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Interim Results

24 Aug 2016 07:00

RNS Number : 9545H
Headlam Group PLC
24 August 2016
 



24 August 2016

Headlam Group plc

("Headlam" or "the group")

Interim Results for the six-month period ended 30 June 2016

Headlam Group plc (LSE: HEAD), Europe's leading floorcovering distributor, announces its Interim Results for the six months ended 30 June 2016.

Financial highlights

· Group revenue up 4.8% to £328.7 million (H1 2015: £313.5 million)

 

· Operating profit up 18.5% to £15.4 million (H1 2015: £13.0 million)

 

· Profit before tax up 22.4% to £15.11 million (H1 2015: £12.35 million)

 

· Basic earnings per share up 23.1% to 14.4 pence (H1 2015: 11.7 pence)

 

· Interim dividend up 11.7% to 6.7 pence (H1 2015: 6.0 pence)

 

· Net funds of £33.9 million as at 30 June 2016 (30 June 2015: £26.0 million)

Operational highlights

· Further gains achieved in UK market share with like-for-like revenues increasing by 3.4% and an additional working day in 2016 adding a further increase of 0.9%

· Headlam Corporate, the group's newest business, making good progress in its target market of specified commercial flooring

· Lifestyle Floors' revenue up 34.8% to £21.1 million (H1 2015: £15.6 million)

· Further expansion of the service centre network with centres in Croydon, Hull and Bristol opened in the first half bringing the total to 32 with a further three centres in development

 

Tony Brewer, Headlam's Group Chief Executive, said:

 

"It is pleasing to report further progress during the first half of 2016, reflecting the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.

 

"August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions. To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.

 

"However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe. It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date.

 

"Our market appears to be robust and, subject to the key trading period in the run-up to Christmas, the board remains confident of achieving full year expectations."

 

Analyst meeting

 

A meeting for analysts will be held at 10am this morning, 24 August 2016, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, please contact Buchanan on 020 7466 5000.

 

 

Enquiries:

 

Headlam Group plc

Tel: 01675 433000

Tony Brewer, Group Chief Executive

Stephen Wilson, Group Finance Director

Investec Bank plc (Joint Corporate Broker)

Tel: 020 7597 4000

Garry Levin / David Flin / Alex Wright

Arden Partners plc (Joint Corporate Broker)

Tel: 0121 423 8900/020 7614 5900

Jonathan Keeling / Steve Douglas / Catherine Miles

Buchanan (Financial PR and IR)

Tel: 020 7466 5000

Mark Court / Sophie Cowles / Catriona Flint

 

 

 

 

Notes for Editors

About Headlam

Headlam is engaged in the marketing, supply and distribution of an extensive range of floorcovering products. The group's activities and facilities are located throughout the UK, France, Switzerland and the Netherlands.

The group's operations are focused on providing customers, principally independent floorcovering retailers and contractors, with a comprehensive and up to date range of competitively priced floorcovering products supported by a next day delivery service.

The approach provides Headlam's suppliers with an opportunity to achieve extensive market access backed by cost effective distribution.

In order to offer this level of service to its customers and suppliers, Headlam has developed a diverse and autonomous operating structure that includes 56 businesses across the UK and a further five in continental Europe all trading under their individual brands.

The autonomous operating structure is a key contributor to the group's success, presenting experienced management teams with an opportunity to develop the individual identity, market presence and profitability of the business for which they are responsible.

Each business is supported by the group's continued commitment to investment in people, product, operating infrastructure and IT. This commitment has underpinned the group's overall development and enabled Headlam to establish itself as Europe's leading floorcovering distributor.

For further detail on our business please visit: www.headlam.com

 

 

 

 

Chairman's Statement

 

It is pleasing to report further progress during the first half of 2016 with group revenue increasing by 4.8% from £313.5 million to £328.7 million, reflecting the continued outperformance of our UK business, a modest improvement in our Continental European businesses and the ongoing delivery of our strategy to increase market share.

 

In the UK, overall revenue growth was 4.3%, with like-for-like revenue increasing by 3.4% and an additional working day in the first half of 2016 adding additional growth of 0.9%.

 

During the year to date, we have continued to concentrate on developing and maintaining the group's operational excellence and achieving further benefits from the development of our infrastructure, staff and IT systems.

 

The group's cash balances remain robust, with net funds at 30 June 2016 of £33.9 million, an increase of 30.4% compared with £26.0 million at 30 June 2015, despite the first half including the payment of a special dividend in April 2016 totalling £5.0 million and the repayment of £5.0 million on a term loan. The increase in net funds highlights the cash generative nature of the group's operations.

 

Earnings and dividend

Basic earnings per share increased by 23.1% from 11.7p to 14.4p compared with the first six months of 2015. As a result, the Board has decided to increase the interim dividend by 11.7% to 6.7p (H1 2015: 6.0p). The interim dividend will be paid on 3 January 2017 to shareholders on the register as at 2 December 2016.

 

UK operations

 

Business performance

The UK is by far the largest part of Headlam's business, representing 87.1% (H1 2015: 87.6%) of group revenue during the first half of the year. UK revenues in the first half were up 4.3% at £286.3 million (H1 2015: £274.6 million), which is comfortably ahead of the estimated market growth in 2016 of 3.2% forecast by AMA Research Ltd.

 

The split of residential and commercial revenue moved slightly in favour of residential at 70%, with commercial at 30% (H1 2015: residential 69%, commercial 31%). Residential demand has been robust and the slight movement in the split is due to stronger residential growth during the first half.

 

On a like-for-like basis, the total commercial business grew by 0.4% (H1 2015: 6.1%) and residential by 4.7% (H1 2015: 5.0%). The lower growth rate in commercial against last year can be attributed, anecdotally at least, to the run-up to the referendum in June on the UK's membership of the European Union, which gave rise to some order deferral.

 

As we highlighted in our July 2016 Half Year Trading Update, the weakening of sterling following the referendum has increased the cost to the group of imported residential floorcoverings, which predominantly come from Belgium and the Netherlands. We have passed this increased cost on to our customers by introducing earlier this month an average price rise of 6% for these products. To date, we have not seen any adverse impact on residential revenues following these price increases.

 

The continuing resilience in residential revenues is in part owing to the affordability of a typical purchase by a residential end-user, who tends to replace carpets one room at a time with an average purchase size of 20 square metres. In contrast, a typical commercial purchase amounts to 200 square metres. In both cases, orders are processed in our distribution centres using sophisticated, computer-controlled picking, cutting and packing machines prior to delivery which is usually on the next day following receipt of the order.

 

The residential trend towards carpet colours based on a grey palette and the use of polypropylene and nylon yarns with a softer touch has continued and the increasing demand for luxury vinyl tile products has been maintained.

 

All of the group's principal product groups comprising carpets, residential vinyl, wood and laminate, luxury vinyl tile, commercial, rugs and underlay, showed growth over the same period last year.

 

Sales at Lifestyle Floors (http://www.lifestyle-floors.co.uk/home), the group's contemporary floorcovering brand continued to grow well compared with the first half last year.

 

During the first half we continued to develop the group's newest business, Headlam Corporate, which is targeting the specified commercial flooring market. The business, which has a showroom in London's Clerkenwell, is seeking to capitalise on the many opportunities of combining the extensive product portfolio of a number of our premium businesses, principally JHS, Crucial Trading and Kersaint Cobb.

 

The Headlam Corporate sales team has already visited 250 of the 500 architects' practices in the Clerkenwell area and is targeting projects ranging in size from 100 to 10,000 square metres with a typical order being between 250 and 750 square metres.

 

Investment

In the UK, the group operates with 56 businesses (H1 2015: 56) served from four national distribution hubs (H1 2015: 4), 14 regional distribution centres (H1 2015: 14) and 32 service centres (H1 2015: 29).

 

The three new service centres opened in the first half are in Croydon, Hull and Bristol and we anticipate opening a further three service centres in the second half, in Peterborough, Derby and Warrington.

 

This investment in the service centre network, which has a bias towards the commercial sector, is aimed at providing an enhanced service to our customers, and attracting new customers, through the establishment of readily accessible product collection points.

 

The UK operations are structured into the five business sectors of regional multi-product, national multi-product, regional commercial, residential specialist and commercial specialist.

 

We are making progress in the planned construction of the 160,000 square foot purpose built distribution centre in Ipswich for Faithfull's Floorcovering, one of our regional multi-product businesses. The cost of the land is approximately £3.2 million and the total cost of the project, including land cost, is expected to be around £15.0 million. In common with all of our other distribution centres, the Ipswich site will be owned on a freehold basis. Planning permission, approving the development of the facility, is expected towards the end of 2016 with construction commencing during early 2017 and the facility operational by the end of 2017 or early 2018. The new facility will enable Faithfull's to increase its presence and improve the level of customer service across the south east of England.

 

In addition to the expansion of our distribution infrastructure, we have continued to develop our IT and digital capabilities. Highlights in the first half have included the roll out of the driver app on the iPhone Plus which provides the delivery drivers with a comprehensive range of information aimed at increasing customer satisfaction and business efficiency.

Customers

Our market presence in independent floorcovering retailers and contractors continues to be enhanced through our ongoing product development with suppliers, resulting in the launch during the first half of 2,054 new products (H1 2015: 2,057) supported by 377,430 point of sale items (H1 2015: 414,498).

 

Continental Europe

Headlam's businesses in Continental Europe, which are located in the Netherlands, France and Switzerland, collectively achieved further progress during the first half. The businesses on the Continent represent a relatively modest part of Headlam's revenues, contributing 12.9% of group revenues in the first six months of the year at £42.4 million (H1 2015: £39.0 million).

 

Continental Europe's overall like-for-like revenues were up 2.8% at constant currency, 8.9% when translated into sterling, reflecting improvements in France and the Netherlands. Whilst revenues have continued to be a little more subdued in Switzerland, the business is still the most significant contributor to the combined Continental profitability.

 

Trading performance

 

Gross margin

Gross margin increased by 30 basis points from 29.7% to 30.0% during the period, the improvement being driven by favourable pricing and product mix. In absolute terms, gross margin increased by £5.6 million from £93.1 million to £98.7 million of which £1.1 million was attributable to pricing and mix.

 

Expenses

Distribution and administrative expenses increased by £3.2 million, up 4.1%, from £80.1 million to £83.3 million. People cost continues to be the single largest contributor to the overall increase, which at £2.7 million represents 83% of the total movement compared with the first half of 2015. A cost of living award implemented at the start of the year amounting to 2.5% accounts for 46.3% of the increase with the balance attributable to an increase in people numbers, 91, compared with the first half of 2015, recruited to support the organic growth.

 

Other expense increases tended to relate to the revenue improvement and in total amounted to £1.0 million. However, a one off currency gain of £0.5 million reduced the overall increase to £0.5 million.

 

Operating profit

£000

Operating profit 2015

13,022

Gross margin improvement:

Volume benefit

4,492

Pricing benefit

1,102

5,594

Expenses increase:

Distribution

(2,985)

Administration

(266)

Total increase

(3,251)

Operating profit 2016

15,365

Drop through rate as a percentage of incremental revenue

15.5%

 

Operating profit during the first six months of 2016 increased by 18.0% compared with 2015 with the operating margin improving from 4.2% to 4.7%. The drop through rate of additional operating profit arising from the additional revenue generated in 2016 compared with 2015 amounted to 15.5%.

 

Cash flow

As highlighted in the table below, the movement in cash flows during the first six months of 2016 compared with 2015 amounted to a net outflow of £16.2 million.

£000

Cash flow first half of 2015

986

Cash flow from operating activities

2,464

Working capital

(9,501)

Dividends

(5,741)

Taxation

(1,286)

Acquisitions

1,978

Movement in net debt

(4,921)

Other

798

(16,209)

Cash flow first half of 2016

(15,223)

 

 

The three principal contributors to the movement were the net working capital investment of £9.5 million, dividend payments of £5.7 million and a decrease in net debt of £4.9 million.

 

The working capital investment was simply due to re-establishing a normalised working capital position following the unusually favourable working capital reduction at 31 December 2015.

 

The movement in dividend payments was a consequence of the special dividend payment during April and the reduction in debt due to a repayment of £5.0 million on the term loan.

 

The favourable acquisitions movement is due to the absence of further activity during the first half compared with the prior year when the group acquired Matty's Wholesale Carpets. We will continue to look at making additional acquisitions as opportunities arise.

 

Changes in net funds

As shown below, the group's net funds at 30 June 2016, £33.9 million, highlights further improvement compared to £26.0 million as at 30 June 2015. The contraction in net funds during the first half compared with the position at 31 December 2015 is not unusual and tends to be a typical feature of the first half cash flow.

 

 

At

1 January

2016

£000

 

Cash

flows

£000

 

Translation

differences

£000

At

30 June

2016

£000

Cash at bank and in hand

63,932

(14,818)

184

49,298

Bank overdraft

-

(405)

(24)

(429)

63,932

(15,223)

160

48,869

Debt due within one year

-

(15,000)

-

(15,000)

Debt due after one year

(20,000)

20,000

-

-

43,932

(10,223)

160

33,869

 

The group's total bank facilities at 30 June 2016 amounted to £82.2 million of which £42.2 million is repayable on demand and £40.0 million relates to committed facilities which expire on 7 March 2017. Given the expiry date falls within the next twelve months, the amount drawn on the facility, £15.0 million, has been reclassified as a current liability in the Consolidated Interim Statement of Financial Position and therefore transferred from debt due after one year to debt due within one year in the table above. The group is satisfied that renewed facilities will be in place prior to 7 March 2017.

 

Principal risks and uncertainties

The board has ultimate responsibility for identifying and managing the effect of risk and uncertainty on the group's business, results and financial condition. Whilst the board maintains a policy of continuous identification and review, it nevertheless recognises that a number of risks and uncertainties lie beyond its control.

 

Currently, the key risks and uncertainties, which have potential to affect the group's operations are, market demand, competition, credit risk, IT failure, people, pension costs, legislation and regulation. The potential impact and mitigation of these risks and uncertainties are discussed in more detail on pages 38 and 39 of the 2015 Annual Report and Accounts.

 

Outlook

It is pleasing to report further progress during the first half of 2016, reflecting the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.

 

August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions. To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.

 

However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe. It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date.

 

Our market appears to be robust and, subject to the key trading period in the run-up to Christmas, the board remains confident of achieving full year expectations.

 

 Statement of Directors' Responsibilities

 

 

 

We confirm to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the European Union;

 

(b) the interim management report includes a fair review of the information required by:

 

(i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

This report has been approved by the board of directors and signed on its behalf by

 

 

 

 

Tony Brewer

Group Chief Executive

24 August 2016

 

 

 

Condensed Consolidated Interim Income Statement

Unaudited

 

 

Note

Six months ended

30 June

2016

£000

Six months ended

30 June

2015

£000

 

Year ended

31 December 2015

£000

Revenue

2

328,673

313,546

654,078

Cost of sales

(229,961)

(220,428)

(453,568)

Gross profit

98,712

93,118

200,510

Distribution expenses

(62,150)

(59,165)

(120,070)

Administrative expenses

(21,197)

(20,931)

(43,663)

Operating profit

2

15,365

13,022

36,777

Finance income

3

498

115

738

Finance expenses

3

(752)

(789)

(1,891)

Net finance costs

(254)

(674)

(1,153)

Profit before tax

15,111

12,348

35,624

Taxation

4

(3,022)

(2,500)

(7,213)

Profit for the period attributable to the equity

 shareholders

 

2

 

12,089

 

9,848

 

28,411

Dividend paid per share

6

20.70p

17.50p

17.50p

Earnings per share

Basic

5

14.4p

11.7p

33.8p

Diluted

5

14.3p

11.7p

33.7p

 

All group operations during the financial periods were continuing operations.

 

 

Condensed Consolidated Interim Statement of Comprehensive Income

Unaudited

 

 

Six months

 ended

30 June

 2016

£000

Six months

 ended

30 June

 2015

£000

 

Year ended

31 December

 2015

£000

Profit for the period attributable to the equity

shareholders

 

12,089

 

9,848

 

28,411

Other comprehensive income:

Items that will never be reclassified to profit or loss

Re-measurement of defined benefit plans

908

2,039

1,292

Related tax

(61)

(396)

(554)

847

1,643

738

Items that are or may be reclassified to profit or loss

Foreign exchange translation differences arising on

translation of overseas operations

 

778

 

(132)

 

6

Effective portion of changes in fair value of cash flow hedges

362

(14)

(556)

Transfers to profit or loss on cash flow hedges

205

63

172

Related tax

(102)

(12)

58

1,243

(95)

(320)

Other comprehensive income for the period

2,090

1,548

418

Total comprehensive income attributable to the equity shareholders for the period

 

14,179

 

11,396

 

28,829

 

 

Condensed Consolidated Interim Statement of Financial Position

Unaudited

 

 

At

30 June

2016

£000

At

30 June

2015

£000

At

31 December 2015

£000

Assets

Non-current assets

Property, plant and equipment

100,749

102,581

101,263

Intangible assets

10,388

10,013

10,388

Deferred tax assets

1,981

2,509

2,238

113,118

115,103

113,889

Current assets

Inventories

128,029

122,598

119,143

Trade and other receivables

123,499

119,714

120,154

Cash and cash equivalents

49,298

49,061

63,932

300,826

291,373

303,229

Total assets

413,944

406,476

417,118

Liabilities

Current liabilities

Bank overdraft

(429)

(393)

-

Other interest-bearing loans and borrowings

(15,000)

(2,681)

-

Trade and other payables

(172,300)

(168,983)

(172,701)

Dividends payable

(12,368)

(10,300)

-

Employee benefits

(2,135)

(2,980)

(2,171)

Income tax payable

(5,640)

(5,514)

(6,974)

(207,872)

(190,851)

(181,846)

Non-current liabilities

Other interest-bearing loans and borrowings

-

(20,000)

(20,000)

Employee benefits

(15,301)

(15,842)

(16,843)

(15,301)

(35,842)

(36,843)

Total liabilities

(223,173)

(226,693)

(218,689)

Net assets

190,771

179,783

198,429

Equity attributable to equity holders

of the parent

Share capital

4,268

4,268

4,268

Share premium

53,512

53,512

53,512

Other reserves

1,076

(1,632)

(275)

Retained earnings

131,915

123,635

140,924

Total equity

190,771

179,783

198,429

 

Condensed Consolidated Interim Statement of Changes in Equity

Unaudited

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

Cash flow hedging reserve £000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

Balance at

1 January 2016

 

4,268

 

53,512

 

88

 

5,429

 

(516)

 

(5,276)

 

140,924

 

198,429

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

12,089

 

 

12,089

Other comprehensive income

-

-

-

778

567

-

745

2,090

Total comprehensive income for the period

 

-

 

-

 

-

 

778

 

567

 

-

 

12,834

 

14,179

Transactions with equity shareholders, recorded directly in equity

Share-based payments

-

-

-

-

-

-

714

714

Share options exercised by employees

 

-

 

-

 

-

 

-

 

-

 

6

 

(2)

 

4

Current tax on share options

-

-

-

-

-

-

2

2

Deferred tax on share options

-

-

-

-

-

-

(93)

(93)

Dividends to equity holders

-

-

-

-

-

-

(22,464)

(22,464)

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

6

 

 

(21,843)

 

 

(21,837)

Balance at

30 June 2016

 

4,268

 

53,512

 

88

 

6,207

 

51

 

(5,270)

 

131,915

 

190,771

 

 

Condensed Consolidated Interim Statement of Changes in Equity continued

Unaudited

 

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

Cash flow

hedging

reserve

£000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

Balance at

1 January 2015

 

4,268

 

53,512

 

88

 

5,423

 

(132)

 

(7,100)

 

126,018

 

182,077

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9,848

 

 

9,848

Other comprehensive income

-

-

-

(132)

49

-

1,631

1,548

Total comprehensive income for the period

 

-

 

-

 

-

 

(132)

 

49

 

-

 

11,479

 

11,396

Transactions with equity shareholders, recorded directly in equity

Share-based payments

-

-

-

-

-

-

557

557

Share options exercised by employees

 

-

 

-

 

-

 

-

 

-

 

172

 

(19)

 

153

Deferred tax on share options

-

-

-

-

-

-

255

255

Dividends to equity holders

-

-

-

-

-

-

(14,655)

(14,655)

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

172

 

 

(13,862)

 

 

(13,690)

Balance at

30 June 2015

 

4,268

 

53,512

 

88

 

5,291

 

(83)

 

(6,928)

 

123,635

 

179,783

 

 

Condensed Consolidated Interim Statement of Changes in Equity continued

Unaudited

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

Cash flow

hedging

reserve

£000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

Balance at

1 January 2015

 

4,268

 

53,512

 

88

 

5,423

 

(132)

 

(7,100)

 

126,018

 

182,077

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

28,411

 

 

9,848

Other comprehensive income

-

-

-

6

(384)

-

796

1,548

Total comprehensive income for the period

 

-

 

-

 

-

 

6

 

(384)

 

-

 

29,207

 

11,396

Transactions with equity shareholders, recorded directly in equity

Share-based payments

-

-

-

-

-

-

1,100

1,100

Share options exercised by employees

 

-

 

-

 

-

 

-

 

-

 

1,824

 

(819)

 

1,005

Current tax on share options

-

-

-

-

-

-

95

95

Deferred tax on share options

-

-

-

-

-

-

(22)

(22)

Dividends to equity holders

-

-

-

-

-

-

(14,655)

(14,655)

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,824

 

 

(14,301)

 

 

(12,477)

Balance at

31 December 2015

 

4,268

 

53,512

 

88

 

5,429

 

(516)

 

(5,276)

 

140,924

 

198,429

 

 

 

Condensed Consolidated Interim Cash Flow Statements

Unaudited

 

 

Six months ended

30 June 2016

£000

Six months ended

30 June 2015

£000

Year ended

31 December

 2015

£000

Cash flows from operating activities

Profit before tax for the period

15,111

12,348

35,624

Adjustments for:

Depreciation, amortisation and impairment

2,389

2,422

5,179

Finance income

(498)

(115)

(738)

Finance expense

752

789

1,891

Profit on sale of property, plant and equipment

(11)

(8)

(31)

Share-based payments

714

557

1,100

Operating profit before changes in working capital and other payables

18,457

15,993

43,025

Change in inventories

(7,682)

(5,506)

(1,827)

Change in trade and other receivables

(4,251)

(725)

(1,524)

Change in trade and other payables

166

3,965

7,270

Cash generated from the operations

6,690

13,727

46,944

Interest paid

(487)

(461)

(1,268)

Tax paid

(4,306)

(3,020)

(6,245)

Additional contributions to defined benefit plan

(1,121)

(1,447)

(2,925)

Net cash flow from operating activities

776

8,799

36,506

Cash flows from investing activities

Proceeds from sale of property, plant and equipment

37

119

277

Interest received

512

95

726

Acquisition of subsidiaries, net of cash acquired

-

(1,978)

(1,977)

Acquisition of property, plant and equipment

(1,456)

(1,768)

(2,856)

Net cash flow from investing activities

(907)

(3,532)

(3,830)

Cash flows from financing activities

Proceeds from the issue of treasury shares

4

153

1,005

Repayment of borrowings

(5,000)

(79)

(2,817)

Dividends paid

(10,096)

(4,355)

(14,655)

Net cash flow from financing activities

(15,092)

(4,281)

(16,467)

Net (decrease)/increase in cash and cash equivalents

(15,223)

986

16,209

Cash and cash equivalents at 1 January

63,932

47,589

47,589

Effect of exchange rate fluctuations on cash held

160

93

134

Cash and cash equivalents at end of period

48,869

48,668

63,932

 

Notes to the Condensed Consolidated Interim Financial Statements

Unaudited

 

1 BASIS OF REPORTING

 

Reporting entity

Headlam Group plc, the "company", is a company incorporated in the UK. The Condensed Consolidated Interim Financial Statements consolidate those of the company and its subsidiaries which together are referred to as the "group" as at and for the six months ended 30 June 2016.

 

The Consolidated Financial Statements of the group as at and for the year ended 31 December 2015 are available upon request from the company's registered office or the website.

 

The comparative figures for the financial year ended 31 December 2015 are not the group's statutory accounts for that financial year. Those accounts have been reported on by the group's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by the auditor pursuant to the Auditing Practices Board's Guidance on Financial Information.

 

Statement of compliance

These Condensed Consolidated Interim Financial Statements have been prepared and approved by the directors in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the group as at and for the year ended 31 December 2015.

 

These Condensed Consolidated Interim Financial Statements were approved by the board of directors on 24 August 2016.

 

Significant accounting policies

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the group's published Consolidated Financial Statements for the year ended 31 December 2015, except as explained below.

 

Impacts of standards and interpretations in issue but not yet effective

The following standards and interpretations, which were not effective as at 30 June 2016 and have not been early adopted by the group, will be adopted in future accounting periods: 

· International Financial Reporting Standard (IFRS) 15 'Revenue from contracts with customers' (effective 1 January 2018)

· International Financial Reporting Standard (IFRS) 9 'Financial instruments' (effective 1 January 2018)

· International Financial Reporting Standard (IFRS) 16 'Leases' (effective 1 January 2019)

· Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38.

· Equity Method in Separate Financial Statements - Amendments to IAS 27

· Disclosure Initiative - Amendments to IAS 1

· Annual Improvements to IFRSs - 2012 -2014 Cycle.  

The Directors anticipate that adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the group.

   

 

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

1 BASIS OF REPORTING - continued

 

Going concern

The group's business activities, together with the factors likely to affect its future development, performance and position are described in the Chairman's Statement.

 

The directors have reviewed current performance and forecasts, combined with borrowing facilities and expenditure commitments, including capital expenditure, pensions and proposed dividends. After making enquiries, the directors have a reasonable expectation that the group has adequate financial resources to continue its current operations, including contractual and commercial commitments for the foreseeable future. For these reasons, the going concern basis has been adopted in preparing the financial statements.

 

Bank facilities at 30 June 2016

 

Committed credit facilities

Uncommitted credit facilities

 

Total facilities

£ million

£ million

£ million

Drawn funds

15.0

0.4

15.4

Undrawn funds

25.0

41.8

66.8

40.0

42.2

82.2

 

The group will renew the terms of its banking facilities by March 2017 and therefore the committed credit facilities drawn funds of £15 million are shown on the Consolidated Interim Statement of Financial Position as due within one year.

 

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2015.

 

Risks and uncertainties

The risk factors which could cause the group's results to differ materially from expected results and the result of the board's review of those risks are set out in the Chairman's Statement.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

2 SEGMENT REPORTING

 

The group has 56 operating segments in the UK and five operating segments in Continental Europe. Each segment represents an individual trading operation and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products. The operating results of each operation are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Group Chief Executive. Discrete financial information is available for each segment and used by the Group Chief Executive to assess performance and decide on resource allocation.

 

The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments. This distinction is embedded in the construction of operating reports reviewed by the Group Chief Executive, the board and the executive management team and forms the basis for the presentation of operating segment information given below.

 

UK

Continental Europe

Total

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

 

30 June

2016

£000

 

30 June

2015

£000

31

December

2015

£000

Revenue

External revenues

286,260

274,587

575,341

42,413

38,959

78,737

328,673

313,546

654,078

Reportable segment operating profit

 

15,504

 

13,786

 

37,363

 

528

 

206

 

575

 

16,032

 

13,992

 

37,938

Reportable segment assets

 

255,194

 

247,961

 

257,984

 

34,333

 

30,720

 

34,067

 

289,527

 

278,681

 

292,051

Reportable segment liabilities

 

(156,387)

 

(154,039)

 

(158,859)

 

(16,342)

 

(15,254)

 

(13,326)

 

(172,729)

 

(169,293)

 

(172,185)

 

During the periods shown above there have been no inter-segment revenues for the reportable segments (2015: £nil). 

Reconciliations of reportable segment profit, assets and liabilities and other material items:

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

Profit for the period

Total profit for reportable segments

16,032

13,992

37,938

Unallocated expense

(667)

(970)

(1,161)

Operating profit

15,365

13,022

36,777

Finance income

498

115

738

Finance expense

(752)

(789)

(1,891)

Profit before taxation

15,111

12,348

35,624

Taxation

(3,022)

(2,500)

(7,213)

Profit for the period

12,089

9,848

28,411

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

2 SEGMENT REPORTING - continued

 

 

 

 

 

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

Assets

Total assets for reportable segments

289,527

278,681

292,051

Unallocated assets:

Properties, plant and equipment

91,637

95,403

89,828

Deferred tax assets

1,981

2,509

2,238

Cash and cash equivalents

30,747

29,883

33,001

Derivative assets

52

-

-

Total assets

413,944

406,476

417,118

Liabilities

Total liabilities for reportable segments

(172,729)

(169,293)

(172,185)

Unallocated liabilities:

Employee benefits

(17,436)

(18,822)

(19,014)

Other interest-bearing loans and borrowings

(15,000)

(22,681)

(20,000)

Income tax payable

(5,640)

(5,514)

(6,974)

Proposed dividend

(12,368)

(10,300)

-

Derivative liabilities

-

(83)

(516)

Total liabilities

(223,173)

(226,693)

(218,689)

 

 

 

 

UK

 

Continental Europe

Reportable segment

total

 

 

Unallocated

 

Consolidated total

£000

£000

£000

£000

£000

Other material items 30 June 2016

Capital expenditure

991

412

1,403

53

1,456

Depreciation

1,108

276

1,384

1,005

2,389

Other material items 30 June 2015

Capital expenditure

1,142

309

1,451

317

1,768

Depreciation

1,147

261

1,408

1,014

2,422

Other material items 31 December 2015

Capital expenditure

2,064

543

2,607

287

2,894

Depreciation

2,246

538

2,784

2,020

4,804

Amortisation

-

-

-

375

375

 

In the UK the group's freehold properties are held within Headlam Group plc and a rent is charged to the operating segments for the period of use. Therefore, the operating reports reviewed by the Group Chief Executive show all the UK properties as unallocated and the operating segments report a segment result that includes a property rent. This is reflected in the above disclosure.

 

Each segment is a continuing operation.Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

2 SEGMENT REPORTING - continued

 

The Group Chief Executive, the board and the senior executive management team have access to information that provides details on revenue by principal product group for the two reportable segments, as set out in the following table:

 

UK

Continental Europe

Total

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

 

30 June

2016

£000

 

30 June

2015

£000

31 December

2015

£000

Revenue

Residential

200,610

189,972

399,453

20,777

19,345

40,281

221,387

209,317

439,734

Commercial

85,650

84,615

175,888

21,636

19,614

38,456

107,286

104,229

214,344

286,260

274,587

575,341

42,413

38,959

78,737

328,673

313,546

654,078

 

 

3 FINANCE INCOME AND EXPENSE

 

Six months

 ended

30 June

2016

£000

Six months

 ended

30 June

2015

£000

 

Year ended

31 December 2015

£000

Interest income:

Bank interest

243

115

699

Other

255

-

39

Finance income

498

115

738

Interest expense:

Bank loans, overdrafts and other financial expenses

(449)

(356)

(1,150)

Net change in fair value of cash flow hedges transferred from equity

 

(23)

 

(63)

 

(125)

Net interest on defined benefit plan obligation

(280)

(310)

(616)

Other

-

(60)

-

Finance expenses

(752)

(789)

(1,891)

 

 

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

4 TAXATION

 

The group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2016 was 20% (for the six months ended 30 June 2015: 20.25%; for the year ended 31 December 2015: 20.25%).

Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. A further reduction to 17% (effective from 1 April 2020) was announced in the Budget on 16 March 2016. This will reduce the company's future current tax charge accordingly. The deferred tax asset at 30 June 2016 has been calculated based on the rate of 18% substantively enacted at the balance sheet date.

 

5 EARNINGS PER SHARE

 

The calculation of the basic and diluted earnings per share is based on the following data:

 

Six months

 ended

30 June

2016

£000

Six months

 ended

30 June

2015

£000

 

Year ended

31 December 2015

£000

Earnings

Earnings for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent

 

12,089

 

9,848

 

28,411

2016

2015

2015

Number of shares

Issued ordinary shares at end of period

85,363,743

85,363,743

85,363,743

Effect of shares held in treasury

(1,330,565)

(1,501,893)

(1,331,576)

Weighted average number of ordinary shares for the purposes of basic earnings per share

 

84,033,178

 

83,861,850

 

84,032,167

Effect of diluted potential ordinary shares:

Weighted average number of ordinary shares at period end

84,033,178

83,861,850

84,032,167

Dilutive effect of share options

617,808

402,528

282,078

Weighted average number of ordinary shares for the purposes of diluted earnings per share

 

84,650,986

 

84,264,378

 

84,314,245

 

 

 

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

6 DIVIDENDS

Six months ended

30 June

2016

£000

Six months ended

30 June

2015

£000

 

Year ended

31 December 2015

£000

Interim dividend for 2015 of 6.0p paid 2 January 2016

5,048

-

-

Special dividend for 2015 of 6.0p paid 25 April 2016

5,048

-

-

Final dividend for 2015 of 14.7p proposed

12,368

-

-

Interim dividend for 2014 of 5.2p paid 2 January 2015

-

4,355

4,355

Final dividend for 2014 of 12.3p proposed

-

10,300

10,300

22,464

14,655

14,655

 

The final proposed dividend for 2015 of 14.7p per share was authorised by shareholders at the Annual General Meeting on 20 May 2016 and paid on 1 July 2016. The final proposed dividend for 2014 of 12.3p per share was authorised by shareholders at the Annual General Meeting on 21 May 2015 and paid on 1 July 2015.

 

7 CAPITAL COMMITMENTS

 

As at 30 June 2016, the group had contractual commitments relating to the purchase of property, plant and equipment of £408,000 (30 June 2015: £371,000, 31 December 2015: £728,000).

 

8 RELATED PARTIES

 

The group has a related party relationship with its subsidiaries and with its key management. There have been no changes to the nature of related party transactions entered into since the last annual report.

 

9 SUBSEQUENT EVENTS

 

Management have given due consideration to any events occurring in the period from the reporting date to the date these Interim Financial Statements were authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these Interim Financial Statements.

 

 

 

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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