Last checked at 30 Sep 2010 07:00
30 September 2010
JAMES HALSTEAD PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS
FOR THE YEAR ENDED 30 JUNE 2010
Key Figures
| ·; | Record revenue increased to £186.4 million (2009: £169.3 million) - up 10.1% |
| ·; | Record operating profit increased to £35.9 million (2009: £32.8 million) - up 9.4% |
| ·; | Record earnings per 5p ordinary share of 49.7p (2009: 48.3p) - up 2.9% |
| ·; | Record final dividend per ordinary share proposed of 18.75 (2009: 17.0p) - up 10.3% |
| ·; | Record cash inflow from operations of £36.5 million (2009: £29.1 million) |
| ·; | Nil net gearing |
Mr Mark Halstead, Chief Executive, commenting on the results, said:
"In a year notable for budget cuts and projects being put on hold, we stuck to our longstanding focus on attention to detail, ensuring stock availability, continued product innovation and the fulfilment of the end user's requirements. This strong financial performance is a reflection of this focus."
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| James Halstead: |
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| Mark Halstead, Chief Executive |
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| Gordon Oliver, Finance Director | Telephone: 0161 767 2500 |
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| Hudson Sandler: |
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| Nick Lyon | Telephone: 020 7796 4133 |
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| Altium: |
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| Ben Thorne, Paul Chamberlain | Telephone: 020 7484 4040 |
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CHAIRMAN'S STATEMENT
It is satisfying, yet again, to announce record results.
Revenue at £186.4 million (2009: £169.3 million) is 10.1% ahead of last year. In difficult times this is a commendable achievement.
The operating profit for the year at £35.9 million (2009: £32.8 million) is 9.4% ahead but I would note that if the gain made from a one off sale of property in the 2009 comparative (of some £0.8 million) is excluded the year on year growth in operating profit is 12%.
The backdrop to the year was of general nervousness and apprehension in many markets against which our positive trading, continued product development and capital investment was welcomed by customers, distributors and specifiers. The Contract Flooring Association awarded our UK company, Polyflor, the title of "Manufacturer of the Year" and, in addition, rather than one of our ranges being selected for individual merit the Polyflor ranges in their entirety were voted "Best Vinyl Products". Though it may be a cliché, we are heartened by these awards which are voted for by our target audience - the contract flooring layers. Examples of recent projects include the Sylvia Young Theatre School in London, the Abu Dhabi Police Academy in the UAE, the new Big Brother house and the Media City in Salford.
As ever the breadth of projects across the globe was epic; from the Tashkent Hotels in Uzbekistan and the Aga Khan Academy in Mombasa, to the Zine el Abidine Ben Ali airport in Tunisia. We continue to see a broadening of the range of end markets for our portfolio of products. Healthcare and education applications of our flooring are core strengths and many nations continue to invest in infrastructure projects such as the Paarl Hospital in South Africa, the Ministry of Education Schools in Turkey, the Lovech Mathematics School in Bulgaria and the Narayan Hospitals in India. Our export performance, built upon a premier reputation, is well established after half a century of continuous trade.
We added to our tally of premiership football clubs with installations at West Bromwich Albion and Blackpool FC, as well as at several of the facilities built for the World Cup and our range of sports floors is increasing its penetration in the area of school refurbishment.
Despite market conditions the UK remains our largest market and has proven robust.
Focus on working capital and cash has remained centre stage and I can report that, even after the special dividend (of £7.8 million) which was paid in January 2010, additional capital expenditure and plant refurbishment, our year end cash stands at £33.4 million (2009: £27.6 million).
Notwithstanding record results and the 34th consecutive year of dividend growth, it was not an easy performance to achieve. Many infrastructure projects were put on hold and there was a constant upward trend in raw material prices. These cost increases were not small. The increase for plasticisers was 55% year on year and in polymers some 20%. I applaud the collective creativeness of our sourcing, manufacturing, sales and marketing personnel.
Dividend
The board proposes to increase the final dividend to 18.75p (2009: 17.0p) an increase of 10.3%. This combined with the interim dividend paid in March 2010 of 8.0p (2009: 7.25p) makes a total of 26.75p (2009: 24.25p) for the year an increase of 10.3%.
Bonus Issue
The Board, having regard to the increase in the share price over the last few 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. This company has a history of such issues having undertaken similar exercises in 2005, 1992, and 1973. I believe this can only increase the marketability of our shares.
Acknowledgements
The Directors give their thanks to our distributors and end users for continuing to support our products.
Outlook
Our plans for this year were largely met, though there were several plot twists that were not envisaged in the script of our budget. For example, in addition to the increasing raw material prices throughout the year, the latter months of the financial year suffered from the lack of certain critical raw materials which were not available in Europe at all. However, we were able to source these from other regions and the situation is returning to a more normal pattern. This noted, sterling remains relatively weak, which given the international footprint of the business, has helped our competitive edge throughout the year.
Whilst UK infrastructure expenditure may face pressure, we have confidence that our long standing strengths in the repair and refurbishment markets combined with our reputation and reliability will put us at the top of the "A list" for those projects that continue.
In conclusion, we look forward to another year of progress whilst remaining vigilant to any problems that may lie in the wings.
Geoffrey Halstead
Chairman
CHIEF EXECUTIVE'S REVIEW
We can be satisfied with the progress made in the year with a worthy trilogy to report of increased sales in our major markets, increased group profit and strong cash flow.
We have a track record of performance and though recent years have seen greater growth, in the context of the performance of the wider commercial flooring market, this was a 5 star result. It was achieved against a backdrop of low business confidence, rising raw material prices and inflationary pressures. There is no doubt it has been a tough year for commercial flooring in general.
In the UK the government sector represents a very significant part of the contract flooring market and it has been a difficult year in our home territory. Perhaps the most reliable source of UK market intelligence is the Palmer Market Research report, and from their 2010 report there is a clear view that the UK contract flooring market has seen the biggest two year fall for three decades. The magnitude of this two year drop is estimated by Palmer to be 20%. Over the same period I am pleased to note that we have seen 5% growth.
Our focus on repair and renewal, our durable products and our support of the contractor in areas of service, availability, technical back up and training are key strengths. Polyflor, as a product, has not been historically in the limelight: it is fitted on stairs, in corridors and toilet areas in most commercial buildings avoiding the glamour and attention of the expensive floor coverings in the lobby, or executive areas and this is a key strength. As budgets are trimmed Polyflor has retained its core market and we have taken market share from alternative, and more expensive, floor coverings in the front of house not just on the grounds of affordability but increasingly because of our designs. Whilst vinyl flooring has its commercial roots firmly in functional locations and its durability is incredible, the 21st century ranges are extremely attractive and do not look out of place in the Trocadero Entertainment Complex in London's Leicester Square, where "Expona" luxury vinyl has recently been installed nor indeed in the Qantas Executive Lounge at Sydney Airport and even in the Vice President of Nigeria's residence in Abuja.
The UK represents 38% of our group turnover (2009: 42%) and this year's UK turnover is 99.6% of that achieved last year. At the interim reporting stage, in the six months to December 2009, UK sales were 3.2% below the comparative period making it clear that the 6 months from January to June 2010 have seen some improvements in the market.
International revenue continues to increase, and the year on year growth of around 18% is a new record level.
Overall gross margins fell by just under 1%. The positive effects on our exports through the weakness of sterling have been offset, to a degree, by raw material prices which increased steadily throughout the financial year.
Increasingly we have focused on loyalty incentives and rebates for our customers and end users to secure ongoing business and to incentivise increased volume. Just one example has been the "Objectflor Goes Vegas" promotion that incentivised growth above predetermined targets by offering customers who were successful the reward of a trip to the USA, with 75 people making the journey in March 2010.
The taxation charge for the year was £10.1 million, being 28.2% of profit (2009: £8.1 million, 24.7%). The reason for the increase, apart from increased profits, is that the tax charge for last year had a one of benefit of £1.9 million for prior year adjustments as several open tax years were closed with rebates in our favour.
I shall review the various operations in turn in more detail.
Polyflor Ltd, the UK based operation
Sales year on year were relatively flat with 3.7% growth.
Given our focus on commercial flooring coverings with significant government sector users, this was a better performance than most observers would have expected. It seems very clear that it is a better performance than many of our competitors achieved. With less project business our strength in the refurbishment sector, which is driven by need and is less susceptible to major spending decisions, was underlined. Flooring is a very small part of the total cost of a newly built hospital or school but a very large part of the cost of the refurbishment of an old building. Whilst this might suggest that the latter type of business is more difficult we have a secure presence and there is less distraction from large volume projects tendered at marginal prices. There is no doubt the market place as a whole was reduced but we were well placed to consolidate our position and to increase our market penetration.
UK turnover was less than 1% down whilst we achieved growth in export territories of 10.5%. Our target markets are worldwide and on balance the positives more than outweighed those markets that fell. It was clear last year that we would face some difficulties. Markets such as Ireland, Italy, Scandinavia and Eastern Europe declined with sales 15-20% lower. Notwithstanding this, exports have increased overall with greater growth in Australia, China, Argentina, Spain and Singapore. In particular, there was exceptional growth in markets such as Canada (up 30%), South Africa (up 50%) and the USA (up 13%).
Even though the market backdrop was very challenging, our UK turnover had an air of disappointment as it has been many years since there has been anything other than strong growth. Factory output was maintained but the operational benefits of recent investment in productivity were frustrated by the relatively flat demand.
The new warehouse facility at Royton, acquired last year, became fully operational in January 2010 with a capacity of 4.5 million m2 of flooring and nearly four miles of roll and pallet racking. Fully customised with the latest picking and stock control systems and with an onsite samples department and modern showroom facilities, Royton is already contributing positively to our customer service.
Investment continues with a £3.8 million investment in refurbishment and upgrade of our "Polysafe" safety flooring production facility. We expect a resultant improvement in output yield early in the new financial year.
Mixing capacity of homogenous vinyl has been increased following £500,000 of investment and this should increase our productivity in the coming years.
These and other technical projects have given us improved product specification on Polysafe PUR and Supratec PUR ranges as well as an improved decorative appearance with the "Pearlazzo" range that is soon to be launched.
Automated packaging facilities have been upgraded on each of the main production lines which have streamlined our process.
Objectflor, our European organisation based in Cologne
Germany and Central European flooring markets were affected by the recession and the commercial market is widely reported as being 15-18% down. I can report that our business had sales growth upward of 19% in the year. A truly commendable achievement.
Profits showed an encouraging move upwards, though there was a degree of pricing pressure in what is a very competitive market and a decline the value of the Euro relative to other currencies which affected the margin for several months. In addition, there were new launches that involved up front marketing costs.
The launch of Expona Domestic which was pioneered in January at the "Domotex" exhibition has been critically acclaimed and these new designs will be in the collection for the next 3 years. The range has won a number of awards and the sales support and presentation package offered to customers, combined with stunning designs, made for one of the most successful launches we have had.
Playing a supporting role the Karndean collections were re-mastered with some unique new designs. These collections offer a lower budget option to the main featured "Expona" range and complement its archetype by extending our market share.
Strong direction and focus were key features of the team's performance. Among the projects were Intersport sports outlets and the "Just Fit" chain of gyms. The major German flooring magazine BTH, together with BBE (a market research firm), published its annual consumer survey and in 8 out of 16 rating points Objectflor was named in first place. In a depressed marketplace this was indicative of the confidence that customers have in our ranges.
Polyflor Pacific, encompassing Australia and New Zealand
Australia reported like for like sales growth of 14%. Whilst this country somewhat escaped the recessionary effects suffered by most developed world economies following the global banking crisis, it is nevertheless clear this was a good performance and that we achieved market share increases. There was, however, a negative effect on margins as the value of the Australian dollar fell against the US dollar affecting several ranges being sourced from suppliers in that currency. This, together with investment in sales personnel and infrastructure, had an overall negative effect on the amelioration of net profit, though it must be noted the prior year was itself a record.
New South Wales has been a major area of focus and with an extended sales team and expansion into new premises late in the financial year, we now have the service and support in place for expansion in the Sydney metropolitan area.
In summary we have stocking points and representation in Perth, Brisbane, Melbourne, Sydney and Hobart and a product offering of luxury vinyl tiles, carpet tile, screeds, adhesives and cushion vinyl all augmenting the comprehensive Polyflor collection. Our countrywide distribution makes our business the only truly national flooring distributor and the stage is set for continued growth.
New Zealand sales were static in the year in a difficult market, which was a laudable performance. Our long standing distribution of linoleum and third party sheet vinyl ended during the year. The market sentiment for "old style" products such as linoleum has consistently waned over the years and though it still had a positive attraction for some customers it is very clear that in comparison to our core sheet vinyl's environmental benefits, greater durability, ease of laying and price it was time to change. With the core Polyflor collection showing 9% growth, luxury vinyl tile 13% and underlay 40%, we believe the focus on our own brands has already started to show benefits.
There were some modest restructuring costs associated with the cessation of third party representation but stock turn has improved and working capital reduced as a result. Warehousing capacity is noticeably higher than required but manageable.
Several buying groups awarded our New Zealand business "Supplier of the Year" which confirmed our determination to focus on service in difficult market conditions. It was pleasing to note Polyflor being supplied to the major hospital project in the year (Waikato) as well as institutions such as the Fiji Institute of Technology and the King of Tonga's palace.
Polyflor Nordic comprising Polyflor Norway based in Oslo and Falck Design based in Sweden
Last year I noted that the Scandinavian region was beginning to return to growth, however the current financial year has seen a retrenchment in sales in these markets.
The global financial crisis has had a significant impact on the level of investment by the ultimate end users of our products. Our Scandinavian users of hot pressed tiles in particular are in sectors where investment over the last 12 to 18 months has been slashed across the board. This process began part way through the previous financial year, was noted in my report last year and has continued throughout 2009/10. This has had a significant negative effect on both turnover and profitability for these businesses albeit they remain profitable.
Polyflor Norway has seen sales fall by more than 10% compared to the previous year. This fall has seen Norway follow the market which has also fallen significantly, although we have increased market share. During the year we have maintained a very high level of control over discretionary overheads.
A number of competitors have cut back significantly on their direct selling resources and in some cases effectively withdrawn from the market. Polyflor Norway's key strengths are service, stock availability and working closely with its customers which means the business is well placed to further increase sales and market share as and when the recovery materialises.
Falck Design (Sweden) has also suffered significantly with the shutting off of much investment in areas such as shop fitting.
In early 2010 the company's warehousing arrangements were moved from Gothenburg to Stockholm, an area where the majority of our sales take place. Additional stocks of Polyflor product were placed here at the same time along with service facilities to allow for a cutting service. This has enabled the company to better service the day to day business for the Swedish market and as a consequence, in spite of the general market conditions, sales of sheet vinyl have increased compared to the previous year, against the overall market trend.
For both businesses the product portfolio has been enhanced in the current financial year with the addition of carpet tiles which were launched early in 2010 and are anticipated to add to growth in the forthcoming year.
In both Norway and at Falck we have detected that the levels of enquiries from customers are beginning to increase which suggests we may be emerging from the doldrums of the previous financial year, allowing the businesses to return to growth.
Projects to note in Scandinavia include Oslo's Gardermoen Airport, the Skagerak football arena and the Norwegian furniture chain, Bo Hus.
Polyflor Hong Kong, servicing Asia and the Far East
Our Asian sales show a very healthy 29% increase over last year which itself was 20% higher than in 2008. There is no doubt that the increase in the value of the US dollar has assisted our competitiveness and provided stimulus to the volume growth. There was considerable margin improvement and with overheads materially the same the bottom line result was a good one.
Mainland China continues to be the main driver of continued growth with a 59% increase in the volumes sold in this market. Major government infrastructure projects have been a feature of our success in Asia for 20 years but increasingly we are benefiting from refurbishment and day to day trade based on the stock held in the region. Increasingly we are able to win business, such as HSBC branches that were initially specified to a competitor that has no local stock.
Phoenix Distribution, the motorcycle accessories business
Turnover in this business increased by 4%. Having said this, if price increases are excluded there was a reduction in sales of around 8% which is not unexpected given the company trades in the high end leisure sector. The reduction is somewhat less than the fall off in new bike registrations (some 18%).
With the entire product ranges sold by Phoenix being imported and Sterling remaining weak margins, as reported last year, are affected. However, with the support of suppliers and sales price increases the company has continued to be profitable.
In the new financial year Phoenix will add to its portfolio with a second helmet brand aimed at price points below the unique Arai. This brand, Nolan, is very well known in the marketplace and has the kudos of Italian styling. It was previously distributed by Phoenix in the 1990s.
Mark Halstead
Chief Executive
Audited Consolidated Income Statement
for the year ended 30 June 2010
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| Year ended 30.06.10 £'000 | Year ended 30.06.09 £'000 |
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| Revenue | 186,424 | 169,263 |
| Cost of sales | (107,052) | (95,510) |
| Gross profit | 79,372 | 73,753 |
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| Selling and distribution costs | (34,190) | (31,714) |
| Administration expenses | (9,329) | (9,253) |
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| Operating profit | 35,853 | 32,786 |
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| Finance income | 3,209 | 4,154 |
| Finance cost | (3,311) | (3,943) |
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| Profit before income tax | 35,751 | 32,997 |
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| Income tax expense | (10,072) | (8,146) |
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| Profit for the period attributable to equity shareholders | 25,679 | 24,851 |
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| Earnings per ordinary share of 5p: |
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| -basic | 49.7p | 48.3p |
| -diluted | 49.6p | 48.2p |
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Audited Consolidated Balance Sheet
as at 30 June 2010
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| As at 30.06.10 £'000 | As at 30.06.09 £'000 |
| Non-current assets |
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| Property, plant and equipment | 26,120 | 26,091 |
| Intangible assets | 3,232 | 3,232 |
| Deferred tax assets | 7,837 | 6,772 |
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| 37,189 | 36,095 |
| Current assets |
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| Inventories | 35,926 | 28,424 |
| Trade and other receivables | 28,561 | 24,485 |
| Derivative financial instruments | 1,230 | 989 |
| Cash and cash equivalents | 33,364 | 27,561 |
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| 99,081 | 81,459 |
| Current liabilities |
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| Trade and other payables | 45,706 | 34,586 |
| Derivative financial instruments | 188 | 583 |
| Current income tax liabilities | 4,806 | 2,753 |
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| 50,700 | 37,922 |
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| Net current assets | 48,381 | 43,537 |
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| Non-current liabilities |
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| Retirement benefit obligations | 17,170 | 15,602 |
| Deferred tax liabilities | 992 | 992 |
| Borrowings | 200 | 200 |
| Other payables | 366 | 547 |
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| 18,728 | 17,341 |
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| Net Assets | 66,842 | 62,291 |
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| Equity |
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| Equity share capital | 2,594 | 2,574 |
| Equity share capital (B shares) | 160 | 160 |
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| 2,754 | 2,734 |
| Share premium account | 3,031 | 1,738 |
| Retained earnings | 49,997 | 47,289 |
| Other reserves | 11,060 | 10,530 |
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| Total equity attributable to shareholders of the parent | 66,842 | 62,291 |
Audited Consolidated Cash Flow Statement
for the year ended 30 June 2010
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| Year ended 30.06.10 £'000 | Year ended 30.06.09 £'000 |
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| Cash inflow from operations | 36,472 | 29,130 |
| Interest received | 537 | 918 |
| Interest paid | (111) | (185) |
| Taxation paid | (8,038) | (12,820) |
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| Cash inflow from operating activities | 28,860 | 17,043 |
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| Purchase of property, plant and equipment | (4,014) | (9,421) |
| Proceeds from disposal of property, plant and equipment | 289 | 1,433 |
| Cash outflow from investing activities | (3,725) | (7,988) |
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| Equity dividends paid | (20,674) | (11,197) |
| Shares issued | 1,313 | 30 |
| Cash outflow from financing activities | (19,361) | (11,167) |
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| Net increase /(decrease) in cash and cash equivalents | 5,774 | (2,112) |
| Effect of exchange differences | 29 | 152 |
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| Cash and cash equivalents at start of year | 27,561 | 29,521 |
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| Cash and cash equivalents at end of year | 33,364 | 27,561 |
Audited Consolidated Statement of Comprehensive Income
for the year ended 30 June 2010
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| Year ended 30.06.10 £'000 | Year ended 30.06.09 £'000
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| Profit for the year | 25,679 | 24,851 |
| Other comprehensive income (net of tax):
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| Foreign currency translation differences |
530 |
1,204 |
| Actuarial loss on the defined benefit pension scheme |
(2,314) |
(2,842) |
| Fair value movements on hedging instruments | - | 916 |
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| Other comprehensive income for the year (net of tax) | (1,784) | (722) |
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| Total comprehensive income for the year | 23,895 | 24,129 |
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| Attributable to :
Equity holders of the company | 23,895 | 24,129 |
NOTES
| 1. | The final dividend of 18.75p per ordinary share will be paid on 3 December 2010 to shareholders on the register as at 5 November 2010. The full report and accounts will be posted to shareholders on 25 October 2010.
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| 2. | The financial information in this statement does not represent the statutory accounts of the Group. Statutory accounts for the year ended 30 June 2009 have been delivered to the Registrar of Companies, carrying an unqualified audit report and no statement under section 498 (2) or (3) of the Companies Act 2006.
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| 3. | Statutory accounts for the year ended 30 June 2010 have not yet been delivered to the Registrar of Companies. They will carry an unqualified audit report and no statement under section 498 (2) or (3) of the Companies Act 2006.
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| 4. | Earnings per ordinary share |
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| 2010 | 2009 |
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| Pence per share | Pence per Share |
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| Basic earnings per ordinary share | 49.7 | 48.3 |
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| Diluted earnings per ordinary share | 49.6 | 48.2 |
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Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £25,679,000 (2009: £24,851,000) by 51,695,718 (2009: 51,481,246) 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 £25,679,000 (2009: £24,851,000) by 51,803,285 (2009: 51,601,783) shares, being the weighted average number of shares in issue throughout the year, adjusted for the effect of all potentially dilutive shares.