James Halstead Regulatory News (JHD)

 1 October 2012

JAMES HALSTEAD PLC

PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS

FOR THE YEAR ENDED 30 JUNE 2012

"Another series of records"

Key Figures

Mr Mark Halstead, Chief Executive, commenting on the results, said:

"In a year when London was host to many new records I am pleased to report, yet again, record turnover and record profit; and I shall never tire of saying record dividends." 

CHAIRMAN'S STATEMENT

Once again it is pleasing for me to report progress in our results. Revenue for the year is at £226.3 million (2011: £213.9 million), a new record level and 5.8% ahead of last year.

Our profit before tax of £42.7 million (2011: £38.5 million) is also a record achievement and 11% ahead of the comparative.

The foregoing comments have become routine in my report over the last few years but it must be said that it was a most challenging year. The UK economy, and many of our international markets, faced difficulties with every manufacturer looking for volume growth and pricing was set ever keener to achieve that volume. Notwithstanding these competitive pressures our UK turnover rose 2.9% and our overseas turnover by 7.3%. We have seen modest revenue growth in comparison to previous years, but I think this very commendable in the prevailing market conditions.

The global marketplace and the diverse end users of our products are best illustrated by some of the projects we have been associated with such as the Winnipeg 'Blue Bomber' Stadium, the Marineland Aquarium and Leisure Park on the Cote d'Azur and the Wangaratta Hospital in Victoria, Australia.

In the UK we have obviously benefitted from the building work associated with the various Olympic venues and as these are converted to other uses we expect some continued modest activity in this area.

It is with some sadness that I report the closure of Phoenix Distribution (NW) Ltd, albeit a very small part of the Group. Phoenix was formed in 1992 to continue the sales of motor-cycle accessories after the closure of Belstaff International Ltd.

Dividend

As in previous years, the Board feels record results should be reflected in a record dividend. The final dividend will be 11.0p (2011: 9.8p) representing a 12.2% increase which combined with the interim dividend, paid in May 2012, of 5.0p (2011: 4.5p) makes a total of 16.0p (2011: 14.3p) for the year, an increase of 11.9%.

Bonus Issue

The Board, having regard to the share price performance in recent years will propose, at the forthcoming Annual General Meeting, a one for one capitalisation issue. This will give each shareholder one additional fully paid up 5p ordinary share for each one held. The company has undertaken similar issues in 2011, 2005 and 1992. I believe this can only increase the marketability of our shares.

Acknowledgements

On behalf of the Directors I would like to give thanks to our staff and customers for their contribution to these record results.

Outlook

The global market place offers continuing challenges and our competitors are re-doubling their efforts to take market share. However, the investments made in productivity and our reputation for customer service should allow us to maintain our strong position. Industry statistics and market share figures are interesting in themselves but we operate in largely "commodity" products where availability, service and convenience are the most important factors in the decision to buy.

In the UK there are some positive signs of increased activity and in the first two months of the new financial year our UK turnover has increased by nearly 6% over the same period last year but it is too early to know if this is a sustainable trend. Nevertheless, we have every expectation that the year ahead will see continued progress.

Geoffrey Halstead

Chairman

CHIEF EXECUTIVE'S REVIEW

In these challenging times, with recessionary pressures on many businesses, I am encouraged to report record revenue.

The James Halstead Group of companies is almost totally focused on flooring these days and the value of our flooring turnover has grown 7% year on year. With currency changes being largely neutral this is real growth. Looking deeper into the numbers we have sold around 3% more flooring by square meterage and can ascribe the difference between this and the growth in overall turnover to a more favourable product mix. Our investment in innovation and added value has moved sales towards our higher value ranges.

Our export success continues. Our strength in Central Europe is well known, as is our Australian business and, in addition, we have built on previous successes to achieve record sales in markets such as Canada, China, Poland, Portugal, Finland, New Zealand, USA, Norway and Saudi Arabia. Projects as diverse as the new Royal Canadian Mounted Police HQ in Halifax, Les Pyramides in Paris and the Penguin Parade Café on Phillip Island in Australia are a few examples.

Investment in the future has not lessened. We have extended our premises in Germany, Norway, Australia, the UK, France and Canada. Moreover, significant, if not extensive, expenditure has been focused within our UK manufacturing on improved wrapping equipment, raw materials handling and product coating equipment. More capital investment is in hand.

Notwithstanding the foregoing, we have faced pressure on productivity, as the major plant investments of recent years have resulted in our plant capacity growing significantly ahead of sales. Although this bodes well for the future it gives us short term difficulties and the challenge of balancing output with manning levels. This is a key focus for the present and coming months.

Raw material prices were broadly in line with the prior year which was itself a year of record highs. That they did not worsen is a positive but prices remain stubbornly high. Plasticiser and polymer prices continue to be at near record levels. Energy costs also grew and were around 15% above the prior year. These continue to be an area of concern.

Profits have increased and gross margins are ahead of comparatives largely due to product mix and volume throughput gains.

Our focus on customer service is well known in the market and we continue to be at the forefront of the industry. As far back as the early 1980s we were making the industry aware of the dangers of other manufacturers using asbestos in vinyl floor tiles and we continue today to be leading edge in technical matters. Just one example is our research on the environmental credentials of our products. Across the globe Polyflor is achieving recognition for its recycling and its green credentials. Our products are manufactured predominantly using natural resources and up to 85% of our vinyl flooring is from these natural resources. It is little known that only 4% of barrel oil is used for all plastic products and vinyl flooring uses only a fraction of this. In addition, PVC flooring can use any PVC recyclate and we have award winning strategies in this area.

During the year we made a £1 million investment in a purpose built global research and development centre in Radcliffe. This will pull together our various R & D and process engineers who were previously spread across our factories. A mark of this new emphasis is that our representative is now Chairman of the European Resilient Flooring Manufacturers' Institute ("ERFMI"). This continuing emphasis on product and processes is at the core of our ongoing success.

Polyflor Nordic, comprising Polyflor Norway based in Oslo and Falck Design based in Sweden

This region has shown strong sales performance in the current financial year. Polyflor Nordic has increased its year on year sales by some 13% in local currency. This is on top of an 8% increase in sales on the previous year and represents a record year for the business since its inception.

This has been achieved notwithstanding a continued difficult trading environment. There has been little by way of significant projects in the period and growth has come on the back of small projects and day to day business. In terms of projects of note, our Riverside manufactured Mineral FX flooring has been used in housing built for miners in Spitsbergen.

The business in Norway has doubled in size over the last decade and, as a result, had outgrown the warehouse facilities established some time ago. Therefore we have extended the resources available by approximately a third to facilitate continued growth of the business. Our ongoing philosophy is to maintain competitive advantage by offering the best customer service in the market place.

Falck Design, in Sweden, has consolidated the growth of the previous year with sales broadly on a par with last year. Last year we noted that we had moved the stocking of product to Stockholm, where the majority of the business resides. This has been reinforced with the opening of a showroom. As has been the case in Norway, although there have been few significant projects in the year there was a sterling performance from small projects and day to day business.

Objectflor and Karndean, our European based organisations located in Cologne

In local currency terms this business has increased by a further 14.1% which is on top of the very impressive growth figures for the previous decade. The central European growth is not restricted to Germany. Holland, France and Switzerland show a combined growth of 16% which underlines the fact that Euro economies are not all doom and gloom. Germany offered double digit growth which was hard earned and, encouragingly, the near eastern bloc countries (Czech Republic, Slovenia, Hungary etc) showed greater than 30% growth.

With the backdrop of the Euro confidence crisis, such a performance is testament to a combination of high quality market leading products and a market leading customer service.

The Riverside collections (Ligno FX and Mineral FX) mentioned in our last annual report have been launched and are gaining market penetration. In addition, the product offering has been enhanced by adding an easy to lay "Clik" product to the Expona Domestic collection, a small wood effect collection designed to meet demand in a market area not fully covered by the company's current offering. The forthcoming year will also see the launch of the new Expona Art and Design collection with several exciting designs. This is the eighth incarnation of Expona and the collection is, in my opinion, the most highly regarded in Europe.

With the substantial development of this business over the last few years we are now completing a project to establish warehousing facilities for the next phase of growth. A purpose built warehouse of 18,000 sqm has been designed and is being built and will be available for occupation in early autumn of the new financial year. This will bring together into one facility a service currently using three buildings.

I would also note that Eberhard Lotz, Group Board Director, has been nominated honorary President of the FEB, the German flooring manufacturers' trade body, a significant achievement given Germany is Europe's largest market for vinyl flooring.

Polyflor Pacific - encompassing Australia and New Zealand

As we approach our 56th year in distribution, although originally as a manufacturer, we can be sure these markets are significant and robust.

The larger of these businesses, Polyflor Australia faced difficult conditions but still managed to increase its volume of flooring sold although this was noticeably made up of lower value product. Given the 14% increase in the preceding year, this was an acceptable performance. Turnover was around 5% lower than the comparative period.

Last year was supported by the government programme of investment in schools (known as the "BER") and this was followed by large investment in mining projects. However, over the last 12 months the Australian economy, which is mainly a primary economy, has shown a direct correlation to the world economic environment, particularly in China. The more pessimistic world outlook has resulted in less investment this year in major mining projects and hence some retrenchment in our sales in this arena. The government are also no longer in a position to support the economy with the same level of investment that they had in the previous years.

This has had a knock on effect in the confidence of the general population and business environment which has also left investment in shop fitting and office refurbishment somewhat lower. Offsetting this we have noticed a large upswing in hotel and bar refurbishments following the Government's ban on smoking in public places.

In addition, Australia continued to have many successes with installation in Woolworths, Office Works, Ziera Shoes and Adidas as just a few of the many shop chains using Polyflor. The "Green Tag" environmental rating on the company's product puts it on most shortlists for specifications and The Alfred in Melbourne (the oldest hospital in the city) and The Cabrini in Melbourne (one of the newest) are but two examples.

New Zealand, albeit a smaller business, has progressed following a difficult period in which the economic environment has been poor for a number of years. Sales are ahead of the comparative in both volume and value terms. The business is profitable and still awaits the opportunity for refurbishment in Christchurch following the earthquakes the city has experienced over the last 2 years. This work represents a good medium term opportunity for sales albeit the timing of being able to take this opportunity is outside our control, and dependent on the cessation of aftershocks.

Riverside Flooring, based in Teesside

This is Riverside's second year in the Group and it has increased its output as the sales activities of Polyflor successfully presented the Riverside product range to most of Polyflor's customers.

The plant has achieved profitability but there are productivity gains to be made as volume increases. Sales this year were 20% ahead of last year in volume terms and with the launch of Riverside's Modena collection in July 2012 we now offer safety flooring with almost invisible slip resistance, with no compromise on the sustainability of the anti-slip performance.

The company sells almost exclusively to other James Halstead subsidiaries and we are very pleased with the progress to date and the company is still in the early stages of its potential.

Polyflor, based in Oldham and Manchester

Once again Polyflor achieved record sales, not just in the UK but also record sales to the other companies in the Group and record sales to export markets.

Just a few of the projects supplied overseas were the KSU Dental College in Saudi Arabia, the Szczecin University in Poland and the University of St Petersburg.

It has been a year of progress for Polyflor in the UK. The sales and distribution site in Oldham has focused on integrating the Riverside product range into the Polyflor portfolio for sale in the UK and worldwide whilst maintaining sales volumes of existing Polyflor ranges.

Margins were improved and profits were ahead of last year.

During the year, Polyflor opened a new distribution centre in London to consolidate customer service and was voted by contractors and architects to have the best vinyl ranges in the annual Contract Flooring Awards. It is heartening to have these awards but complacency is always a danger so we will continue our efforts with such innovations as offering the industry's latest time to order for next day deliveries, and ensuring that we not only look after our customers but those who are their customers as well.

In terms of product evolution the company has upgraded Polysafe Standard (arguably the industry bench mark) by adding polyurethane re-enforced surface coating. In addition, Polysafe have launched Hydro-Evolve specifically for wet room installations and Ecomax is a new range of very high recycled content safety flooring at a very competitive price.

Exports from Polyflor continue to show encouraging signs and just one example is our Asian sales figures which have been increasing as infrastructure spending continues. Numerous hospital projects in China have been completed during the year and many more will follow.

Phoenix Distribution (NW) Ltd

The difficulties of this business have been reported in previous years. It is a very small part of the overall business.

With continued lack of consumer confidence, demand for motorcycle helmets was low. In addition there were retailers in dire financial difficulties. Having faced a difficult first half and being a retail focused distributor facing increasing uncertainty, an orderly wind down was undertaken and the business closed.

Subsequent to this closure, the UK's largest retailer of motor cycle accessories has appointed an administrator which underlines the difficulties we faced.

Outlook

The long established strategy for success that we have followed will be continued. We focus on customer service, product development and design. Our sales teams focus on specifications, contractor and distributor satisfaction and end users. A 30m² refurbishment is as important to us as a 20,000m² Olympic venue, but take different skills to pursue. Indeed, the use of our flooring throughout the Team GB house was a proud achievement but the large number of bar, restroom and restaurant refurbishments were just as welcome around the Olympic parks.

When I note projects such as the Pascua Lama Mining camp 4,500m above sea level in the Andes where Polyflor vinyl sheet has been installed, and the Airbus HQ in Toulouse that has installed our Karndean FreeLine I remain confident that our core markets will grow and that we will continue to ensure productivity and quality are the focus.

The forthcoming year will see two or three key global range launches that will enhance our product offer and I am confident will drive our continued progress.

Mark Halstead

Chief Executive

Audited Consolidated Income Statement

for the year ended 30 June 2012

Audited Consolidated Balance Sheet

as at 30 June 2012

Audited Consolidated Cash Flow Statement

for the year ended 30 June 2012

Audited Consolidated Statement of Comprehensive Income

for the year ended 30 June 2012

NOTES

Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £30,531,000 (2011: £27,465,000) by 103,662,875 (2011: 103,856,972) shares, being the weighted average number of shares in issue throughout the year.

Diluted earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £30,531,000 (2011: £27,465,000) by 104,093,080 (2011: 104,347,570) shares, being the weighted average number of shares in issue throughout the year, adjusted for the effect of all potentially dilutive shares.