14th Mar 2005 07:00
Headlam Group PLC14 March 2005 14 March 2005 Preliminary Results for the Year Ended 31 December 2004 Headlam Group plc ("Headlam"), the UK's leading floorcoverings distributor,announces its final results for the year ended 31 December 2004. Financial highlights 2004 2003 Change Turnover £464.8m £412.3m +12.7% Operating profit before goodwill amortisation £39.3m £33.5m +17.3% Profit before taxation £38.3m £32.6m +17.6% Adjusted earnings per share 32.0p 27.3p +17.2% Dividend per share 16.25p 13.85p +17.3% Key points • UK turnover increased by 9.2% on a like for like basis • Operating profit before goodwill amortisation improved by 17.3% • Strong cash flow from operations up 27.7% to £46.0 million • Continued investment in freehold facilities • Final dividend increased by 19.5% from 10.25p to 12.25p Tony Brewer, Headlam's Group Chief Executive, said: "The group is clearly focused on continuing to develop its floorcoveringdistribution activities, both through organic growth and careful acquisition ofappropriate businesses. Our businesses in the UK and Continental Europe have made a solid start to 2005,in line with our internal objectives and we therefore look forward to anotheryear of growth." Enquiries: Headlam Group plcTony Brewer, Group Chief Executive Tel: 01675 433000Stephen Wilson, Group Finance Director Chairman's Statement It is pleasing to report that the turnover and profitability achieved by thegroup during 2004 represents another record performance. Turnover from the group's activities was £464.8 million, an increase of 12.7% onlast year, and profit before tax increased by 17.6% to £38.3 million. Earnings and dividendAdjusted earnings per share increased by 17.2% from 27.3p to 32.0p. The board isrecommending a final dividend of 12.25p per share, an increase of 19.5% on lastyear. This increases the total dividend for the year by 17.3% from 13.85p to16.25p. If approved, the final dividend will be paid on 4 July 2005 toshareholders on the register at 10 June 2005. OperationsWe have continued with our strategy of businesses operating autonomously tomaximise market presence. We now have 47 businesses operating from 21distribution centres in the UK and whilst enjoying this individuality, all thebusinesses operate to a clearly defined strategy and comply with precisereporting procedures. These businesses have clearly focused market objectives across a broad range offloorcovering products and are supported by comprehensive stockholdings. Thisensures that we have strong long-term relationships with the leadingfloorcovering manufacturers and most importantly, offer the independentfloorcovering retailer and contractor a huge breadth of product, including thelatest trends and innovations. During the year, the group invested £8.5 million on the construction of a newpurpose built freehold distribution centre in Tamworth and extensions to twoexisting centres in Thatcham and Stockport. These projects will complete during2005 at a further cost of £6.1 million. The group's policy of continuedinvestment, provides additional capacity and improvement in operating efficiencyenabling our businesses to develop and expand their services from cost effectivefacilities. EmployeesThe key feature of our autonomous structure is the experience and floorcoveringknowledge of the managers of the individual business activities. They along withthe loyal staff in the 21 distribution centres throughout the UK and the threebusinesses in Continental Europe are the key to the success and future of thegroup. We thank all our employees for their endeavour and support. OutlookThe first 10 weeks of 2005 have shown a positive trend throughout our businessoperations in the UK and Continental Europe. The continual focus on working with suppliers to deliver our customers' needsthrough the latest floorcovering products leaves us well placed to achieveanother successful year. Chief Executive's Review 2004 proved to be a particularly strong year for our UK businesses, with salesgrowing by 9.2% on a like for like basis. Positive trading throughout our geographic locations and across our various business sectors, in conjunction with an increase in each floorcovering product category, contributed to thissuccess. Our businesses in Continental Europe continued their improvement and achievedfurther growth in sales and profit in 2004. Market presenceFollowing the acquisition of National Carpets and Kingsmead Carpets in 2004 andmore recently, Clarendon Carpets in January 2005, we now have 47 businessesoperating from 21 distribution centres in the UK. The experienced management ofthese individual businesses work with the world's leading floorcoveringmanufacturers in order to maintain a constant flow of new qualities and acontinual enlargement of their product portfolio. The market presence of these businesses is promoted through 282 employedexternal sales people, working in teams dedicated to each individual business.These sales teams ensure that our customers, the independent floorcoveringretailer and contractor, remain competitive and are continually supplied withthe latest product innovations. As part of our programme of ongoing businessdevelopment, we placed over 720,000 point of sale items during the year with ourcustomers, whose active accounts now number 33,990. The introduction of IPAQ hand-held computers to support our sales teams hasproved particularly successful. This has enhanced both their efficiency and theservice they are able to offer to their customers. Furthermore, ourbusiness-to-business website continues to grow in popularity, with now 3,131registered users. This facility enables our customers to access stock files andplace orders 24 hours a day, seven days a week. These activities furtherdemonstrate our strong support to the UK independent floorcovering retailer andcontractor. ProductThe introduction of 2,265 new carpet products during the year contributed to the8.3% sales growth of this product sector and we launched 465 new residentialvinyl products achieving a particularly positive year with sales growth of16.4%. Our growth in laminate and wood products continued and sales of ourcarpet underlay category also increased. The commercial sector also enjoyed apositive performance, with sales improving by 8.4%. AcquisitionsDuring 2004 we acquired the business of National Carpets, which establishes abase and the opportunity to further develop business in the UK DIY sector. Theacquisition of Kingsmead Carpets in the autumn of 2004 enlarged our presence inhigh quality woollen products and the acquisition in early 2005 of ClarendonCarpets, further complemented our presence in this premium sector. We continue to evaluate potential acquisitions that enhance our market presenceand can be relocated into our existing facilities. UK operationsThe UK businesses are defined into four specific sectors; regional multiproduct, national multi product, residential specialist and commercialspecialist. Our 27 regional multi product businesses were able to grow their sales by 8.0%and now account for 71% of our UK business. They market and distribute acombination of manufacturers' brands and own label product in the residentialsector. In the commercial sector, we operate principally with the leadingmanufacturers' brands. Mercado, the national multi product distribution business benefited from itsfirst full year operating from our new distribution centre in Leeds andincreased sales by 15.2%. This business now accounts for 15% of our UK turnover. The eleven residential specialist businesses, established over the last threeyears and concentrating principally on the sale of higher quality carpets, morethan doubled their business and now account for 9% of UK turnover. Thebusinesses operating in this sector have enlarged our target market in an areathat has not historically been supplied by the traditional floorcoveringdistributor. Sales in our five specialist commercial businesses were stable during the yearand we look forward to this collection of businesses taking advantage of the newdistribution centre in Tamworth that will be operational in April 2005. Whilst encouraging the autonomy of these individual businesses to maximise theirrelationship with suppliers and customers, subsequently enlarging their marketpresence, they also enjoy the benefit of a common IT platform streamlining theiroperations and deriving optimum efficiency, whilst complying with strictfinancial procedures. InvestmentsWe have during 2004 and into 2005, continued to improve the infrastructure ofour UK operations. The extension at Florco located in Thatcham is now fullyoperational giving the two businesses operating from this facility 40% extracapacity enabling further development in the south of England. Similarly, the extension at Hadfields in Stockport, creating an extra 50%capacity, is reaching completion and this will allow the three businessesoperating from this facility to further increase their market presence in thenorth of England. Our new 158,000 square feet freehold distribution centre at Tamworth will beoperational in April 2005 and will allow the five businesses currently operatingfrom leasehold premises in Tamworth to significantly enlarge their marketopportunities. In addition, we will move a number of businesses from ourColeshill facility to Tamworth during the course of this year, releasing furthercapacity for the retained businesses in Coleshill. We have exchanged contracts and subject to planning permission, we will completethe purchase of five acres of land in Leeds. This will allow us to re-house theWilkies business and it is intended that this new site will be operational inthe spring of 2006. It is our intention to continue investment in the infrastructure of the businessand re-house other operations within the group in order to increase efficiencyand capacity and further enhance our market position. Continental EuropeOur Continental European businesses in France, Switzerland and the Netherlands,maintained their positive performance and it is particularly pleasing to achievean 11.6% increase in operating profit. We look forward to these businessescontinuing to increase market share and subsequently improve their profitperformance during the course of this year. OutlookThe group is clearly focused on continuing to develop its floorcoveringdistribution activities, both through organic growth and careful acquisition ofappropriate businesses. Our businesses in the UK and Continental Europe have made a solid start to 2005,in line with our internal objectives and we therefore look forward to anotheryear of growth. Financial review Trading performanceGroup turnover during the year increased by 12.7% from £412.3 million to £464.8million. Turnover from continuing operations contributed £450.6 million,increasing by 9.3% on the previous year, with National Carpets, acquired duringApril 2004, and Kingsmead, acquired during September 2004, adding a further£14.2 million. Turnover from the UK businesses accounted for 85.1% of group turnover with thebalance generated in Continental Europe. Group operating profit, before goodwill amortisation, increased by 17.3% from£33.5 million to £39.3 million. Operating profit from continuing operations,before goodwill amortisation, increased by 16.4% to £39.0 million and the twoacquisitions contributed £0.3 million. Operating profit, before goodwill amortisation, from the UK businesses amountedto 95.6% of the group's operating profit with the balance arising in ContinentalEurope. Currency translation and transactions do not significantly affect the group'strading performance. Interest and taxationNet interest payable reduced to £59,000, compared with £86,000 for 2003, due tostrong operating cash flows during the final quarter of the year. The effective rate of taxation reduced to 31.2% compared with 32.1% for theprevious year giving rise to a charge of £12.0 million. The rate is a reflectionof the group's current mix of business. It is anticipated that the effective taxrate will remain at this year's level for the foreseeable future. Cash flows and net fundsNet cash flow from operating activitiesNet cash inflow from operating activities increased to £46.0 million during 2004compared with £36.0 million in 2003. The additional £10.0 million cash inflowwas principally derived from an increase in operating profit of £5.7 million anda positive contribution from the movement in working capital amounting to £3.5million. Capital expenditureNet expenditure during 2004 amounted to £14.1 million compared with £17.0million for the previous year. As already mentioned in the Chairman's Statementand Chief Executive's Review, £8.5 million was invested on the new facility inTamworth and extensions to the existing facilities in Thatcham and Stockport.During the year, the group acquired the MCD Glasgow facility for £2.7 millionand the facility in Swansea for £0.7 million. Both properties were formerlyoccupied on a short lease basis. Investment in replacement and maintenanceexpenditure amounted to £1.8 million. Forecast gross expenditure for 2005, including £1.4 million for maintenance, isexpected to be approximately £10.6 million. Included within this amount is £4.7million that will be incurred on completing the Tamworth facility and £1.4million to finalise the two extensions. Subject to planning, it is anticipatedthat £3.3 million will be invested on Wilkies facility during 2005. Theinvestment in 2005 reflects the board's continuing commitment to relocatingoperations to new facilities or extending existing facilities where there aresound operational and financial reasons to support the investment. The businesses operate from 21 principal distribution centres in the UK, twomain centres in France and one centre each in the Netherlands and Switzerland.At 31 December 2004, the group held a freehold or long leasehold interest in 16of the 21 centres in the UK with the remaining centres occupied on a shortlease. The centres in France and Switzerland are freehold and the Dutch centreis a short lease. Property valuationThe group's freehold and long leasehold land property portfolio, excludingproperties that are in the course of construction, were valued in accordancewith FRS 15 as at 31 December 2004. The resultant revaluation surplus of £3.7million has been included in tangible fixed assets and the revaluation reserve.The properties were valued on an existing use basis. AcquisitionsThe group acquired National Carpets on 30 April 2004 for a consideration of£4.037 million of which £3.047 million was paid on completion with the balance,£0.6 million, to be paid in two equal amounts twelve and twenty four monthsafter completion. The business operates autonomously from its distributioncentre in Rochdale. On 17 September 2004, the group acquired the business of Kingsmead Carpets for acash consideration of £0.35 million. The business was subsequently relocated tothe distribution centre located at Coleshill where it continues to operateautonomously. On 27 January 2005, the group acquired the intellectual property rights ofClarendon Carpets for £20,000. This business now operates from Coleshill. Net fundsThe net cash inflow for the year, before financing, amounted to £4.2 million.The net cash inflow from financing, £1.1 million, being the cash received fromthe issue of shares to current and former employees under share options schemesless the outflows relating to the repayment of debt and hire purchase, gave riseto an increase in cash balances of £5.4 million. The group's net funds increasedfrom £28.6 million to £35.6 million. Capital and treasuryShareholder returns and dividendsAdjusted earnings per share for the year, calculated on profit after taxationbut before goodwill amortisation, increased by 17.2% from 27.3p to 32.0p. The board is proposing a final dividend of 12.25p bringing the total dividendfor the year to 16.25p representing an increase of 17.3% over 2003. The increasein dividend is consistent with the board's policy of increasing dividends inline with earnings growth. Dividend cover remains at 1.9. Total shareholder return, being the increase in the share price plus reinvesteddividends, has increased by 37.8% during the last five years compared to the FTSE Mid 250 average of 29.4%. Over the last three years, it has increased by77.0% compared with the FTSE Mid 250 average of 29.7% and during the last year,28.9% compared with the FTSE Mid 250 average of 23.4%. Treasury managementFinancial instrumentsThe group's financial instruments, other than derivatives, comprise cash,borrowings and various items that arise directly from its operations such astrade debtors and trade creditors. The main purpose of these financial instruments is to raise finance for and support the group's trading operations. Derivative transactions relate to forward foreign currency contracts used tomanage the currency risks arising from the group's selling and buyingactivities. The main risks arising from the group's financial instruments are interest raterisk, liquidity risk and foreign currency risk although in the context of thegroup's overall trading position, none of these risks would significantly affectthe results. The board reviews and agrees policies for managing each of these risks and thesepolicies have remained unchanged throughout the year. Furthermore, trading infinancial instruments is not permitted. Interest rate riskThe group is exposed to interest rate fluctuations on its borrowings and cashdeposits. It borrows principally in sterling, euros and Swiss francs at bothfixed and floating interest rates and places cash on deposit in sterling andeuros at floating rates. During the year, with the exception of a fixed interestterm facility amounting to £0.7 million denominated in Swiss francs, the groupmaintained its policy of borrowing at floating rates. Liquidity riskThe board's liquidity policy ensures that sufficient facilities are available tofund the group's trading and investment requirements. These facilities remainuncommitted however, because the group's strong cash flow and average neutralnet funding mean that flexible facilities are more cost effective. Foreign currency riskThe group is exposed to movements in currency exchange rates arising fromtransaction currency cash flows and the translation of the results and netassets of overseas subsidiary operations. These exposures however, have not hada significant affect on the results and financial position of the group overall. At 31 December 2004, 11.0% of the group's operating net assets related tooverseas subsidiary operations. Given their size, no arrangements are in placeto hedge the net assets and cash flows of these operations other than thenatural hedging arising from local borrowings. International Financial Reporting StandardsFrom 1 January 2005, the group will prepare its consolidated financialstatements in accordance with International Financial Reporting Standards("IFRS"). The group has undertaken a conversion project to identify and evaluatethe implications of IFRS on the consolidated financial statements and to assessthe system and process changes required. The accounting policies which are likely to be impacted by IFRS are summarisedas follows: Goodwill - annual amortisation will be replaced by an impairment review andintangible assets arising on acquisitions occurring after 31 March 2004 will beseparately valued. Pensions - the deficit on the defined benefit pension scheme will be recognisedon the balance sheet net of deferred taxation. Accordingly, the annual results will not bear the cost of funding of historical deficits. Freehold property - an option exists to state property at its current revaluedamount or to restate to its original cost less accumulated depreciation. The IFRS conversion project has identified that the transition to the newreporting requirements can be achieved with minimal amendment to existingsystems and processes. The first financial information to be reported by thegroup in accordance with IFRS will be included in the half year statementcovering the six months to 30 June 2005. Consolidated profit and loss accountfor the year ended 31 December 2004 2004 2003 £'000 £'000TurnoverContinuing operations 450,558 412,295Acquisitions 14,231 - -------- -------- 464,789 412,295 Cost of sales (323,924) (289,315) -------- --------Gross profit 140,865 122,980Net operating expenses (102,465) (90,301) -------- --------Operating profitContinuing operations 38,184 32,679Acquisitions 216 - -------- -------- 38,400 32,679 -------- --------Operating profit before goodwill amortisation 39,318 33,514Goodwill amortisation (918) (835) -------- -------- Profit on ordinary activities before interest 38,400 32,679Net interest payable and other similar items (59) (86) -------- --------Profit on ordinary activities before taxation 38,341 32,593Taxation on profit on ordinary activities (11,975) (10,464) -------- --------Profit for the financial period 26,366 22,129Dividends paid and proposed on equity shares (14,095) (11,657) -------- --------Retained profit for the financial period 12,271 10,472 ======== ========Earnings per shareBasic 30.9p 26.3p ======== ========Diluted 30.6p 25.9p ======== ========Adjusted 32.0p 27.3p ======== ======== Consolidated balance sheetAt 31 December 2004 2004 2003 £'000 £'000Fixed assetsIntangible assets 13,964 13,210Tangible assets 75,256 64,236 -------- -------- 89,220 77,446 -------- --------Current assetsStocks 79,692 73,889 -------- --------Debtors: amounts falling due within one year 88,400 72,419Debtors: amounts falling due after more than one year 1,500 1,500 -------- --------Total debtors 89,900 73,919Cash at bank and in hand 37,747 32,336 -------- -------- 207,339 180,144 Creditors: amounts falling due within one year (168,502) (147,378) -------- --------Net current assets 38,837 32,766 -------- --------Total assets less current liabilities 128,057 110,212 Creditors: amounts falling due after more than oneyear (738) (1,175) Provisions for liabilities and charges (451) (777) -------- --------Net assets 126,868 108,260 ======== ========Capital and reservesCalled up share capital 4,306 4,213Share premium account 51,731 49,061Revaluation reserve 6,615 2,844Profit and loss account 64,216 52,142 -------- --------Equity shareholders' funds 126,868 108,260 ======== ======== Consolidated cash flow statementfor the year ended 31 December 2004 2004 2003 £'000 £'000 Net cash inflow from operating activities 46,022 36,046 Returns on investments and servicing of finance (38) (105) Taxation (12,082) (8,750) Capital expenditure (14,092) (16,952) Acquisitions (3,779) (1,189) Equity dividends paid (11,795) (10,550) -------- --------Cash inflow/(outflow) before financing 4,236 (1,500) -------- --------FinancingIssue of equity share capital 2,763 166Repayment of amounts borrowed (1,121) (591)Capital element of finance leases and similar hirepurchase contract payments (498) (935) -------- --------Cash inflow/(outflow) from financing 1,144 (1,360) -------- -------- Increase/(decrease) in cash in the year 5,380 (2,860) ======== ======== Reconciliation of net cash flow to movements in net cash 2004 2003 £'000 £'000 Increase/(decrease) in cash in period 5,380 (2,860)Cash outflow from reduction in debt 1,619 1,526 -------- --------Change in debt resulting from cash flows 6,999 (1,334)Translation difference (10) 75 -------- --------Movement in net cash in the year 6,989 (1,259)Net cash at 1 January 28,616 29,875 -------- --------Net cash at 31 December 35,605 28,616 ======== ======== Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2004 2004 2003 £'000 £'000 Profit for the financial year 26,366 22,129Currency translation differences on foreign currency netinvestments (including taxation charge of £406,000) (256) 212Surplus arising on revaluation of fixed assets 3,830 - -------- --------Total recognised gains and losses for the financial year 29,940 22,341 ======== ======== Note of consolidated historical cost profits and lossesfor the year ended 31 December 2004 2004 2003 £'000 £'000 Reported profit on ordinary activities before taxation 38,341 32,593Difference between an historical cost depreciation chargeand the actual depreciation charge calculated on therevalued amount 59 59Realisation of property revaluation gains - 1,139 -------- --------Historical cost profit on ordinary activities beforetaxation 38,400 33,791 -------- --------Historical cost profit for the year retained after taxationand dividends 12,330 11,630 ======== ======== Reconciliation of movements in consolidated shareholders' fundsfor the year ended 31 December 2004 2004 2003 £'000 £'000 Profit for the financial year 26,366 22,129 Dividends on equity shares (14,095) (11,657) -------- -------- Retained profit for the financial year 12,271 10,472 Equity share capital issued 2,763 166 Other recognised gains relating to the year 3,574 212 -------- -------- Net addition to shareholders' funds 18,608 10,850 Shareholders' funds at 1 January 108,260 97,410 -------- -------- Shareholders' funds at 31 December 126,868 108,260 ======== ======== Segmental analysis Turnover Profit before Operating net interest and assets taxation 2004 2003 2004 2003 2004 2003 £'000 £'000 £'000 £'000 £'000 £'000By activityFloorcoveringsContinuing operations 450,558 412,295 40,258 34,464 114,214 99,653Acquisitions 14,231 - 300 - 251 - -------- -------- -------- -------- -------- -------- 464,789 412,295 40,558 34,464 114,465 99,653 ======== ======== ======== ========Central operations (1,240) (950)Less: goodwillamortisation (918) (835) -------- -------- 38,400 32,679 ======== ========By origin UK 395,696 345,300 37,599 31,974 101,851 87,949Continental Europe 69,093 66,995 1,719 1,540 12,614 11,704 -------- -------- -------- -------- -------- -------- 464,789 412,295 39,318 33,514 114,465 99,653 ======== ======== ======== ========Less: goodwillamortisation (918) (835) -------- -------- 38,400 32,679 ======== ======== Earnings per share The calculation of earnings per share is based on the average number of ordinaryshares in issue during the year of 85,352,589 (2003: 84,203,287). The weightedaverage number of ordinary shares used for the diluted earnings per sharecalculation is 86,149,753 (2003: 85,572,233). The calculation of profit for thefinancial year used for the adjusted earnings per share is shown below. 2004 2003 £'000 £'000 Operating profit before goodwill amortisation 39,318 33,514Net interest payable (59) (86) -------- --------Profit on ordinary activities before taxation 39,259 33,428Taxation on profit on ordinary activities (11,975) (10,464) -------- --------Adjusted profit for the financial year 27,284 22,964 ======== ======== Reconciliation of group operating profit to net cash inflow from operatingactivities 2004 2003 £'000 £'000 Profit on ordinary activities before interest 38,400 32,679Depreciation of tangible fixed assets 3,536 2,947Goodwill amortisation 918 835Loss/(profit) on sale of fixed tangible assets 11 (26)Movement in stocks (3,753) (5,619)Movement in debtors (8,121) (3,667)Movement in creditors 15,031 8,897 -------- --------Net cash inflow from operating activities 46,022 36,046 ======== ======== Gross cash flows 2004 2003 £'000 £'000Returns on investments and servicing of financeBank interest received 1,055 881Bank and loan interest (1,004) (864)Interest payable on finance leases and similar hirepurchase contracts (89) (122) -------- -------- (38) (105) ======== ========Capital expenditurePurchase of tangible fixed assets (14,374) (22,886)Sale of tangible fixed assets 131 406Sale of assets held for resale 151 5,528 -------- -------- (14,092) (16,952) ======== ========AcquisitionsNet cash outflow from purchase of businesses (3,848) (522)Net cash/(overdraft) acquired with businesses 69 (667) -------- -------- (3,779) (1,189) ======== ========FinancingIssue of ordinary share capital 2,763 166Repayment of amounts borrowed (1,121) (591)Capital element of finance leases and similar hirepurchase contract payments (498) (935) -------- -------- 1,144 (1,360) ======== ======== Analysis of changes in net funds At Cash Translation At 1 January flows differences 31 December 2004 2004 £'000 £'000 £'000 £'000 Cash at bank and in hand 32,336 5,430 (19) 37,747Bank overdraft (217) (50) (12) (279) -------- -------- -------- -------- 32,119 5,380 (31) 37,468Debt due within one year (1,829) 1,121 21 (687)Finance leases and similar hirepurchase contracts (1,674) 498 - (1,176) -------- -------- -------- -------- 28,616 6,999 (10) 35,605 ======== ======== ======== ======== The financial information set out in the financial statements and notes abovedoes not constitute the Company's statutory accounts for the years ended 31December 2004 or 2003. The financial information for 2003 is derived from thestatutory accounts for 2003 which have been delivered to the registrar ofcompanies. The auditors have reported on the 2003 accounts; their report wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. The statutory accounts for 2004 will be finalised on the basis of the financialinformation presented by the directors in this preliminary announcement and willbe delivered to the registrar of companies following the company's annualgeneral meeting. The financial statements for the year ended 31 December 2004 will be posted toshareholders during April 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Headlam