amortised, but is reviewed for impairment at least annually. Any impairment is recognised immediately in the income
statement and is not subsequently reversed. On disposal of a subsidiary the attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
Other intangible assets
Purchased brand names and other intangible assets are capitalised at cost. Acquired software licences and software development costs
are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
Amortisation of intangible assets is calculated to write off the cost of the asset, on a straight-line basis, over its expected useful life.
The expected useful lives generally applicable are:
Brands
Computer software
20 years
7 years
Property, plant and equipment
Property, plant and equipment is shown at cost less accumulated depreciation and any provisions for impairment in value.
Depreciation is provided to write down the cost of property, plant and equipment, on a straight line basis, to their estimated residual values
over their estimated useful lives. Freehold land is not depreciated. The estimated useful lives and residual values of assets are reviewed annually.
The estimated useful lives by asset category that are generally applicable are:
Freehold and long leasehold buildings
Short leasehold buildings
Fixtures and fittings
Computers
Motor vehicles
Other plant and machinery
50 years
The shorter of the period of the lease and the estimated useful life
7 to 15 years
5 to 7 years
4 years
7 to 10 years
www.carpetright.plc.uk
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Notes to the accounts continued
1 Principal accounting policies continued
Borrowing costs
Gross interest costs incurred on the financing of major projects are capitalised until the time that they are available for use. Unless a specific
borrowing is taken out to finance the asset interest is capitalised using the weighted average interest rate of all non specific borrowings.
Where a specific borrowing is taken out to finance the asset interest is capitalised at the rate applicable to that borrowing.
Investment property
Property that is held to earn rental income and for capital appreciation is separately disclosed as investment property. Investment property
is carried at depreciated historical cost. Depreciation rates and useful lives of investment property are the same as those for Property, plant
and equipment.
Leasing commitments
Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards of ownership to the Group.
All other leases are classified as operating leases.
Assets used by the Group which have been funded through finance leases are capitalised in fixed assets and the resulting lease obligations are
included in creditors. The assets are depreciated over the shorter of their useful lives and the period of the lease. The interest element of the
rental obligations is charged to the income statement over the period of the lease and represents a constant proportion of the balance of
capital repayments outstanding.
Rentals payable under operating leases are charged to income on a straight-line basis over the period of the lease. Premiums payable, rent
free periods and contributions receivable on entering an operating lease are released to income on a straight-line basis over the lease term.
Investment in subsidiaries
The Company’s investment in subsidiary undertakings is recognised at cost and is accounted for net of impairment losses. Income from
investments is recognised in the income statement to the extent that post acquisition profits are received. Distributions of pre-acquisition
profits reduce the cost of the investment.
Inventories
Inventories are valued at the lower of weighted average cost and net realisable value. Net realisable value is based on estimated selling prices
less further costs to be incurred to disposal. Provisions are made for obsolescence, mark down and shrinkage based on actual losses, ageing
of inventories and sales trends.
Rebates receivable from suppliers
Volume related rebates receivable from suppliers are credited to the carrying value of the inventory to which they relate. Where a rebate
agreement with a supplier covers more than one year, the rebates are recognised in the period in which they are earned.
Trade receivables and payables
Trade receivables and payables are initially recognised at fair value and subsequently adjusted to the amount receivable or payable.
Receivables are stated net of a provision for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at bank, deposits repayable on demand and highly liquid investments. For the
purposes of the cash flow statement cash and cash equivalents also includes bank overdrafts which are shown within borrowings and
overdrafts in current liabilities on the balance sheet.
Bank loans and overdrafts
Bank loans and overdrafts are initially recognised at fair value less directly attributable transaction costs and are subsequently measured
at amortised cost using the effective interest rate model.
Provisions
A provision is recognised where the Group has a legal or constructive obligation as a result of a past event and it is probable that an outflow
of economic benefits will be required to settle the obligation. Provisions are calculated on a discounted basis when appropriate.
Carpetright plc Annual report and accounts 2010
37
Retirement benefit obligations
The Group operates defined benefit and defined contribution schemes and also participates in a multi-employer pension scheme in respect of its
employees in The Netherlands. The assets and liabilities of all schemes are held separately from those of the Group. The Group is unable to identify
its share of the assets and liabilities of the multi-employer scheme and, therefore, accounts for this scheme as a defined contribution scheme.
The cost of providing benefits under the defined benefit schemes is determined using the projected unit credit method, with actuarial
valuations being carried out at each balance sheet date. The net retirement benefit obligation recognised in the balance sheet represents
the present value of the defined benefit obligation less the fair value of the scheme assets at the balance sheet date.
Actuarial gains and losses are recognised in full, directly in equity in the period in which they occur and are presented in other
comprehensive income.
Other income and expenses associated with the defined benefit scheme are recognised in the income statement.
The pension cost of defined contribution schemes is charged in the income statement as incurred.
Financial instruments
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Derivative financial instruments
Derivative financial instruments (‘derivatives’) are used to manage risks arising from changes in foreign currency exchange rates and
changes in interest rates. In accordance with its Treasury policy, the Group does not enter into derivatives for speculative purposes.
Derivatives are stated at their fair value. The fair value of interest rate contracts is the estimated amount that the Group would receive
or pay to terminate them at the balance sheet date, taking into account prevailing interest rates.
Changes in the fair value of derivatives which do not qualify for hedge accounting are recognised in the income statement as they arise.
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Hedge accounting
Changes in the fair value of derivatives that are designated and effective as hedges of future cash flows are recognised directly in other
comprehensive income and any ineffective portion is recognised immediately in the income statement. When the asset or liability for the
hedged transaction is recognised in the balance sheet, the associated gain or loss on the hedging instrument previously recognised in other
comprehensive income is included in the carrying amount of the hedged asset or liability. Gains or losses realised on cash flow hedges
are then recognised in the income statement in the same period as the hedged item.
Where the Group hedges net investments in foreign entities through currency borrowings the gains or losses on the retranslation of the
borrowings are recognised in equity.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the hedging instrument previously recognised in equity is retained in equity until the
hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is then
transferred to the income statement.
Critical estimates and judgments
The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from
these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets
and liabilities within the next financial year are discussed below:
Impairment of goodwill
The Group is required to test whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been
determined based on value in use calculations. The use of this method requires the estimation of future cash flows expected to arise from
the continuing operation of the cash-generating unit and the choice of a suitable discount rate in order to calculate the present value.
Actual outcomes could vary significantly from these estimates.
Impairment of assets
Property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not
be recoverable. When a review for impairment is conducted, the recoverable amount of an asset or cash-generating unit is determined based
on value in use calculations prepared on the basis of management’s assumptions and estimates.
www.carpetright.plc.uk
38
Notes to the accounts continued
1 Principal accounting policies continued
Critical estimates and judgments continued
Retirement benefits
The present value of the defined benefit liabilities recognised in the balance sheet is dependent on the interest rates of high-quality corporate
bonds. The net financing charge is dependent on both the interest rates of high-quality corporate bonds and the assumed investment returns
on scheme assets. Other key assumptions for pension obligations, including mortality rates, are based in part on current market conditions.
New standards and interpretations
New standards and interpretations of existing standards that are not yet effective and have not been early adopted by the Group.
At 1 May 2010 the following new standards and interpretations and amendments to existing standards, which are expected to be relevant
to the Group and have an impact on the financial statements, were issued but not yet effective:
• IFRS 3 (revised), ‘Business combinations’, (effective for periods beginning on or after 1 July 2009). The revised standard harmonises
business combination accounting with US GAAP. The standard will continue to apply the acquisition method to business combinations
but with certain significant changes. All payments to purchase a business will be recorded at fair value at the acquisition date, with some
contingent payments subsequently remeasured at fair value through income. Goodwill and non-controlling interests may be calculated
on a gross or net basis. All transaction costs will be expensed. The Group will apply IFRS 3 (revised) prospectively to all business
combinations from 2 May 2010.
• IAS 27 (revised), ‘Consolidated and separate financial statements’, (effective for periods beginning on or after 1 July 2009). The revised
standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and
specifies the accounting when control is lost. The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling
interests from 2 May 2010.
• IAS 38 (amendment), ‘Intangible assets’, (effective for periods beginning on or after 1 July 2009). The amendment clarifies guidance
in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets
as a single asset if each asset has similar useful economic lives. The Group will apply IAS 38 (amendment) prospectively to business
combinations from 2 May 2010.
• IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’, (effective for periods beginning on or after
1 July 2009). The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets
(or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1
still apply. The Group will apply IFRS 5 (amendment) prospectively from 2 May 2010.
• IFRS 9, ‘Financial instruments’, (effective for periods beginning on or after 1 January 2013). The standard sets out how an entity should
classify and measure financial assets. The Group will apply IFRS 9 when it becomes effective.
• IFRIC 16, ‘Hedges of net investment in a foreign operation’, IFRIC 17, ‘Distribution of non-cash assets to owners’ and IFRIC 18 ‘Transfer of
assets from customers’ all effective for periods beginning on or after 1 July 2009 and IFRIC 19 ‘Extinguishing financial liabilities with equity
instruments’, effective for periods beginning on or after 1 July 2010 will be applied by the Group when they become effective but are not
expected to have any impact on the financial statements.
Carpetright plc Annual report and accounts 2010
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2 Segmental analysis
The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. The Group’s
business comprises only a retail business and the Board considers that business on the basis of the four geographic units of the UK and
Republic of Ireland (UK & RoI), The Netherlands, Belgium and Poland. Neither Belgium nor Poland is significant enough to meet the
quantitative thresholds to require separate reporting and they have been aggregated as ‘All other segments’.
The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds. Central costs are incurred
principally in the UK and are immaterial. As such these costs are included within the UK & RoI segment. Sales between segments are
carried out at arm’s length.
The segment information provided to the Board for the reportable segments for the 52 weeks ended 1 May 2010 is as follows:
52 weeks to 1 May 2010
52 weeks to 2 May 2009
Gross Revenue
Inter-segment revenue
Revenues from external customers
Gross profit
Underlying operating profit
Exceptional items
Operating profit
Finance income
Inter-company interest
Finance costs
Profit before tax
Tax
Profit for the financial period
Segment Assets:
Segment assets
Inter-segment balances
Balance sheet total assets
Segment Liabilities:
Segment liabilities
Inter-segment balances
Balance sheet total liabilities
Other segmental items:
Depreciation and amortisation
Additions to non-current assets
UK & RoI
£m
428.8
(3.6)
425.2
263.7
26.2
(2.4)
23.8
0.9
–
(6.6)
18.1
(4.3)
13.8
244.3
(11.4)
232.9
(232.9)
5.2
(227.7)
The
Netherlands
£m
65.5
–
65.5
38.3
7.8
–
7.8
–
(0.1)
(0.1)
7.6
(1.8)
5.8
78.1
(0.1)
78.0
(23.9)
5.6
(18.3)
All other
segments
£m
25.9
–
25.9
14.0
0.1
(3.5)
(3.4)
–
0.1
(0.1)
(3.4)
(0.4)
(3.8)
33.1
(9.2)
23.9
(27.5)
9.9
(17.6)
Group
£m
520.2
(3.6)
516.6
316.0
34.1
(5.9)
28.2
0.9
–
(6.8)
22.3
(6.5)
15.8
355.5
(20.7)
334.8
(284.3)
20.7
(263.6)
UK & RoI
£m
397.3
(3.2)
394.1
244.6
15.6
0.3
15.9
1.5
0.2
(6.4)
11.2
(1.8)
9.4
256.0
(10.5)
245.5
(248.7)
–
(248.7)
The
Netherlands
£m
63.6
–
63.6
37.2
7.6
(0.7)
6.9
0.1
–
(0.6)
6.4
(2.9)
3.5
87.2
(0.2)
87.0
(36.8)
4.2
(32.6)
All other
segments
£m
25.1
–
25.1
14.0
(0.4)
(0.1)
(0.5)
–
(0.2)
(0.2)
(0.9)
(0.2)
(1.1)
29.1
(0.8)
28.3
(19.6)
7.3
(12.3)
Group
£m
486.0
(3.2)
482.8
295.8
22.8
(0.5)
22.3
1.6
–
(7.2)
16.7
(4.9)
11.8
372.3
(11.5)
360.8
(305.1)
11.5
(293.6)
15.5
6.5
2.6
0.7
1.0
0.9
19.1
8.1
16.6
14.3
2.5
1.5
1.3
0.7
20.4
16.5
Carpetright plc is domiciled in the UK. The Group’s revenue from external customers in the UK is £416.5m (2009: £381.8m) and the total
revenue from external customers from other countries is £100.1m (2009: £101.0m). The total of non-current assets (other than financial
instruments and deferred tax assets) located in the UK is £175.8m (2009: £179.6m) and the total of those located in other countries is £89.0m
(2009: £94.4m).
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.
www.carpetright.plc.uk
40
Notes to the accounts continued
3 Operating profit, analysis of costs by nature
Operating profit is stated after charging/(crediting):
Rental income earned on investment property
Cost of inventories recognised as an expense in cost of sales
Operating lease rentals
Minimum lease payments in respect of land and buildings
Minimum lease payments in respect of plant and machinery
Sublease rental income
Auditors’ remuneration
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements
Staff costs
Impairment of fixed assets
Charged in administration expenses
Amortisation of intangible assets
Charged in administration expenses
Depreciation of property, plant and equipment
Owned assets
Charged in cost of sales
Charged in administration expenses
Under finance leases
Charged in cost of sales
Charged in administration expenses
Depreciation of investment property
Charged in administration expenses
Charged in other operating income
Notes
4
5
10
11
12
Group
2010
£m
(2.6)
175.6
93.0
1.7
(4.0)
0.3
106.6
3.2
3.6
–
14.4
0.7
0.1
0.3
–
Group
2009
£m
(2.0)
167.8
91.8
1.7
(5.4)
0.3
101.6
0.9
3.5
0.1
15.5
0.7
0.1
0.4
0.1
Carpetright plc Annual report and accounts 2010
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4 Staff costs
The average number of persons (full-time equivalents) employed by the Group (including Directors) was as follows:
Stores
Central support office and warehouse
The aggregate employment costs of employees and Directors were as follows:
Wages and salaries (including short-term employee benefits)
Social security costs
Post employment benefits
Defined benefit
Defined contribution
Share-based payments
Group
2010
Number
3,115
379
3,494
Group
2010
£m
94.7
9.6
(0.2)
2.0
0.5
106.6
Group
2009
Number
3,030
381
3,411
Group
2009
£m
89.9
9.1
0.5
2.0
0.1
101.6
Company
2010
Number
2,532
329
2,861
Company
2010
£m
75.2
7.2
(0.2)
0.8
0.5
83.5
Company
2009
Number
2,406
330
2,736
Company
2009
£m
71.5
6.9
0.5
0.6
0.1
79.6
Notes
25
Wages and salaries include short-term employee benefits as defined in IAS 19, with the exception of costs associated with the Group’s pension
schemes. Post employment benefits include costs associated with the Group’s pension schemes with the exception of net interest costs and the
actuarial gain on the defined benefit pension scheme. The net £0.2m credit (2009: £0.5m cost) relating to the defined benefit pension schemes
are included in administration expenses. Share-based payments comprise the cost of awards in respect of employee share schemes in
accordance with IFRS 2. These costs are explained in note 25.
The employment costs of key management(1) were as follows:
Salaries (including short-term employee benefits)
Social security costs
Post employment benefits
Share-based payments
Group
2010
£m
3.9
0.5
0.3
0.5
5.2
Group
2009
£m
2.9
0.4
0.3
0.1
3.7
1. Key management comprises Group Directors and those senior officers of the Group responsible for planning, directing or controlling Group activities.
During the year the Executive Directors realised gains totalling £0.2m on the vesting of the 2006 Long-Term Incentive Plan (2009: £0.1m).
Details of these gains, share options and other Directors’ remuneration are disclosed in the Directors’ remuneration report on pages 20 to 24,
which form part of these financial statements.
www.carpetright.plc.uk
42
Notes to the accounts continued
5 Exceptional items
Disclosed in the income statement:
Profits/(loss) on property disposals
UK & RoI impairment of property, plant and equipment (see note 11)
Onerous lease provision
Poland:
Impairment of property, plant and equipment (see note 11)
Closure costs
Over provision for pre-opening costs of Purfleet
Post acquisition reorganisation of new businesses
Impairment of investment in Joint venture
Group
2010
£m
(0.7)
(1.4)
(1.4)
(1.8)
(1.7)
1.1
–
–
(5.9)
Group
2009
£m
1.8
(0.9)
–
–
–
–
(1.2)
(0.2)
(0.5)
The onerous lease provision relates to three properties in the UK that are not trading and are either empty or leased at below the passing rent.
The provision covers the period until full cost recovery is expected.
The costs relating to Poland reflect the impairment of assets to disposal value and the costs of closure of the 11 stores trading at the start of the year.
The exceptional pre-opening costs of the cutting and distribution centre recognised in 2007/8 were over-provided by £1.1m which has been released.
The post acquisition reorganisation costs of the new businesses are primarily redundancy and other costs arising from the integration of the
support functions into Carpetright.
Group
2010
£m
(4.9)
(0.5)
(0.2)
(1.0)
(0.2)
(6.8)
–
0.9
–
0.9
Group
2009
£m
(5.3)
(0.5)
(0.2)
(1.0)
(0.2)
(7.2)
0.5
1.0
0.1
1.6
(5.9)
(5.6)
6 Net finance costs
Finance costs
Interest on borrowings and overdrafts
Fees amortisation
Interest on obligations under finance leases
Interest on pension scheme obligations (note 22)
Other interest payable
Finance income
Interest on cash and cash equivalents
Expected return on pension scheme assets (note 22)
Other interest receivable
Net finance costs
Carpetright plc Annual report and accounts 2010
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7 Tax
(i) Analysis of the charge in the period
UK current tax
Overseas current tax
Total current tax
UK deferred tax
Overseas deferred tax
Total deferred tax
Total tax charge in the income statement
Tax of £0.4m has been credited to the income statement (2009: £0.1m credit) in respect of exceptional items.
(ii) Reconciliation of profit before tax to total tax
Profit before tax
Tax charge at UK Corporation Tax rate of 28.0% (2009: 28.0%)
Adjusted for the effects of:
Overseas tax rates
Non-qualifying depreciation
Foreign exchange movements on foreign deferred tax
Other permanent differences
Adjustments in respect of prior periods
Total tax charge in the income statement
Group
2010
£m
4.4
1.6
6.0
(0.1)
0.6
0.5
6.5
Group
2010
£m
22.3
6.2
(0.3)
0.9
–
0.3
(0.6)
6.5
Group
2009
£m
2.0
2.1
4.1
(0.6)
1.4
0.8
4.9
Group
2009
£m
16.7
4.7
(0.2)
0.7
0.3
(0.3)
(0.3)
4.9
The weighted average annual effective tax rate for the period is 29.5% (2009: 29.8%). This decrease arises primarily from one off credits in the
year offset by overseas tax movements.
(iii) Tax on items taken directly to or transferred from equity
Deferred tax on actuarial gains, recognised in other comprehensive income
Deferred tax on share-based payments
Total tax recognised in equity
Group
2010
£m
0.6
0.1
0.7
Group
2009
£m
0.2
0.1
0.3
www.carpetright.plc.uk
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Notes to the accounts continued
8 Dividends
Group and Company
Prior year final dividend paid
Current year interim dividend paid
2010
2009
Pence
per share
4.0
8.0
12.0
£m
2.7
5.4
8.1
Pence
per share
30.0
4.0
34.0
£m
20.1
2.7
22.8
The Directors propose a final dividend of 8.0 pence per share amounting to £5.4m (2009: 4.0 pence per share; £2.7m) which is not included as
a liability in these financial statements. Subject to approval by the shareholders at the Annual General Meeting, the proposed dividend will be
paid on 24 September 2010 to shareholders who are on the register of members on 10 September 2010.
This would take the 2010 interim and final dividend payments to 16.0 pence amounting to £10.8m (2009: 8.0 pence; £5.4m).
9 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 Equity Trust (Jersey) Limited (see note 25) 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.
Basic earnings per share
Effect of dilutive share options
Diluted earnings per share
2010
Weighted
average number
of shares
Millions
67.2
0.4
67.6
Earnings
£m
15.8
0.1
15.9
Earnings per
share
Pence
23.5
–
23.5
2009
Weighted
average number
of shares
Millions
67.2
0.4
67.6
Earnings
£m
11.8
0.1
11.9
Earnings per
share
Pence
17.6
–
17.6
Reconciliation of earnings per share excluding post tax profit on exceptional items:
Basic earnings per share
Adjusted for the effect of exceptional items:
Exceptional items
Tax thereon
Underlying earnings per share
52 weeks ended
1 May 2010
Pence
23.5
52 weeks ended
2 May 2009
Pence
17.6
8.7
(0.6)
31.6
0.7
(0.1)
18.2
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.
Carpetright plc Annual report and accounts 2010
45
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10 Intangible assets
Group
Cost:
At 3 May 2008
Exchange differences
Acquisition of subsidiaries
Additions
Disposals
At 2 May 2009
Exchange differences
Additions
Disposals
At 1 May 2010
Accumulated amortisation and impairment:
At 3 May 2008
Amortisation
Disposals
At 2 May 2009
Exchange differences
Amortisation
At 1 May 2010
Net book value:
At 1 May 2010
At 2 May 2009
Goodwill
£m
Computer
software
£m
Brands
£m
45.3
2.7
7.4
–
–
55.4
(0.7)
–
–
54.7
0.5
–
–
0.5
–
–
0.5
54.2
54.9
21.8
–
–
2.0
(0.3)
23.5
–
0.3
(0.1)
23.7
3.9
3.5
(0.2)
7.2
(0.1)
3.6
10.7
13.0
16.3
0.1
–
–
–
–
0.1
–
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£m
67.2
2.7
7.4
2.0
(0.3)
79.0
(0.7)
0.3
(0.1)
78.5
4.5
3.5
(0.2)
7.8
(0.1)
3.6
11.3
67.2
71.2
Goodwill is not amortised. Instead it is subject to an impairment review at each reporting date or more frequently if there is an indication that
it may be impaired. Other intangibles are amortised and also tested for impairment when there is an indication that the asset may be impaired.
Goodwill impairment, intangible amortisation and impairment and reversals thereof are recognised in full in administration expenses in the
income statement during the period in which they are identified.
Group goodwill comprises purchased goodwill in respect of the Sleepright business in December 2008, £2.9m, the Ben de Graaff business in
July 2008, £4.9m, Carpetworld in March 2008, £6.9m, Storeys in May 2007, £15.3m, the Mays business in June 2005, £4.7m and The Netherlands
and Belgian businesses in 2002, £19.5m. Goodwill is allocated to the cash generating units to which it relates.
Goodwill is impaired if the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to
sell and the value in use. In the absence of a recent market transaction the recoverable amount is determined from value in use calculations.
These calculations are based on 10 year profit projections, the same period used by the Group for appraising the potential of business acquisitions,
adjusted for non-cash items, planned working capital movements and capital expenditure. The cash flow projections for the initial three year
period are based on financial budgets and plans approved by the Board. The key drivers are like-for-like sales growth, gross margin percentage
and anticipated cost inflation. Cashflows beyond the plan period are extrapolated at a constant growth rate of 2.5% (2009: 2.5%). The growth
rate is in line with long-term growth rates of the countries in which the Group operates. The pre-tax discount rate applied to cash flow
projections is 8.3% (2009: 9.6%) and is based on the Group’s weighted average cost of capital adjusted to reflect the risks of the businesses
acquired. Based on these calculations goodwill is not impaired. An increase of 1% in the discount rate would not change the outcome of these
calculations. An increase of 3% in the discount rate would be required before any material impairment of goodwill would be indicated.
www.carpetright.plc.uk
46
Notes to the accounts continued
10 Intangible assets continued
Company
Cost:
At 3 May 2008
Additions
Disposals
At 2 May 2009
Additions
At 1 May 2010
Accumulated amortisation and impairment:
At 3 May 2008
Amortisation
Disposals
At 2 May 2009
Exchange differences
Amortisation
At 1 May 2010
Net book value:
At 1 May 2010
At 2 May 2009
Goodwill
£m
Computer
software
£m
Brands
£m
–
–
–
–
3.1
3.1
–
–
–
–
–
–
–
3.1
–
21.7
2.0
(0.3)
23.4
0.3
23.7
3.9
3.5
(0.2)
7.2
(0.1)
3.6
10.7
13.0
16.2
0.1
–
–
0.1
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£m
21.8
2.0
(0.3)
23.5
3.4
26.9
4.0
3.5
(0.2)
7.3
(0.1)
3.6
10.8
16.1
16.2
Company goodwill comprises purchased goodwill arising on the transfer of businesses from subsidiaries to the Parent Company in respect of
Carpetworld £0.8m and Sleepright £2.3m.
Carpetright plc Annual report and accounts 2010
47
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11 Property, plant and equipment
Group
Cost:
At 3 May 2008
Exchange differences
Additions
Acquisition of subsidiaries
Transfer to investment property
Disposals
At 2 May 2009
Exchange differences
Additions
Transfer between asset class
Transfer to investment property
Disposals
At 1 May 2010
Accumulated depreciation and impairment:
At 3 May 2008
Exchange differences
Impairment
Depreciation
Transfer to investment property
Disposals
At 2 May 2009
Exchange differences
Impairment
Depreciation
Transfer to investment property
Disposals
At 1 May 2010
Net book value:
At 1 May 2010
At 2 May 2009
Freehold land
and buildings
£m
Long leasehold
land and
buildings
£m
Short
leasehold
buildings
£m
Fixtures
and fittings
£m
Plant and
machinery
£m
71.9
4.6
3.7
–
(3.1)
–
77.1
(0.9)
–
(0.9)
(2.5)
–
72.8
4.0
0.4
–
1.2
(0.2)
–
5.4
(0.1)
0.7
1.2
(0.8)
–
6.4
17.3
–
–
–
–
–
17.3
–
0.4
0.9
–
–
18.6
1.5
0.1
–
0.5
–
–
2.1
(0.1)
–
0.5
–
–
2.5
20.8
0.2
0.2
–
–
(0.9)
20.3
(0.1)
0.6
–
–
(0.8)
20.0
7.2
0.1
0.1
1.3
–
(0.4)
8.3
–
0.8
1.0
–
(0.6)
9.5
66.4
71.7
16.1
15.2
10.5
12.0
93.3
1.5
8.1
0.4
–
(10.6)
92.7
(0.4)
6.3
–
(0.2)
(4.1)
94.3
40.6
1.2
0.8
8.6
–
(9.9)
41.3
(0.3)
1.6
7.9
(0.1)
(2.6)
47.8
46.5
51.4
39.9
3.4
2.5
–
–
(2.1)
43.7
(0.8)
0.5
–
–
(1.2)
42.2
24.1
2.2
–
4.8
–
(1.8)
29.3
(0.6)
0.1
4.6
–
(1.2)
32.2
10.0
14.4
Total
£m
243.2
9.7
14.5
0.4
(3.1)
(13.6)
251.1
(2.2)
7.8
–
(2.7)
(6.1)
247.9
77.4
4.0
0.9
16.4
(0.2)
(12.1)
86.4
(1.1)
3.2
15.2
(0.9)
(4.4)
98.4
149.5
164.7
The impairment of property, plant and equipment relates to a net movement on 13 loss making stores in UK & RoI and 11 Polish stores.
Assets held under finance leases have the following net book value:
Cost
Accumulated depreciation and impairment
Net book value
Group
2010
£m
9.5
(1.9)
7.6
Group
2009
£m
13.4
(4.4)
9.0
Company
2010
£m
2.8
(1.4)
1.4
Company
2009
£m
6.7
(4.1)
2.6
Included in Group and Company assets held under finance leases are plant and machinery with a net book value of £nil (2009: £1.2m), the Company
includes buildings with a net book value of £1.4m (2009: £1.4m) and the Group £7.6m (2009: £7.8m).
www.carpetright.plc.uk
48
Notes to the accounts continued
11 Property, plant and equipment continued
Company
Cost:
At 3 May 2008
Exchange differences
Additions
Transfer (to)/from subsidiaries
Disposals
At 2 May 2009
Exchange differences
Additions
Transfer to Investment property
Disposals
At 1 May 2010
Accumulated depreciation and impairment:
At 3 May 2008
Exchange differences
Impairment
Depreciation
Disposals
At 2 May 2009
Exchange differences
Impairment
Depreciation
Disposals
At 1 May 2010
Net book value:
At 1 May 2010
At 2 May 2009
Carpetright plc Annual report and accounts 2010
Freehold land
and buildings
£m
Long leasehold
land and
buildings
£m
Short leasehold
buildings
£m
Fixtures and
fittings
£m
Plant and
machinery
£m
31.0
–
1.0
(1.5)
–
30.5
(0.1)
–
(0.3)
–
30.1
1.0
–
–
0.2
–
1.2
–
–
0.3
–
1.5
28.6
29.3
10.8
–
–
–
–
10.8
–
0.4
–
–
11.2
1.5
–
–
0.2
–
1.7
–
–
0.2
–
1.9
9.3
9.1
20.7
0.2
0.2
–
(0.9)
20.2
(0.1)
0.6
–
(0.7)
20.0
7.3
0.1
0.1
1.2
(0.4)
8.3
–
0.7
1.0
(0.5)
9.5
10.5
11.9
81.6
0.3
7.1
0.6
(10.4)
79.2
(0.2)
5.4
–
(1.6)
82.8
32.2
0.2
0.8
8.4
(9.8)
31.8
(0.2)
0.6
7.3
(1.0)
38.5
44.3
47.4
Total
£m
162.2
0.7
9.6
(0.9)
(13.4)
158.2
(0.5)
6.4
(0.3)
(2.8)
161.0
50.6
0.3
0.9
12.6
(12.0)
52.4
(0.3)
1.4
11.7
(2.0)
63.2
18.1
0.2
1.3
–
(2.1)
17.5
(0.1)
–
–
(0.5)
16.9
8.6
–
–
2.6
(1.8)
9.4
(0.1)
0.1
2.9
(0.5)
11.8
5.1
8.1
97.8
105.8
49
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12 Investment property
While investment property has not been independently valued the Directors consider that the value of such properties for the Group is
approximately £32m (2009: approximately £25m) and for the Company is not significantly different to book value in either year. Operating
expenses attributable to investment properties are incurred directly by tenants under tenant-repairing leases.
Cost:
At 3 May 2008
Exchange differences
Transfer from property, plant and equipment
At 2 May 2009
Exchange differences
Transfer from property, plant and equipment
At 1 May 2010
Accumulated depreciation and impairment:
At 3 May 2008
Exchange differences
Transfer from property, plant and equipment
Depreciation
At 2 May 2009
Exchange differences
Transfer from property, plant and equipment
Depreciation
At 1 May 2010
Net book value:
At 1 May 2010
At 2 May 2009
Group
£m
Company
£m
22.2
2.0
3.1
27.3
(0.6)
2.7
29.4
1.2
0.1
0.2
0.5
2.0
0.1
0.9
0.3
3.3
26.1
25.3
7.9
–
–
7.9
(0.1)
0.3
8.1
0.3
–
–
0.1
0.4
–
–
–
0.4
7.7
7.5
13 Investment in subsidiary undertakings
The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following
information relates to those subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally affect the
figures of the Group. All of the Group’s subsidiary undertakings are included in the consolidated accounts.
Carpetright of London Limited
Melford Commercial Properties Limited
Carpetland NV
Infradis Real Estate NV
Carpetland BV
Fontainebleau Vastgoed BV
Carpetright Poland Sp.Z.o.o.
Company
Cost:
At the beginning of the period
Exchange differences
Acquisition of shares in subsidiaries
Transfer to subsidiary undertakings
Impairment of investment in Carpetright Poland Sp.Z.o.o.
At the end of the period
Country of
incorporation
and operation
Principal
activity
Great Britain Holding
Great Britain Property
Retail
Belgium
Belgium Property
The Netherlands
Retail
The Netherlands Property
Retail
Poland
Percentage of
ordinary shares
held indirectly
Percentage of
ordinary shares
held directly
100%
100%
100%
100%
100%
100%
2009
£m
40.1
0.4
0.7
(2.1)
–
39.1
100%
2010
£m
39.1
–
–
–
(2.7)
36.4
www.carpetright.plc.uk
50
Notes to the accounts continued
14 Inventories
Group and Company inventories are held in the form of finished goods for resale. Write downs of stock values to net realisable value during
the current and comparative periods are immaterial.
Group
2009
£m
Company
2010
£m
Company
2009
£m
15 Trade and other receivables
Non-current
Receivables from subsidiaries
Prepayments and accrued income
Current
Trade receivables
Less: provision for impairment
Other receivables
Prepayments and accrued income
Total trade and other receivables
Group
2010
£m
–
1.4
1.4
8.1
(0.6)
7.5
6.4
24.2
38.1
39.5
–
1.3
1.3
5.6
(0.8)
4.8
5.4
24.2
34.4
35.7
The Directors consider that the carrying amounts of trade and other receivables approximate to their fair values.
Provision for impairment
At the beginning of the period
Receivables written off against the provision in the period
(Increase)/decrease in the provision in the period
Group
2010
£m
(0.8)
–
0.2
(0.6)
The table below shows the financial assets included in trade and other receivables at the balance sheet date:
Major insurance companies
Property rent debtors
Other debtors
Retail customers
Trade and other receivables
Group
2010
£m
3.3
1.6
1.5
7.5
13.9
Group
2009
£m
(0.6)
0.7
(0.9)
(0.8)
Group
2009
£m
2.3
1.8
1.2
4.9
10.2
49.8
1.4
51.2
3.2
(0.4)
2.8
6.1
22.2
31.1
82.3
Company
2010
£m
(0.6)
–
0.2
(0.4)
Company
2010
£m
3.3
1.6
1.1
2.9
8.9
60.4
1.3
61.7
4.2
(0.6)
3.6
4.7
17.9
26.2
87.9
Company
2009
£m
(0.5)
0.7
(0.8)
(0.6)
Company
2009
£m
2.3
1.8
0.5
3.7
8.3
Balances from retail customers are considered to have little credit risk as they are primarily settled by cash or major credit card and must be
settled prior to the goods being collected from/delivered by the store.
The age profile of balances other than those with retail customers is set out below:
Neither past due nor impaired
30 to 60 days
60 to 90 days
Over 90 days
Non-retail trade and other receivables
Carpetright plc Annual report and accounts 2010
Group
2010
£m
5.6
0.3
–
0.5
6.4
Group
2009
£m
3.5
1.0
–
0.8
5.3
Company
2010
£m
5.3
0.3
–
0.5
6.1
Company
2009
£m
3.5
1.0
–
0.1
4.6
51
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2009
£m
17.4
17.4
(4.4)
13.0
Company
2010
£m
3.6
3.6
(9.0)
(5.4)
Company
2009
£m
10.5
10.5
–
10.5
Company
2010
£m
Company
2009
£m
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52.6
10.1
33.1
95.8
34.2
9.7
43.9
139.7
49.0
8.1
31.5
88.6
31.5
4.1
35.6
124.2
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:
Group
2009
£m
60.4
9.1
41.3
110.8
31.5
–
31.5
142.3
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16 Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents on the balance sheets
Bank overdrafts (note 19)
Cash and cash equivalents in the cash flow statements
17 Trade and other payables
Current
Trade payables
Other taxes and social security
Accruals and deferred income
Non-current
Accruals and deferred income
Payable to subsidiaries
Total trade and other payables
Group
2010
£m
8.3
8.3
(13.3)
(5.0)
Group
2010
£m
62.8
13.2
38.2
114.2
34.2
–
34.2
148.4
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Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amounts of
trade and other payables approximate to their fair values.
18 Obligations under finance leases
Minimum lease payments
Present value of minimum lease payments
Amounts payable within one year
Amounts payable between one and five years
Amounts payable after five years
Less: future finance charges
Present value of obligations under
finance leases
Current
Non-current
Group
2010
£m
0.3
1.2
6.0
7.5
(4.5)
3.0
0.1
2.9
Group
2009
£m
1.2
1.2
6.3
8.7
(4.8)
3.9
0.9
3.0
Company
2010
£m
0.2
1.0
2.3
3.5
(1.5)
2.0
0.1
1.9
Company
2009
£m
1.1
1.0
2.5
4.6
(1.7)
2.9
0.9
2.0
Group
2010
£m
0.1
0.3
2.6
3.0
Group
2009
£m
0.9
0.4
2.6
3.9
Company
2010
£m
0.1
0.3
1.6
2.0
Company
2009
£m
0.9
0.4
1.6
2.9
The Group leases certain properties under finance leases. The average lease term is 20 years (2009: 21 years) for properties. The vehicle leases
ended during the current financial year. Minimum lease payments are discounted at the rate inherent in the leases. Interest rates are fixed at
the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
www.carpetright.plc.uk
52
Notes to the accounts continued
19 Borrowings and overdrafts
Current
Unsecured overdraft
Borrowings:
Secured
Borrowings and overdrafts
Non-current
Borrowings:
Secured
Unsecured
Borrowings
Group
2010
£m
13.3
8.9
22.2
49.0
4.3
53.3
75.5
Group
2009
£m
4.4
12.7
17.1
88.5
2.7
91.2
108.3
Secured borrowings are denominated in Sterling and Euros and are secured on certain of the Group’s freehold properties.
The effective interest rates at the year end are as follows:
Overdrafts
Borrowings
The maturity profile of borrowings and overdrafts are as follows:
Amounts payable within one year
Amounts payable between one and two years
Amounts payable between two and five years
Group
2010
%
3.4
3.8
Group
2010
£m
22.2
12.2
41.1
75.5
Group
2009
%
3.3
4.7
Group
2009
£m
17.1
9.0
82.2
108.3
Company
2010
£m
Company
2009
£m
9.0
8.9
17.9
49.0
–
49.0
66.9
Company
2010
%
3.9
3.9
Company
2010
£m
17.9
12.2
36.8
66.9
–
5.5
5.5
88.5
–
88.5
94.0
Company
2009
%
3.3
4.9
Company
2009
£m
5.5
9.0
79.5
94.0
The maturity analysis is grouped by when the debt is contracted to mature rather than by repricing dates.
20 Provisions for liabilities and charges
Group and Company
At the beginning of the period
Added during the period
Utilised during the period
At the end of the period
Onerous lease
provisions
£m
0.6
1.4
(0.3)
1.7
Reorganisation
provisions
£m
0.2
–
(0.1)
0.1
Total
provisions
£m
0.8
1.4
(0.4)
1.8
Onerous lease provisions are expected to be used over periods of up to 10 years. Reorganisation provisions are expected to be used within the
2010/11 financial year.
Carpetright plc Annual report and accounts 2010
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21 Deferred tax assets and liabilities
Recognised in the income statement:
Accelerated capital allowances
Fair value of acquired property, plant and equipment
Rollover relief
Short-term temporary differences
Tax losses
Recognised in other comprehensive income:
Retirement benefit obligation
Recognised directly in equity:
Share-based payments
Acquisition of subsidiaries:
Fair value of acquired property, plant and equipment
Rollover relief
Short-term temporary differences
Gross deferred tax liabilities
Recognised in the income statement:
Tax losses
Gross deferred tax assets
Net deferred tax liabilities
The gross movement on the deferred tax account is as follows:
At the beginning of the period
Charged/(credited) to income statement (note 7)
Transferred to current tax
Recognised in other comprehensive income (note 7)
Credited directly to equity (note 7)
At the end of the period
Notes
22(i)(a)(8)
Group
2010
£m
9.4
3.0
10.7
(0.3)
(0.6)
(1.3)
(0.2)
1.4
1.2
0.1
23.4
(2.9)
(2.9)
20.5
Group
2010
£m
24.6
0.5
(3.9)
(0.6)
(0.1)
20.5
Group
2009
£m
Company
2010
£m
Company
2009
£m
9.4
3.2
14.5
(0.1)
(0.9)
(0.7)
(0.1)
1.4
1.2
–
27.9
(3.3)
(3.3)
24.6
Group
2009
£m
25.7
0.8
(1.6)
(0.2)
(0.1)
24.6
4.9
–
10.6
(0.7)
(0.4)
(1.3)
(0.2)
0.7
–
–
13.6
–
–
13.6
5.7
–
13.8
(0.5)
(0.6)
(0.7)
(0.1)
0.7
–
–
18.3
–
–
18.3
Company
2010
£m
18.3
(0.1)
(3.9)
(0.6)
(0.1)
13.6
Company
2009
£m
20.6
(0.6)
(1.4)
(0.2)
(0.1)
18.3
At the reporting date, the Group had unused tax losses of £8.8m (2009: £10.1m) which can be carried forward indefinitely and are available
for offset against future profits. A deferred tax asset of £2.9m (2009: £3.3m) has been recognised in respect of these losses.
Deferred tax assets of £2.7m (2009: £1.9m) were available for offset against deferred tax liabilities of £26.1m (2009: £29.8m) hence the Group’s
deferred tax liabilities as at 1 May 2010 is £23.4m (2009: £27.9m).
www.carpetright.plc.uk
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Notes to the accounts continued
22 Retirement benefit obligations
The Group operates a variety of pension schemes, principally in the UK, The Netherlands and Belgium. They comprise defined benefit
schemes where benefits are based on employees’ length of service and average final salary, and defined contribution schemes where the
employer company pays a set contribution to the scheme. The UK defined benefit schemes referred to in 22 (i) (a) and the first two defined
contribution schemes referred to in 22 (ii) are included in the accounts of the Company.
(i) Defined benefit schemes
(a) UK defined benefit schemes
The Company operated a funded defined benefit pension scheme providing benefits based on final pensionable pay for its employees and has
assumed the liability for the scheme previously operated by Storey Carpets Ltd (Storeys). The Company scheme was closed to defined benefit
service accrual on 30 April 2010 and has been closed to new members since 31 March 2006. The Storeys scheme is also closed to new members
and has no active members. The assets of the schemes are held separately from those of the Company. The assets of the Company scheme are
invested in a Managed Fund operated by SEI. Contributions are determined by a qualified actuary using the projected unit method. The most
recent actuarial review was at 6 April 2008 when the actuarial value of the assets represented 79% of the benefits accrued to members after
allowing for expected future increases in earnings. A deficit reduction plan has been agreed with the Trustees under which £0.3m per annum
in additional contributions is being paid to the fund. The assets of the Storeys scheme are held in independently managed funds. The most
recent actuarial review of the Storeys scheme was at 1 March 2008 when the actuarial value of the assets represented 84% of the benefits
accrued to members. The numbers set out below are the aggregate of the two schemes.
The assets and liabilities of the schemes were valued on an IAS 19 basis at 1 May 2010 by a qualified actuary.
1) Key assumptions used:
Expected rate of salary increases
Expected rate of pension increases
Deferred pension revaluation
Discount rate
Expected rate of inflation
Expected return on scheme assets
2010
%
n/a
3.3
3.6
5.5
3.6
6.5
2009
%
3.7
2.9
–
6.8
2.9
6.7
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale
covered, may not necessarily be borne out in practice. The assumptions used for future life expectancy of members of the scheme are derived
from industry standard tables. Specifically the S1NMA table (2009: S1NMA table) with medium cohort improvement has been used for male
pensioners and the S1NFA table (2009: S1NFA table) with medium cohort improvement for female pensioners projected by year of birth.
The most significant assumptions are the expected return on scheme assets, salary increases and the discount rate, of which the most sensitive
assumption is the discount rate. If this assumption increased or decreased by 0.1% the defined benefit obligation would change by £0.2m
(2009: £0.2m).
2) The amount included in the balance sheet arising from the Group and Company’s obligations in respect of the defined benefit scheme is as follows:
Present value of pension scheme obligations
Fair value of pension scheme assets
Retirement benefit obligations recognised in the balance sheet
3) The amounts recognised in the income statement in respect of the defined benefit pension scheme are as follows:
Current service cost recognised in administration expenses (note 4)
Curtailment gain recognised in administration expenses (note 4)
Interest cost on pension scheme obligations recognised in finance costs (note 6)
Expected return on pension scheme assets recognised in finance income (note 6)
Total recognised in the income statement
2010
£m
21.1
(16.3)
4.8
2010
£m
0.3
(0.5)
1.0
(0.9)
(0.1)
2009
£m
14.7
(12.3)
2.4
2009
£m
0.5
–
1.0
(1.0)
0.5
Carpetright plc Annual report and accounts 2010
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22 Retirement benefit obligations continued
4) Reconciliation of movement in net pension deficit:
Opening balance
Total recognised in the income statement
Contributions
Actuarial loss recognised in other comprehensive income
Closing balance
5) The amounts recognised in other comprehensive income in respect of the defined benefit pension scheme are as follows:
Actuarial gain/(loss) on plan assets
Experience adjustment on liabilities
Change in assumptions underlying present value of liabilities
Total
Cumulative total
6) Movements in the pension scheme obligations are as follows:
Opening balance
Current service cost
Curtailment gain
Interest on pension scheme obligations
Actuarial (gain)/loss recognised in other comprehensive income
Benefits paid
Employee contributions
Closing balance
7) Movements in the fair value of the pension scheme assets are as follows:
Opening balance
Expected return on pension scheme assets
Actuarial gain/(loss) recognised in other comprehensive income
Actual return on assets
Employer contributions
Employee contributions
Benefits paid
Closing balance
0.9
2.8
2010
£m
12.3
3.7
0.5
0.2
(0.4)
16.3
2010
£m
(2.4)
0.1
0.5
(3.0)
(4.8)
2010
£m
2.8
–
(5.8)
(3.0)
(3.0)
2010
£m
14.7
0.3
(0.5)
1.0
5.8
(0.4)
0.2
21.1
1.0
(3.7)
2009
£m
(1.3)
(0.5)
0.5
(1.1)
(2.4)
2009
£m
(3.7)
(0.8)
3.4
(1.1)
–
2009
£m
16.1
0.5
–
1.0
(2.6)
(0.4)
0.1
14.7
2009
£m
14.8
(2.7)
0.5
0.1
(0.4)
12.3
www.carpetright.plc.uk
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Notes to the accounts continued
22 Retirement benefit obligations continued
8) The assets in the pension scheme and the expected rates of return are:
Equities
Bonds
Property
Cash
Annuities
Fair value of pension scheme assets
Present value of pension scheme obligations
Retirement benefit obligations
Related deferred tax asset
2010
2009
2008
Category of
asset as a
proportion
of total
%
56.4
14.1
0.6
1.9
27.0
100.0
Long-term
expected
rate of
return
%
7.1
5.5
n/a
0.5
6.8
Long-term
expected
rate of
return
%
7.4
5.0
7.4
4.4
5.5
£m
9.2
2.3
0.1
0.3
4.4
16.3
(21.1)
(4.8)
1.3
(3.5)
£m
7.0
2.1
–
0.1
3.1
12.3
(14.7)
(2.4)
0.7
(1.7)
Category of
asset as a
proportion
of total
%
56.9
17.1
–
0.8
25.2
100.0
Long-term
expected
rate of
return
%
7.5
5.5
n/a
5.0
6.5
Category of
asset as a
proportion
of total
%
58.1
16.9
–
0.7
24.3
100.0
£m
8.6
2.5
–
0.1
3.6
14.8
(16.1)
(1.3)
0.5
(0.8)
The long-term return on equities is assumed to be 3.8% in excess of inflation (2009: 4.0%). The rate of return on bonds is assumed to be in line
with the yield on AA-rated corporate bonds.
9) History of experience gains and losses:
Fair value of scheme assets
Present value of defined benefit obligations
Liability recognised in the balance sheet
Experience adjustments on pension scheme obligations
Percentage of pension scheme obligations (%)
Experience adjustments on pension scheme assets
Percentage of pension scheme assets (%)
2010
£m
16.3
(21.1)
(4.8)
–
–
2.8
17.2%
2009
£m
12.3
(14.7)
(2.4)
(0.8)
(5.4)%
(3.7)
(30.1)%
2008
£m
14.8
(16.1)
(1.3)
(0.2)
(1.2)%
(1.5)
(10.1)%
2007
£m
8.5
(10.3)
(1.8)
(0.1)
(1.0)%
(0.4)
(4.7)%
2006
£m
8.2
(9.7)
(1.5)
0.4
4.1%
1.3
15.9%
Contributions of £0.3m are expected to be paid into these pension schemes during 2010/11.
(b) Multi-employer scheme
The Group’s Dutch subsidiary participates in a multi-employer run industry pension scheme which has arrangements similar to those of a
defined benefit scheme. It is not possible to identify the Group’s share of the underlying assets and liabilities of the scheme, and therefore in
accordance with IAS 19, the Group has taken the exemption for multi-employer pension schemes not to disclose pension scheme assets and
liabilities. Accordingly, although this scheme is a defined benefit scheme it is treated as a defined contribution scheme recognising the
contributions payable in each period in the income statement. Under the terms of the scheme the scheme deficit is recovered through
increased contributions from participating members. At the period end the Group was unable to obtain a valuation of the industry scheme’s
full surplus or deficit. Contributions charged to the income statement amounted to £1.1m (2009: £1.1m).
(ii) Defined contribution schemes
The Company launched a Group Personal Pension Plan in April 2006. The assets of the scheme are held separately from those of the
Company and are invested by Scottish Life. Contributions for the period amounted to £0.8m (2009: £0.8m).
In addition, the Group operates defined contribution pension schemes for subsidiary companies in Belgium and The Netherlands. The Group
makes contributions into the schemes, the assets of which are held separately from those of the Group and are invested by local insurance
companies. The contributions by the Group to industry collective schemes were £0.1m (2009: £0.1m).
Carpetright plc Annual report and accounts 2010
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23 Financial instruments
(i) Financial risk management objectives and policies
Risk management
The Group’s principal financial instruments comprise derivatives, borrowings and overdrafts, cash and cash equivalents. These financial
instruments are used to manage funding and liquidity requirements. Other financial instruments which arise directly from the Group’s
operations include trade receivables and payables.
Exposure to credit, liquidity, foreign currency exchange and interest rate risks arise in the normal course of the Group’s business operations
and each of these risks are managed in accordance with the Group’s treasury risk management strategy, which is also discussed in the
Business Review in the section Management of Liquidity and Financing .
(a) Credit risk
The Group does not have significant concentrations of credit risk as exposure is spread over a number of counterparties and customers.
The Group is exposed to a small amount of credit risk that is primarily attributable to its trade and other receivables, the majority of
which relates to retail customers (see note 15). Retail customers are required to settle outstanding balances in cash or using a major
credit card prior to goods being collected from/delivered by the store.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with a minimum
AA credit rating. The maximum amount of credit risk is represented by the carrying amounts of financial assets.
(b) Liquidity risk
The Group finances its operations from a mix of retained profits and bank borrowings achieved through term loans, revolving credit
agreements and overdraft facilities. Daily cash balances are forecast and surplus cash is placed on treasury deposit with the Group’s
bankers at commercial rates. All counterparties have minimum AA credit ratings.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including interest:
Group
At 1 May 2010
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
At 2 May 2009
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
Company
At 1 May 2010
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
At 2 May 2009
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
Less than
1 year
£m
Between
1 and 2 years
£m
Between
2 and 5 years
£m
Over
5 years
£m
23.3
0.1
92.4
115.8
18.5
0.9
94.4
113.8
19.0
0.1
89.0
108.1
6.9
0.9
79.6
87.4
12.2
0.1
–
12.3
9.9
0.2
–
10.1
12.2
0.1
–
12.3
9.9
0.2
–
10.1
41.1
0.3
–
41.4
82.2
0.2
–
82.4
36.8
0.3
–
37.1
79.5
0.2
–
79.7
–
2.5
–
2.5
–
2.6
–
2.6
–
1.5
–
1.5
–
1.6
–
1.6
Total
£m
76.6
3.0
92.4
172.0
110.6
3.9
94.4
208.9
68.0
2.0
89.0
159.0
96.3
2.9
79.6
178.8
Committed overdraft facilities are renewable annually and amounts undrawn were £2.4m and €1.0m (2009: £10.0m and €8.7m). The
Company has committed facilities to July 2012. These facilities comprise a £33.0m amortising term loan, a €23.5m amortising term loan and a
£45.0m revolving credit facility. There are a number of covenants which commit the Group to maintaining certain rates of fixed charge cover,
leverage and cash flow cover. The Company is, and is expected to remain, in compliance with these covenants. The revolving credit facility had
an undrawn amount of £35.0m (2009: £5.0m).
www.carpetright.plc.uk
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Notes to the accounts continued
23 Financial instruments continued
(c) Foreign exchange risk
Outside the UK the Group operates in the Republic of Ireland, The Netherlands, Belgium and Poland. Revenues and expenses of these
operations are denominated in Euros or Zlotys. The Group’s investment in Poland is currently not sufficiently material to require the risk
to be hedged. The Group mitigates currency risk in respect of the net investment in European operations by designating Euro denominated
borrowings as hedging instruments of Euro denominated investments in foreign operations.
If the closing Sterling-Euro rate had been 0.01 points lower in the period the exchange difference reported in the statement of comprehensive
income would have been £0.6m higher (2009: £0.4m higher). At 1 May 2010 if Sterling had weakened/strengthened by 10% against the Euro
profit after tax for the year would have been £0.3m higher/lower as a result of the translation of the Euro denominated businesses.
Financial assets and liabilities and foreign operations are translated at the following rates of exchange:
Average rate
Closing rate
Euro
2010
1.13
1.15
Euro
2009
1.19
1.12
Zloty
2010
4.71
4.50
Zloty
2009
4.53
4.89
(d) Interest rate risk
The Group has various borrowings bearing interest at a margin over LIBOR or EURIBOR rates. Group policy is to manage interest rate risk
by purchasing interest rate swap agreements to hedge at least 75% of term loans. The remainder is liable to interest at prevailing interest rates.
In accordance with IFRS 7, the Group has undertaken sensitivity analysis on its financial instruments which are affected by changes in interest
rates. This analysis has been prepared on the basis of a constant amount of net debt, a constant ratio of fixed to floating interest rates, and on
the basis of hedging instruments in place at 1 May 2010 and 2 May 2009 respectively. Consequently analysis relates to the situation at those
dates and is not representative of the years then ended. The following assumptions were made:
• balance sheet sensitivity to interest rates applies only to derivative financial instruments, as the carrying value of debt and deposits does
not change as interest rates move;
• gains or losses are recognised in equity or the income statement in line with the accounting policies set out in note 1; and
• cash flow hedges were effective.
Based on the Group’s net debt position at the year end a 1% change in interest rates would affect the Group’s profit before tax by
approximately £0.3m (2009: £0.4m).
The interest rate profile of the financial assets and liabilities of the Group, after the impact of interest rate swaps is as follows:
2010
Weighted
average
effective
interest rate
%
0.3
1.2
–
3.2
3.3
–
Floating rate
£m
3.6
4.6
0.1
8.3
(26.3)
(4.7)
–
(31.0)
Fixed rate
£m
–
–
–
–
(34.1)
(14.5)
–
(48.6)
Interest free
£m
8.9
4.7
–
13.6
(78.0)
(14.0)
(0.4)
(92.4)
Total
£m
12.5
9.3
0.1
21.9
(138.4)
(33.2)
(0.4)
(172.0)
Weighted
average
effective
interest rate
%
3.1
0.5
–
2.7
3.5
–
Floating rate
£m
10.6
6.3
0.5
17.4
22.9
18.6
–
41.5
2009
Fixed rate
£m
–
–
–
–
56.2
16.8
–
73.0
Interest free
£m
8.3
1.9
–
10.2
75.6
17.9
0.9
94.4
Total
£m
18.9
8.2
0.5
27.6
154.7
53.3
0.9
208.9
Sterling
Euro
Zloty
Total financial assets
Sterling
Euro
Zloty
Total financial liabilities
Capital management
The Group aims to maximise shareholder value by maintaining an appropriate debt/equity capital structure. It uses a number of mechanisms
to manage debt equity levels, as appropriate, in the light of economic and trading conditions and the future capital investment requirements
of the business.
Carpetright plc Annual report and accounts 2010
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23 Financial instruments continued
(ii) Fair value of financial assets and liabilities
Financial assets and liabilities are classified in accordance with IAS 39. Financial instruments have not been reclassified or derecognised in
the period. There are no financial assets which have been pledged or held as collateral. None of the Group’s loans is impaired. In addition
the Group does not have any financial assets or liabilities measured at fair value through the income statement other than derivatives.
There are no available-for-sale financial assets.
The fair values of financial assets and liabilities, together with their carrying amounts are:
Group
2010
Group
2009
Company
2010
Company
2009
Nominal value
£m
Carrying and
fair value
£m
Nominal value
£m
Carrying and
fair value
£m
Nominal value
£m
Carrying value
and fair value
£m
Nominal value
£m
Carrying value
and fair value
£m
At cost:
Cash and cash equivalents
Loans and receivables at amortised cost:
Trade and other receivables
Total financial assets
Financial liabilities at amortised cost:
Borrowings and overdrafts
Finance lease obligations
Financial liabilities at cost:
Trade and other payables
Derivative financial instruments used
for hedging:
Interest rate swaps
Total financial liabilities
–
–
–
–
–
–
8.3
13.6
21.9
(75.5)
(3.0)
(92.4)
–
–
–
–
–
–
17.4
10.2
27.6
(108.3)
(3.9)
(94.4)
–
–
–
–
–
–
3.6
58.8
62.4
(66.9)
(2.0)
(89.0)
42.7
42.7
(1.1)
(172.0)
66.8
66.8
(2.3)
(208.9)
42.7
42.7
(1.1)
(159.0)
Net financial liabilities
42.7
(150.1)
66.8
(181.3)
42.7
(96.6)
–
–
–
–
–
–
66.8
66.8
66.8
10.5
68.7
79.2
(94.0)
(2.9)
(79.6)
(2.3)
(178.8)
(99.6)
Determination of fair values
The fair values of derivatives are estimated using future cash flows discounted at risk-adjusted discount rates based on market yield curves.
The carrying values of all other financial assets and liabilities are deemed to reflect fair value.
(iii) Derivative financial instruments
The Group has various Euro and Sterling-denominated borrowings which bear interest at floating rates. Interest on the Sterling borrowing is
charged at LIBOR plus a margin. The Euro-denominated borrowings bear interest at the prevailing EURIBOR rate plus a margin. Interest
rate swaps were purchased to fix approximately 75% of the floating interest charges on term debt due within the next two years at fixed rates
of interest ranging from 3.52% to 5.25% (2009: 3.21% to 5.25%). The maturity profiles of the interest rate swaps are set to terminate prior to
the underlying hedged borrowings.
Derivative financial instruments are not purchased for speculative purposes.
Non-current liabilities
Interest rate swaps – cash flow hedges
Group
2010
£m
(1.1)
Group
2009
£m
(2.3)
Company
2010
£m
(1.1)
Company
2009
£m
(2.3)
www.carpetright.plc.uk
60
Notes to the accounts continued
23 Financial instruments continued
(iv) Hedge accounting
(a) Cash flow hedges
Interest rate swaps denominated in Euros and Sterling have been executed to hedge the Group’s exposure to changes in floating interest rates
in respect of approximately 75% of the Group’s term loans. Hedge documentation is put in place at inception of all hedging relationships.
Effectiveness tests are performed at each reporting date.
Interest rate swaps are measured at fair value under IAS 39. Changes in fair value are posted to other comprehensive income in respect of the
portion of the hedges which satisfy the criteria to be effective hedges. Charges or credits relating to the portion which does not satisfy these
criteria are recognised directly in the income statement.
Cash flows in respect of the interest rate swaps are generally expected to occur at the same dates as the cash flows of the underlying hedged items.
(b) Net investment hedges
Euro-denominated borrowings are designated as hedging instruments of Euro-denominated net assets of the Group’s foreign operations in
order to protect the Group from currency risk in respect of the Group’s Euro-denominated foreign operations. Borrowing balances are carried
at amortised cost which approximates fair value since borrowings bear interest at the prevailing floating rate. The carrying value of borrowings
amounted to €22.3m (2009: €23.5m).
24 Share capital
Ordinary shares of 1p each
Authorised – 100,000,000 (2009: 100,000,000)
Group and Company
At 3 May 2008
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
At 2 May 2009
Purchase of own shares by Employee Share Trust
Transfer of Treasury shares to participants
At 1 May 2010
2010
2009
£
£
1,000,000 1,000,000
Number of
allotted, called
up and fully paid
ordinary shares
Millions
67.2
–
–
67.2
–
–
67.2
Share capital
£m
0.7
–
–
0.7
–
–
0.7
Share premium
£m
15.4
–
–
15.4
–
–
15.4
Treasury
shares
£m
(0.2)
(0.2)
0.3
(0.1)
(0.2)
0.1
(0.2)
Total
£m
15.9
(0.2)
0.3
16.0
(0.2)
0.1
15.9
The Group’s LTIP was established to grant contingent right to shares. Such grants are made on recommendation by the Group’s Remuneration
Committee. Shares are purchased by a Trust and held until they are used to satisfy the LTIP awards. As required by IAS 32 such shares are
classified as Treasury shares and accordingly are deducted from total equity attributable to equity shareholders of the parent. The assets,
liabilities, income and costs of the LTIP and Trust are included in both the Company and the consolidated financial statements. During the
period the Trust purchased 16,500 ordinary shares for £0.1m. At the year end the trust held 17,869 (2009: 23,543) ordinary shares of 1p each
with a market value of £0.2m (2009: £0.1m).
The Group also operates a share option scheme under which shares are issued to satisfy share option awards that are exercised.
Carpetright plc Annual report and accounts 2010
61
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25 Share-based payments
Included within administration expenses is £0.5m (2009: £0.1m) in respect of equity-settled share-based payments.
The Group’s employee share schemes are described below and additional detail is disclosed in the Directors’ remuneration report on pages
20 to 24. Scheme participants are either Directors of the Company or employees of the Group. The costs associated with the schemes are
accounted for in the Company’s accounts.
(i) LTIP
Under this scheme participants may receive annual awards in the form of contingent entitlements to Company shares. These entitlements are
equity-settled through the purchase of existing shares by the administering Trust. The shares vest three years after award if participants remain
with the Group during the vesting period and the Group meets targeted levels of total shareholder return (‘TSR’) and earnings per share
(‘EPS’) growth. The performance conditions are fully described in the Directors’ remuneration report in the section titled Long-Term
Incentive Plan.
During the period contingent entitlements to 227,608 shares were awarded (2009: nil). The charge recognised in the income statement in
respect of all LTIP awards is £0.4m (2009: £0.1m). The fair values of the awards are determined using a Monte-Carlo or Black-Scholes
simulation model which takes account of the performance conditions described in the preceding paragraph. The fair value per share is
based on the expected number of shares that will vest. LTIP shares do not earn dividends during the vesting period. The Group’s LTIP is
administered by Equity Trust (Jersey) Limited.
Reconciliation of movements in the periods ended 1 May 2010
Outstanding at 3 May 2008
Vested
Expired
Outstanding at 2 May 2009
Granted
Forfeited
Vested
Expired
Outstanding at 1 May 2010
Exercisable at 1 May 2010
Exercisable at 2 May 2009
LTIP 2009
LTIP 2006
LTIP 2005
Number
options
’000s
–
–
–
–
227.6
–
–
–
227.6
–
–
Fair value
£m
–
–
–
–
1.8
–
–
–
1.8
–
–
Number
options
’000s
101.8
–
–
101.8
–
(17.8)
(22.2)
(61.8)
–
–
–
Fair value
£m
0.3
–
–
0.3
–
–
(0.1)
(0.2)
–
–
–
Number
options
’000s
121.5
(47.1)
(74.4)
–
–
–
–
–
–
–
–
Fair value
£m
0.5
(0.2)
(0.3)
–
–
–
–
–
–
–
–
The valuation assumptions used in the application of the Monte-Carlo and Black-Scholes’ models applied to the relevant schemes above are
as follows:
Valuation assumptions
Fair value per share
Share price at grant (pence)
Exercise price (pence)
Expected volatility (%) (1)
Vesting period (years)
Dividend yield (%)
Risk free interest rate (%)
Possibility of ceasing employment before vesting (%)
LTIP 2009
award
776
853
1.0
46.3
3.0
3.1
2.0
–
LTIP 2006
award
773
1,177
1.0
23.0
3.0
4.2
4.9
–
LTIP 2005
award
693
926
1.0
22.2
3.0
5.1
4.2
5.0
1. Expected volatility is based on historical volatility over the three year period preceding the date of grant. The risk free interest rate is the yield on zero-coupon UK government bonds
at the date of grant of the respective awards over a term consistent with the vesting period.
www.carpetright.plc.uk
62
Notes to the accounts continued
25 Share-based payments continued
(ii) Savings Related Share Option Scheme (‘SAYE’)
Three and five year SAYE schemes were introduced in 2004. Employees and Executive Directors are invited to subscribe for options over
shares in the Company at a 20% discount. The options are exercisable within six months from the third or fifth anniversary of the grant
date. The entitlement to share options is equity-settled. Funds for the purchase of Company shares are built up through the contribution of
a maximum of £250 per month from salary. During the period options were granted over 67,003 shares in respect of a three year and five
year award exercisable between April and October 2013, and April and October 2015 respectively. The 2010 tranche of share options are
exercisable at 753 pence per share (2009: 295 pence per share). There are no vesting conditions other than continued employment with the
Group until the respective exercise dates. Share options were valued using a Black-Scholes option-pricing model. The fair value per share is
based on the expected number of shares that will vest. The cost charged to the income statement in respect of this scheme is £0.1m (2009: £nil).
Reconciliation of movements in the periods ended 1 May 2010
SAYE 2009
SAYE 2008
SAYE 2007
SAYE 2006
SAYE 2005
3 yr
Number
options
’000s
5 yr
Number
options
’000s
3 yr
Number
options
’000s
5 yr
Number
options
’000s
3 yr
5 yr
3 yr
Number
options
’000s
Number
options
’000s
Number
options
’000s
5 yr
Number
options
’000s
SAYE 2010
3 yr
5 yr
Number
options
’000s
Number
options
’000s
–
–
–
–
–
–
–
37.6
(1.1)
–
29.4
(0.4)
3 yr
Number
options
’000s
–
403.5
(5.7)
397.8
–
(33.3)
5 yr
Number
options
’000s
–
329.1
–
329.1
–
(18.7)
140.6
–
(108.9)
159.4
–
(130.6)
31.7
–
(8.1)
28.8
–
(3.6)
14.9
–
(6.7)
8.2
–
(2.0)
15.4
–
(7.3)
8.1
–
(2.4)
36.5
29.0
364.5
310.4
23.6
25.2
6.2
5.7
–
–
–
–
–
–
–
–
–
–
–
–
6.2
–
–
–
15.0
–
(4.1)
10.9
–
(10.9)
–
–
10.9
16.6
–
(8.0)
8.6
–
(0.9)
7.7
–
–
53.1
–
(53.1)
–
–
–
–
–
–
63.0
–
(20.7)
42.3
–
(3.4)
38.9
38.9
–
Outstanding at
3 May 2008
Granted
Forfeited
Outstanding at
2 May 2009
Granted
Forfeited
Outstanding at
1 May 2010
Exercisable at
1 May 2010
Exercisable at
2 May 2009
The valuation assumptions used in the application of the Black-Scholes’ models applied to the relevant schemes above are as follows:
Valuation assumptions
Fair value per share
(pence)
Share price at grant
(pence)
Exercise price (pence)
Expected volatility (%)(1)
Vesting period (years)
Dividend yield (%)
Risk free interest
rate (%)
Possibility of ceasing
employment before
vesting (%)
SAYE 2010
3 yr
5 yr
SAYE 2009
SAYE 2008
SAYE 2007
SAYE 2006
SAYE 2005
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
333
331
95
81
941
753
47.4
3.1
3.1
941
753
38.7
5.1
3.1
474
295
42.4
3.1
6.8
474
295
35.2
5.1
6.8
3.1
3.1
2.2
2.6
148
723
618
33.6
3.1
7.2
4.1
132
723
618
29.7
5.1
7.2
4.1
322
352
256
265
274
295
1,237
1,040
19.9
3.1
3.8
1,237
1,040
21.6
5.1
3.8
1,072
840
22.7
3.1
4.4
1,072
840
22.9
5.1
4.4
1,126
901
22.7
3.1
3.9
1,126
901
23.6
5.1
3.9
5.5
5.3
4.4
4.3
4.6
4.6
40
50
40
50
40
50
40
50
40
50
40
50
1. Expected volatility is based on historical volatility over the three or five year period respectively preceding the date of grant. The risk free interest rate is the yield on zero-coupon UK
government bonds at the date of grant of the respective awards over a term consistent with the vesting period.
Carpetright plc Annual report and accounts 2010
63
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(iii) All Employee Share Ownership Plan (‘AESOP’)
Under this scheme staff are invited to contribute up to £125 per month from pre-tax salary to purchase Company shares. The Group does not
incur a share-based payment charge in respect of this scheme since the Company shares are acquired at market value and are not subject to an
accumulation period.
26 Capital and other financial commitments
Capital commitments at 1 May 2010 for which no provision has been made in the accounts relate to the acquisition of tangible and intangible
assets, and are:
Authorised and contracted:
Group
2010
£m
1.8
Group
2009
£m
2.5
Company
2010
£m
1.4
Company
2009
£m
2.1
27 Operating lease commitments
At 1 May 2010 the future minimum lease payments in respect of land and buildings and other assets under operating leases are:
Group
Operating leases payable:
Amounts payable within one year
Amounts payable between one and five years
Amounts payable after five years
Company
Operating leases payable:
Amounts payable within one year
Amounts payable between one and five years
Amounts payable after five years
2010
Land and
buildings
£m
91.6
334.5
548.6
974.7
2010
Land and
buildings
£m
84.3
320.5
545.5
950.3
2009
Land and
buildings
£m
87.0
321.0
584.5
992.5
2009
Land and
buildings
£m
79.5
309.0
583.0
971.5
Other
£m
1.6
2.2
–
3.8
Other
£m
1.3
1.7
–
3.0
Other
£m
1.5
3.1
–
4.6
Other
£m
1.2
2.7
–
3.9
Operating lease payments are negotiated for an average of 10 years (2009: 11 years). The Group enters into sublease agreements in respect of
some of its operating leases for stores. At the reporting date the Group had contracted with tenants for future minimum operating sublease
receipts amounting to £13.9m (2009: £15.7m).
28 Contingent liabilities
The Group has no material contingent liabilities at 1 May 2010.
The Company’s contingent liabilities derive from guarantees for subsidiaries which are disclosed in note 30.
www.carpetright.plc.uk
64
Notes to the accounts continued
29 Movement in cash and net debt
Group
Cash and cash equivalents in the balance sheet
Bank overdrafts
Cash and cash equivalents in the cash flow statement
Borrowings:
Current borrowings
Non-current borrowings
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Net debt
Cash and cash equivalents in the balance sheet
Bank overdrafts
Cash and cash equivalents in the cash flow statement
Borrowings:
Current borrowings
Non-current borrowings
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Net debt
Company
Cash and cash equivalents in the balance sheet
Bank overdrafts
Cash and cash equivalents in the cash flow statement
Borrowings:
Current borrowings
Non-current borrowings
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Net debt
Carpetright plc Annual report and accounts 2010
2009
Total
£m
17.4
(4.4)
13.0
(12.7)
(91.2)
(103.9)
(0.9)
(3.0)
(3.9)
(2.3)
(97.1)
2008
Total
£m
8.9
(11.1)
(2.2)
(11.3)
(39.3)
(50.6)
(0.8)
(3.9)
(4.7)
–
(57.5)
2009
Total
£m
10.5
–
10.5
(5.5)
(88.5)
(94.0)
(0.9)
(2.0)
(2.9)
(2.3)
(88.7)
Cash flow
£m
Exchange
differences
£m
Revaluation
£m
(18.1)
0.1
40.9
0.8
0.9
–
23.7
–
–
0.9
–
–
–
1.2
1.2
Cash flow
£m
Exchange
differences
£m
Revaluation
£m
15.6
(0.4)
–
(51.5)
(1.8)
–
0.8
–
(35.1)
–
–
(2.2)
–
(2.3)
(2.3)
Cash flow
£m
Exchange
differences
£m
Revaluation
£m
(15.5)
(0.4)
–
35.5
0.6
–
0.9
–
20.9
–
–
0.2
–
1.2
1.2
2010
Total
£m
8.3
(13.3)
(5.0)
(8.9)
(53.3)
(62.2)
(0.1)
(2.9)
(3.0)
(1.1)
(71.3)
2009
Total
£m
17.4
(4.4)
13.0
(12.7)
(91.2)
(103.9)
(0.9)
(3.0)
(3.9)
(2.3)
(97.1)
2010
Total
£m
3.6
(9.0)
(5.4)
(8.9)
(49.0)
(57.9)
(0.1)
(1.9)
(2.0)
(1.1)
(66.4)
65
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29 Movement in cash and net debt continued
Company
Cash and cash equivalents in the balance sheet
Bank overdrafts
Cash and cash equivalents in the cash flow statement
Borrowings:
Current borrowings
Non-current borrowings
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Net debt
30 Related parties
2008
Total
£m
3.2
(8.5)
(5.3)
(3.0)
(35.1)
(38.1)
(0.8)
(2.9)
(3.7)
–
(47.1)
Cash flow
£m
Exchange
differences
£m
Revaluation
£m
16.8
(1.0)
(55.7)
(0.2)
–
–
0.8
–
(38.1)
–
–
(1.2)
–
(2.3)
(2.3)
2009
Total
£m
10.5
–
10.5
(5.5)
(88.5)
(94.0)
(0.9)
(2.0)
(2.9)
(2.3)
(88.7)
Group
Related party transactions with the Directors are disclosed in the Directors’ Report on page 25.
Share-based payment transactions which include transactions with key management are disclosed in notes 4 and 25.
Contributions to pension schemes are disclosed in note 22. Costs incurred by the Group to administer pension schemes amounted to
less than £0.1m in both 2009 and 2010.
Company
The following table provides the total amount of transactions and year end balances with related parties for the relevant financial year.
Subsidiary undertakings
2009/10
2008/9
Sales of goods
£m
Amounts due
from related
parties
£m
Amounts due to
related parties
£m
3.6
3.2
49.8
60.4
9.7
4.1
The Company guaranteed bank and other borrowings of subsidiary undertakings amounting to £8.6m (2009: £7.1m).
31 Events after the balance sheet date
A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance Act (No. 2) 2010 is
expected to include legislation to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011. Further reductions to the main
rate are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014. The changes had not been substantively enacted at the balance
sheet date and, therefore, are not included in these financial statements.
The proposed reductions of the main rate of corporation tax by 1% per year to 24% by April 2014 are expected to be enacted separately each
year and would have the effect of reducing the deferred tax liability provided at 1 May 2010. The Directors do not anticipate that these changes
will materially change the deferred tax position presented in these financial statements.
www.carpetright.plc.uk
2010
£m
516.6
316.0
28.2
34.1
(5.9)
28.2
(5.9)
22.3
(6.5)
15.8
247.1
71.2
(71.3)
703
6,206
61.2%
6.6%
5.5%
31.6p
23.5p
16.0p
2009
£m
2008
£m
2007
£m
482.8
295.8
22.3
22.8
(5.6)
17.2
(0.5)
16.7
(4.9)
11.8
265.8
67.2
(97.1)
695
6,155
61.3%
4.7%
4.6%
18.2p
17.6p
8.0p
521.5
323.1
60.8
63.4
(1.3)
62.1
(2.6)
59.5
(16.7)
42.8
254.2
74.3
(57.5)
675
5,816
62.0%
12.2%
11.7%
63.5p
63.2p
52.0p
475.9
290.8
68.8
59.5
(1.8)
57.7
9.3
67.0
(20.7)
46.3
184.9
68.0
(6.9)
621
5,397
61.1%
12.5%
14.5%
58.3p
68.2p
50.0p
2006
restated
£m
451.4
270.6
66.2
58.7
(2.0)
56.7
7.5
64.2
(20.1)
44.1
180.4
56.0
(29.1)
538
5,027
59.9%
13.0%
14.7%
57.5p
65.0p
49.0p
66
Group five year financial summary
Summarised income statements:
Revenue
Gross profit
Operating profit
Underlying operating profit
Net finance costs
Underlying profit before tax
Exceptional items
Profit before tax
Tax on ordinary activities
Profit for the financial period
Extracts from balance sheets:
Non-current assets
Net assets
Net debt
Ratios and statistics:
Number of stores at period end
Total space (sq ft – gross) ’000
Gross margin (%)
Underlying operating margin (%)
Operating margin (%)
Underlying earnings per share (pence)
Basic earnings per share (pence)
Dividends per share (pence)
Carpetright plc Annual report and accounts 2010
Independent auditors’ report to the members of Carpetright plc
67
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Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
• the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is consistent
with the financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 27, in relation to going
concern; and
• the parts of the Corporate Governance Report relating to the
Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
28 June 2010
We have audited the financial statements of Carpetright plc for the
52 week period ended 1 May 2010 which comprise the Group and
Company Balance Sheets, the Group Income Statement, the Group
Statement of Comprehensive Income, the Group and Company
Cash Flow Statements, the Group and Company Statements of
Changes in Equity and the related notes. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and, as regards the Parent
Company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
Respective responsibilities of directors
and auditors
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit the financial statements
in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only
for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the
Group’s and the Parent Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the Directors; and the
overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 1 May 2010 and
of the Group’s profit and Group’s and Parent Company’s cash
flows for the period then ended;
• the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the lAS Regulation.
www.carpetright.plc.uk
68
Calendar
2010
Q1 interim management statement
Annual General Meeting
First-half trading update
First-half ends
Interim results announcement
2011
Q3 interim management statement
Second-half trading update
Year ends
Advisers
Financial Advisers
Deutsche Bank AG
1 Great Winchester Street
London
EC2N 2DB
Solicitors
Travers Smith
10 Snow Hill
London
EC1A 2AL
Andrew Jackson
PO BOX 47
Essex House
Hull
HU1 1X
Carpetright plc Annual report and accounts 2010
4 August
9 September
27 October
30 October
14 December
2 February
27 April
30 April
Stockbrokers
Deutsche Bank AG
1 Great Winchester Street
London
EC2N 2DB
KBC Peel Hunt plc
4th Floor
111 Old Broad Street
London
EC2N 1PH
Company Secretary and
registered office
Mr Jeremy Sampson
Harris House
Purfleet Bypass
Purfleet
Essex
RM19 1TT
Telephone: 01708 802000
Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
Bankers
National Westminster Bank plc
Tooting Branch
30 Tooting High Street
London
SW17 0RG
Registrars
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZY
Carpetright plc is Europe’s leading
specialist floor coverings retailer.
Since the first store was opened
in 1988 the business has followed
a controlled store expansion
programme developing both
organically and, in recent years,
through acquisition within the
UK and other European countries.
The Group trades from 703 stores
across Europe and employs
approximately 4,000 staff. The Group
is organised into two geographical
regions, the UK & RoI (comprising
the UK and the Republic of Ireland)
and the Rest of Europe (comprising
The Netherlands and Belgium).
Overview
Financial highlights
Business overview
Chairman’s statement
Directors’ report: Business review
Principal activities
1
2
4
5
Business objective and strategies 5
Operational and financial review
Group financial review
Key performance indicators
Principal risks and uncertainties
Employees
Corporate social responsibility
Directors’ report: Governance
Board of Directors
Corporate governance
Audit Committee report
Directors’ remuneration report
Other information
Statement of
Directors’ responsibilities
Financial statements
Financial statements
Notes to the accounts
Group five year
financial summary
Independent auditors’ report
Calendar
Advisers
6
9
10
11
12
13
15
16
19
20
25
27
29
33
66
67
68
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www.carpetright.plc.uk
Annual report and accounts 2010
Europe’s leading floor coverings retailer
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Harris House
Purfleet Bypass
Purfleet, Essex RM19 1TT
Telephone +44 (0)1708 802000
www.carpetright.co.uk
www.carpetright.plc.uk