Last checked at 29 Sep 2009 07:00
29 September 2009
JAMES HALSTEAD PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS
FOR THE YEAR ENDED 30 JUNE 2009
Key Figures
| Record revenue increased to £169.3 million (2008: £158.7 million) - up 6.6 % | |
| Record pre tax profit increased to £33.0 million (2008: £29.9 million) - up 10.5% | |
| Record final dividend per ordinary share proposed of 17.0p (2008: 14.50p) - up 17.2% | |
| Record earnings per 5p ordinary share of 48.3p (2008: 39.7p) - up 21.7% | |
| Record cash inflow from operations of £29.1 million (2008: £27.3 million) | |
| Nil net gearing |
Mr Mark Halstead, Chief Executive, commenting on the results, said:
"In some of the most testing market conditions we have increased sales, maintained margins and improved our profit. I look forward to a record final dividend in December. Despite paying record dividends in the year to June 2009, together with significant capital expenditure and tax payments we remain ungeared and in a sound financial position for the forthcoming year."
| Enquiries: | |
| James Halstead: | |
| Mark Halstead, Chief Executive | |
| Gordon Oliver, Finance Director | Telephone: 0161 767 2500 |
| Hudson Sandler: | |
| Nick Lyon | Telephone: 020 7796 4133 |
| Altium: | |
| Ben Thorne | Telephone: 020 7484 4024 |
CHAIRMAN`S STATEMENT
Once again I am able to report a record set of results to shareholders. Revenue at £169.3 million (2008: £158.7 million) is 6.6% ahead of last year and our profit before taxation is £33.0 million (2008: £29.9 million) representing an increase of 10.5%.
There was an increase in operating profit to £32.8 million (2008: £29.1 million) representing an increase of 12.7%.
The year has been a challenging one with significant uncertainties in the earlier part of the second half of the year as the banking crisis extended into the wider economy. It is clear that many of our markets slowed down for a period as credit restrictions and deferred spending became a feature of the economic climate. Our management teams focused on cost control and credit appraisal, in addition to maximising sales opportunities in what seemed to be unprecedented conditions.
Notable projects in our global marketplace included significant work in the Bayern Munich Allianz Arena, the new Commonwealth Games Stadium in Mumbai, the Globe Inn (frequented by Robert Burns and home of the first Burns Supper), and IKEA restaurants in Germany, Austria and Belgium.
Our cash reserves continued to be a major advantage in the turmoil caused by the loss of faith in the banking community.
Dividend
The Board proposes to increase the final dividend to 17.0p (2008: 14.50p) an increase of 17.2%. This, combined with the interim paid in May 2009 of 7.25p (2008: 6.25p), brings the annual dividend to 24.25p (2008: 20.75p) an increase of 16.9%. Having regard to these annual results and our healthy cash balances the Board feel this level is prudent.
Acknowledgements
I extend to our customers, our employees and management the congratulations and thanks of the Board.
Outlook
Though major projects and new builds are always welcome, our business model is founded on the supply of resilient floorcoverings into refurbishment and repair work in the commercial sector. We have always found in previous economic downturns that the refurbishment market has been robust and, in these difficult times, the focus on value for money brings resilient vinyl floorcoverings increasingly to the forefront of the short list of suppliers prepared by specifiers. Our strength in day to day business serves us well.
The general economic climate is fragile and we remain cautious as to the outlook but I can report that trading since the year end continues to hold up well and we look forward to progressing our worldwide business in the coming year.
CHIEF EXECUTIVE'S REVIEW
The results for the year are creditable with our Group once again achieving record turnover and profits. The growth in sales and profit has been more modest than in previous years but this has been achieved against a very challenging backdrop with adverse conditions in many of our key markets.
In terms of geographical revenue most markets reported record results which in summary were: UK - up 5.2%; Europe & Scandinavia - up 11.2%; Australia and Asia - up 2.7%; and other territories (principally the Americas, the Middle East and Africa) showing a less than 1% decline.
Operating profit is at a record £32.8 million (2008: £29.1 million). Of this increase £0.8 million represents the profit on disposal of premises in Brisbane. These were premises occupied by our former subsidiary Driza Bone, which we had leased out for the last decade.
There has been a slowdown in the rate of growth in the year to June 2009. It was clear that for a period of three to four months during the middle part of the financial year there was a global contraction of credit and, as the world's financial institutions faced crisis, many companies found bank facilities restricted and projects were consequently deferred. Given the enhancements to productivity and capacity in recent years, with sales growth slowed, we have had the time to use our production facilities for further product development.
I would note a significant fall in finance income on bank deposits to £0.87 million (2008: £1.28 million) as interest rates fell considerably during the year. The interest rates prevailing are, however, beyond our control and returns in the coming year will most likely be lower still. The tax charge for the year is 24.7% (2008: 31.8%) as the result of several open tax years being cleared leading to a downward revision of our tax charge. This represents a one off benefit rather than any fundamental change in our tax profile, but nevertheless tax refunds are always welcome.
Polyflor, the UK based operation
New product launches and renewal of our ranges are ever important and during the year we established Polysafe Wood FX Acoustic, a pioneering world-first in combining a wood effect floor with sustainable slip resistance, which also achieves a 19db noise rating reduction. The revamp of the Expona Design collection in March is also noteworthy. With the designs being well received and high performance of the product established in the market, sales have continued to expand.
In January we acquired a 200,000ft² warehouse facility in Oldham and our fragmented finished goods warehousing (5 facilities in three locations) is now being centralised to offer better customer service and more efficient operations.
There has been significant investment in plant and equipment with Polytred (the safety flooring line) upgraded for faster running speed and to facilitate new products that will be placed in the market very shortly.
Environmental performance continues to be a key selling feature and Polyflor has a unique offer in the UK market with 13 ranges of homogeneous and safety vinyl flooring that achieve a BRE (British Research Establishment) A+ environmental rating. This is a key factor in supplying to public bodies in particular, especially in areas such as health and education.
Our recycling initiatives continue to expand, not only further enhancing our environmental credentials but offering substitution of expensive virgin raw material. Just one example of this is that Polyflor is a founder member of the Recofloor Vinyl Take Back Scheme, which is designed to facilitate the collection of waste flooring. Around 200 collection sites are now registered around the country, from distribution outlets to large projects and commercial waste transfer stations and individual contractors. Waste flooring is returned to our factory in Manchester where it is recycled into new flooring, or where this is not possible, it is down-cycled into products such as curb stones or traffic calming devices.
Recycling has become an increasingly important part of product selection and project management; vinyl lends itself to recycling better than any other flooring material and Polyflor are at the vanguard of encouraging, facilitating and actually undertaking this recycling.
On the site in Manchester we have set up our own in house recycling facility to significantly reduce the level of waste going to landfill. Wood, cardboard, paper, liquid waste and plastics are all segregated for recycling, wherever possible. In addition, the average recycled content of products we manufacture is 25% and rising.
Packaging of our products has been completely updated to offer better protection in transit and reduce quality problems whilst at the same time replacing the previous packaging material with paper that is more readily recyclable or biodegradable.
Investment in the reduction of energy consumption continues and there has been a 36% reduction in energy consumption in manufacturing at our Manchester facility over the last 8 years. In addition, there has been a 13,000 tonne reduction in carbon emissions which is independently audited by the Carbon Trust and we are working with UMIST to measure and analyse our overall carbon footprint to better target further reductions.
Polyflor Pacific, encompassing Australia and New Zealand
In the two main territories of this region the general economic climates were very different. The New Zealand economy has continued to be in recession with very low business confidence and market conditions not seen for a generation. Australia, in contrast, has been fairly solid and generally the economy has been robust.
Looking first at the far larger territory, Australia, sales exceeded the prior year by 4.3%, with all major product groups achieving the level of the previous record year. Sales in all the federal states showed growth. The slow down in the resources sector had an effect on turnover but our business achieved growth in other market sectors that offset the down-turn in mining and ensured the momentum of the last five years was maintained.
Polyflor Australia made positive moves in the healthcare market, supplying several large aged care and hospital developments with the core homogenous range. In addition, the company was very active in the education sector as the Federal stimulus package BER (Building Education Revolution) led to many schools fitting Polyflor vinyl sheet, sports flooring and Polysafe. This is anticipated to continue into the forthcoming year.
Inevitably, as the value of the Australian currency fell against the US Dollar imported product was more costly and there was a degree of margin erosion in percentage terms, although this was offset by extra sales volume.
In contrast, the New Zealand business struggled, with the recession hitting the flooring industry in a manner not seen in the rest of our Group. In part this is explained by the most noticeable feature of New Zealand's poor performance (relative to other subsidiaries) being in the area of domestic product, with cushion vinyl, domestic carpet and underlay sales below last year. These three product categories were responsible for the majority of the shortfall in sales compared to the previous year.
Commercial resilient sales were 98% of the previous year which was encouraging in the light of prevailing conditions. With the mix of sales biased to commercial products, margins improved but despite reductions in overheads a small loss ensued. We are in no doubt that we maintained market share and efforts have been refocused for the new year. Whilst any loss is of concern we have traded successfully in New Zealand for 40 years and are confident of improvements.
Objectflor Art & Design and Karndean International, our German based businesses
Our European businesses recorded another fine year with turnover 3.6% ahead of the prior year. The core German market increased sales 7.7% although there were small falls in Belgium, Austria and the Netherlands. The general market conditions during the year, particularly the second half, were difficult with market statistics suggesting a general downturn in the flooring sector. Against this back drop it was a good year.
Clearly the recessionary conditions put prices under pressure and although there was a fall in the gross margin, close control of overheads meant that net operating profit as a percentage improved.
The re-launch of the Expona Design collection in January was well received and combined with a new Expona Commercial collection invigorated demand during the second half. Customer service and product availability remained key to our success.
Towards the year end our new Expona Clic range was launched, being our market leading Expona luxury vinyl tile (LVT) married to a high density fibreboard quick fitting "click" system. In addition, work has commenced on updating both the Expona Domestic collection of LVT and the Performa resilient sheet collection.
During the previous year, a site adjacent to our distribution facility in Cologne was acquired and a new facility constructed to augment existing warehousing. This has now been completed and was opened in January 2009, increasing our warehousing by 200%. As well as eliminating the use of third party space this expansion allows for growth and enabled us to build a bespoke training facility. During the last year over a thousand people attended training courses with us, broadening the core skill base at installer level.
Objectflor has also commenced its largest ever programme of presentations of the Halstead portfolio to architects. To date there have been six events throughout Germany with an average attendance at each of 150. The combination of focus on specifiers and installers in conjunction with strong relationships with local distributors has been a key reason for our continued expansion, notwithstanding the economic climate.
Polyflor Nordic, comprising Polyflor Norway based in Oslo and Falck Design based in Gothenberg
Our previous financial year was largely one of consolidation, but the current year has seen the Scandinavian region return to growth.
Polyflor Norway has seen its market position strengthen. The business has grown its market share in the period for all of the sheet products that are in its portfolio. In difficult market conditions sales of Polyflor products have increased both in real terms and in proportionate terms relative to the market.
Falck Design has continued to increase sales of Polyflor-produced product. Projects using Polyflor product include a number of hospitals in Stockholm, the University Hospital in Linkopping and the Horda Stans chain of shops. Falck compete in homogeneous flooring against product manufactured locally by two competitors. Its market share remains small but continues to grow. Arrangements are being made in the first quarter of the next financial year to better service the market with greater locally held stocks and a second warehouse facility in Stockholm. Not only will this enable quicker customer response which, it is anticipated, will facilitate further growth, but in addition it should lower distribution costs as a percentage of sales.
The launch of the Artigo range of products mentioned in my report last year, has been particularly successful in both the Swedish and Norwegian businesses. These products have been very well received into the market place and are being used in a wide range of applications including schools, hospitals and retail outlets.
With the current world financial climate continuing to deter investment in the retail sector, the market for luxury vinyl tiles has been relatively depressed in the year. This has had an impact on both businesses, in particular Falck Design which is a market leader in this sector. The new Kudos and Expona ranges have supported sales, but competition from new entrants into the market continues to put pressure on margins.
Both businesses have continued a strategy of looking for new products to complement the portfolio. For example, a range of carpets manufactured by Dura has been introduced in the latter part of this financial year.
With the actions being taken to underpin the growth obtained so far and easing market conditions in the latter half of the current financial year, it is anticipated that the growth experienced for these businesses will continue.
Polyflor Hong Kong , servicing our Asian and Far Eastern markets
Sales in this region were 20% ahead of the previous year, which is most encouraging. Our sales in some of the markets that we serve were below the previous year but this was more than offset by the increased the market penetration we have seen in mainland China. In addition, our sales into South Korea have progressed well.
The breadth of our business in terms of application continues with our core strength in hospitals and healthcare remaining the firm bedrock for the business. Our brand has continued to have success in shipping applications and transport in general.
As ever, availability of stock is crucial to distribution markets and our policy of holding stock locally has continued to support our business at the grass roots whilst key projects across the region continue to be won by the sales team.
In addition to the role of our Hong Kong office in sales activities it is also supporting our sourcing activities in respect of flooring and this is expected to continue.
Phoenix Distribution (NW) Ltd, distributors of motorcycle accessories
The motorcycle market, in general, faced a tough year, being exposed to the retail market within the leisure sector. Nevertheless, the company reported increased turnover of both the Arai range of motorcycle and car helmets as well as its other brands (Abus locks, Kappa luggage and Yoshimura exhausts). These premier brands have all fared well and seemed to avoid the recessionary effects of the high street in a market where the headline for the year was a 14% decline in motorbike registrations.
There was, however, a material increase in cost of product due to the strengthening value of the Japanese Yen relative to Sterling, which inevitably affected margins. Forward hedging, stock holdings, price increases and supplier support mitigated some of the effects but inevitably there was a significant effect on gross margins which translated into a reduced level of profit in the company.
As a consequence, cost control and containment of overheads was a key focus but throughout Phoenix has maintained its dealer support, race support and sales focus. We could not allow this sudden change in product cost to affect the key areas that drive success over time and we were given tangible support in this from our long term suppliers. Examples of this were Arai backed riders winning every race at the North West 200 (attended by 125,000 spectators) and five out of six races at the Isle of Man TT.
Phoenix launched into the market the RX7-GP the first major helmet to achieve European (EC22.05) and the new USA (Snell SA2010) accreditation. In addition, Arai launched the GP6-RC which complies with the latest FIA regulations, and is now worn by 13 drivers on the Formula 1 grid.
Diversification into flooring distribution was instigated from the start of the financial year and has been successful. Initially focusing on direct sale to key retailers initially of an "Italian styled" range of luxury vinyl tile, we have already broadened the offering with new products. Phoenix is also focusing on niche sales such as workshop floors and specialist portable floorcoverings for retail display and exhibition areas initially in the motorcycle sector.
Investment and the future outlook
Underlying demand remains positive, and with the contacts and relationships built up around the world over two generations, we have continued to invest and indeed have committed to increased investment in the coming months. Among the major projects we have undertaken or are in process of finalising are:
| the new build of expanded warehousing in Cologne; | |
| the purchase and major refurbishment of expanded and centralised warehousing in Oldham; | |
| brand new automated packaging for our each of our major production lines; | |
| new Banbury mixers on two of Polyflor's major homogeneous production lines; | |
| updated coating plant for directional flooring; | |
| brand new coating plant for safety flooring products. |
The one year enhancement to tax allowances, announced by the government, is a welcome enhancement to cash flow, but has no profit implication due to the effects of deferred tax. Obviously, this level of capital spend adds to the ongoing overhead but the returns over the next few years should more than outweigh this.
Consistent high service levels and reputation for quality of product remain crucial to our brand and set us apart from our competitors and I can only be positive that we can continue to move forward as business confidence returns.
FINANCIAL DIRECTOR'S REPORT
These accounts have been prepared, as usual, in accordance with the fundamental principles of going concern, matching of costs and revenues, consistency and prudence, as the basis for our accounting policies.
Profit before tax at £33.0 million (2008: £29.9 million) shows an increase of 10.5%. The gross margin increased by around half of one percent. The reasons for the increase were several and to a degree offset each other. In our favour were exchange rates on international sales, some reduced raw material prices, and lower energy costs whilst against this were adverse exchange rates on purchase of finished goods, adverse prices on raw material purchases from Europe, and competitive pressure. On balance it would be accurate to say that overseas earnings were the key to increased margin, though the increase was not large.
Some of the key statistics are:
| Group turnover of £169.3 million (2008: £158.7 million) - up 6.6% of which around 4% is the effect of favourable foreign exchange translation changes; | |
| Underlying earnings per share at 48.3p (2008: 39.7p) - up 21.7%; | |
| Trade debtors at the year end were £22.2 million (2008: £21.0 million) - up 5.5%; | |
| Cash (net of borrowings) at the year end of £27.4 million (2008: £29.3 million) - down 6.7% but after £9.4 million of fixed asset additions (2008: £3.4 million), and after £11.2 million of dividends paid (2008: £8.9 million). |
As a manufacturer faced with a difficult period, as the financial markets neared collapse, we have managed working capital with some vigilance and with inventories reduced to £28.4 million (2008: £30.6 million) we have not raised stock levels, as is so often the case when demand slackens.
The Chief Executive has noted the effect of lowered interest rates on finance income. The figures he quotes are not immediately apparent from the face of the Consolidated Income Statement as finance income and finance costs are distorted by the formulaic insertion of the academically based charges dictated by International Accounting Standard 19. With the drastic lowering of interest paid on deposits we have instigated a plan to offer key suppliers earlier payment terms in exchange for a discount. With the wide disparity between the commercial deposit rates available and the UK banks' view of corporate overdraft rates this may well offset some of the reductions.
Defined Benefit Pension Scheme
The full accounts will detail the IAS 19 analysis of the scheme and whilst this seems to be the main focus of attention for analysts and shareholders, it gives only a snapshot of the scheme and the creditor in the balance sheet is very fluid. It is sensitive to gilt yields and other assumptions and is at best a rough guide to the ongoing liability.
Our IAS 19 deficit, excluding tax offset is £15.6 million (2008: £12.5 million), though the benefit of using this as a measure is debatable. The pensioner protection fund deficit is not dissimilar in quantum and is also broadly at the level of our last actuarial valuation. These, however, fall well short of a 'buy-out' figure.
As actuaries and accountants continue to experiment with accounting for the long term cost of such funds, with the worst of short term assumptions dressed up as prudence, there is one measure of a scheme that uses best estimates of reality over time - the transfer value. Based on transfer values our deficit is around 40% lower than shown by the other measures.
It is important to appreciate that whilst the scheme is closed to new members and future accrual rates for benefits have been reduced, the liabilities of the scheme are not capped, but will continue to be determined not just by investment returns, but also by longevity of pensioners. Consequently, the defined benefit scheme remains an area of risk and uncertainty for the Group.
Audited Consolidated Income Statement
for the year ended 30 June 2009
| Year ended 30.06.09 £'000 | Year ended 30.06.08 £'000 | ||
| Revenue | 169,263 | 158,740 | |
| Cost of sales | (95,510) | (90,110) | |
| Gross profit | 73,753 | 68,630 | |
| Selling and distribution expenses | (31,714) | (29,798) | |
| Administration expenses | (9,253) | (9,744) | |
| Operating profit | 32,786 | 29,088 | |
| Finance income | 4,154 | 4,290 | |
| Finance cost | (3,943) | (3,521) | |
| Profit before income tax | 32,997 | 29,857 | |
| Income tax expense | (8,146) | (9,502) | |
| Profit for the period attributable to equity shareholders | 24,851 | 20,355 | |
| Earnings per ordinary share of 5p: | |||
| -basic | 48.3p | 39.7p | |
| -diluted | 48.2p | 39.5p | |
Audited Consolidated Balance Sheet
as at 30 June 2009
| As at 30.06.09 £'000 | As at 30.06.08 £'000 | ||
| Non-current assets | |||
| Property, plant and equipment | 26,091 | 19,671 | |
| Intangible assets | 3,232 | 3,232 | |
| Deferred tax assets | 6,772 | 5,737 | |
| 36,095 | 28,640 | ||
| Current assets | |||
| Inventories | 28,424 | 30,641 | |
| Trade and other receivables | 24,485 | 23,034 | |
| Derivative financial instruments | 989 | 149 | |
| Cash and cash equivalents | 27,561 | 29,521 | |
| 81,459 | 83,345 | ||
| Current liabilities | |||
| Trade and other payables | 34,586 | 40,064 | |
| Derivative financial instruments | 583 | 1,153 | |
| Current income tax liabilities | 2,753 | 7,414 | |
| 37,922 | 48,631 | ||
| Net current assets | 43,537 | 34,714 | |
| Non-current liabilities | |||
| Retirement benefit obligations | 15,602 | 12,505 | |
| Deferred tax liabilities | 992 | 992 | |
| Borrowings | 200 | 200 | |
| Other payables | 547 | 350 | |
| 17,341 | 14,047 | ||
| Net Assets | 62,291 | 49,307 | |
| Equity | |||
| Equity share capital | 2,574 | 2,574 | |
| Equity share capital (B shares) | 160 | 160 | |
| 2,734 | 2,734 | ||
| Share premium account | 1,738 | 1,708 | |
| Retained earnings | 47,289 | 36,455 | |
| Other reserves | 10,530 | 8,410 | |
| Total equity attributable to shareholders of the parent | 62,291 | 49,307 |
Audited Consolidated Cash Flow Statement
for the year ended 30 June 2009
| Year ended 30.06.09 £'000 | Year ended 30.06.08 £'000 | ||
| Cash inflow from operations | 29,130 | 27,298 | |
| Interest received | 918 | 1,261 | |
| Interest paid | (185) | (243) | |
| Taxation paid | (12,820) | (8,081) | |
| Cash inflow from operating activities | 17,043 | 20,235 | |
| Purchase of property, plant and equipment | (9,421) | (3,370) | |
| Proceeds from disposal of property, plant and equipment | 1,433 | 205 | |
| Cash outflow from investing activities | (7,988) | (3,165) | |
| Equity dividends paid | (11,197) | (8,946) | |
| Shares issued | 30 | 924 | |
| Interest paid | - | (117) | |
| Repayment of debt | - | (2,653) | |
| Cash outflow from financing activities | (11,167) | (10,792) | |
| Net (decrease) / increase in cash and cash equivalents | (2,112) | 6,278 | |
| Effect of exchange differences | 152 | 487 | |
| Cash and cash equivalents at start of period | 29,521 | 22,756 | |
| Cash and cash equivalents at end of period | 27,561 | 29,521 |
Audited Consolidated Statement of Recognised Income and Expense
for the year ended 30 June 2009
| Year ended 30.06.09 £'000 | Year ended 30.06.08 £'000 | ||
| Net of tax | |||
| Foreign currency translation differences | 1,204 | 2,053 | |
| Actuarial loss on the pension scheme | (2,842) | (4,683) | |
| Fair value movements on hedging instruments | 916 | (169) | |
| Net expense recognised directly in equity | (722) | (2,799) | |
| Profit for the year | 24,851 | 20,355 | |
| Total recognised income for the period | 24,129 | 17,556 | |
| Attributable to: | |||
| Equity holders of the company | 24,129 | 17,556 | |
NOTES
| 1. | The final dividend of 17.0p per ordinary share will be paid on 4 December 2009 to shareholders on the register as at 6 November 2009. The full report and accounts will be posted to shareholders on 26 October 2009. |
| 2. | The financial information in this statement does not represent the statutory accounts of the Group. Statutory accounts for the year ended 30 June 2008 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. |
| 3. | Statutory accounts for the year ended 30 June 2009 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. |
| 4. | Earnings per ordinary share |
| 2009 | 2008 | ||
| Pence per share | Pence per share | ||
| Basic earnings per ordinary share | 48.3 | 39.7 | |
| Diluted earnings per ordinary share | 48.2 | 39.5 | |
Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £24,851,000 (2008: £20,355,000) by 51,481,246 (2008: 51,305,038) shares, being the weighted average number of shares in issue throughout the year.
Diluted earning per share is calculated by dividing the profit for the year attributable to equity shareholders of £24,851,000 (2008: £20,355,000) by 51,601,783 (2008: 51,519,840) shares, being the weighted average number of shares in issue throughout the year, adjusted for the effect of all potentially dilutive shares.