Europe’s leading
floor coverings retailer
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Annual report and
accounts 2012
About us
Carpetright plc is Europe’s leading
specialist floor coverings retailer.
The first store was opened in 1988 and
the Group trades from 632 stores and
employs over 3,300 team members.
The Group is organised into two
geographical regions, the UK and
the Rest of Europe (comprising the
Netherlands, Belgium and the Republic
of Ireland).
www.carpetright.plc.uk
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Overview
Financial highlights
Group at a glance
Chairman’s statement
Directors’ report: Business review
Principal activities
Business objective and strategies
Operational and financial review
Group financial review
Principal risks and uncertainties
People
Corporate 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
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Overview
Financial highlights
Revenue
Underlying1 profit before tax
Profit before tax
Underlying1 earnings per share
Basic earnings per share
Dividend per share
52 weeks ending
28 April 2012
£471.5m
£4.0m
£13.5m
4.5p
16.4p
Nil
52 weeks ending
30 April 2011
£486.8m
£16.9m
£6.6m
18.0p
6.8p
8.0p
Change
(3.1%)
(76.3%)
104.5%
(75.0%)
141.2%
–
1. Where this review makes reference to ‘Underlying’ these relate to profit/earnings before exceptional items.
www.carpetright.plc.uk
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Group at a glance
Strong market positions and geographic regions
Over
3,300
People
4
Countries
632
Stores
Republic of
Ireland
20
Stores
Carpetright plc Annual report and accounts 2012
Carpetright plc Annual report and accounts 2012
Store portfolio at 28 April 2012
UK
Standalone
Concessions
Total
Rest of Europe
Netherlands
Belgium
Republic of Ireland
Total
Group total
UK
490
Stores
Belgium
28
Stores
Sites
474
16
490
94
28
20
142
632
’000 sq ft
4,241
29
4,270
1,094
329
147
1,570
5,840
Netherlands
94
Stores
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Regional performance
UK
Revenue
Underlying operating profit
Trading space sq ft ’000
Number of stores
Number of people
Rest of Europe
Revenue
Underlying operating profit
Trading space sq ft ’000
Number of stores
Number of people
52 weeks ending
28 April 2012
52 weeks ending
30 April 2011
£381.6m £396.6m
£17.8m
4,514
539
2,934
£2.8m
4,270
490
2,718
£89.9m
£5.2m
1,570
142
666
£90.2m
£3.4m
1,558
140
691
Revenue contribution: Group %
Profit contribution: Group %
People %
19%
65%
81%
19.7%
35%
80.3%
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Netherlands
94
Stores
Number of stores: Regional %
Trading space: Regional % (sq ft)
22.5%
26.9%
77.5%
73.1%
UK
Rest of Europe
www.carpetright.plc.uk
Republic of
Ireland
20
Stores
UK
490
Stores
Belgium
28
Stores
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Chairman’s statement
We are Europe’s leading specialist carpet
and floor coverings retailer
Lord Harris of Peckham
Chairman
In my statement last year I said I expected the coming year would
be challenging, with an extended period of economic uncertainty
and fragile consumer confidence, and this proved to be the case.
As a result, the Group faced difficult trading conditions leading to
a reduction in sales volume, but we remain profitable and continue
to generate strong operating cash flows.
Total revenue for the 52 weeks ended 28 April 2012 decreased by
3.1% to £471.5m (2011: £486.8m). Underlying profit before tax
decreased by 76.3% to £4.0m (2011: £16.9m). Reported profit
before tax increased to £13.5m (2011: £6.6m), reflecting our
success in realising significant profits from the sale of freehold
properties (further information on these disposals is contained in
the Operational and Financial Review). Underlying earnings per
share have fallen to 4.5p (2011: 18.0p) and basic earnings per share
increased to 16.4p (2011: 6.8p). During this difficult trading period
we have continued our focus on reducing the Group’s net debt.
It is therefore pleasing to announce that as at 28 April 2012 this
stood at £19.1m (2011: £65.7m), a substantial reduction on the
prior year, demonstrating the ability of the Group to continue to
generate cash even in these most difficult of times.
The Group has remained cash generative and profitable in this
sustained period of recessionary trading but underlying profits have
fallen again this year and short term economic conditions continue
to remain uncertain. Consequently the Board feels it is appropriate
to reduce its reliance on debt rather than recommend a payment
of a final dividend for this financial year. The Board recognises the
importance of dividends to shareholders and will seek to restore
payment of a dividend when debt has been reduced, a sustained
recovery is evident and this is reflected in the financial results of
the Group. I have been in the carpet business for over 50 years
and whilst my enthusiasm for the business remains the same,
as I near my 70th birthday it was appropriate to address the issue
of succession.
In September 2011, I was delighted that Darren Shapland agreed to
join Carpetright’s Board as a Non-Executive Director. Darren was
an outstanding Finance Director of the Group between 2002 and
2005 and his subsequent success at Sainsbury’s speaks for itself.
Following Darren’s appointment it became clear to me, and the rest
of the Board, that the combination of his extensive retail experience
and specific knowledge of the Group made him an excellent
candidate for the role of Chief Executive and he was appointed to
this position with effect from 14 May 2012. I am confident he will
make a huge contribution to the future of the business.
There will be a period of transition during which I will work closely
with Darren, specifically on buying, property and store standards,
although I anticipate that my active involvement will decrease
gradually over time.
Carpetright plc Annual report and accounts 2012
We are encouraged to see a positive impact
from the self-help actions taken during the year,
whilst recognising within our plans that economic
conditions will remain difficult for some time.
“
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I am also pleased that Baroness Noakes has agreed to stay on the
Board in the new role of Deputy Chairman in order to assist the
Board with the transition of roles and responsibilities.
We have had a number of other changes to the membership of
the Board. Guy Weston retired as a Non-Executive Director
after six years of service. I would like to thank him for his valued
contribution to the Group. I was delighted to welcome David
Clifford to the Board in December 2011, as a Non-Executive
Director. He was previously a senior partner with KPMG and
throughout his career has held a variety of roles and led the
Consumer Markets unit of KPMG for a period, advising a number
of retailers. He has made an extremely valuable contribution to
the Board since his appointment.
When Darren agreed to become Chief Executive, we wanted to
comply with the Corporate Governance Code, which mandates
that there has to be at least as many independent non-executive
directors as other directors, and to avoid the Board becoming too
large. Accordingly Claire Balmforth and Andy Corden stood down
from the Board in May 2012 but will retain their full executive
responsibilities for the UK and European businesses respectively.
I would like to thank them for their contribution to the Board and,
more importantly, for their contributions to the success of the
business both in the past and the future.
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On behalf of the Board, it is important to recognise and thank
all of our loyal and dedicated team members for their continued
commitment and contribution throughout the year. Whether in
stores, distribution centres or central support offices these teams,
who consistently provide excellent customer service, remain
critically important. It is their efforts that really make the difference.
Looking forward, fragile consumer confidence continues to produce
a weak and volatile floor coverings market. We are encouraged to
see a positive impact from the self-help actions taken during the
year, whilst recognising within our plans that economic conditions
will remain difficult for some time. That said, I remain confident
the Group is well positioned to deliver profitable sales growth once
consumer demand improves.
Lord Harris of Peckham
Chairman
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www.carpetright.plc.uk
66
Directors’ report: Business review
The Directors present their Annual Report to the shareholders together with the audited
financial statements for the financial year ended 28 April 2012. This report, together with
the Chairman’s Statement, describes 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. We have extended our product offering to include beds in around half of our stores.
The Group trades from 632 stores organised and managed in two geographical segments, the UK and the Rest of Europe (comprising the
Netherlands, Belgium and the Republic of Ireland).
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:
Strategy
KPI
Definition
Improving and developing our flooring product ranges
and services
Ensuring we continually improve and develop our flooring product
ranges to provide consumers with a market leading product choice
which offers great value, backed up by excellent customer service.
Like-for-like sales
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 the financial year (calculated in
local currency).
Developing our bed proposition
To develop a bed proposition as a complementary revenue stream to
our core floor coverings business, offering consumers a wide choice
at competitive prices.
Managing and investing in our store portfolio
To manage our store base continually to exploit opportunities which
deliver better overall profitability.
Gross Profit %
Gross profit as a percentage of net sales
(calculated in local currency).
Sales participation
of beds
Value of net sales of beds as a proportion
of total sales.
Number of stores
The number of stores trading at the end of
the year.
Store space
Store gross area, including both selling and
warehouse space. Space occupied by sub
tenants is excluded.
Reaching more customers through additional channels
To extend the reach of Carpetright’s brand by developing our
online business and growing sales through the insurance
replacement market.
Ongoing focus on cost control and cash management
To provide the flexibility to offer competitive prices and to manage
our margin we take a determined approach across the business on
cost control and cash management.
Sales originated from
online leads
Sales directly online and those in stores
that have been attributable to online leads.
Sales participation of
non-retail business
Value of net sales to non-retail customers
as a proportion of total sales.
Cost as % of sales
Operating costs expressed as a percentage
of sales (calculated in local currency).
Net debt
Value of net debt at year end.
Carpetright plc Annual report and accounts 2012
7
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Performance
In a tough consumer environment, we have focused on offering great value,
backed up with excellent service, with like-for-like sales showing year on year
growth in the second half.
The deterioration of consumer confidence impacted the second half in the
Netherlands, partially offset by the success of the recovery plan in the Republic
of Ireland delivering year on year growth for last three quarters.
Business
2012
2011
2010
2009
UK
(0.2%)
(6.0%)
4.2% (13.3%)
Europe
(1.2%)
(4.0%)
(6.2%)
1.1%
In the first half of the year sales volumes were closely linked to periods of higher
promotional discount. In the second half of the year the level of margin
investment was reduced through adapting ranges and working with suppliers.
UK
58.9%
62.2% 61.9% 62.1%
The increasing participation of laminate in the sales mix resulted in a small dilution. Europe
56.9%
57.1% 58.5% 58.3%
The ranging of beds into more stores and the development of the proposition
has increased both sales and mix participation.
UK
6.1%
5.1%
3.5%
1.7%
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We have opened 12 stores and closed 61 stores. Of the latter, 28 were concessions. UK
We have opened three stores and closed one.
Within the number of store movements we have downsized three stores by
relocating to new units.
Europe
UK
490
142
539
140
561
142
541
142
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4,270
4,514
4,626
4,439
In addition to the increase in the number of stores, we have also returned 6k sq ft
of surplus space to landlords.
Europe
1,570
1,558
1,580
1,602
During the year we have focused on converting leads originating from online
samples and appointments.
The structural change in the insurance replacement procurement market has
reduced our sales through this channel.
The cost base was reduced by 2.8% due to a reduction in the number of stores,
successful rent negotiations and reduced depreciation. This was partially offset
by increased business rates and utility costs.
UK
UK
UK
3.9%
2.1%
n/a
n/a
3.3%
4.9%
4.1%
3.6%
58.2%
57.7% 55.0% 57.5%
Cost decreased by 5.8%, a combination of structural inflationary pressures on
employment and occupancy cost in the Netherlands and Belgium, offset by cost
reduction activities in the Republic of Ireland.
The cash generative nature of the business was supplemented by the sale and
leaseback of nine freehold stores.
Europe
50.6%
53.3% 51.6% 51.1%
Group
£19.1m
£65.7m £71.3m £97.1m
We aim to act responsibly towards all our stakeholders, including customers, suppliers, employees and the communities in which we
operate. A summary of our approach is on pages 17 and 18 of this report.
www.carpetright.plc.uk
88
Operational and financial review
Our focus is to deliver long-term sustainable growth
“I am excited to have joined Carpetright as its Chief Executive.
Whilst it has been seven years since I was previously in an
executive role here, Carpetright is a business I know well.
Notwithstanding the on-going challenges of the difficult
consumer environment, I have been encouraged by what I have
seen so far in the six weeks since becoming Chief Executive.
The Group remains in a commanding position in its markets,
with a number one position in floor coverings and a fast growing
bed business in the UK; a strong presence in the Netherlands
and Belgium; and a recovering business in Ireland.
Carpetright is also a business that is focused and tightly
managed which provides a firm basis for recovery. Critically,
it has over 3,000 great people across its operations committed
to customers and improving the performance of the Group.
Together, this makes a solid platform from which to build and
I look forward to working with Lord Harris and the team in the
future development of the business.”
Darren Shapland
Chief Executive
Business Review
Our business in the UK has been operating in a very difficult market,
but has remained profitable with underlying operating profits
down 84.3% to £2.8m. We were encouraged by a return to growth
in like-for-like sales in the second half of the financial year, an
improving gross margin and the results of our continuous
programme of cost reduction.
In this environment, customers are looking harder than ever for
value before making their purchasing decisions. Based on our
experience, we are adapting our ranges and promotional activity
to continue to offer the best prices, whilst simultaneously working
with our suppliers to reduce the level of margin investment.
The underlying operating profits in the Rest of Europe have
increased by 52.9% to £5.2m. The Netherlands and Belgium
businesses are continuing to gain market share as competitors
struggle in the current economic conditions. In this climate our
focus has been similar to the UK business as we look to improve
our range, operational efficiency and reduce costs. As part of this
we took the decision to consolidate our European Central Support
Office functions into the Netherlands and this will deliver a full
year saving of £0.5m per annum.
The previously announced actions taken in our business in the
Republic of Ireland delivered an improvement in underlying
performance. The product range continues to be refined and
adapted to align it more closely to the local market, and promotional
campaigns have also been restructured. It is encouraging to report
three consecutive quarters of like-for-like growth and this, combined
with actions taken on reducing costs, has halved the losses over the
last 12 months.
In common with many other businesses, we consider it appropriate
to reduce our debt requirements in an uncertain economic
environment with tighter credit conditions. In addition to the
business continuing to create strong operating cash flows, we have
completed the sale and leaseback of nine freehold properties from
which we trade. Of these, four were located in the UK, four in
Belgium and one in the Netherlands. The combined net proceeds
were £32.0m, realising a profit on disposal of £14.5m. This was a
significant factor in the reduction of the net debt during the year by
£46.6m to £19.1m (2011: £65.7m).
Our Strategy
The Group remains committed to delivering long term sustainable
growth in earnings per share and cash flow through the following
five strategies:
1. Improving and developing our flooring product ranges
and services.
2. Developing our bed proposition.
3. Managing and investing in our store portfolio.
4. Reaching more customers through additional channels.
5. Ongoing focus on cost control and cash management.
Carpetright plc Annual report and accounts 2012
Carpetright plc Annual report and accounts 2012
9
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1. Improving and developing our flooring product
ranges and services
We believe the foundations of Carpetright’s success rest on the
provision of market leading product choice which offers great value,
backed by excellent customer service. As well as our experience over
many years, this view is supported by externally conducted market
research which indicates that Carpetright benefits from both strong
brand recognition and a reputation for being the ‘first choice’ for
fitted carpet.
In the UK, the roll out of our new laminate offering has continued
and, as at the end of April 2012, this was available in 185 stores.
We expect this will provide an extra area of sales growth, supported
by the strength of our value and service proposition.
To increase our understanding and to monitor performance against
our key customer objectives, we introduced a mystery shopper
programme during the first half of the year. Initial results have enabled
us to identify areas of service which we can improve and will deliver
a better sales performance. These are being addressed through a
coaching and development programme. As we enter the new financial
year, we have also increased the sales related incentives which enable
the store teams to gain a higher reward for delivering great service.
In the Rest of Europe, we continued to introduce new products,
and adapted our promotional offer to suit consumer demand.
Our growth in laminate sales, a product area where we have had
a low market share historically, has been encouraging. This has
been achieved through the introduction of a comprehensive range,
with a competitive offer supported by our high service standards.
2. Developing our bed proposition
Beds provide an important complementary revenue stream to our
core floor coverings business. We have developed and expanded
the bed business during the year, and at the end of April 2012 our
bed offer ‘Sleepright by Carpetright’ was trading from 272 stores
(2011: 238). This area of the business delivered an increase in sales
of 13.2% in the year and now represents 6.1% of UK sales revenue
(2011: 5.1%). We believe this business has significant further
growth potential in the coming year and we will be focusing on
range development, improving customer awareness of our bed
offer and reducing delivery times.
3. Managing and investing in our store portfolio
At the end of April we had 490 stores trading in the UK. During
the last year, we opened 12 new stores and closed 61 stores, inclusive
of the 16 concessions in Focus DIY, following that business entering
administration. This resulted in a net store decline of 49 stores
and translated to a reduction in net space of 244k sq ft, a decrease
of 5.4% since the start of the year.
We continue to see an increasing trend for customers to use the
internet to complete a significant proportion of pre-purchase research
online. With growing numbers of customers prepared to travel
further to make their single physical store visit to complete their
purchase we believe that, over time, this will result in a shift in the
required geographic density of our store estate. With leases on 88
stores due to expire in the next five years there is a natural opportunity
to further reshape the portfolio in a cost effective way, reducing the
size of the store footprint and lowering our ongoing rent roll.
During the second half we began a programme of store
refurbishments to update and refresh our UK estate. This has
involved improving natural light, updating signage, replacing floor
coverings and upgrading in-store lighting. The response to an
initial trial of 34 stores was encouraging with sales up around
10% compared to the rest of the like-for-like estate, delivering
a pay back on the investment within one year. The new format is
now in 62 stores and we are currently developing our plans for
the continuation of this programme in the coming year.
In the Rest of Europe, we opened three new stores during the year
and closed one store. This translated into a net increase of 12k sq ft
of selling space, to a total of 1,570k sq ft in 142 stores (2011: 140).
Two of the new locations were ‘sample only’ stores, building on the
successful trial opening of a similar store in the prior year. This new
smaller format is expected to provide an opportunity for future
growth in the store estate.
4. Reaching more customers through
additional channels
In the UK, the internet has become a vital research tool for many
of our customers and we continued to invest in our online presence
during the year. On a weekly basis we are now achieving an average
of over 70,000 unique visitors to our website, a 16% increase on the
prior year and this has produced corresponding increases in both
sample requests and appointment leads. We are investing in a larger
team, recruiting individuals with the necessary skills and experience
to ensure we maximise the opportunity. We have also focused
activity to improve our conversion to sales ratio with the opening of
a call centre manned by knowledgeable Carpetright people and by
improved follow up at store level. This demonstrates the importance
of having an effective and integrated multi-channel proposition.
We have continued to focus on gaining additional sales through the
insurance replacement business. This has proved to be a challenge
as we understand there has been a reduction in insurance renewals
associated with the current economic conditions and a structural
change in the procurement of goods and services by the agents of the
insurers. The volume of business through this channel is currently
small relative to the Group’s total revenue, although we believe it
offers an opportunity for profitable sales growth.
5. Ongoing focus on cost control and
cash management
We are committed to an ongoing focus on cost control. This ensures
we have an appropriate cost base for the current economic conditions.
We have a flexible sourcing policy and work closely with our
suppliers to ensure we achieve the most competitive product costs.
We anticipate inflationary pressures to come from energy and
business rates but expect to offset these with favourable negotiations
with landlords, maintaining a flexible approach to matching store
staff costs to the level of sales and continuing our programme of
tendering for all non-merchandise goods and services.
The cash generative nature of the business has been supplemented
by the sale and leaseback of nine freehold properties, enabling the
year end net debt to be reduced by £46.6m to £19.1m. We intend
to continue to reduce the level of debt within the Group.
www.carpetright.plc.uk
1010
Operational and financial review continued
Financial Highlights
A summary of the reported financial results for the year ended
28 April 2012 is set out below:
Revenue
Underlying1 operating profit
Net finance charges
Underlying1 profit before tax
Exceptional items
Profit before tax
Earnings per share (pence)
– underlying1
– basic
Dividends per share (pence)
Net debt
2012
£m
471.5
8.0
(4.0)
4.0
9.5
13.5
4.5
16.4
Nil
(19.1)
2011
£m
486.8
21.2
(4.3)
16.9
(10.3)
Change
(3.1%)
(62.3%)
7.0%
(76.3%)
6.6 104.5%
18.0
(75.0%)
6.8 141.2%
8.0
(65.7) £46.6m
1. Where this review makes reference to “Underlying” these relate to profit / earnings
before exceptional items.
Performance by Business
For year to 28 April 2012
Revenue
UK
Rest of Europe
Total revenue
Underlying operating profit1
UK
Rest of Europe
Total underlying operating profit
Underlying operating profit %
UK
Rest of Europe
Total underlying operating profit %
Overview
Total sales decreased by 3.1% to £471.5m, reflecting the tough
consumer environment in all the geographic markets where we
operate. During the year, the Group opened 15 stores and closed
62 which gave a net decrease of 47 stores and a total store base of
632. Total store space declined by 3.8% to 5.8 million square feet.
Weak consumer demand was a significant contributor to the decline
in underlying operating profit to £8.0m, a decrease of 62.2% on the
prior year. Underlying net finance charges were £0.3m lower at
£4.0m. These combined to generate an underlying profit before
tax of £4.0m, a decrease of 76.3% on the prior year.
Exceptional items generated a surplus of £9.5m (2011: a charge of
£10.3m), being net property profits partially offset by a combination
of restructuring costs, non-cash store impairment and onerous
lease charges.
As a result, profit before tax increased by 104.5% to £13.5m
(2011: £6.6m). Basic earnings per share increased by 141.2%
to 16.4p reflecting the increase in post tax earnings.
The combination of cash flow from continued underlying
profitability, effective management of working capital, the control
of capital expenditure and proceeds from the disposal of freehold
properties, enabled net debt to be reduced by £46.6m to £19.1m
(2011: £65.7m). The cash flow strength of the Group is highlighted
by the fact that in the past three years net debt has been reduced by
over 80% from £97.1m as at April 2009, in the most demanding of
consumer environments.
Total
£m
381.6
89.9
471.5
Year on Year Movement
Reported
Local Currency
Like-for-like2
(3.8%)
(0.3%)
(3.1%)
(2.0%)
(0.2%)
(1.2%)
2.8
5.2
8.0
(84.3%)
52.9%
(62.3%)
65.0%
0.7%
5.8%
1.7%
(3.8ppts)
2.0ppts
(2.7ppts)
1. Underlying operating profit is operating profit before exceptional items.
2. 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
housebuilders’ contracts are supplied through the stores and included in their figures.
Carpetright plc Annual report and accounts 2012
UK
Total UK revenue decreased 3.8% in the year to £381.6m. This
performance can be attributed to three key factors:
i)
ii)
the underlying retail flooring performance was down 2.7%;
the focus on developing our bed offer and introducing it into
more stores contributed 0.6% to growth; and
iii) a fall in sales to the insurance and house builder businesses
accounted for 1.7% of the decline.
After taking into account the movement in the number of stores the
like-for-like sales for the year declined by 0.2%, with the first half
down 2.4%, predominantly offset by a stronger second half, being
an increase of 1.9%.
Gross profit declined by 8.8% to £224.8m, representing 58.9% of
sales, a decrease of 3.3 percentage points. This movement is a
combination of:
i)
ii)
the decline in the underlying floor covering margin with
demand higher in periods of stronger promotional activity,
particularly in the first half of the year, contributing an adverse
movement of 3.2 percentage points;
a decline in the insurance business resulted in a change in
the overall sales mix. This accounted for an increase of
0.3 percentage points (as this part of the business operates
on a lower gross margin than retail floor coverings); and
UK – Performance Review
The key financial results for the UK were:
Revenue
Like-for-like sales
Gross profit
Gross profit %
Costs
Underlying operating profit
Underlying operating profit %
The UK portfolio is now as follows:
Standalone
Concessions
Total
11
11
iii)
the impact of fuel inflation on delivery costs accounted for
an adverse movement of 0.4 percentage points.
The total UK cost base decreased by 2.9% compared with the prior
year to £222.0m (2011: £228.7m). Store payroll costs continue to
be managed closely to the volume of sales and reduced by 7.5%
to £57.6m (2011: £62.3m). Store occupancy costs fell 1.7% to
£127.5m (2011: £129.7m) due to a reduction in the number of stores,
successful rent negotiations and reduced depreciation, although this
was partially offset by increased utility and business rates inflation.
The underlying rent in like-for-like stores decreased marginally by
0.2% (2011: 0.4%), reflecting a continued weakening of the property
market in the current economic climate. Marketing and central
support costs were up 0.3% at £36.9m (2011: £36.8m), primarily
the result of one-off income received in the prior year relating to a
successful VAT reclaim. The underlying movement was a decline
of 2.7% with the largest element being the reduction in management
and administrative headcount.
Underlying operating profit decreased by 84.3% to £2.8m.
O
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2012
£m
381.6
(0.2%)
224.8
58.9%
(222.0)
2.8
0.7%
2011
£m
396.6
(6.0%)
246.5
62.2%
(228.7)
17.8
4.5%
Change
(3.8%)
(8.8%)
(3.3ppts)
2.9%
(84.3%)
(3.8ppts)
Store Numbers
Sq Ft (’000)
30 April 2011
495
44
539
Openings
12
–
12
Closures
(33)
(28)
(61)
28 April 2012
474
16
490
30 April 2011
4,410
104
4,514
28 April 2012
4,241
29
4,270
www.carpetright.plc.uk
1212
Operational and financial review continued
Rest of Europe
Despite a decline in sales, good progress has been made in Europe
where we have seen improved profitability and a reduction in costs.
Total reported revenue decreased year on year by 0.3% to £89.9m
impacted in part by a movement in exchange rates. Sales in local
currency declined 2.0%, with like-for-like sales down 1.2%. All
markets were impacted by the current economic situation with
consumers remaining cautious with their discretionary expenditure.
Gross profit margin decreased marginally to 57.0% (2011: 57.1%),
primarily due to the impact of the mix effect of selling more laminate
at a lower than average margin, partially offset by improved rebates
and effective management of the promotional mix. Reported
operating costs decreased by 4.4% to £46.0m. In local currency
terms, costs decreased by 6.7% despite inherent inflationary
increases. The reduction came as a result of the negotiated salary
and rent reductions, and the consolidation of central support
functions. This reflects the tight management control and focus
on achieving efficiencies within the whole operation.
The net result was an underlying operating profit of £5.2m, an
increase of 52.9%. In local currency terms, the underlying profit
increased by 65.0%.
Rest of Europe – Performance Review
The key financial results for the Rest of Europe were:
Revenue
Like-for-like sales
Gross profit
Gross profit %
Costs
Underlying operating profit
Underlying operating profit %
2012
£m
89.9
(1.2%)
51.2
57.0%
(46.0)
5.2
5.8%
2011
£m
90.2
(4.0%)
51.5
57.1%
(48.1)
3.4
3.8%
Change
(Reported)
(0.3%)
Change
(Local Currency)
(2.0%)
(0.6%)
(0.1ppts)
4.4%
52.9%
2.0ppts
(2.1%)
6.7%
65.0%
The Rest of Europe portfolio is now as follows:
Netherlands
Belgium
Republic of Ireland
Total
Store Numbers
Sq Ft (’000)
30 April 2011
92
28
20
140
Openings
2
–
1
3
Closures
–
–
(1)
(1)
28 April 2012
94
28
20
142
30 April 2011
1,079
334
145
1,558
28 April 2012
1,094
329
147
1,570
Carpetright plc Annual report and accounts 2012
13
13
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Group financial review
Net Finance Costs and Taxation
Net finance charges were £4.0m (2011: £4.3m) reflecting lower
average net debt and a reduction in the margin rates on borrowing.
The effective tax rate on profits is 18.7% (2011: 30.4%). This
decrease arises primarily from the impact of a change in tax rates
and the release of previously held deferred tax provisions.
Exceptional Items
The Group recorded a net surplus of £9.5m (2011: charge of £10.3m)
in the year.
Profit on disposal of properties
Store impairment charge
Onerous lease charge
Restructuring costs
Write off of unamortised refinancing fees
(Charge)/Gain
2012
£m
13.4
(1.0)
(0.3)
(2.1)
(0.5)
9.5
2011
£m
0.5
(2.0)
(8.8)
–
–
(10.3)
We have continued to trade our property portfolio. In the year a
profit of £13.4m was achieved (2011: profit of £0.5m). Of this,
£14.5m was realised from the sale and leaseback of freehold
properties from which we continue to operate. In the UK and the
Netherlands these transactions were five individual stores sold to
property investors. A group of four stores were sold to a single
investor by way of the disposal of our Belgian property holding
company, Infradis.
We have reviewed the carrying value of the store assets in our
balance sheet, consistent with the approach in previous years. 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 charge of £1.0m (2011: £2.0m).
In addition, there are seven leased properties which had previously
been used as retail stores where an onerous lease provision has
been made on the basis of the difference between the expected cash
inflows and outflows and the re-assessment of previous positions.
In this difficult retail environment, the Group has focused on
organisational changes aimed at enhancing our efficiency and
leveraging our strengths to provide a solid framework for growth.
This has involved a reduction in management headcount in the UK
and the consolidation of our offices in Europe at a cost of £2.1m.
Given the irregular nature and amounts associated with business
restructuring these have been treated as exceptional items.
The unamortised costs associated with the previous refinancing,
which amounted to £0.5m, were written off as an exceptional item.
Earnings per Share
Basic earnings per share increased to 16.4 pence (2011: 6.8 pence),
reflecting a similar increase in post tax earnings. Underlying
earnings per share decreased to 4.5 pence (2011: 18.0 pence).
Dividend
The Board has decided not to pay a final dividend (2011: nil pence),
resulting in no full year dividend (2011: 8.0 pence).
Balance Sheet and Cash Flow
The Group had net assets of £70.7m (2011: £67.0m) at the end of the
year, an increase of £3.7m since 30 April 2011. The cash generative
nature of the business remains one of the strengths of the Group,
with operating cash flow of £29.1m in the year (2011: £32.1m).
The decrease was predominantly attributable to the reduction in
underlying profitability, partially offset by improving working capital
management, of which £4.5m related to the timing of the April
payroll falling on the first working day of the following financial year.
Cash Flow
Underlying operating profit
Depreciation and other non-cash items
Exceptional items
(Increase)/Decrease in stock
(Increase)/Decrease in working capital
Operating cash flow
Net interest paid
Corporation tax paid
Net capital receipts/(expenditure)
Free cash flow
Dividends paid
Other
Movement in net debt
Opening net debt
Closing net debt
2012
£m
8.0
14.8
(1.6)
(0.4)
8.3
29.1
(4.9)
(3.0)
22.8
44.0
–
2.6
46.6
(65.7)
(19.1)
Net capital receipts/(expenditure) was an inflow of £22.8m
(2011: outflow of £9.5m). This can be broken down into the
following principal categories:
Capital expenditure
Purchase of freehold properties
Proceeds from freehold property
disposals
Proceeds from leasehold property
disposals
2012
£m
(6.9)
(3.7)
32.0
1.4
22.8
2011
£m
21.2
15.3
–
2.9
(7.3)
32.1
(4.9)
(2.7)
(9.5)
15.0
(10.8)
1.4
5.6
(71.3)
(65.7)
2011
£m
(9.7)
(0.7)
–
0.9
(9.5)
After the repayment of borrowings, net debt decreased by £46.6m to
£19.1m at the year end (2011: £65.7m).
Property
The Group owns a significant property portfolio, most of which
is used for trading purposes. This portfolio is estimated by
management to have a market value of £86.4m at the year end
(2011: £134.0m), compared to a net book value of £83.3m recorded
in the financial statements (2011: £112.3m). The movement in the
year is predominantly the result of sale and leaseback transactions.
www.carpetright.plc.uk
1414
Group financial review continued
Pensions
The IAS 19 valuation as at 28 April 2012 was a net deficit of £4.3m in
relation to defined benefit pension arrangements (2011: £4.0m). The
Carpetright scheme closed to future accrual on 30 April 2010. Plan
assets increased to £18.3m (2011: £17.4m) driven by higher market
values and additional Company contributions agreed with the
pension trustees following the triennial valuation in April 2008. The
present value of plan liabilities increased to £22.6m (2011: £21.4m)
driven principally by a reduction in the discount rate to 4.6%
(2011: 5.3%).
Current liquidity
At the year end the Group held cash balances of £9.6m (2011: £8.3m)
in a combination of Sterling, Euros and Polish Zlotys.
Gross bank borrowings at the balance sheet date were £26.0m
(2011: £70.9m) of which £5.4m is term based with the balance of
£20.6m being drawn down from overdraft and revolving credit
facilities. The Group had further undrawn, committed facilities
of £40.6m at the balance sheet date.
In June 2011, the Group completed a refinancing arrangement of its
principal facilities, split between amortising term loans, a revolving
credit facility and overdrafts in a mixture of Sterling and Euro
currencies. The term loans and revolving credit facilities mature in
July 2015. As at 28 April 2012, the facilities provided debt capacity of
around £66m. Arrangement fees and legal costs are amortised over
the period to June 2014, although paid in cash at the outset. The
facilities contain financial covenants which are tested on a quarterly
basis. The Group monitors actual and prospective compliance with
these on a regular basis.
Outlook
Whilst the UK consumer environment is expected to remain difficult
for all retailers in the discretionary spend sector, the move back into
positive UK like-for-like sales in the second half was encouraging.
While it is far too early to call the beginnings of a broader recovery,
this performance gives some cause for optimism on the core UK
floor coverings business. We have established a £23m revenue bed
business in just three years and believe there is significant scope for
us to grow this further, as we continue to develop the range, improve
the proposition and introduce beds to more stores. In the Rest of
Europe, we expect the economic conditions will remain challenging.
Against this backdrop, we will continue to drive the business towards
long term growth by focusing on improving our product ranges and
services, growing margins, focusing on cost reduction, reducing
debt and promoting the reach of our brand. As a consequence, we
believe the Group is well placed to capitalise on a strong value offer
supported by a superior service proposition, when consumer
demand in our sector improves.
Carpetright plc Annual report and accounts 2012
15
15
Principal risks and uncertainties
Carpetright recognises that effective business management requires regular
review of business risks to identify, evaluate and prioritise them, to assign
management ownership and to ensure appropriate controls are in place to
provide mitigation.
The process for identification of business risks is described on page 22 of this report.
The risk factors addressed below are those which we believe could adversely affect 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 management
to take appropriate action wherever possible in order to control them and also enabling the Board to keep risk management
under review.
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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. The strategies
that we are following to achieve this are set out on page 6 of this report. We face a number of strategic and operational risks which are set
out below, together with the controls and actions which mitigate the impact of those risks.
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Risk Description
Mitigation
Development and execution of a strategy:
The business requires a strategy that responds to the challenges
of the market place so as to position itself for long-term growth.
Economic uncertainty:
The economy is a major influence on consumer spending.
Trends in employment, inflation, taxation, consumer debt
levels and interest rates impact consumer expenditure in
discretionary areas. Changes in Government policies may
also affect our consumers’ ability to purchase our products
and services.
Cost control:
In the event we are unable to control our costs the financial
results of the Group will be adversely affected.
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The Board holds an annual strategy day and from this business
plans are developed to ensure targets are both set and resourced
appropriately.
Regular monitoring of performance against plan is carried out to
ensure targets are being achieved and that they remain relevant
to and focused on the Group strategy.
Throughout the year we have continued to monitor the
effectiveness of our pricing, promotional and marketing
strategies across our businesses, tailoring our consumer
offering where appropriate.
We have a budgetary and planning process which has been
developed to ensure that there is an appropriate budget for both
operational costs and capital expenditure. There is a system of
authorisation to prevent costs being incurred without appropriate
authorisation and being in excess of budget.
In addition we continually focus on our cost base to ensure that
we are able to manage our margins.
Reputation:
The failure to properly mitigate and manage other risks may
manifest itself by damaging Carpetright’s reputation. This may
lead to a lack of confidence by consumers, thereby adversely
affecting the business.
We have mitigation strategies in place to manage our other risks,
thereby reducing the chance of them arising. In the event that
there is a threat of reputational damage, there is a process in place
to deal with enquiries from the press, investors and others, as well
as social media.
This table continues overleaf
www.carpetright.plc.uk
1616
Principal risks and uncertainties continued
Risk Description
People:
Our profitability is dependent upon our ability to attract, retain
and motivate people across all levels of the business.
Product and service quality:
The Carpetright name is a key asset of the business and, as the
largest operator in its markets, expectations of the Group are
high. Failure to provide high quality products and services
could lead to a loss of trust and confidence, and damage the
Group’s reputation and brand. This could result in a decline in
the customer base and affect our ability to recruit good people.
IT systems, supply chain and business continuity:
Carpetright is dependent on the reliability and capability of
key information systems and technology. A major incident
or sustained performance problems with regard to store,
logistics, multi-channel or head office systems could constitute
a significant threat to the business, at least in the short term.
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Mitigation
Our approach to remuneration aims to ensure that high calibre
executives are attracted and retained. The Group seeks to develop
individuals through talent management and succession planning.
The protection of the Carpetright brand and position in its
core markets will be sustained by unique and extensive
product and service offerings in our stores. Team members’
and fitters’ training is delivered continually with fitters being
independently assessed.
Business continuity plans have been documented and
arrangements made to mitigate significant risks arising. The
systems implemented within the UK and the Republic of Ireland
are mirrored in a separate location. Plans are in place to replicate
this in the remaining European businesses by the end of 2012.
Compliance:
The Group risks incurring penalties or punitive damages
arising from failure to comply with legislative or regulatory
requirements across many areas.
The Group has developed clear policies on compliance and it is
the Group’s Legal Director’s responsibility to identify prospective
changes to laws and regulations and to bring these to the
attention of the relevant team members.
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Finance and Treasury:
The Group risks exposure to exchange rate, interest rate,
liquidity and credit risks having an adverse or unexpected
impact on results, funding requirements or purchasing ability.
The Group frequently reviews its financial position to ensure
that its funding requirements are being met. Bank covenant
tests are regularly monitored. Rolling cash flow forecasts are
produced weekly.
People
The Group employs over 3,000 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
matters of concern to be raised 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. Should an individual 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 people the skills they need to carry out their jobs and
in due course to move up to new roles, enabling them to develop
their careers and ensuring that there is a pipeline of talent within
the Group.
Carpetright plc Annual report and accounts 2012
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 surveys, conferences,
management briefings, weekly briefings broadcast to stores and
offices, and other less formal communications. Additionally,
all annual results and interim management statements are made
available through the intranet. Directors and senior management
regularly visit stores and discuss matters of current interest and
concern with team members.
Share ownership
Team members have an opportunity to invest in the Company’s
shares through two all-employee share schemes, namely an
All Employee Share Ownership Plan and a Savings Related Share
Option Scheme. Approximately 492 team members participate in
these schemes.
17
17
Corporate responsibility
Our Corporate Responsibility (CR) 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 team members and our customers,
will also help us to enhance shareholder returns. Neil Page currently
reports to the Board on CR matters and co-ordinates the Group’s CR
policies and activities. He is supported by a team providing support
and advice to develop the business’s policies and approach.
With effect from 1 July 2012 a new board committee is being created,
the Customer and Corporate Responsibility Committee, which will
oversee, amongst other matters, the Group’s CR activities. This will
be chaired by Sandra Turner and the members of the Committee will
be Baroness Noakes, David Clifford, Darren Shapland, Martin Harris
and Claire Balmforth. Martin Harris will take over responsibility for
reporting to the Board and co-ordinating the Group’s CR activities
from 1 July 2012.
We have continued developing and improving policies to cover
the following:
Providing excellent service
Our aim is to provide outstanding customer service by selling a
comprehensive range of flooring products at the keenest prices,
supported by dedicated store team members and, where required,
by organising a high quality fitting service.
We have introduced post-sales calls to customers, allowing
immediate feedback thereby ensuring that any issues can be
immediately addressed by the relevant store.
Our mobile fitter training pods enable us to offer all our
recommended fitters access to the Flooring Industry Trade
Association (FITA) assessment and additional training where
required to meet FITA’s exacting standards. We only recommend
fitters who have attained FITA qualifications, 240 of whom attended
the relevant carpet fitting assessment course in the past 12 months.
Additionally, in the year, 192 registered fitters have successfully
completed their vinyl fitting assessment. A subfloor preparation
and door trimming course was introduced to the fitter training
academy in March 2011, and so far 362 registered fitters have been
assessed. In October 2012 a further course was introduced for fitting
laminated floorcoverings and, as at 28 April 2012, 75 fitters have
successfully completed this assessment.
We have introduced an Academy to train our new estimators and,
to date, 81 have successfully passed through it.
Developing committed people
As at 28 April 2012 we employed 3,384 team members in stores,
depots and offices throughout the UK and the Rest of Europe.
Our aims are to ensure everyone has the appropriate skills and
knowledge; to offer our people a good range of incentives and
benefits and to value and promote the diversity of our workforce.
We have continued to roll out our store manager training
programme, with a further 72 managers completing the training
this year, resulting in 240 managers who remain in the business,
including senior retail management, having passed the course.
Team member 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 our products from suppliers who
operate responsibly. 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 floorcoverings suppliers to our businesses both in the UK and
in the Rest of Europe have signed up to compliance with our
Ethical and Environmental policies. We also have a timber policy
to ensure all timber floor covering products are manufactured
from sustainable resources.
Creating a safe place to work and shop
We are committed to achieving high standards of health and safety
in all operational areas.
A monthly health and safety bulletin is now issued to all stores,
and quarterly Health and Safety Committee meetings have been
introduced into the Netherlands and Belgium. There has been a
decrease in the overall level of accidents in the UK to 110 (2011: 169).
Pleasingly, the number of reportable accidents decreased in the
period to 12 (2011: 17), and there were 7 (2011: 4) accidents in
the Rest of Europe which would have been reportable had they
occurred in the UK.
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. 55 new lifting devices to lift carpet onto roll stock stands
were delivered during the year to eliminate this element of manual
handling. As at 28 April 2012 there were 165 lifting devices in stores.
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.
www.carpetright.plc.uk
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1818
Corporate responsibility continued
Where possible we re-use cardboard tubes. Sheet polythene
wrapping and cardboard tubes that are not re-used but are delivered
within the UK from Harris House (our national Central Support
Office, warehouse and cutting facility) are recycled. No waste
produced from Harris House is sent to landfill; general rubbish
being compacted and incinerated to produce energy.
We make our own cardboard tubes on site, thereby reducing the
cost of delivery of what is, essentially, air in the centre of the tubes.
We are trialling different forms of energy-efficient lighting, and
where a store undergoes a full refurbishment, it is the intention
to install such lighting at that location.
Nearly 300 Automatic Meter Reading (AMR) electricity meters
have been installed which provide daily meter reading data and
allows us to target any high-consumption locations, understand
why the consumption is higher than anticipated and manage our
consumption appropriately.
We were able to reduce our water consumption by 10,478m3 during
the year, which is in addition to the 50,000m3 reduction reported
in 2010/11. This has been achieved through improved analysis of
consumption data and identification of any high-use locations.
A similar exercise is being undertaken in relation to the installation
of gas AMR meters, although the benefits of such meters are
unlikely to be seen until following the winter of 2012/13 when
our consumption for heating is at its highest.
Our key measures within CR are:
Key Initiative
Providing Excellent Service
Developing Committed People
Creating a Safe Place to
Work and Shop
Respect for the Environment
Indicator
Complaints per £1m of sales in
the UK
2012
11.3
2011
12.11
Complaints per €1m of sales in the
Rest of Europe
3.7
Not
available
Progress
Improvement by 6.1%. We
attribute much of this improvement
to the introduction of after-sales
calls to customers.
In the Netherlands there has been
an improvement to 4.7 complaints
per €1m of sales (2011: 9.4).
% of team members with >3 years
service in the UK
% of team members with >3 years
service in the Rest of Europe
No. of UK team members
completing our store management
development training in the period
No. of accidents in the UK
No. of accidents in the Rest of Europe
No. of reportable accidents in the UK
No. of accidents in the Rest of Europe
which would have been reportable if
they occurred in the UK
Energy efficiency – kWh/sq m
of sales space2
Energy efficiency – km/litre
of delivery fleet4
Recycling in tonnes4
69%
78%
70
110
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7
71% 2ppt decline.
N/A Figures for 2011 are not available.
48 An increasing number of people
have completed the course.
169 Reduction of 36% of all
accidents reported.
N/A Figures for 2011 are not available.
17 Reduction of 29%.
4 A disappointing increase, although
no trend can be identified as to any
underlying cause.
216.23
3.52
240.74 The improvement is principally
due to a mild winter in 2011/12.
3.41 2.6% improvement in efficiency.
2,366
1,951 21% increase in recycling.
1. Excludes internet sales but includes the Republic of Ireland.
2. Figures are for the UK only. 2011 figure is actual and has been restated from estimated figure (239.3 kWh/sq m).
3. Based on estimated meter readings.
4. Figures are for UK and Republic of Ireland only.
Donations
Charitable donations of £175,000 (2011: £23,500) were made during the year.
No political donations were made (2011: £nil).
Carpetright plc Annual report and accounts 2012
19
19
Directors’ report: Governance
Board of Directors
Lord Harris of Peckham (69)
Chairman
Lord Harris is now in his 55th 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. He stepped down from the position of
Chief Executive of Carpetright in May 2012.
Darren Shapland (45)
Chief Executive
Darren took up his current role as Chief Executive in May 2012. He
was a Non-Executive Director of Carpetright between September
2011 and May 2012. He was previously an Executive Director of
J Sainsbury plc until July 2011 in the roles as its Group Development
Director and its Chief Financial Officer. He will remain the
chairman of Sainsbury’s Bank plc until December 2012. He was
the Group Finance Director of Carpetright between 2002 and
2005, and prior to that was the Finance Director of Superdrug
Stores plc. Between 1988 and 2000 he held a number of financial
and operational roles at Arcadia plc (formerly The Burton Group).
He is also a Non-Executive Director of Ladbrokes plc where he
chairs its Audit Committee.
Neil Page (48)
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 a Fellow of the Chartered Institute of Management Accountants.
Martin Harris (43)
Group Commercial Director
Martin Harris took up his current role as Group Commercial
Director in 2003 and is responsible for marketing, buying and
logistics, the latter being added in 2005. Martin first joined
Carpetright in 1991, previously having been an Executive Director
of Harveys Furnishing Group Limited. He became Marketing
Director in 1997, resigning to become a Non-Executive Director
in 1998 before returning to the Executive Director position
of Buying Director in 2002.
Baroness Noakes (63)
Deputy Chairman and Senior Independent Director
Baroness Noakes, a chartered accountant, joined the Board in 2001.
She is a Non-Executive Director of Severn Trent plc, the Royal
Bank of Scotland Group plc and is 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 was appointed Deputy Chairman in May 2012.
She chairs the Audit and Nomination Committees, but will be
stepping down from the former role in July 2012.
Alan Dickinson (61)
Non-Executive Director
Alan Dickinson joined the Board in October 2010. He spent
more than 35 years in banking and is a former Executive
Committee member of the Royal Bank of Scotland (RBS) Group
and Chief Executive of both RBS UK and the bank’s UK Corporate
Banking business. He is also a Non-Executive Director of the
Nationwide Building Society and Willis Limited. He chairs the
Remuneration Committee.
Sandra Turner (59)
Non-Executive Director
Sandra Turner joined the Board in October 2010. She spent
21 years at Tesco and was part of its senior management team,
holding senior commercial and operational roles in the UK and
Ireland. From 2003 to 2009 she was the Commercial Director of
Tesco Ireland. She is a Non-Executive Director of McBride plc and
Huhtamäki Oyj and was previously a Non-Executive Director of
Northern Foods plc. She will chair the Customer and Corporate
Responsibility Committee.
David Clifford (60)
Non-Executive Director
David Clifford, a chartered accountant, joined the Board in
December 2011. He was previously a senior partner with KPMG.
Throughout his career he held a variety of roles and led the
Consumer Markets Unit of KPMG for a period, advising a
number of retailers. He will be taking over as Chairman of
the Audit Committee in July 2012.
www.carpetright.plc.uk
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2020
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 Corporate Governance Code published by the Financial
Reporting Council.
For the whole of the 2011/12 financial year the roles of Chairman
and Chief Executive were both held by Lord Harris. Lord Harris had
held both roles since the Company was established. The Board was
content for this to continue while Lord Harris remained full time
with the Company because of his long-standing and leading position
in the floorcovering sector. The role of the Senior Independent
Director (SID) had been developed to provide a counter-balance
within the Board.
The structure of the Board and its Committees is set out below:
Carpetright plc Board of Directors
Audit
Committee
Nomination
Committee
Remuneration
Committee
Customer
and Corporate
Responsibility
Committee1
1. This Committee is being created with effect from 1 July 2012.
The Board
The Board currently consists of the Chairman, three Executive and
four Non-Executive Directors, brief biographies of whom can be
found on page 19. Changes to the composition of the Board since
28 April 2012 can be found below. 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 pages 21 and 22.
A quarter of the Board is female (2 out of 8).
All Directors will offer themselves for election or re-election at the
Annual General Meeting in accordance with the UK Corporate
Governance Code.
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 UK Corporate Governance Code and determined that each
remains fully independent. The Board in particular considered
the independence of both Baroness Noakes and Alan Dickinson,
both of whom are considered by the Board to be independent
in character and judgment.
In reaching this determination the Board specifically considered the
facts that Baroness Noakes is a Non-Executive Director of the Royal
Bank of Scotland, the Company’s principal banker, and she has
served as a Director of the Company for more than nine years from
the date of her first election and Alan Dickinson was, within the last
three years, a senior employee of the Royal Bank of Scotland.
It was, however, always the intention that when Lord Harris stepped
down from the role of Chief Executive, it would be split from that of
Chairman. Lord Harris, who will be 70 years old this year, ceased to
be Chief Executive when Darren Shapland was appointed to the role
of Chief Executive in May 2012. Lord Harris remains as Chairman
and will work four days per week in support of Darren Shapland in
specific areas of the business. A formal statement on the division of
responsibilities between the Chairman and Chief Executive has been
adopted by the Board and this makes it clear that the Chief Executive
has the responsibility and accountability for running the business.
It is anticipated that the Chairman’s active involvement will decrease
over time as his knowledge and experience is effectively transferred
to the Chief Executive and his management team.
In order to facilitate the transition of the Company to the new
governance arrangements, Baroness Noakes, who has been the SID
since 2004, has also assumed the role of Deputy Chairman. She will
continue to play an active role in determining the agenda for the
Board, the Board appraisal process and in ensuring that any issues
raised by the Non-Executive Directors are dealt with. She will also
keep under review the division of responsibilities between the
Chairman and Chief Executive so that it works well in practice.
The Board believes that its current size and structure are appropriate
for managing the Group in an effective and successful manner. In
order to achieve this size and structure Claire Balmforth and Andy
Corden both stood down from the Board on 11 May 2012. They
retain their full executive responsibilities for the UK and European
businesses respectively.
A process of evaluation of the Board and its Audit, Nomination
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 were 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.
Only minor changes to the way that the Board works were
found necessary.
Carpetright plc Annual report and accounts 2012
21
21
The Non-Executive Directors generally meet privately with
the Chairman 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.
Details of the number of meetings and Board attendance are set
out below:
Number of Meetings in the 2011/12 financial year:
Directors
Lord Harris
Chairman
Darren Shapland1
Chief Executive
Neil Page
Group Finance Director
Martin Harris
Group Commercial Director
Baroness Noakes2
Deputy Chairman and Senior
Independent Director
Alan Dickinson
Independent Non-Executive Director
Sandra Turner
Independent Non-Executive Director
David Clifford3
Independent Non-Executive Director
Claire Balmforth4
Former Director
Andy Corden5
Former Director
Guy Weston6
Former Director
Christian Sollesse7
Former Director
Attendance
8
5
8
8
8
8
8
4
8
8
2
0
8
Maximum number
of Meetings the
Director could
have attended
8
5
8
8
8
8
8
4
8
8
3
0
Day-to-day management is delegated to the Chief Executive who
chairs an Executive Committee. Other members of the Executive
Committee are the Group Finance Director, Group Commercial
Director, the Operations Directors for each of the UK and the
Rest of Europe and the Company Secretary.
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 Directors. 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). An additional Committee, a Customer
and Corporate Responsibility Committee, is being created with
effect from 1 July 2012, and will be chaired by Sandra Turner. Its
other members will be Baroness Noakes, David Clifford, Darren
Shapland, Martin Harris and Claire Balmforth.
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 or his nominee 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 24.
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 25 to 31.
1. Appointed as a Non-Executive Director on 8 September 2011 and appointed as Chief
Executive with effect from 14 May 2012.
The Nomination Committee is chaired by Baroness Noakes.
Details of its membership and attendance are set out below:
2. Appointed as Deputy Chairman with effect from 14 May 2012.
3. Appointed 1 December 2011.
4. Appointed 3 May 2011, resigned 11 May 2012.
5. Appointed 2 June 2011, resigned 11 May 2012.
6. Resigned 8 September 2011.
7. Resigned 2 June 2011.
The Board is responsible for setting the Group’s objectives and
policies, providing effective leadership and 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
which sets out those matters requiring Board approval and
specifically reserved to it for decision.
Number of Meetings in the 2011/12 financial year:
Members
Baroness Noakes
Committee Chairman
Lord Harris
Alan Dickinson
(appointed 8 September 2011)
Guy Weston
(resigned 8 September 2011)
Attendance
3
3
2
1
3
Maximum number
of Meetings the
member could
have attended
3
3
2
1
www.carpetright.plc.uk
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2222
Corporate governance continued
The role of the Nomination Committee is to:
• identify and nominate candidates for the approval of the Board;
• fill vacancies; and
• make recommendations to the Board on Board composition
and balance. External search consultants are generally
appointed to assist in the search process.
The Committee considers the diversity of the Board and the
skills and competencies of the existing Directors when drawing
up specifications for new appointments. It ensures that the
development needs of Executive Directors and other senior
managers are addressed appropriately.
The Committee also considers whether Directors due to retire
at an Annual General Meeting should be recommended for
reappointment, 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.
An external search consultancy was used in relation to the
appointment of David Clifford as a Non-Executive Director.
Darren Shapland was already known to the Committee from his
previous role as Finance Director of the Company and he was
approached directly to become a Non-Executive Director.
In relation to the appointment of Darren Shapland as Chief
Executive, the Non-Executive Directors, together with Lord Harris,
had examined the external market with a firm of headhunters a
couple of years ago and concluded that it was unlikely that a suitable
candidate with specialist knowledge of the floorcoverings market
existed and that, if the external route were followed, a non-specialist
retailer would have to be considered. This presented a degree of risk
which the Non-Executive Directors preferred to avoid.
Following Darren Shapland joining the Board in September 2011
it was clear to the Non-Executive Directors and the Chairman that
he had both extensive retail experience and specific knowledge of
Carpetright and thus provided a good option to consider as Chief
Executive. That led to a decision to approach him in respect of the
role in late 2011.
Continuing Professional Development
All Board members are updated on matters relevant to the Group,
including legal and regulatory developments, and members of Board
committees are updated on matters relevant to their committee
membership. In the year the Remuneration Committee received
updates on current best practice from New Bridge Street, and the
Audit Committee received a briefing relating to the Bribery Act and
the controls that have been put in place.
The performance of individual Directors is considered as part of the
annual Board appraisal process. The individual development needs
of Executive Directors are overseen by the Nomination Committee,
which includes the Chairman. Non-Executive Directors have access
to professional development provided by external bodies and
their continuing competence is considered by the Nomination
Committee as part of the annual process of recommending the
reappointment of Directors at the AGM.
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. An Executive Directors’
Group (‘EDs Group’) comprising the Executive Directors and
senior managers was established to review key risk and control
issues. The EDs Group met quarterly.
With effect from 1 July 2012, an Executive Risk Group, comprising
the members of the Executive Committee and other senior
managers, will take over the work of the EDs Group.
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. The EDs Group 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
Carpetright plc Annual report and accounts 2012
23
23
A review of the consolidation and financial statements is completed
by management to ensure that the financial position and results of
the Group are appropriately reflected. The preliminary and interim
results are subject to review by the Audit Committee prior to
approval by the Board.
Share capital
Details of the Company’s share capital and significant shareholders
can be found on page 33.
Statement of Compliance
During the period ended 28 April 2012 the Company complied
with the provisions set out in the UK Corporate Governance
Code except as set out below.
The Company did not comply with provision B.1.2 of the UK
Corporate Governance Code for the entire period as for the
period between May 2011 and November 2011 at least half the
Board did not comprise Non-Executive Directors determined
by the Board to be independent. This imbalance was addressed
upon the appointment of Darren Shapland and David Clifford
as Non-Executive Directors in September 2011 and December
2011 respectively.
The Company did not comply with provision A.2.1 of the UK
Corporate Governance Code for the entire period as the roles of
Chairman and Chief Executive were combined, an explanation
for which is set out above. The roles were separated in May 2012.
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www.carpetright.plc.uk
on the expertise of other managers as required. Each Committee,
which meets at least quarterly, regularly reviews the risk
management and control processes within its territory. They
consider the response to the significant risks which have been
identified by management and others, and monitor the maintenance
of a control environment directed towards the proper management
of risk.
The principal risks and uncertainties affecting the business are set
out on pages 15 and 16.
Health and safety
Enforcing the health and safety policy is a high priority for
management and fully descriptive manuals are available to all
team members, 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:
• undertakes its work, both on central functions and in the field,
based on a risk assessment model;
• 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.
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.
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.
Management and specialists within the finance team are responsible
for ensuring the appropriate maintenance of financial records and
processes that ensure all financial information is relevant, reliable,
in accordance with the applicable laws and regulations, and that
appropriate information is distributed both internally and externally
in a timely manner.
2424
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 on the
Company’s corporate website at www.carpetright.plc.uk.
The Audit Committee is chaired by Baroness Noakes. The Board
has determined that Baroness Noakes and David Clifford have
recent and relevant financial experience. Details of membership
and attendance are set out below:
Number of Meetings in the 2011/12 financial year:
Members
Baroness Noakes
Committee Chairman1
Alan Dickinson
David Clifford
(from 1 December 2011)1
Sandra Turner2
Guy Weston
(until 8 September 2011)
Attendance
4
4
2
4
1
4
Maximum number
of Meetings the
member could
have attended
4
4
2
4
2
1. David Clifford will chair the Audit Committee from 1 July 2012. Baroness Noakes
will remain a member of the Committee.
2. Sandra Turner will cease to be a member of the Committee with effect from
1 July 2012.
All members of the Audit Committee are independent Non-
Executive Directors. At the invitation of the Committee, the
Chairman, Chief Executive, Group Finance Director, 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 and pays particular attention to the financial
statements for the year, the annual results announcement and the
results for the half-year set out in the interim statement. Following
review, these are recommended to the Board for approval.
The Audit Committee reviews the consistency of and any changes
to the Group’s accounting policies, the application of appropriate
accounting standards, the methods used to account for significant or
unusual transactions and areas of significant judgment. During the
year the Audit Committee focused in particular on the judgments
made in making provision for the impairment of stores and goodwill
in the light of difficult trading conditions. In addition, it examined
carefully all the other items which are disclosed as exceptional.
During the period ended 28 April 2012, other matters dealt
with by the Audit Committee were:
• 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 Responsibility Report;
Carpetright plc Annual report and accounts 2012
• 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 EDs 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;
• reviewing the whistleblowing policy and relevant items
reported under that policy; and
• receiving a briefing relating to the Bribery Act and the controls
that have been put in place.
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 the 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 Company does not have a policy of tendering the external audit
at specific intervals. The auditors’ tenure runs from one AGM to
the next and there are no contractual obligations that restrict the
Committee’s choice of external auditors.
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 approval is required
before the Company uses non-audit services that exceed financial
limits set out by that policy. Details of the auditors’ remuneration
for audit work and non-audit fees for the period ended 28 April 2012
are disclosed in note 3 to the Financial Statements.
The Statement of Directors’ Responsibilities in relation to the
accounts is set out on pages 34 to 35. The Statement by the Auditors
on their responsibilities in respect of the accounts is contained in
their report on page 72.
The Chairman of the Audit Committee will be available at the
Annual General Meeting.
25
25
Directors’ remuneration report
This report is made by the Board on the recommendation of the
Remuneration Committee and has been prepared in accordance
with the UK Corporate Governance Code, relevant regulations and
the relevant parts of the Listing Rules of the UK Listing Authority.
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 and former Directors who served as Directors of the
Company during the 52 weeks ended 28 April 2012.
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 New Bridge Street (a trading name
of Aon Hewitt Limited, part of Aon plc). The Committee’s advisers
attended two of the four Committee meetings. New Bridge Street,
which is a signatory to the Code of Conduct for Remuneration
Advisers, did not provide other services to the Company. Other
members of the Aon plc group of companies provided insurance
broking and advisory services to the Company.
Remuneration Committee
The Remuneration Committee is chaired by Alan Dickinson.
Details of its membership and attendance are set out below:
Number of Meetings in the 2011/12 financial year:
Members
Alan Dickinson
Committee Chairman1
Baroness Noakes
Sandra Turner
Darren Shapland
(from 8 September 2011
until 14 May 2012)
David Clifford
(from 1 December 2011)2
Guy Weston
(until 8 September 2011)3
Attendance
4
4
4
3
3
0
4
Maximum number
of Meetings the
member could
have attended
4
4
4
4
3
0
1. Chairman from 8 September 2011.
2. David Clifford will cease to be a member of the Committee with effect from
1 July 2012.
3. Chairman until 8 September 2011.
At the invitation of the Committee, the Chairman, Chief Executive,
Group Finance Director and Operations Director – UK 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 decisions 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 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
corporate website (www.carpetright.plc.uk).
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 markets within which it competes
for talent and short- and long-term incentive opportunities at levels
that are sufficient to motivate Executives to achieve the Company’s
short- and long-term goals without encouraging inappropriate
behaviours. The Committee’s normal policy is that, 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 Directors’
remuneration, the Committee has:
• conducted a review of the remuneration arrangements of the
Executive Directors and Senior Executives;
• determined the bonus award for the 2011/12 financial year;
• approved the bonus structure for the 2012/13 financial year;
• determined the level of awards and performance condition
under the Company’s Long Term Incentive Plan for Directors
and Senior Executives;
• approved the recruitment terms, including the salary for Darren
Shapland on his appointment as Chief Executive in May 2012;
• approved the Chairman’s new package of remuneration
following the appointment of the new Chief Executive;
• approved salary increases for a limited number of
Senior Executives;
• reviewed its own terms of reference; and
• conducted its annual evaluation of its own performance
and that of its advisers.
www.carpetright.plc.uk
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2626
Directors’ remuneration report continued
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 and other Senior
Executives is determined by the Committee, taking account of the
responsibilities, performance and experience of the individual.
A benchmarking exercise was carried out in the period in relation
to the appointment of the Chief Executive, as well as for the
Chairman, Deputy Chairman and Non-Executive Directors.
The Remuneration Committee took account of market trends in
reviewing basic salaries. 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.
Executive Directors’ basic salaries have been reviewed and other
than increasing Darren Shapland’s remuneration upon his
appointment as Chief Executive, no increase is to take place in 2012.
The current salaries of the Executive Directors are as follows:
The Committee intends to review levels of bonus opportunity for
the 2013/14 financial year in light of trading conditions at that time.
For the 2012/13 financial year the Company has introduced
clawback in respect of cash bonuses. Subject to the discretion of
the Committee, bonuses may be clawed back where the financial
results have been materially misstated, where an error has been
made in assessing the size of the bonus or where the individual had
committed an act of gross misconduct in respect of the relevant
financial year.
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.
Award levels reverted to 100% of salary for 2010, in line with the
normal maximum.
Darren Shapland
Neil Page
Martin Harris
Current base salary
£450,000
£280,000
£280,000
The Committee has determined that awards will be made in 2012 in
line with the normal maximum and will determine the appropriate
performance criteria to be adopted before the awards are made.
These will be fully disclosed to shareholders in next year’s report.
Prior to making the 2011 awards, the Committee reviewed the
previously planned performance targets for the 2011 awards in light
of the prevailing expectations for future performance at that time.
In light of those expectations it decided to set different targets to
those which had been disclosed and determined that no awards will
vest if growth in EPS is less than 5.5% 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
5.5% per annum, 25% of the award vests and for growth of 10% per
annum, all of the award vests. For growth between these two points
between 25% and 100% vests on a sliding scale.
Lord Harris voluntarily declined an award under the plans for 2009,
2010 and 2011. He is not eligible to receive awards upon ceasing
to be Chief Executive. It is the Company’s current policy that
awards under the LTIP will be satisfied using shares purchased
in the market.
The Committee intends to review the Company’s long-term
incentive arrangements during the course of the year with a view
to introducing new arrangements in the future. Once the
Committee has concluded its review it will consult the Company’s
major shareholders prior to finalising its proposals.
The combined annual salary increase for all team members and
management was 1.8%.
ii) Annual incentives
Executive Directors are eligible to receive an annual performance
bonus which is a proportion of salary based on the achievement of
the annual budgeted profit. The performance targets for 2011/12
were set by reference to budgeted levels of underlying profit before
tax. The target for the Rest of Europe was partly achieved so a bonus
will be paid to Andy Corden, who stepped down from the Board
in May 2012. Targets were not achieved for the UK or the Group
so no bonus will be paid in 2012 (2011: nil) to the other Executive
Directors who served during the period. Where bonuses are paid,
they are paid in cash and do not form part of the Directors’
pensionable earnings.
The Committee reviewed levels of bonus opportunity for the
Executive Directors for the 2012/13 financial year in light of the
challenging trading environment and concluded that it would
be appropriate to retain the percentages of salary payable for
maximum and on-target performance at the same level as for the
year 2011/12, which had been reduced from the 2010/11 bonus
earning opportunity. Accordingly, the maximum bonus
opportunity for Executive Directors for the 2012/13 financial year
is 100% (2011: 100%) of basic salary, with 30% (2011: 20%) of salary
payable for on-target performance. The performance target for
the 2012/13 financial year has similarly been set by reference to
budgeted levels of underlying profit before tax.
Carpetright plc Annual report and accounts 2012
iv) Pensions
Darren Shapland, Martin Harris and Christian Sollesse are deferred
members of the Carpetright plc Pension Plan, which is a defined
benefit scheme and closed to future accrual from 30 April 2010.
Lord Harris receives a pension under the plan. Executive Directors,
other than Andy Corden, 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’) or
receive the allowance by way of a salary supplement. Darren
Shapland and Martin Harris each receive their allowance as a
salary supplement. Neil Page and Christian Sollesse each split
their allowance between a contribution to the GPPP scheme and
a salary supplement. Claire Balmforth has elected for her allowance
to be paid into the GPPP. Andy Corden receives payments of 4.5%
of his Belgian salary into a pension scheme in Belgium.
v) Benefits
The Executive Directors are eligible for car benefits, life assurance
and private medical cover.
vi) Terms of Darren Shapland’s appointment as
Chief Executive
Darren Shapland was appointed as Chief Executive on 14 May 2012.
The key elements of his remuneration for 2012 are as follows:
• Basic salary: £450,000
• On-target bonus: 30% of basic salary
• Maximum bonus: 100% of basic salary
• Pension: 20% of basic salary cash supplement
• LTIP buy-out: approximately £345,000 in respect of LTIPs that
lapse as a result of joining the Company. Darren Shapland is
required to subscribe the net proceeds in shares in the Company.
• Car allowance: £27,500
• LTIP award: when the Company ceases to be in a closed period it
intends to make an award to align his interests with those of the
other executives.
27
27
Shareholding guidelines
The Committee has introduced 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. All
Executive Directors should build up a shareholding in the Company
by the retention of shares with a value equal to the net of taxes gain
on shares vested under Carpetright’s equity incentive plans until
such time as they have acquired a holding that is equal to their
annual basic salary and maintain it thereafter. At the year end the
holdings of Lord Harris and Martin Harris were above this level.
Neil Page held 9,802 shares which, based on the year end share
price of 604p, represented 21% of his salary. At the year end Darren
Shapland, who was appointed as Chief Executive in May 2012,
did not hold any shares in the Company.
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www.carpetright.plc.uk
2828
Directors’ remuneration report continued
Performance graph
The graph below shows the value, at 28 April 2012, of £100 in Carpetright plc shares on 28 April 2007 compared with that of £100 invested in
the FTSE 250 Index or the FTSE 350 General Retail Index, which the Directors believe to be the most suitable broad comparators. The other
points plotted are the values at intervening financial year-ends.
Total shareholder return
)
£
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105
90
75
60
45
30
15
28 April 2007
3 May 2008
2 May 2009
1 May 2010
30 April 2011
28 April 2012
Carpetright
FTSE 250 Index
FTSE 350 General Retailers
Source: Thomson-Reuters
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. 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:
Darren Shapland
Martin Harris
Neil Page
Claire Balmforth1
Andy Corden1
Christian Sollesse2
Contract date
11 May 2012
27 January 2011
2 March 2009
3 May 2011
30 August 2002
20 November 2006
Notice period
12 months
12 months
12 months
12 months
12 months
12 months
1. Claire Balmforth and Andy Corden stepped down from the Board on 11 May 2012. They both remain Senior Executives on their previous contract terms.
2. Christian Sollesse stepped down from the Board on 2 June 2011. He ceased employment on 12 September 2011. In line with the terms of his contract he continued to receive
an amount equivalent to his monthly salary, benefits and pension contributions (subject to mitigation) until the end of his notice period. He was not entitled to a bonus and
his long-term incentive arrangements have lapsed.
External appointments
Executive Directors retain remuneration from outside non-executive directorships. During the year Lord Harris’s directors’ fees payable
by Arsenal Holdings plc and Arsenal Football Club plc totalling £25,000 were donated to charity.
Darren Shapland receives a fee at a rate of £150,000 per annum in respect of his role as Chairman of Sainsburys Bank, which is a commitment
of one day per week until 31 December 2012, and a fee at a rate of £60,000 per annum as a Non-Executive Director of Ladbrokes plc.
Carpetright plc Annual report and accounts 2012
29
29
Chairman and Non-Executive Directors
The Chairman and the Non-Executive Directors do not have service contracts. The Chairman has been appointed for an indefinite term
and the Non-Executive Directors are appointed for an initial three year period, subject to being re-elected by members annually.
The Chairman and Non-Executive Directors’ letters of appointment became effective on the following dates:
Lord Harris (Chairman)
Baroness Noakes
Alan Dickinson
Sandra Turner
David Clifford
Date of reappointment
1 February 2012
Appointment date
11 May 2012
1 February 2001
22 October 2010
22 October 2010
1 December 2011
Unexpired term at the
date of this report
Indefinite
7 months
1 year 4 months
1 year 4 months
2 years 5 months
Notice period
3 months
1 month
1 month
1 month
1 month
The fees of the Chairman are determined by the Remuneration Committee. Non-Executive Directors’ fees are determined by the Executive
Directors. These fees are set with reference to external data on fee levels in similar businesses, having taken account of the responsibilities of
individual Directors and their expected annual time commitment. The Chairman and the Non-Executive Directors are not eligible for any
of the Company’s variable pay arrangements. The Chairman is entitled to a car allowance, life assurance and private medical cover. The
Non-Executive Directors receive no benefits.
The fees of the Non-Executive Directors were last reviewed in May 2012. As a result of this review the base fees for Non-Executive Directors
were increased by £3,000 to £39,000. The fees of Baroness Noakes were increased to £60,000 to take account of her role as Deputy Chairman,
membership of all Board Committees, chairing the Nomination Committee and her role as the Senior Independent Director. The fees for
chairing the Customer and Corporate Responsibility Committee were aligned with chairing the other committees (£5,000 per chair).
The following section provides details of the remuneration, pension and share plan interests of the Directors for the 52 week period
ended 28 April 2012 and has been audited.
i) Directors’ emoluments
The remuneration of the Directors for the year was as follows:
Footnotes
1
2
3
3
4
5
6
7
Salary/Fees
£000
482
280
280
290
198
51
39
36
23
15
13
122
–
1,829
1,479
Payments
following
termination of
employment
£000
236
–
236
–
Bonus
£000
–
–
–
35
–
–
–
–
–
–
–
–
–
35
–
Pension
supplement
£000
–
56
6
–
–
–
–
–
–
–
–
11
–
73
87
Contributions to
Pension Plan
£000
–
–
50
13
40
–
–
–
–
–
–
9
–
112
81
Lord Harris
Martin Harris
Neil Page
Andy Corden
Claire Balmforth
Baroness Noakes
Alan Dickinson
Sandra Turner
Darren Shapland
David Clifford
Guy Weston
Christian Sollesse
Former Directors
Total 2012
Total 2011
1. Highest paid Director.
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Benefits
£000
40
31
29
29
27
–
–
–
–
–
–
13
–
169
135
Total 2012
£000
522
367
365
367
265
51
39
36
23
15
13
391
–
2,454
–
Total 2011
£000
522
367
365
–
–
51
19
19
–
–
36
371
32
1,782
2. Paid by subsidiary companies in Euros. The average exchange rate of €1.16:£1 has been used.
3. For 2011, part year only.
4. Part year only, since September 2011.
5. Part year only, since December 2011.
6. For 2012, part year only to September 2011.
7. The salary figure includes holiday pay (£20k). The amounts received post termination of employment include amounts paid in lieu of salary (£178k), pension and pension
supplement (£36k) and other benefits (£22k). Payments were made monthly, subject to mitigation, and continued to June 2012.
No emoluments were waived during the period.
www.carpetright.plc.uk
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3030
Directors’ remuneration report continued
ii) Long term incentive plan
The table below shows the conditional share awards granted under this plan:
Director
Martin Harris
Neil Page
Claire Balmforth
Andy Corden
Christian Sollesse
Footnotes
Date of Grant
1,5 18 Sept 2009
2,5 16 Sept 2010
3 20 Sept 2011
As at
30 April 2011
59,480
37,837
–
Granted/(lapsed)
in the year
–
–
57,601
Vested in
the year
–
–
–
Outstanding at
28 April 2012
59,480
37,837
57,601
Share price
at date of award
(pence)
First
exercise date
Last
exercise date
853 Sept 2012 Mar 2013
740 Sept 2013 Mar 2014
486 Sept 2014 Mar 2015
1,5 18 Sept 2009
2,5 16 Sept 2010
3 20 Sept 2011
1,5 18 Sept 2009
2,5 16 Sept 2010
3 20 Sept 2011
2,4,5 16 Sept 2010
3 20 Sept 2011
18 Sept 2009
16 Sept 2010
60,961
37,837
–
14,067
15,202
–
26,696
–
65,650
37,837
–
–
57,601
–
–
41,143
–
59,957
(65,650)
(37,837)
–
–
–
–
–
–
–
–
–
–
60,961
37,837
57,601
14,067
15,202
41,143
26,696
59,957
853 Sept 2012 Mar 2013
740 Sept 2013 Mar 2014
486 Sept 2014 Mar 2015
853 Sept 2012 Mar 2013
740 Sept 2013 Mar 2014
486 Sept 2014 Mar 2015
740 Sept 2013 Mar 2014
486 Sept 2014 Mar 2015
–
–
853
740
–
–
–
–
1. None of the 2009 awards vest if growth in underlying Earnings per Share (‘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.
2. None of the 2010 awards vest if growth in underlying 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.
3. None of the 2011 awards vest if growth in underlying EPS is less than 5.5% 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 5.5% per annum, 25% of the award vests and for growth of 10% per annum, all of the award vests. For growth between these two points
between 25% and 100% vests on a sliding scale.
4. Andy Corden’s award in 2010 was made on a phantom basis such that a payment will be made based upon the market value of a share, rather than receiving shares.
5. Neither the 2009 conditional award nor the 2010 conditional award is currently expected to vest.
iii) Sharesave options
At the end of the year, the Directors’ SAYE share options were as follows:
Lord Harris
Martin Harris
Neil Page
Claire Balmforth
Claire Balmforth
Claire Balmforth
As at
30 April 2011
5,491
5,491
5,491
1,271
568
–
Granted
during year
–
–
–
–
–
1,063
Exercised
during year
–
–
–
1,271
–
–
Lapsed
during year
–
–
–
–
–
–
As at
28 April 2012
5,491
5,491
5,491
–
568
1,063
Exercise
price pence
First
Last
exercise date
exercise date
295.0 Apr 2014 Oct 2014
295.0 Apr 2014 Oct 2014
295.0 Apr 2014 Oct 2014
295.0 Apr 2012 Oct 2012
633.5 Apr 2014 Oct 2014
423.0 Apr 2015 Oct 2015
The market price of Carpetright shares was 604 pence on 28 April 2012 (30 April 2011: 693.5 pence). During the period ended 28 April 2012, the shares of Carpetright plc traded
between a low of 375 pence and a high of 741 pence.
Carpetright plc Annual report and accounts 2012
31
31
iv) All Employee Share Ownership Plan (AESOP)
Carpetright operates an AESOP under which team members may contribute up to £125 per month from pre-tax salary to purchase
Carpetright shares. Lord Harris, Martin Harris, Neil Page and Claire Balmforth participate in the AESOP, contributing £125 per month.
v) Directors’ Pensions Benefits
Only the Executive Directors’ basic salaries are pensionable. On 30 April 2010 the defined benefit Carpetright plc Pension Plan closed to
future accrual. Martin Harris, Christian Sollesse and Darren Shapland are deferred members of the plan.
Details of pensions earned by the Directors who are members of the Plan are shown below:
Accrued Pension
Transfer Value
Pension
accrued at
28 April 2012
Increase in
accrued pension
during the year
Increase in pension
during the year net
of inflation1
Cost to the Plan of the
increase in pension in
excess of contributions
As at
28 April 2012
As at
30 April 2011
Change in transfer
value net of Directors’
contributions2
£000 pa
30.1
17.4
36.4
6.5
£000 pa
1.9
0.8
1.8
0.3
£000
–
–
–
–
£000
–
–
–
–
£000
615
328
887
133
£000
516
215
636
91
£000
99
113
251
42
Lord Harris3
Martin Harris
Christian Sollesse
Darren Shapland4
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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 a pension since September 2007.
4. Darren Shapland’s pension rights arise as a result of his previous employment as Group Finance Director of Carpetright.
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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:
Alan Dickinson
Chairman of the Remuneration Committee
25 June 2012
www.carpetright.plc.uk
3232
Other information
Directors’ interests
The beneficial interests of those persons who were Directors as at 28 April 2012 and their immediate families in the ordinary shares of the
Company are set out below.
Lord Harris
Martin Harris
Neil Page
Claire Balmforth
Andy Corden
Baroness Noakes
David Clifford
Alan Dickinson
Sandra Turner
Darren Shapland
28 April 2012
12,608,393
3,989,954
9,802
1,432
2,486
32,225
–
–
–
–
30 April 2011
12,568,122
3,939,683
9,531
–
2,486
32,225
–
–
–
–
In addition, Lord Harris has a non-beneficial interest in 196,414 shares (2011: 196,414). 139,000 of these shares are included within Martin
Harris’s beneficial interests. The Executive Directors have an indirect interest in 27,869 shares held in trust to satisfy awards made under the
LTIP. Save as disclosed in this section, none of the Directors has any non-beneficial interests in the shares of the Company.
Between 28 April 2012 and the date of this report 38 shares have been purchased for each of Martin Harris, Neil Page and Claire Balmforth, and
41 shares have been purchased for Lord Harris under the Company’s AESOP. 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
Neath Retail LLP
Wick Retail Ltd
Lease and concession
agreement payments made
Supplies of goods/services
payments received
Supplies of goods/services
payments made
2012
£000
–
267
–
226
62
387
–
–
2011
£000
17
269
28
225
62
357
2
30
2012
£000
–
–
–
–
2
–
–
–
2011
£000
–
–
–
–
–
–
–
–
2012
£000
–
–
–
–
29
–
–
–
2011
£000
–
–
–
–
33
–
–
–
As at 28 April 2012 the Group owed related parties £nil (2011: £11,000).
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
2011/12 financial year. The Company has also purchased and maintained Directors’ and Officers’ liability insurance throughout the 2011/12
financial year.
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 56 days (2011: 52 days).
Carpetright plc Annual report and accounts 2012
33
33
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 is 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 most recently on 27 June 2011, for term
loans of €14m and £22m and a revolving credit facility of £45m, 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; 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 is 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.
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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 pages 65 and 66.
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Substantial shareholdings
As at 25 June 2012, 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
Franklin Templeton Institutional, LLC
Harris Associates Inc
Cascade Investments LLP
Artisan Partners LP
A H Palmer and E A O’Keeffe as joint trustees1
UBS Investment Bank
1. Of these shares, 793,000 are held on behalf of Martin Harris and so are also included in his reported holding on page 32.
Total number
of shares held
10,099,000
9,593,037
6,891,163
4,040,857
3,480,472
2,623,000
2,133,181
Percentage
of shares held
14.96%
14.21%
10.20%
5.98%
5.15%
3.88%
3.16%
www.carpetright.plc.uk
3434
Other information continued
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 should shareholders so 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 2012
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 2011 Annual General Meeting shareholders gave the Company renewed authority to purchase a maximum of 6,723,566 shares of one
penny each. This resolution remains valid until the date of this year’s Annual General Meeting. As at 28 April 2012, 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 2012 Annual General Meeting of the Company will be held on 6 September 2012 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.
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 laws 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 corporate and financial information on the Company’s websites.
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 given in the financial review on page 14.
Carpetright plc Annual report and accounts 2012
35
35
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.
Responsibility Statement
Each of the Directors whose names and details are set out on page 19 of this report confirms that to the best of their 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 Directors’ Report, including the Statement of Directors’ responsibilities, has been approved by the Board.
By order of the Board
Jeremy Sampson
Company Secretary and Legal Director
25 June 2012
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www.carpetright.plc.uk
3636
Financial statements
Consolidated income statement
for 52 weeks ended 28 April 2012
Revenue
Cost of sales
Gross profit
Administration expenses
Other operating income
Operating profit
Finance costs
Finance income
Profit before tax
Tax
Profit for the financial period attributable to
equity shareholders of the Company
Basic earnings per share (pence)
Diluted earnings per share (pence)
Group 52 weeks to 28 April 2012
Group 52 weeks to 30 April 2011 (restated)
Before
exceptional
items
£m
471.5
(195.5)
276.0
(270.2)
2.2
8.0
(5.1)
1.1
4.0
(1.0)
3.0
4.5
Notes
2
2
2,3
5,6
6
7
9
9
Exceptional
items
£m
(3.4)
13.4
10.0
(0.5)
–
9.5
(1.5)
Total
£m
471.5
(195.5)
276.0
(273.6)
15.6
18.0
(5.6)
1.1
13.5
(2.5)
Before
exceptional
items
£m
486.8
(188.8)
298.0
(280.2)
3.4
21.2
(5.4)
1.1
16.9
(4.8)
Exceptional
items
£m
(10.8)
0.5
(10.3)
–
–
(10.3)
2.8
8.0
11.0
12.1
(7.5)
11.9
16.4
16.4
18.0
(11.2)
Total
£m
486.8
(188.8)
298.0
(291.0)
3.9
10.9
(5.4)
1.1
6.6
(2.0)
4.6
6.8
6.9
All material items in the income statement arise from continuing operations.
Consolidated statement of comprehensive income
for 52 weeks ended 28 April 2012
Profit for the financial period
Actuarial (loss)/gain on defined benefit pension scheme
Exchange (loss)/gain in respect of hedged equity investments
Tax on components of other comprehensive income
Other comprehensive (expense)/income for the period
Group
52 weeks to
28 April 2012
£m
11.0
(0.9)
(7.5)
–
(8.4)
Group
52 weeks to
30 April 2011
£m
4.6
0.4
2.4
(0.4)
2.4
Notes
22
7
Total comprehensive income for the period attributable to equity shareholders of the Company
2.6
7.0
Carpetright plc Annual report and accounts 2012
37
37
Statements of changes in equity
for 52 weeks ended 28 April 2012
Group
At 1 May 2010
Total comprehensive income/(expense) for the financial period
Purchase of own shares by Employee Benefit Trust
Share based payments and related tax
Dividends paid to Group shareholders
At 30 April 2011
Total comprehensive income/(expense) for the financial period
Issue of new shares
Share-based payments and related tax
At 28 April 2012
Company
At 1 May 2010
Total comprehensive income/(expense) for the financial period
Purchase of own shares by Employee Benefit Trust
Share based payments and related tax
Dividends paid to Group shareholders
At 30 April 2011
Total comprehensive income/(expense) for the financial period
Issue of new shares
Share based payments and related tax
At 28 April 2012
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
–
0.9
–
16.3
Share
premium
£m
15.4
–
–
–
–
15.4
–
0.9
–
16.3
Treasury
shares
£m
(0.2)
–
(0.1)
–
–
(0.3)
–
–
–
(0.3)
Treasury
shares
£m
(0.2)
–
(0.1)
–
–
(0.3)
–
–
–
(0.3)
Capital
redemption
reserve
£m
0.1
–
–
–
–
0.1
–
–
–
0.1
Capital
redemption
reserve
£m
0.1
–
–
–
–
0.1
–
–
–
0.1
Translation
reserve
£m
10.2
2.4
–
–
–
12.6
(7.5)
–
–
5.1
Translation
reserve
£m
(2.3)
0.3
–
–
–
(2.0)
1.8
–
–
(0.2)
Hedging
reserve
£m
(1.2)
1.1
–
–
–
(0.1)
0.1
–
–
–
Hedging
reserve
£m
(1.2)
1.1
–
–
–
(0.1)
0.1
–
–
–
Retained
earnings
£m
46.2
3.5
–
(0.3)
(10.8)
38.6
10.0
–
0.2
48.8
Retained
earnings
£m
29.2
(2.3)
–
(0.3)
(10.8)
15.8
18.7
–
0.2
34.7
Total
£m
71.2
7.0
(0.1)
(0.3)
(10.8)
67.0
2.6
0.9
0.2
70.7
Total
£m
41.7
(0.9)
(0.1)
(0.3)
(10.8)
29.6
20.6
0.9
0.2
51.3
The notes on pages 40 to 70 form an integral part of the financial statements.
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3838
Balance sheets
as at 28 April 2012
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
Current tax assets
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
Equity
Share capital
Share premium
Treasury shares
Other reserves
Total equity attributable to equity shareholders of the Company
The notes on pages 40 to 70 form an integral part of the financial statements.
Group
2012
£m
Group
2011
£m
Company
2012
£m
Company
2011
£m
Notes
10
11
12
13
21
15
14
15
16
61.4
119.6
20.7
–
2.6
0.9
205.2
38.3
24.1
–
9.6
72.0
65.8
147.4
26.1
–
2.9
1.1
243.3
38.7
32.8
–
8.3
79.8
32.7
80.1
7.4
16.8
–
49.2
186.2
30.8
18.4
0.4
6.1
55.7
35.1
96.3
7.7
16.8
–
46.9
202.8
30.5
26.9
–
4.7
62.1
2
277.2
323.1
241.9
264.9
17
18
19
17
18
19
23
20
21
22
2
24
24
24
(109.2)
(0.1)
(9.5)
(1.0)
(119.8)
(33.8)
(2.6)
(16.5)
–
(6.4)
(23.1)
(4.3)
(86.7)
(206.5)
70.7
0.7
16.3
(0.3)
54.0
70.7
(105.3)
(0.1)
(21.3)
(2.1)
(128.8)
(35.4)
(2.9)
(49.6)
(0.1)
(9.1)
(26.2)
(4.0)
(127.3)
(256.1)
67.0
0.7
15.4
(0.3)
51.2
67.0
(93.2)
(0.1)
(5.4)
–
(98.7)
(46.2)
(1.5)
(16.5)
–
(6.0)
(17.4)
(4.3)
(91.9)
(190.6)
51.3
0.7
16.3
(0.3)
34.6
51.3
(89.0)
(0.1)
(16.8)
(1.2)
(107.1)
(51.4)
(1.9)
(45.1)
(0.1)
(9.1)
(16.6)
(4.0)
(128.2)
(235.3)
29.6
0.7
15.4
(0.3)
13.8
29.6
These financial statements from pages 36 to 70 were approved by the Board of Directors on 25 June 2012 and were signed on its behalf by:
Darren Shapland
Directors
Neil Page
Carpetright plc Annual report and accounts 2012
39
39
Statements of cash flow
for 52 weeks ended 28 April 2012
Cash flows from operating activities
Profit/(loss) before tax
Adjusted for:
Depreciation and amortisation
(Profit) on property disposals
(Profit) on property subsidiary disposal
Dividend received from subsidiaries
Exceptional non-cash items
Other non-cash items
Net finance costs
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
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
Purchases of intangible assets
Purchases of property, plant and equipment and investment property
Proceeds on disposal of property, plant and equipment and investment property
Proceeds on property subsidiary disposal
Interest received
Net cash generated from/(used) in investing activities
Cash flows from financing activities
Purchase of Treasury shares by Employee Benefit Trust
Issue of new shares
Repayment of borrowings
New loans advanced
Intercompany loans
Dividends paid to Group shareholders
Net cash used in financing activities
Net increase 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
Group
52 weeks to
28 April 2012
£m
Group
52 weeks to
30 April 2011
£m
Company
52 weeks to
28 April 2012
£m
Company
52 weeks to
30 April 2011
£m
Notes
13.5
6.6
20.3
(0.8)
2,3
6
24
29
29
8
29
16,29
14.6
(4.6)
(8.8)
–
2.3
0.2
4.0
21.2
(0.4)
7.9
0.4
29.1
(4.9)
(3.0)
21.2
(0.1)
(12.0)
22.1
12.8
–
22.8
–
0.9
(42.9)
–
–
–
(42.0)
2.0
(0.7)
0.2
1.5
15.5
(0.5)
–
–
10.8
(0.2)
4.3
36.5
2.9
5.9
(13.2)
32.1
(5.0)
(2.7)
24.4
(0.5)
(9.9)
0.9
–
0.1
(9.4)
(0.1)
–
(13.2)
12.5
–
(10.8)
(11.6)
3.4
(5.0)
0.9
(0.7)
11.8
(4.8)
–
(22.9)
1.9
0.2
4.5
11.0
(0.4)
22.1
(0.5)
32.2
(5.3)
(1.4)
25.5
(0.1)
(10.7)
21.3
–
–
10.5
–
0.9
(38.7)
–
4.4
–
(33.4)
2.6
0.2
(0.7)
2.1
12.1
(0.5)
–
–
10.7
(0.3)
4.3
25.5
2.0
9.4
(11.4)
25.5
(4.6)
(0.8)
20.1
(0.5)
(8.4)
0.9
–
0.2
(7.8)
(0.1)
–
(13.2)
12.5
5.3
(10.8)
(6.3)
6.0
(5.4)
(0.4)
0.2
The notes on pages 40 to 70 form an integral part of the financial statements.
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.
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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 2012 represents the 52 weeks
ended 28 April 2012. The comparative financial year for 2011 was 52 weeks ended 30 April 2011.
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 following new standards and amendments to standards, which are mandatory for the first time in the financial year beginning
1 May 2011, are relevant for the Group but have not had any impact in the current financial year:
• IAS 1 (amendments) ‘Presentation of Financial Statements’.
• IAS 24 (revised) ‘Related Party disclosures’.
• IAS 32 (amendments) ‘Financial instruments’.
• IFRS 3 (revised) ‘Business combinations’.
The following IFRIC interpretations, which are mandatory for the first time in the financial year beginning 1 May 2011, are currently either
not relevant or not material for the Group:
• IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’.
• IFRIC 14 ‘Pre-payment of a minimum funding requirement’.
At 28 April 2012 the following new standards and interpretations and amendments to existing standards which are expected to be relevant to
the Group, were issued but not yet effective. The Directors are evaluating the impact the standards will have on the financial statements:
• IFRS 7 (amendment) ‘De-recognition’ (effective for periods beginning on or after 1 July 2011).
• IFRS 9 ‘Financial instruments’ (effective for periods beginning on or after 1 January 2015). The Group will apply IFRS 9 when it becomes
effective and is endorsed by the EU.
• IFRS 10 ‘Consolidated financial statements’ (effective for periods beginning on or after 1 January 2013).
• IFRS 12 ‘Disclosures of interest in other entities’ (effective for periods beginning on or after 1 January 2013).
• IFRS 13 ‘Fair value measurement’ (effective for periods beginning on or after 1 January 2013).
• IAS 1 ‘Financial statements presentation’ (amendment) (effective for periods beginning on or after 1 July 2012).
• IAS 12 ‘Income taxes’ (amendment) (effective for periods beginning on or after 1 January 2012).
• IAS 19 ‘Employee Benefits’ (revised) (effective for periods beginning on or after 1 January 2013).
• IAS 27 ‘Consolidated and Separate Financial Statements’ (revised) (effective for periods beginning on or after 1 January 2013).
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.
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.
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
Carpetright plc Annual report and accounts 2012
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41
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.
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, onerous leases, impairments and refinancing costs are disclosed as exceptional items.
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4242
Notes to the accounts continued
1. Principal accounting policies continued
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
5 to 10 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
Carpetright plc Annual report and accounts 2012
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43
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 in 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.
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4444
Notes to the accounts continued
1. Principal accounting policies continued
Retirement benefit obligation
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
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.
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 judgements
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.
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.
Carpetright plc Annual report and accounts 2012
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45
2. Segmental analysis
The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. From
1 May 2011 the Netherlands, Belgium and the Republic of Ireland were managed as a combined business by a single management team
who had no other responsibilities, in the previous financial year the Republic of Ireland was combined with the UK. Prior year data in the
statements that follow have been restated to reflect the change in reporting structure. The impact of the restatement is to reduce revenue in
the UK by £7.9m and increase underlying operating profits by £3.4m, Europe moves by equal and opposite amounts. Information is presented
to the Board of Carpetright plc (the Chief Operating Decision Maker) on a combined basis. As a result it is considered that the combined
business forms a single reportable operating segment under IFRS 8.
The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds. Central costs of the Group are
incurred principally in the UK and are immaterial. As such these costs are included within the UK segment. Sales between segments are
carried out at arm’s length.
The segment information provided to the Board for the reportable segments for the 52 weeks ended 28 April 2012 is as follows:
52 weeks to 28 April 2012
52 weeks to 30 April 2011 (restated)
Gross revenue
Inter-segment revenue
Revenues from external customers
Gross profit
Underlying operating profit
Exceptional items
Operating profit
Finance income
Intercompany 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
£m
387.1
(5.5)
381.6
224.8
2.8
10.5
13.3
1.1
(0.7)
(5.2)
8.5
(1.6)
6.9
217.7
(20.2)
197.5
(197.3)
20.8
(176.5)
Europe
£m
89.9
–
89.9
51.2
5.2
(0.5)
4.7
–
0.7
(0.4)
5.0
(0.9)
4.1
100.6
(20.9)
79.7
(50.3)
20.3
(30.0)
Group
£m
477.0
(5.5)
471.5
276.0
8.0
10.0
18.0
1.1
–
(5.6)
13.5
(2.5)
11.0
318.3
(41.1)
277.2
(247.6)
41.1
(206.5)
UK
£m
402.2
(5.6)
396.6
246.5
17.8
(5.1)
12.7
1.1
(0.3)
(5.3)
8.2
(0.5)
7.7
248.5
(26.0)
222.5
(224.8)
11.5
(213.3)
12.0
7.3
2.6
1.4
14.6
8.7
12.4
11.6
Europe
£m
90.2
–
90.2
51.5
3.4
(5.2)
(1.8)
–
0.3
(0.1)
(1.6)
(1.5)
(3.1)
112.1
(11.5)
100.6
(68.8)
26.0
(42.8)
3.1
1.5
Group
£m
492.4
(5.6)
486.8
298.0
21.2
(10.3)
10.9
1.1
–
(5.4)
6.6
(2.0)
4.6
360.6
(37.5)
323.1
(293.6)
37.5
(256.1)
15.5
13.1
Carpetright plc is domiciled in the UK. The Group’s revenue from external customers in the UK is £381.6m (2011: £396.6m) and the total
revenue from external customers from other countries is £89.9m (2011: £90.2m). The total of non-current assets (other than financial
instruments and deferred tax assets) located in the UK is £162.9m (2011: £187.6m) and the total of those located in other countries is
£74.4m (2011: £90.3m).
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.
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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 auditors for the audit of the Company’s annual financial statements
Staff costs
Impairment of non-current 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 administration expenses
Depreciation of investment property
Charged in administration expenses
Group
2012
£m
(2.1)
171.1
91.5
1.7
(2.4)
0.2
98.0
1.0
2.5
0.1
11.6
0.1
0.3
Notes
4
5
10
11
11
11
12
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 contribution
Share based payments
Group
2012
Number
2,689
386
3,075
Group
2012
£m
86.3
9.1
2.4
0.2
98.0
Group
2011
Number
2,889
395
3,284
Group
2011
£m
90.9
9.3
2.2
(0.3)
102.1
Company
2012
Number
2,175
332
2,507
Company
2012
£m
67.9
6.7
1.0
0.2
75.8
Notes
22
25
Group
2011
£m
(2.4)
166.1
93.6
1.7
(2.9)
0.3
102.1
2.0
2.4
0.1
12.5
0.1
0.4
Company
2011
Number
2,367
344
2,711
Company
2011
£m
73.0
7.0
1.0
(0.3)
80.7
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) and 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.
Carpetright plc Annual report and accounts 2012
47
47
Group
2012
£m
3.3
0.5
0.4
0.1
4.3
Group
2011
£m
3.9
0.4
0.3
(0.2)
4.4
The employment costs of key management1 were as follows:
Salaries (including short term employee benefits)
Social security costs
Post employment benefits
Share based payments
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 no gains (2011: no gains) on the vesting of Long Term Incentive Plans. Details of these plans,
share options and other Directors’ remuneration are disclosed in the Directors’ remuneration report on pages 25 to 31.
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5. Exceptional items
Property profits:
UK and the Netherlands
Sale of Belgian property subsidiary
UK impairment of property, plant and equipment
Onerous lease provision
Central support office restructuring
Write off of unamortised refinancing fees
Notes
11
Group
2012
£m
4.6
8.8
(1.0)
(0.3)
(2.1)
(0.5)
9.5
G
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Group
2011
£m
0.5
–
(2.0)
(8.8)
–
–
(10.3)
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a
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In order to facilitate the sale of properties in Belgium, the Group sold a subsidiary that owned those properties during the year. There were
no other assets or liabilities owned by the subsidiary at the time of the sale. Cash proceeds have been allocated to ‘(Profit)/loss on property
subsidiary disposal’ in the cash flow on page 39.
The onerous lease provision relates to 20 properties in the UK and Republic of Ireland 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.
6. Net finance costs
Finance costs
Interest on borrowings and overdrafts
Fees amortisation
Gains on hedging instruments
Interest on obligations under finance leases
Interest on pension scheme obligations
Other interest payable
Finance income
Expected return on pension scheme assets
Notes
22
22
Group
2012
£m
(3.2)
(0.5)
0.1
(0.1)
(1.1)
(0.3)
(5.1)
1.1
1.1
Group
2011
£m
(4.5)
(0.5)
1.0
(0.2)
(1.1)
(0.1)
(5.4)
1.1
1.1
Net finance costs
(4.0)
(4.3)
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4848
Notes to the accounts continued
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
Group
2012
£m
0.9
1.1
2.0
0.7
(0.2)
0.5
2.5
The tax charge for the year includes a charge of £3.1m in respect of exceptional items (2011: credit £1.7m). In addition, the impact of the
change in tax rates on deferred tax liability has resulted in an exceptional tax credit of £1.6m (2011: £1.1m credit).
(ii) Reconciliation of profit before tax to total tax
Profit before tax
Tax charge at UK Corporation Tax rate of 26% (2011: 28%)
Adjusted for the effects of:
Overseas tax rates
Fall in UK tax rates
Non-qualifying depreciation
Other permanent differences
Losses recognised
Gains not subject to tax
Capital gains
Adjustments in respect of prior periods
Total tax charge in the income statement
Group
2012
£m
13.5
3.5
(0.2)
(1.6)
0.6
0.9
(0.6)
(1.1)
1.7
(0.7)
2.5
Group
2011
£m
2.0
1.5
3.5
(1.4)
(0.1)
(1.5)
2.0
Group
2011
£m
6.6
1.8
(0.2)
(1.1)
0.6
0.6
–
–
–
0.3
2.0
The weighted average annual effective tax rate for the period is 18.7% (2011: 30.4%). The decrease arises primarily from one-off tax charges in
the prior year not recurring, the decrease in UK tax rates, the disproportionate effect of permanently disallowable items on the reduced level of
profit and one-off gains not subject to tax.
(iii) Tax on items taken directly to or transferred from equity
Deferred tax on actuarial gains, recognised in other comprehensive income
Total tax recognised in equity
Group
2012
£m
–
–
Group
2011
£m
0.4
0.4
The March 2012 Budget Statement announced that Corporation tax would reduce from 26% to 24% from 1 April 2012 instead of the
scheduled decrease to 25%. This change was substantively enacted on 26 March 2012 and has been incorporated into the financial statements.
Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. These 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 22% by 1 April 2014 are expected to be enacted separately
each year and would have the effect of reducing the deferred tax liability provided at 28 April 2012.
Carpetright plc Annual report and accounts 2012
49
49
8. Dividends
Group and Company
Prior year final dividend paid
Current year interim dividend paid
2012
Pence per
share
–
–
–
2012
£m
–
–
–
2011
Pence per
share
8.0
8.0
16.0
2011
£m
5.4
5.4
10.8
The Directors decided that no final dividend will be paid (2011: No final dividend paid). This results in no dividend in the year to
28 April 2012 (2011: 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
52 weeks ended 28 April 2012
52 weeks ended 30 April 2011
Weighted
average
number of
shares Millions
67.2
0.3
67.5
Earnings
£m
11.0
–
11.0
Earnings
per share
Pence
16.4
–
16.4
Weighted
average
number of
shares Millions
67.2
0.4
67.6
Earnings
£m
4.6
0.1
4.7
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
Exceptional tax benefit from tax rate change
Underlying earnings per share
52 weeks ended 28 April 2012
52 weeks ended 30 April 2011
Weighted
average
number of
shares Millions
67.2
Earnings
£m
11.0
(9.5)
3.1
(1.6)
3.0
–
–
–
67.2
Earnings
per share
Pence
16.4
(14.1)
4.6
(2.4)
4.5
Weighted
average
number of
shares Millions
67.2
Earnings
£m
4.6
10.3
(1.7)
(1.1)
12.1
–
–
–
67.2
Earnings
per share
Pence
6.8
0.1
6.9
Earnings
per share
Pence
6.8
15.3
(2.5)
(1.6)
18.0
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.
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Notes to the accounts continued
10. Intangible assets
Group
Cost:
At 1 May 2010
Exchange differences
Additions
At 30 April 2011
Exchange differences
Additions
Disposals
At 28 April 2012
Accumulated amortisation and impairment:
At 1 May 2010
Impairment
Amortisation
At 30 April 2011
Amortisation
Disposals
At 28 April 2012
Net book value:
At 28 April 2012
At 30 April 2011
Goodwill
£m
Computer
software
£m
Brands
£m
54.7
0.6
–
55.3
(2.0)
–
–
53.3
0.5
–
–
0.5
–
–
0.5
52.8
54.8
23.7
–
0.5
24.2
–
0.1
(0.1)
24.2
10.7
0.1
2.4
13.2
2.5
(0.1)
15.6
8.6
11.0
0.1
–
–
0.1
–
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£m
78.5
0.6
0.5
79.6
(2.0)
0.1
(0.1)
77.6
11.3
0.1
2.4
13.8
2.5
(0.1)
16.2
61.4
65.8
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 following business acquisitions:
Subsidiary
Carpetland BV
Mays Holdings Ltd
Storey Carpets Ltd
Melford Commercial Properties Ltd
Ben de Graaff
Sleepright UK Ltd
Total goodwill
Acquisition date
October 2002
June 2005
May 2007
March 2008
July 2008
December 2008
2012
£m
18.4
4.7
15.3
6.9
4.6
2.9
52.8
2011
£m
20.0
4.7
15.3
6.9
5.0
2.9
54.8
The movement in the value of goodwill in the year is solely a result of movement in exchange rates.
Carpetright plc Annual report and accounts 2012
51
51
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 of the goodwill held by the Group 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. Cash flows beyond the plan period are extrapolated
at a constant growth rate of 2.5% (2011: 2.5%). The growth rate is in line with long term growth rates of the countries in which the Group
operates. The post-tax discount rate applied to cash flow projections is 7.9% (2011: 8.0%) 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.
Company
Cost:
At 1 May 2010
Additions
At 30 April 2011
Additions
Disposals
At 28 April 2012
Accumulated amortisation and impairment:
At 1 May 2010
Impairment
Amortisation
At 30 April 2011
Amortisation
Disposals
At 28 April 2012
Net book value:
At 28 April 2012
At 30 April 2011
Goodwill
£m
Computer
software
£m
Brands
£m
24.1
–
24.1
–
–
24.1
–
–
–
–
–
–
–
23.7
0.5
24.2
0.1
(0.1)
24.2
10.7
0.1
2.4
13.2
2.5
(0.1)
15.6
24.1
24.1
8.6
11.0
0.1
–
0.1
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£m
47.9
0.5
48.4
0.1
(0.1)
48.4
10.8
0.1
2.4
13.3
2.5
(0.1)
15.7
32.7
35.1
Company goodwill comprises purchased goodwill arising on the transfer of businesses from subsidiaries to the parent company in respect
of Mays Carpets Ltd – £4.7m; Storey Carpets Ltd – £15.7m; Carpetworld (Manchester) Ltd – £0.8m and Sleepright UK Ltd – £2.9m.
The impairment review of Company goodwill is the same as that of the Group.
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Notes to the accounts continued
11. Property, plant and equipment
Group
Cost:
At 1 May 2010
Exchange differences
Additions
Transfer between asset class
Disposals
At 30 April 2011
Exchange differences
Additions
Disposals
At 28 April 2012
Accumulated depreciation and impairment:
At 1 May 2010
Exchange differences
Impairment
Depreciation
Disposals
At 30 April 2011
Exchange differences
Impairment
Depreciation
Disposals
At 28 April 2012
Net book value:
At 28 April 2012
At 30 April 2011
Freehold land
and buildings
£m
Long leasehold
land and
buildings
£m
Short leasehold
buildings
£m
Fixtures
and fittings
£m
Plant and
machinery
£m
72.8
0.9
4.4
–
–
78.1
(2.6)
–
(21.2)
54.3
6.4
0.1
–
1.1
–
7.6
(0.4)
–
1.1
(2.3)
6.0
18.6
–
0.1
–
–
18.7
(0.1)
–
(1.2)
17.4
2.5
–
0.1
0.4
–
3.0
–
–
0.3
(0.2)
3.1
20.0
0.1
0.3
–
(0.6)
19.8
(0.2)
0.1
(1.0)
18.7
9.5
0.1
0.5
0.8
(0.5)
10.4
(0.1)
0.2
0.8
(0.8)
10.5
94.3
0.5
6.6
(0.1)
(4.3)
97.0
(1.2)
7.3
(11.6)
91.5
47.8
0.4
1.2
7.6
(3.4)
53.6
(1.4)
0.8
7.4
(10.8)
49.6
42.2
0.7
1.2
0.1
(0.4)
43.8
(2.3)
1.2
(3.1)
39.6
32.2
0.7
0.1
2.8
(0.4)
35.4
(1.9)
–
2.2
(3.0)
32.7
Total
£m
247.9
2.2
12.6
–
(5.3)
257.4
(6.4)
8.6
(38.1)
221.5
98.4
1.3
1.9
12.7
(4.3)
110.0
(3.8)
1.0
11.8
(17.1)
101.9
48.3
70.5
14.3
15.7
8.2
9.4
41.9
43.4
6.9
8.4
119.6
147.4
The impairment of property, plant and equipment relates to a net movement of five loss making stores in UK. The charge is an operating cost
in the income statement (note 3).
Assets held under finance leases have the following net book value:
Cost
Accumulated depreciation and impairment
Net book value
The assets held under finance leases comprise buildings.
Group
2012
£m
9.3
(2.0)
7.3
Group
2011
£m
9.5
(2.0)
7.5
Company
2012
£m
2.5
(1.5)
1.0
Company
2011
£m
2.8
(1.5)
1.3
Carpetright plc Annual report and accounts 2012
Freehold land
and buildings
£m
Long leasehold
land and
buildings
£m
Short leasehold
buildings
£m
Fixtures
and fittings
£m
Plant and
machinery
£m
Company
Cost:
At 1 May 2010
Exchange differences
Additions
Disposals
At 30 April 2011
Exchange differences
Additions
Disposals
At 28 April 2012
Accumulated depreciation and impairment:
At 1 May 2010
Exchange differences
Impairment
Depreciation
Disposals
At 30 April 2011
Exchange differences
Impairment
Depreciation
Disposals
At 28 April 2012
Net book value:
At 28 April 2012
At 30 April 2011
30.1
–
4.4
–
34.5
–
–
(11.9)
22.6
1.5
–
–
0.3
–
1.8
–
–
0.3
(0.5)
1.6
21.0
32.7
11.2
–
–
–
11.2
–
–
(1.2)
10.0
1.9
–
0.1
0.2
–
2.2
–
–
0.2
(0.2)
2.2
7.8
9.0
53
53
20.0
0.1
0.3
(0.6)
19.8
(0.2)
0.1
(1.0)
18.7
9.5
0.1
0.5
0.8
(0.5)
10.4
(0.1)
0.2
0.8
(0.8)
10.5
82.8
0.1
6.4
(4.2)
85.1
(0.2)
7.0
(11.4)
80.5
38.5
0.1
1.2
7.0
(3.3)
43.5
(0.4)
0.8
6.9
(10.7)
40.1
16.9
–
0.1
(0.2)
16.8
–
0.3
(3.0)
14.1
11.8
0.1
0.1
1.4
(0.2)
13.2
–
–
1.1
(2.9)
11.4
Total
£m
161.0
0.2
11.2
(5.0)
167.4
(0.4)
7.4
(28.5)
145.9
63.2
0.3
1.9
9.7
(4.0)
71.1
(0.5)
1.0
9.3
(15.1)
65.8
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40.4
41.6
2.7
3.6
80.1
96.3
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5454
Notes to the accounts continued
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 £23m (2011: approximately £38m) and for the Company it is not significantly different to the book value in either year.
Operating expenses attributable to investment properties are incurred directly by tenants under tenant-repairing leases.
Cost:
At 1 May 2010
Exchange differences
Disposals
At 30 April 2011
Exchange differences
Disposals
At 28 April 2012
Accumulated depreciation and impairment:
At 1 May 2010
Exchange differences
Disposals
Depreciation
At 30 April 2011
Exchange differences
Depreciation
Disposals
At 28 April 2012
Net book value:
At 28 April 2012
At 30 April 2011
Group
£m
Company
£m
29.4
0.5
(1.0)
28.9
(1.7)
(4.9)
22.3
3.3
0.1
(1.0)
0.4
2.8
(0.2)
0.3
(1.3)
1.6
20.7
26.1
8.1
–
–
8.1
–
(0.3)
7.8
0.4
–
–
–
0.4
–
–
–
0.4
7.4
7.7
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
Carpetright (Torquay) Limited
Pluto Sp. Z.o.o.
Carpetland NV
Carpetland BV
Fontainebleau Vastgoed BV
Company
Cost:
At the beginning of the period
Additions
At the end of the period
Carpetright plc Annual report and accounts 2012
Country of
incorporation
and operation
Principal
activity
Great Britain Holding
Property
Great Britain
Property
Great Britain
Poland
Property
Retail
Belgium
Retail
Netherlands
Property
Netherlands
Percentage of
ordinary shares
held indirectly
by Company
Percentage of
ordinary shares
held directly by
Company
100%
100%
100%
100%
100%
100%
100%
2011
£m
15.4
1.4
16.8
2012
£m
16.8
–
16.8
55
55
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
2011
£m
Company
2012
£m
Company
2011
£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
2012
£m
–
0.9
0.9
5.9
(0.6)
5.3
3.6
15.2
24.1
25.0
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
Decrease in the provision in the period
At the end of the period
Group
2012
£m
(0.6)
–
(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
2012
£m
1.6
1.7
0.3
5.3
8.9
–
1.1
1.1
8.5
(0.6)
7.9
7.3
17.6
32.8
33.9
Group
2011
£m
(0.6)
–
(0.6)
Group
2011
£m
4.1
2.2
1.1
7.8
15.2
48.3
0.9
49.2
1.9
(0.4)
1.5
3.7
13.2
18.4
67.6
Company
2012
£m
(0.4)
–
(0.4)
Company
2012
£m
1.6
1.7
0.4
1.5
5.2
Balances from retail customers principally relate to products awaiting collection, but 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
Group
2012
£m
1.5
0.8
–
1.3
3.6
Group
2011
£m
4.7
1.7
0.1
0.9
7.4
Company
2012
£m
1.6
0.8
–
1.3
3.7
45.8
1.1
46.9
4.4
(0.4)
4.0
7.3
15.6
26.9
73.8
Company
2011
£m
(0.4)
–
(0.4)
Company
2011
£m
4.1
2.2
1.0
4.0
11.3
Company
2011
£m
4.7
1.6
0.1
0.9
7.3
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5656
Notes to the accounts continued
16. Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents on the balance sheets
Bank overdrafts
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
Notes
19
Group
2012
£m
9.6
9.6
(8.1)
1.5
Group
2012
£m
58.5
14.8
35.9
109.2
33.8
–
33.8
143.0
Group
2011
£m
8.3
8.3
(9.0)
(0.7)
Company
2012
£m
6.1
6.1
(4.0)
2.1
Company
2011
£m
4.7
4.7
(4.5)
0.2
Group
2011
£m
Company
2012
£m
Company
2011
£m
55.3
13.3
36.7
105.3
35.4
–
35.4
140.7
48.1
12.2
32.9
93.2
33.8
12.4
46.2
139.4
45.6
10.6
32.8
89.0
35.4
16.0
51.4
140.4
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
2012
£m
0.3
1.2
5.1
6.6
(3.9)
2.7
0.1
2.6
Group
2011
£m
0.3
1.2
5.6
7.1
(4.1)
3.0
0.1
2.9
Company
2012
£m
0.2
Company
2011
£m
0.2
0.8
1.6
2.6
(1.0)
1.6
0.1
1.5
0.9
2.1
3.2
(1.2)
2.0
0.1
1.9
Group
2012
£m
0.1
0.4
2.2
2.7
Group
2011
£m
0.1
0.4
2.5
3.0
Company
2012
£m
0.1
Company
2011
£m
0.1
0.4
1.1
1.6
0.4
1.5
2.0
The Group leases certain properties under finance leases. The average lease term is 19 years (2011: 19 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.
Carpetright plc Annual report and accounts 2012
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Group
2011
£m
9.0
12.3
21.3
49.6
49.6
70.9
Group
2011
%
3.5
4.0
Group
2011
£m
21.3
45.1
4.5
70.9
Company
2012
£m
Company
2011
£m
4.0
1.4
5.4
16.5
16.5
21.9
Company
2012
%
4.3
3.9
Company
2012
£m
5.4
1.4
15.1
21.9
4.5
12.3
16.8
45.1
45.1
61.9
Company
2011
%
4.0
4.2
Company
2011
£m
16.8
45.1
–
61.9
19. Borrowings and overdrafts
Current
Unsecured overdraft
Borrowings:
Secured
Borrowings and overdrafts
Non-current
Borrowings:
Secured
Borrowings
Group
2012
£m
8.1
1.4
9.5
16.5
16.5
26.0
Secured borrowings are denominated in Sterling and Euros and are secured on certain of the Group’s assets.
The effective interest rates at the year end are as follows:
Overdrafts
Borrowings
The maturity profiles 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
2012
%
3.3
3.9
Group
2012
£m
9.5
1.4
15.1
26.0
The maturity analysis is grouped by when the debt is contracted to mature rather than by re-pricing dates.
20. Provisions for liabilities and charges
Group and Company
At the beginning of the period
Added during the period
Released in year
Utilised during the period
At the end of the period
Group
2012
£m
Company
2012
£m
Onerous lease
provisions
£m
9.1
1.1
(0.9)
(3.4)
5.9
Reorganisation
provisions
£m
–
2.1
–
(1.6)
0.5
Total
provisions
£m
9.1
3.2
(0.9)
(5.0)
6.4
Onerous lease
provisions
£m
9.1
1.1
(0.9)
(3.4)
5.9
Reorganisation
provisions
£m
–
1.1
–
(1.0)
0.1
Total
provisions
£m
9.1
2.2
(0.9)
(4.4)
6.0
Onerous lease provisions are expected to be used over periods of up to 5 years. Reorganisation provisions are expected to be used within
one year.
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Notes to the accounts continued
21. Deferred tax assets and liabilities
Deferred tax asset
Deferred tax liabilities
Net deferred tax liabilities
Group
2012
£m
(2.6)
23.1
20.5
Group
2011
£m
(2.9)
26.2
23.3
Company
2012
£m
–
17.4
17.4
Company
2011
£m
–
16.6
16.6
Deferred tax assets and liabilities are offset against each other where there is a legally enforceable right to offset.
The movement in deferred tax assets and liabilities recognised by the Group during the current and prior period is:
Group
At 1 May 2010
Exchange differences
Charge/(credit) to the income statement
Charge to other comprehensive income
Transferred to current tax
At 30 April 2011
Exchange differences
Charge/(credit) to the income statement
Disposal of property subsidiary
At 28 April 2012
Company
At 1 May 2010
Charge/(credit) to the income statement
Credit to other comprehensive income
Transferred to current tax
At 30 April 2011
Charge/(credit) to the income statement
At 28 April 2012
Accelerated tax
depreciation
9.4
0.1
(1.0)
–
–
8.5
(0.3)
(0.7)
(0.6)
6.9
Accelerated tax
depreciation
5.8
(0.9)
–
–
4.9
(0.6)
4.3
Fair value
adjustments
4.4
0.1
(0.1)
–
–
4.4
(0.3)
(0.5)
(2.1)
1.5
Fair value
adjustments
–
–
–
–
–
–
–
Short term
timing
differences
(0.2)
(0.1)
(0.5)
–
–
(0.8)
(0.1)
–
(0.1)
(1.0)
Short term
timing
differences
(0.7)
(0.3)
–
–
(1.0)
(0.3)
(1.3)
Rollover
11.9
–
(0.3)
–
3.9
15.5
–
2.2
–
17.7
Rollover
10.4
(0.2)
–
3.9
14.1
2.2
16.3
Tax
losses
(3.5)
(0.1)
0.4
–
–
(3.2)
0.2
(0.5)
–
(3.5)
Tax
losses
(0.4)
0.1
–
–
(0.3)
(0.5)
(0.8)
Share based
payments
(0.2)
–
–
–
–
(0.2)
–
–
–
(0.2)
Share based
payments
(0.2)
–
–
–
(0.2)
–
(0.2)
Retirement
benefit
obligations
(1.3)
–
–
0.4
–
(0.9)
–
–
–
(0.9)
Retirement
benefit
obligations
(1.3)
–
0.4
–
(0.9)
–
(0.9)
Total
20.5
–
(1.5)
0.4
3.9
23.3
(0.5)
0.5
(2.8)
20.5
Total
13.6
(1.3)
0.4
3.9
16.6
0.8
17.4
At the reporting date, the Group had unused tax losses of £8.1m (2011: £8.9m) which can be carried forward indefinitely and are available for
offset against future profits. A deferred tax asset of £2.7m (2011: £2.9m) has been recognised in respect of these losses.
The Group has brought forward tax losses of £0.3m (2011: £2.7m) for which no deferred tax asset has been recognised. Tax losses of £2.4m
were recognised in the year.
Deferred tax assets of £3.4m (2011: £2.5m) were available for offset against deferred tax liabilities of £26.5m (2011: £28.7m) hence the Group’s
deferred tax liabilities as at 28 April 2012 are £23.1m (2011: £26.2m).
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 accounted for by 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 scheme previously operated by Storeys 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
Carpetright plc Annual report and accounts 2012
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59
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 2011 when the actuarial value of the assets represented 77% 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 £0.6m was paid in the year (2011: £0.4m).
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 2011 when the actuarial value of the assets represented 90% of the benefits accrued to members. A deficit reduction plan has been
agreed with the Trustees under which £0.1m was paid in the year (2011: £nil).
The assets and liabilities of the schemes were valued on an IAS 19 basis at 28 April 2012 by a qualified actuary. The numbers set out below are
the aggregate of the two schemes.
1) Key assumptions used:
Expected rate of salary increases
RPI inflation linked pension escalation (Storeys 2011)
CPI inflation linked pension escalation ( Storeys 2012)
CPI inflation linked pension escalation
Discount rate
Deferred pension revaluation
Expected return on scheme assets
2012
%
n/a
n/a
2.2
3.4
4.6
2.2
5.2
2011
%
n/a
3.2
n/a
3.7
5.3
3.0
6.2
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 dates and standard tables. Specifically the S1NMA table (2011: S1NMA table) with medium cohort improvement has been
used for male pensioners and the S1NFA table (2011: 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
(2011: £0.2m).
2) The amount included in the balance sheet arising from the Group’s 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:
Interest cost on pension scheme obligations recognised in interest payable
Expected return on pension scheme assets recognised in interest receivable
Total recognised in the income statement
4) Reconciliation of movement in net pension deficit:
Opening balance
Total recognised in the income statement
Less contributions
Actuarial (loss)/gain recognised in equity
Closing balance
Notes
6
6
2012
£m
22.6
(18.3)
4.3
2012
£m
1.1
(1.1)
–
2012
£m
(4.0)
–
0.6
(0.9)
(4.3)
2011
£m
21.4
(17.4)
4.0
2011
£m
1.1
(1.1)
–
2011
£m
(4.8)
–
0.4
0.4
(4.0)
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Notes to the accounts continued
22. Retirement benefit obligations continued
5) The amounts recognised directly in equity in respect of the defined benefit pension scheme are as follows:
Actuarial (loss)/gain on plan assets
Experience adjustment on liabilities
Change in assumptions underlying present value of liabilities
Total
Cumulative total
6) Movements in the pension scheme obligation are as follows:
Opening balance
Interest on pension scheme obligation
Actuarial gain recognised in equity
Benefits paid
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 (loss)/gain recognised in equity
Actual return on assets
Employer contributions
Benefits paid
Closing balance
2012
£m
(0.2)
0.5
(1.2)
(0.9)
(3.5)
2012
£m
21.4
1.1
0.7
(0.6)
22.6
1.1
0.4
2011
£m
0.4
–
–
0.4
(2.6)
2011
£m
21.1
1.1
–
(0.8)
21.4
2011
£m
16.3
1.5
0.4
(0.8)
17.4
1.1
(0.2)
2012
£m
17.4
0.9
0.6
(0.6)
18.3
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
Long term
expected rate
of return
%
6.0
3.7
6.0
2.7
4.6
2012
2011
2010
Category of
asset as a
proportion
of total
%
53.3
16.5
1.1
1.1
28.0
Long term
expected rate
of return
%
7.0
4.7
7.0
4.0
5.3
£m
9.7
3.0
0.2
0.2
5.2
Category of
asset as a
proportion
of total
%
57.5
15.5
–
1.7
25.3
Long term
expected rate
of return
%
7.4
5.0
7.4
4.4
5.5
£m
10.0
2.7
–
0.3
4.4
Category of
asset as a
proportion
of total
%
56.4
14.1
0.6
1.9
27.0
£m
9.2
2.3
0.1
0.3
4.4
18.3
100.0
17.4
100.0
16.3
100.0
(22.6)
(4.3)
1.0
(3.3)
(21.4)
(4.0)
0.9
(3.1)
(21.1)
(4.8)
1.3
(3.5)
The long-term return on equities is assumed to be 2.6% in excess of inflation (2011: 3.3%). The rate of return on bonds is assumed to be in line
with the yield on AA-rated corporate bonds.
Carpetright plc Annual report and accounts 2012
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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 obligation (%)
Experience adjustments on pension scheme assets
Percentage of pension scheme assets (%)
2012
£m
18.3
(22.6)
(4.3)
0.5
(2.2%)
(0.2)
(1.1%)
2011
£m
17.4
(21.4)
(4.0)
–
–
0.4
2.3%
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%)
Employer contributions of £0.9m are expected to be paid into these pension schemes during the financial year 2012/13.
(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 IAS19, 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 £1.3m (2011: £1.1m).
(ii) Defined contribution schemes
The Company launched a Group Personal Pension Plan (“GPP Plan”) in April 2006. Contributions made by employees are matched by
the Company to an upper limit. 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 £1.0m (2011: £1.0m).
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 into individual company schemes for the period were a net charge of £nil (2011: £nil) and
contributions to industry collective schemes were £0.1m (2011: £0.1m).
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 is managed in accordance with the Group’s treasury risk management strategy, which is also discussed in the Business
Review in the section Current liquidity.
(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 customer products held ready for collection (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.
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Notes to the accounts continued
23. Financial instruments continued
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments,
including interest:
Group
At 28 April 2012
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
At 30 April 2011
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
Company
At 28 April 2012
Interest bearing loans and borrowings, including derivatives
Finance leases
Trade and other payables
At 30 April 2011
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
Total
£m
2.1
0.3
85.0
87.4
23.4
0.3
82.4
106.1
2.1
0.2
86.6
88.9
18.7
0.2
87.0
105.9
1.6
0.3
–
1.9
45.6
0.3
–
45.9
1.6
0.2
–
1.8
45.5
0.2
–
45.7
15.9
0.9
–
16.8
4.5
0.9
–
5.4
15.9
0.6
–
16.5
–
0.7
–
0.7
–
5.1
–
5.1
–
5.6
–
5.6
–
1.6
–
1.6
–
2.0
–
2.0
19.6
6.6
85.0
111.2
73.5
7.1
82.4
163.0
19.6
2.6
86.6
108.8
64.2
3.1
87.0
154.3
Committed overdraft facilities are renewable annually and amounts undrawn were £6.0m and €0.9m (2011: £5.5m and €0.5m). The Company
has committed facilities to July 2015. These facilities comprise a £22.0m amortising term loan, a €14.0m amortising term loan and a £45.0m
revolving credit facility. Repayments on the term loans cannot be redrawn. There are a number of covenants which commit the Group to
maintaining certain rates of leverage and fixed charge cover. The Company is and is expected to remain in compliance with these covenants.
At 28 April 2012 the revolving credit facility had an undrawn amount of £32.5m (2011: £22.5m).
(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 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 £0.7m lower (2011: £0.6m higher). At 28 April 2012 if Sterling had weakened/strengthened by 10% against the Euro
profit after tax for the year would have been £0.6m 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
2012
1.16
1.23
Euro
2011
1.18
1.12
Zloty
2012
4.90
5.12
Zloty
2011
4.70
4.42
Carpetright plc Annual report and accounts 2012
63
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(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 partially hedge the 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 28 April 2012 and 30 April 2011 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.
• 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 (2011: £0.6m).
The interest rate profile of the financial assets and liabilities of the Group, after the impact of interest rate swaps, is as follows:
2012
2011
Weighted
average
effective
interest rate
%
0.2
1.2
–
1.0
2.2
–
Floating
rate
£m
6.1
3.2
0.3
9.6
(15.4)
(10.6)
–
(26.0)
Fixed
rate
£m
–
–
–
–
(2.7)
–
–
(2.7)
Interest
free
£m
4.8
4.6
–
9.4
(72.2)
(12.8)
–
(85.0)
Total
£m
10.9
7.8
0.3
19.0
(90.3)
(23.4)
–
(113.7)
Weighted
average
effective
interest rate
%
0.1
1.2
–
2.6
4.0
–
Floating
rate
£m
4.5
3.6
0.2
8.3
(48.5)
(16.1)
–
(64.6)
Fixed
rate
£m
–
–
–
–
(3.1)
(6.3)
–
(9.4)
Interest
free
£m
10.8
4.7
0.1
15.6
(69.0)
(13.4)
–
(82.4)
Total
£m
15.3
8.3
0.3
23.9
(120.6)
(35.8)
–
(156.4)
Sterling
Euro
Zloty
Total financial assets
Sterling
Euro
Zloty
Total financial liabilities
Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and retain financial flexibility in order
to continue to provide returns for shareholders and benefits for other stakeholders. The Group considers capital to be equity and net debt.
Net debt is disclosed in note 29.
The Group manages its capital by: continued focus on free cash flow generation; setting the level of capital expenditure and dividend in the
context of the current year and forecast free cash flow and monitoring the level of the Group’s financial and leasehold debt in the context of
Group performance.
www.carpetright.plc.uk
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6464
Notes to the accounts continued
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:
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
Net financial liabilities
Group
2012
Group
2011
Company
2012
Company
2011
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
–
–
–
–
–
–
–
–
–
9.6
9.4
19.0
(26.0)
(2.7)
(85.0)
–
(113.7)
(94.7)
–
–
–
–
–
–
6.3
6.3
6.3
8.3
15.6
23.9
(70.9)
(3.0)
(82.4)
(0.1)
(156.4)
(132.5)
–
–
–
–
–
–
–
–
–
6.1
53.1
59.2
(21.9)
(1.6)
(86.6)
–
(110.1)
(50.9)
–
–
–
–
–
–
6.3
6.3
6.3
4.7
56.4
61.1
(61.9)
(2.0)
(87.0)
(0.1)
(151.0)
(89.9)
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.
As the yield curves are observable the fair values fall into level two of the three tier hierarchy. 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. Group
interest rate swaps matured in October 2011. In the previous financial year interest rate swaps fixed a portion of the floating interest charge
on term debt at fixed rates of interest ranging from 3.52% to 4.34%.
Derivative financial instruments are not purchased for speculative purposes.
Non-current liabilities
Interest rate swaps – cash flow hedges
Group
2012
£m
–
Group
2011
£m
(0.1)
Company
2012
£m
–
Company
2011
£m
(0.1)
Carpetright plc Annual report and accounts 2012
65
65
(iv) Hedge accounting
(a) Cash flow hedges
Interest rate swaps denominated in Euros have been executed to hedge the Group’s exposure to changes in floating interest rates. 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.
(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 €6.7m (2011: €13.9m).
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24. Share capital
Group and Company
At 1 May 2010
Purchase of own shares by Employee Benefit Trust
Transfer of Treasury shares to participants
At 30 April 2011
Issue of new shares
At 28 April 2012
Number of
allotted, called
up and fully paid
ordinary shares
Millions
67.2
–
–
67.2
0.3
67.5
Share capital
£m
0.7
–
–
0.7
–
0.7
Share premium
£m
15.4
–
–
15.4
0.9
16.3
Treasury shares
£m
(0.2)
(0.1)
–
(0.3)
–
(0.3)
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:
Total
£m
15.9
(0.1)
–
15.8
0.9
16.7
i
F
n
a
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a
i
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s
t
a
t
e
m
e
n
t
s
The Group’s LTIP was established to grant contingent rights 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
grants of such shares are classified as Treasury shares and accordingly are deducted from total equity attributable to equity holders 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 did not purchase any ordinary shares (2011: – 10,000 shares for £0.1m). At the year end the Trust
held 27,869 (2011: 27,869) ordinary shares of 1p each with a market value of £0.2m (2011: £0.2m).
The Group also operates a share option scheme under which shares are issued to satisfy share options upon exercise.
25. Share based payments
Included within administrative expenses is a charge of £0.3m (2011: credit of £0.3m) 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
25 to 31. 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 performance. The performance conditions are fully
described in the Directors’ remuneration report in the section titled Long Term Incentive Plan.
www.carpetright.plc.uk
6666
Notes to the accounts continued
25. Share based payments continued
During the period contingent entitlements to 360,778 shares were awarded (LTIP 2010: 214,022). The amount recognised in the income
statement in respect of all LTIP awards is a charge of £0.1m (2011: credit of £0.4m). The fair values of the 2009 awards were determined using
a Monte Carlo 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. Subsequent awards, where there is no market condition, are valued using a
Black-Scholes option pricing model. The Group’s LTIP Trust is administered by the Equity Trust (Jersey) Limited and it waives its right to
dividends on the shares held.
Reconciliation of movements in the periods ended 28 April 2012
LTIP 2011
LTIP 2010
LTIP 2009
Outstanding at 1 May 2010
Granted
Forfeited
Vested
Expired
Outstanding at 30 April 2011
Granted
Forfeited
Vested
Expired
Outstanding at 28 April 2012
Exercisable at 28 April 2012
Exercisable at 30 April 2011
Share awards
’000s
–
–
–
–
–
–
360.7
(27.8)
–
–
332.9
–
–
Fair
value
£m
–
–
–
–
–
–
1.6
(0.1)
–
–
1.5
–
–
Share awards
’000s
–
214.0
–
–
–
214.0
–
(57.2)
–
–
156.8
–
–
Fair
value
£m
–
1.4
–
–
–
1.4
–
(0.4)
–
–
1.0
–
–
Share awards
’000s
227.6
–
–
–
–
227.6
–
(79.7)
–
–
147.9
–
–
Fair
value
£m
1.8
–
–
–
–
1.8
–
(0.6)
–
–
1.2
–
–
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 (pence)
Share price at grant (pence)
Exercise price (pence)
Expected volatility (%)1
Vesting period (years)
Dividend yield (%)
Risk free interest rate (%)
LTIP 2011
award
459
486
1.0
39.7
3.0
1.8
0.8
LTIP 2010
award
675
740
1.0
44.6
3.0
3.0
2.0
LTIP 2009
award
776
853
1.0
46.3
3.0
3.1
2.0
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.
(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 ordinarily 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. Share options were valued using a Black-Scholes option-pricing model.
The cost charged to the income statement in respect of this scheme is £0.1m (2011: £0.1m).
Carpetright plc Annual report and accounts 2012
67
67
Reconciliation of movements in the periods ended 28 April 2012
SAYE 2012
SAYE 2011
SAYE 2010
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
3 yr
5 yr
5 yr
5 yr
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Number of
options
’000s
Outstanding at
1 May 2010
Granted
Forfeited
Vested
Outstanding at
30 April 2011
Granted
Forfeited
Vested
Outstanding at
28 April 2012
Exercisable at
28 April 2012
Exercisable at
30 April 2011
–
–
–
–
–
–
–
–
–
97.5
(3.4)
–
–
30.0
–
–
–
266.0
(3.4)
–
–
42.8
–
–
94.1
–
(49.3)
–
30.0
–
(14.1)
–
36.5
–
(11.5)
–
25.0
–
(9.5)
–
29.0
–
(8.3)
–
364.5
–
(36.3)
(2.4)
20.7
–
(14.6)
325.8
–
(13.8)
– (283.4)
310.4
–
(25.3)
–
285.1
–
(36.2)
(3.2)
262.6
42.8
44.8
15.9
15.5
6.1
28.6
245.7
–
–
–
–
–
–
–
–
–
–
–
–
28.6
–
–
–
23.6
–
(2.4)
(8.0)
13.2
–
(8.0)
(5.2)
–
–
13.2
25.2
–
(2.6)
–
22.6
–
(6.0)
–
16.6
–
–
6.2
–
(6.2)
–
–
–
–
–
–
–
–
5.7
–
(1.7)
–
4.0
–
(0.4)
–
3.6
3.6
7.7
–
(0.9)
–
6.8
–
(6.8)
–
–
–
–
6.8
38.9
–
(38.9)
–
–
–
–
–
–
–
–
The valuation assumptions used in the application of the Black-Scholes model applied to the relevant schemes above are as follows:
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:
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 2012
SAYE 2011
SAYE 2010
SAYE 2009
SAYE 2008
SAYE 2007
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
3 yr
5 yr
179
231
264
298
333
331
95
81
148
132
322
352
i
F
n
a
n
c
a
i
l
529
423
40.0
3.1
2.3
2.9
529
423
44.1
5.1
2.3
2.9
792
634
41.6
3.1
2.3
1.6
792
634
39.9
5.1
2.3
2.4
941
753
47.4
3.1
3.1
3.1
941
753
38.7
5.1
3.1
3.1
474
295
42.4
3.1
6.8
2.2
474
295
35.2
5.1
6.8
2.6
723
618
33.6
3.1
7.2
4.1
723
618
29.7
5.1
7.2
4.1
1,237
1,040
19.9
3.1
3.8
5.5
1,237
1,040
21.6
5.1
3.8
5.3
s
t
a
t
e
m
e
n
t
s
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.
(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 28 April 2012 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
2012
£m
2.5
Group
2011
£m
5.2
Company
2012
£m
1.8
Company
2011
£m
4.9
www.carpetright.plc.uk
6868
Notes to the accounts continued
27. Operating lease commitments
At 28 April 2012 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
2012
Land and
buildings
£m
88.0
319.0
467.5
874.5
2012
Land and
buildings
£m
80.4
299.5
456.3
836.2
Other
£m
1.1
1.3
0.5
2.9
Other
£m
1.0
1.2
0.5
2.7
2011
Land and
buildings
£m
86.9
310.9
459.2
857.0
2011
Land and
buildings
£m
78.9
296.2
456.0
831.1
Other
£m
1.5
1.9
0.2
3.6
Other
£m
1.2
1.6
0.2
3.0
Operating lease payments are negotiated for an average of 6.5 years (2011: 7 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 £9.8m (2011: £11.5m).
28. Contingent liabilities
The Group has no material contingent liabilities at 28 April 2012.
The Company’s contingent liabilities derive from guarantees for subsidiaries which are disclosed in note 30.
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
Carpetright plc Annual report and accounts 2012
2011
Total
£m
8.3
(9.0)
(0.7)
(12.3)
(49.6)
(61.9)
(0.1)
(2.9)
(3.0)
(0.1)
(65.7)
2012
Cash
flow
£m
Exchange
differences
£m
Revaluation
£m
2.0
0.2
42.9
1.1
–
–
–
–
44.9
–
–
1.3
0.3
0.1
0.4
Total
£m
9.6
(8.1)
1.5
(1.4)
(16.5)
(17.9)
(0.1)
(2.6)
(2.7)
–
(19.1)
69
69
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)
2011
Total
£m
4.7
(4.5)
0.2
(12.3)
(45.1)
(57.4)
(0.1)
(1.9)
(2.0)
(0.1)
(59.3)
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)
2011
Cash
flow
£m
Exchange
differences
£m
Revaluation
£m
–
–
–
1.0
1.0
3.4
0.9
0.7
(0.4)
–
–
4.1
–
–
0.5
2012
Cash
flow
£m
Exchange
differences
£m
Revaluation
£m
2.6
(0.7)
38.7
0.8
–
–
41.3
–
–
0.1
2011
–
–
0.4
0.1
0.5
Cash
flow
£m
Exchange
differences
£m
Revaluation
£m
6.0
(0.4)
0.7
(0.2)
–
–
6.7
–
–
(0.6)
–
–
–
1.0
1.0
Total
£m
8.3
(9.0)
(0.7)
(12.3)
(49.6)
(61.9)
(0.1)
(2.9)
(3.0)
(0.1)
(65.7)
Total
£m
6.1
(4.0)
2.1
(1.4)
(16.5)
(17.9)
(0.1)
(1.5)
(1.6)
–
(17.4)
Total
£m
4.7
(4.5)
0.2
(12.3)
(45.1)
(57.4)
(0.1)
(1.9)
(2.0)
(0.1)
(59.3)
www.carpetright.plc.uk
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
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
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
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7070
Notes to the accounts continued
30. Related parties
Group
Related party transactions with the Directors are disclosed in the Directors’ Report on page 32.
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 £0.2m in 2012, (2011: £0.1m).
Company
The following table provides the total amount of transactions and year end balances with related parties for the relevant financial year.
Subsidiary undertakings
2011/12
2010/11
Sales of goods
£m
Amounts due
from related
parties £m
Amounts due to
related parties
£m
3.8
3.8
48.3
45.8
12.4
16.0
The Company guaranteed bank and other borrowings of subsidiary undertakings amounting to £4.1m (2011: £8.9m).
Carpetright plc Annual report and accounts 2012
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)
71
71
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
471.5
276.0
18.0
8.0
(4.0)
4.0
9.5
13.5
(2.5)
11.0
205.2
70.7
(19.1)
632
5,840
58.5%
1.7%
3.8%
4.5p
16.4p
–
486.8
298.0
10.9
21.2
(4.3)
16.9
(10.3)
6.6
(2.0)
4.6
243.3
67.0
(65.7)
679
6,072
61.2%
4.4%
2.2%
18.0p
6.8p
8.0p
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
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
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7272
Independent auditors’ report to the members of Carpetright plc
We have audited the financial statements of Carpetright plc for
the 52 week period ended 28 April 2012 which comprise the Group
Income Statement, the Group Statement of Comprehensive Income,
the Group and Company Statements of Changes in Equity, the
Group and Company Balance Sheets, the Group and Company
Cash Flow Statements 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 and express an
opinion on 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.
In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion:
• 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.
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 34, in relation to
going concern;
• the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board
on Directors’ remuneration.
• 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 28 April 2012
and of the Group’s profit and the Group’s and Parent Company’s
cash flows for the year then ended;
• the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
25 June 2012
Carpetright plc Annual report and accounts 2012
Calendar
2012
Q1 interim management statement
Annual General Meeting
First-half trading update
First-half ends
Interim results announcement
2013
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 LLP
10 Snow Hill
London
EC1A 2AL
73
24 July
6 September
23 October
27 October
11 December
29 January
23 April
27 April
Stockbrokers
Deutsche Bank AG
1 Great Winchester Street
London
EC2N 2DB
Peel Hunt
111 Old Broad Street
London
EC2N 1PH
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
Company Secretary and
Registered Office
Jeremy Sampson
Carpetright plc
Harris House
Purfleet Bypass
Purfleet
Essex
RM19 1TT
Telephone: 01708 802000
This Report is printed on Core Uncoated.
It is produced at a mill that is certified with
ISO 14001 and EMAS environmental management
standards. The paper is also Totally Chlorine
Free and PEFC Certified.
The inks used are all vegetable oil based.
Printed at Principal Colour Ltd, ISO 14001
and FSC® certified.
Designed and produced by Black Sun plc
www.blacksunplc.com
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2
0
1
2
Harris House
Purfleet Bypass
Purfleet, Essex RM19 1TT
Telephone +44 (0)1708 802000
www.carpetright.co.uk
www.carpetright.plc.uk