3rd Apr 2006 07:11
Headlam Group PLC03 April 2006 3 April 2006 Preliminary Results for the Year Ended 31 December 2005 Headlam Group plc ("Headlam"), Europe's leading floorcoverings distributor,announces its final results for the year ended 31 December 2005. Financial highlights 2005 2004 Change Revenue £486.6m £464.8m +4.7% Operating profit £41.5m £38.9m +6.7% Profit before tax £40.8m £38.5m +6.0% Basic earnings per share 33.1p 31.3p +5.8% Proposed dividend per share 18.00p 16.25p +10.8% Key points UK turnover increased by 2.4% on a like for like basis Profit before tax improved by 6.0% Substantial investment in new facilities and extended product ranges Cash flow supports investment activity Final dividend increased by 11.0% from 12.25p to 13.60p Tony Brewer, Group Chief Executive, said: "Following a successful 2005 the group has made a positive start to 2006 withlike for like sales in the UK increasing by 3.2% in the first quarter. With each of our businesses clearly focused on maximising their individual market presence, we look forward to another year of growth." Enquiries:Headlam Group plcTony Brewer, Group Chief Executive Tel: 01675 433000Stephen Wilson, Group Finance Director Chairman's Statement The group has had another successful year despite more difficult marketconditions in 2005. The group's revenue and profit for the year were anotherrecord, with improvements being achieved across all sections of the business. Revenues from the group's activities amounted to £486.6 million, an increase of4.7% on last year, and profit before tax increased by 6.0% to £40.8 million. Earnings and dividendBasic earnings per share increased by 5.8% from 31.3p to 33.1p. The board isrecommending a final dividend of 13.60p per share, an increase of 11.0% on lastyear. This increases the total dividend for the year by 10.8% from 16.25p to18.00p. If approved, the final dividend will be paid on 3 July 2006 toshareholders on the register at 9 June 2006. OperationsWe have continued with our strategy of businesses operating autonomously tomaximise market presence. We now have 46 businesses operating from 21distribution centres in the UK and whilst enjoying this individuality, all thebusinesses operate to a defined strategy and comply with consistent reportingprocedures. 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, we completed the construction of the distributionfacility in Tamworth at a cost of £5.2 million bringing the total amount invested on this facility to £13.9 million. Construction also commenced onthe new purpose built freehold facility for our Wilkies business based in Leeds.During 2005, we invested £2.0 million and a further £ 9.4 million will be expended before the site becomes operational during the autumn of 2006. The BoardI have now completed twelve years as a non-executive director of Headlam, thepast six as Chairman and the time has come for me to retire from the board whichI shall do at the conclusion of the forthcoming AGM. Graham Waldron, who has a wealth of experience in the floorcovering industry,will continue to guide the strategy of the group in an executive capacity andfollowing my retirement, be appointed Chairman. I am pleased to have welcomed in recent months Dick Peters and Mike O'Leary tothe board as non-executive directors, both of whom I expect will make positivecontributions to the future growth and development of the group. It is with much sadness that I record the death of Roger Dickens in January 2006and we send our sincere sympathy to Lainey Dickens and family. Roger was ahighly respected member of our board and we have lost a valued colleague andfriend. We shall miss him. EmployeesThe group has great strength in its management teams across the whole business.It has been a particular pleasure to see how this has developed over the twelveyears I have been a director. The group's performance reflects the commitment,dedication and efforts of our employees in providing the services given to ourcustomers. The board wishes to record its thanks to all our employees for theirhard work and continued customer service. OutlookThe group's structure and strategy of autonomous sales and marketing activitieswith common operational and financial disciplines is firmly established. Thisallows the individual businesses to optimise their relationship with suppliersand customers. With the benefit of these activities, our businesses in the UK and ContinentalEurope have made a positive start to 2006 and we believe the group is wellpositioned to achieve its objectives for the year. Trevor Larman, Chairman Chief Executive's Review We are very pleased with the performance of the group in 2005. The UK businessesproduced a particularly positive result following the significant growth in2004. These businesses were able collectively to increase sales by 2.4% on alike for like basis, in more difficult market conditions and thereforeestablished a further increase in our market share. The Continental European businesses in France, Switzerland and the Netherlandscontinue to improve their sales and profitability. UK operationsThe success of the UK businesses is established through the autonomous sales andmarketing activities of 46 businesses operating from 21 distribution facilities.The experienced managers of these businesses continually work with the world'sleading floorcovering manufacturers to develop and launch new products. We have 297 employed external sales people who position these new products withindependent flooring retailers and contractors, ensuring that our customers areat the forefront of all product innovation. These sales people subsequentlymaximise the market presence of their individual businesses and the group as awhole. It is fundamental to the group strategy and culture that whilst encouraging thissales and marketing autonomy, each of the businesses operate from an identicalIT platform and comply with standard operational and financial disciplines. The businesses are defined into four specific sectors. Regional multi-product: we have 25 businesses that operate regionally from theirdistribution facility, supplying floorcovering across all of our productcategories. These businesses increased their sales by 1.9% and contribute 68% ofUK turnover. National multi-product: Mercado through its six business identities andextensive product range was again able to improve its market position. Residential specialist: we enjoyed significant growth within the 12 businessesspecialising in middle to high price carpet products, increasing their sales by41% and now contributing 11% of UK turnover. Commercial specialist: our three businesses increased sales by 2.8% and are nowable to take full advantage of increased capacity following their relocation tothe new facility in Tamworth. CustomersOur customers, principally independent floorcovering retailers and contractors,continued to prosper. The group's ongoing growth reflects the market presence ofour active accounts which total 35,748. ProductsTotal carpet sales which represent 50% of UK turnover increased by 4%. Thisincrease was aided by the launch of 2,486 new ranges, established in ourcustomers through 626,482 point of sale items. Residential vinyl increased by6%, supported by 693 new products marketed through 167,360 displays and samples.Wood and laminate products saw a small decline in sales, however thisperformance improved during the latter part of 2005. All residential product categories including wood and laminate have seen animproving sales trend during the first three months of 2006. Sales in the contract sector which represent 26% of UK turnover, showed stronggrowth of 8%. During the second half of 2005 and the first quarter of 2006, wehave invested in additional sales people in order to enhance our market positionand subsequently accelerate our sales growth in the contract sector. InvestmentsThe new purpose built freehold distribution facility in Tamworth became fullyoperational during the year and also allowed us to move four businesses fromColeshill, therefore releasing capacity in the Coleshill distribution facility. As planned, our stock increased during the year with the enlarged capacity atTamworth and Coleshill, in addition to the extension to our facilities atThatcham and Stockport. This further demonstrates our commitment to ourcustomers to offer a comprehensive product range with stock levels to servicetheir demand. Construction is now underway for the 105,000 square feet purpose built freeholddistribution facility for Wilkies, our regional multi-product business based inLeeds. This will be completed in the autumn of this year, enabling Wilkies todevelop further its residential and commercial business in the north of England. The strong cash generation by our operations allows continued investment tostrengthen further the group's position. We have other projects at variousstages of the planning and development process, to ensure that the group remainsthe leader in European floorcovering distribution. EuropeIt is very encouraging to see our Continental European businesses in France,Switzerland and the Netherlands continue to improve their performance. This hasbeen achieved consistently over the last four years. Market conditions andbusiness development opportunities give every confidence that these businessescan continue to grow their sales and profitability over the coming years. AcquisitionsDuring 2005 we acquired the businesses of Clarendon Carpets and Gaskell WoolRich. We are currently investing in the sales and marketing of new products forboth of these businesses along with the Gaskell Wool Rich brand of Mr TomkinsonCarpets and expect to enhance their performance during 2006. We continue to evaluate other acquisition opportunities, both in the UK andContinental Europe and with a cautious approach, we would expect to furtherenlarge the number of business activities. Information TechnologyLMS, our French business with two warehouses and 20 regional facilities, wassuccessfully converted onto our common IT platform in January 2006. Thiscompletes the process that all of our businesses in the UK and ContinentalEurope now operate on the same IT system. This reflects the group policy ofallowing sales and marketing autonomy with identical operational and financialcontrols. OutlookThe first 12 weeks of 2006 have shown a positive sales trend throughout ourbusinesses in both the UK and Continental Europe. Each of our businesses are clearly focused on maximising their individual marketpresence and with the contribution from all of these initiatives, we lookforward to achieving another successful year. Tony Brewer, Group Chief Executive Financial review International Financial Reporting StandardsFollowing a change in regulations, the group is reporting its financialstatements in accordance with International Financial Reporting Standards(IFRS) as adopted by the EU. The group formerly reported its results under UK Generally Accepted Accounting Principles (UK GAAP). The results for 2005 comply with these new requirements and the accountingpolicies adopted under IFRS have been used to restate the comparativeinformation for the year ended 31 December 2004. Both the group and the company are preparing their financial statements inaccordance with IFRS for the first time and consequently both have applied IFRS 1. An explanation of how the transition to IFRS has affected the reportedfinancial performance, financial position and cash flows of the group isprovided in note 6. In addition to exempting companies from the requirement to restate comparativesfor IAS 32 and IAS 39, IFRS 1 grants certain exemptions from the fullrequirements of IFRS in the transition period. The following exemptions havebeen taken in these financial statements: Business combinations - Business combinations that occurred prior to 1 January2004 have not been restated. Properties - Both the group and the company have elected to restate the carryingvalue of freehold and long leasehold properties as at 1 January 2004 tohistorical cost. Previously, properties were stated at a combination ofhistorical cost and market value. Employee benefits - All cumulative actuarial gains and losses on defined benefitplans have been recognised in equity at 1 January 2004. Cumulative translation differences - Cumulative translation differences for allforeign operations have been set to zero at 1 January 2004. Any gains and lossesarising in the income statement on the subsequent disposal of an overseassubsidiary undertaking will only include those exchange gains or losses arisingfrom the date of transition. Share based payments - IFRS 2 - Share based payments, has been applied only togrants of equity settled share based payments made after 7 November 2002 thathad not vested by 1 January 2005. Following initial adoption, the group has taken the option not to comply with the hedge accounting requirements of IAS 39. Consequently, all movements in the fair value of the hedge are recognised immediately in the income statement, within net financing costs. A summary of the differences arising from the change to IFRS compared with thereporting basis used prior to the introduction of IFRS are shown below for theconsolidated income statement and balance sheet. Consolidated income statement for year ended 31 December 2005 2004 £000 £000 Profit before goodwill amortisation and taxation previous reporting basis 42,279 39,259Intangibles amortisation (836) (836)Retirement benefit obligation (463) 62Share based payments (196) (57)Property leases (3) (3)Additional depreciation on revalued assets 59 59 ------- -------Profit before tax - IFRS 40,840 38,484 ------- ------- Balance sheet at 31 December 2005 2004 £000 £000 Net assets - previous reporting basis 140,910 126,868Intangibles amortisation (1,672) (836)Goodwill 1,050 918Retirement benefit obligation (20,886) (17,853)Deferred taxation 7,828 6,322Revaluation reserve (6,916) (6,975)Property leases (46) (42)Dividends 15,572 13,958Cash flow hedging (13) - -------- --------Net assets - IFRS 135,827 122,360 -------- -------- Overall, the effects of the change on profit before tax have not beensignificant. For 2005, profit before goodwill amortisation and taxation, derivedon the basis used for previous reporting, reduced by £1,439,000 or 3.4%. Theequivalent adjustment for 2004 was a reduction in profit before goodwillamortisation and taxation of £775,000 or 2.0%. As with the income statement, the overall effect on net assets arising from theadoption of IFRS, has not been particularly significant. Net assets derivedfrom the previous reporting basis reduced by £5,083,000 in 2005 and £4,508,000in 2004. Trading performanceGroup revenues increased during the year by 4.7% from £464.8 million to £486.6million. Like for like improvement from the UK businesses amounted to 2.4%whilst the Continental European businesses achieved a collective like for likeincrease of 3.6% or 3.0% at constant rates of exchange. Further contributions to revenue for 2005 were made by National Carpets andKingsmead, the two businesses acquired during 2004 but registering their firstfull year results during 2005 and Clarendon and Gaskell Wool Rich acquiredduring 2005. The group's operating profit increased by 6.7% from £38.9 million to £41.5million with the UK and Continental European businesses achieving increasesbefore unallocated corporate expenses of 8.0% and 5.6% respectively. At constantrates of exchange, the increase for Continental Europe was 5.0%. Financial income and expenseThe components of financial income and expense are as follows: 2005 2004 £000 £000Financial incomeBank interest 1,329 886Other interest received 87 141Return on defined pension plan assets 2,477 2,273 ------- ------- 3,893 3,300Financial expenseBank loans, overdrafts and other financial expenses (1,503) (997)Interest on defined benefit pension plan obligation (2,987) (2,654)Finance leases (61) (89) ------- ------- (4,551) (3,740) ------- -------Net finance expense (658) (440) ------- ------- Net finance expenses excluding net expenses relating to the defined benefitpension plans increased from £59,000 to £148,000 mainly as a consequence ofincreased investment in inventory during 2005. Net finance expense relating tothe pension plans was higher during the year, rising from £381,000 to £510,000,because of the net increase in the employee benefits liability. TaxationThe effective rate of taxation reduced to 30.2% compared with 30.5% for theprevious year. The rate reflects the group's current mix of business and it isanticipated that the effective tax rate should remain at around these levels forthe foreseeable future. Employee benefitsDuring the year, the net deficit relating to the defined benefit pension plans,as measured under IAS 19 - Employee benefits, increased by £2.1 million from £18.4 million to £20.5 million. The deficit relates to the following: £000 UK plan (20,226)French retirement indemnity premium (286) -------- (20,512) -------- Whilst the UK plan asset base has benefited from the recent revival in the valueof equities, the plan liabilities have increased at a faster rate because of thedecline in bond yields. During the year, the UK plan actuary completed the triennial actuarial valuationof the UK defined benefit pension plan. The net deficit, as at 31 March 2005,amounted to £13.1 million. The principal differences between the IAS 19 deficitand the actuarial valuation are as follows: £000 Actuarial valuation (13,100)Investment returns 4,500Variation in assumptions relating to discount rates (11,700)Death in service liability (1,000)Other factors 1,074 --------IAS 19 deficit (20,226) -------- Following final determination of the valuation, the company and trustees of theUK plan discussed a number of alternatives to assist with mitigating the cost ofthe plan. However, it was decided that these alternative arrangements wouldpenalise the active members who currently represent 18% of total plan membership. The company has elected to maintain its commitment to the plan and in order todischarge the deficit, agreed to pay additional contributions. The additionalcontributions are intended to remove the deficit over 15 years, a period thatequates with the average remaining working life of active plan members andwill be subject to review every three years at the time the plan actuarycompletes the plan valuation. Additional contributions during 2005 amounted to£722,000. These additional amounts to be paid in 2006 will total £1,080,000 and contributions will increase at the rate of salary inflation thereafter. Cash flows and net fundsCash generated from operating activitiesNet cash generated from operating activities was £22.7 million, a decrease of£10.1 million compared with last year. The main reason for this decline was thenet investment in working capital in 2005 of £10.7 million compared with a netcash release from working capital in 2004 of £2.7 million. As already commented on in the Chief Executive's Review, the additional netinvestment in working capital this year was due to the inventory investmentrequired to support the additional capacity available from the new and extendedfacilities. This additional inventory investment amounted to £9.0 million. Cash flows from investing activitiesNet cash outflows from investing activities totalled £9.5 million compared with£16.8 million during 2004. The year on year reduction was attributable to lowerlevels of expenditure on acquisitions and investment in property, plant andequipment. For 2006, gross investment on property, plant and equipment isforecast to increase to approximately £15.3 million. Changes in net fundsGroup net funds remained virtually unchanged compared with 2004 at £35.5million. The financial information detailed in the preliminary statement does not constitute the company's statutory accounts for the years ended 31 December 2005or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, have been delivered to the registrar of companies. The auditors have reported on the 2004 accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2005, which are being prepared under IFRS will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course. Stephen Wilson, Group Finance Director Consolidated income statement for year ended 31 December 2005 Note 2005 2004 £000 £000 Revenue 1 486,635 464,789Cost of sales (336,570) (323,924) --------- ---------Gross profit 150,065 140,865Distribution expenses (77,507) (70,592)Administrative expenses (31,060) (31,349) --------- ---------Operating profit 1 41,498 38,924 Financial income 3,893 3,300Financial expenses (4,551) (3,740) --------- ---------Net financing costs (658) (440) --------- ---------Profit before tax 40,840 38,484Taxation (12,352) (11,738) --------- ---------Profit for the year 28,488 26,746 --------- ---------Dividend per share 3 16.25p 13.85p Earnings per shareBasic 2 33.1p 31.3p --------- ---------Diluted 2 32.8p 31.0p --------- --------- Consolidated statement of recognised income and expense for year ended 31 December 2005 2005 2004 £000 £000 Foreign exchange translation differences arising on translation of overseas operations (321) (256)Recycling of cash flow hedging reserve balances 13 Actuarial gains and losses on defined benefit pension plans (2,571) (3,748)Tax recognised on income and expenses recognised directly in equity 910 1,143 -------- --------Net expense recognised directly in equity (1,969) (2,861) Profit for the year 28,488 26,746 -------- --------Total recognised income and expense 26,519 23,885 -------- -------- Adjustments relating to adoption of IAS 32 and IAS 39 from 1 January 2005 Cash flow hedging reserve (13) Consolidated balance sheet at 31 December 2005 Note 2005 2004 £000 £000Non-current assetsProperty, plant and equipment 74,640 71,754Intangible assets 13,210 14,046Deferred tax assets 8,199 8,167 ------- ------- 96,049 93,967 ------- -------Current assetsInventories 91,160 79,692Other financial assets 17,673 19,276Trade and other receivables 66,602 66,274Cash and cash equivalents 36,193 37,747 ------- ------- 211,628 202,989Non-current assets classified as held for sale 3,471 203 ------- -------Total assets 1 311,148 297,159 ------- -------Current liabilitiesBank overdraft - (278)Other interest-bearing loans and borrowings (471) (1,125)Trade and other payables (141,529) (142,028)Employee benefits (1,080) (722)Tax payable (11,139) (11,053) --------- --------- (154,219) (155,206) --------- ---------Non-current liabilitiesOther interest-bearing loans and borrowings (267) (738)Employee benefits (19,432) (17,643)Deferred tax liabilities (1,403) (1,212) --------- --------- (21,102) (19,593) --------- ---------Total liabilities 1 (175,321) (174,799) --------- ---------Net assets 135,827 122,360 --------- ---------Equity attributable to equity holders of theparentShare capital 4 4,326 4,306Share premium 4 52,280 51,731Translation reserve 4 (577) (256)Retained earnings 4 79,798 66,579 --------- ---------Total equity 135,827 122,360 --------- --------- Consolidated cash flow statement for year ended 31 December 2005 Note 2005 2004 £000 £000Cash flows from operating activitiesProfit before tax for the year 40,840 38,484Adjustments for:Depreciation, amortisation and impairment 5,133 4,313Financial income (3,893) (3,300)Financial expense 4,551 3,740(Profit)/loss on sale of property, plant and equipment (228) 11Equity settled share-based payment expenses 196 57 -------- --------Operating profit before changes in working capital andprovisions 46,599 43,305Decrease/(increase) in trade and other receivables 1,699 (8,118)(Increase) in inventories (11,335) (3,753)(Decrease)/increase in trade and other payables (1,085) 14,588 -------- --------Cash generated from the operations 35,878 46,022Interest paid (1,456) (1,093)Tax paid (10,994) (12,082)Additional contributions to defined benefit pension plan (722) - -------- --------Net cash from operating activities 22,706 32,847 -------- --------Cash flows from investing activitiesProceeds from sale of property, plant and equipment 598 282Interest received 1,335 1,055Acquisition of subsidiary, net of cash acquired (426) (3,779)Acquisition of property, plant and equipment (10,965) (14,374) -------- --------Net cash from investing activities (9,458) (16,816) -------- --------Cash flows from financing activitiesProceeds from the issue of share capital 570 2,763Repayment of borrowings (662) (1,121)Payment of finance lease liabilities (438) (498)Dividends paid (13,976) (11,795) -------- --------Net cash from financing activities (14,506) (10,651) -------- --------Net (decrease)/increase in cash and cash equivalents (1,258) 5,380Cash and cash equivalents at 1 January 37,468 32,119Effect of exchange rate fluctuations on cash held (17) (31) -------- --------Cash and cash equivalents at 31 December 5 36,193 37,468 -------- -------- Notes 1. Segment reportingThe group's activities are wholly aligned to the sales, marketing, supply anddistribution of floorcovering products. These activities are carried out frombusiness centres located in both the UK and Continental Europe. The group'sinternal management structure and financial reporting systems treat the UK andContinental Europe as two separate segments because of the difference in rewardarising from these two markets and this forms the basis for the geographicalpresentation of the primary segment information given below. UK Continental Europe Total 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000RevenueExternalsales 415,038 395,696 71,597 69,093 486,635 464,789 ------- ------- ------- ------- ------- -------ResultSegmentresult 41,905 38,784 1,815 1,719 43,720 40,503 ------- ------- ------- ------- Unallocatedcorporateexpenses (2,222) (1,579) -------- --------Operatingprofit 41,498 38,924 Financialincome 3,893 3,300Financialexpense (4,551) (3,740)Taxation (12,352) (11,738) -------- --------Profit forthe year 28,488 26,746 -------- --------OtherinformationSegment assets includingintersegmentassets 274,303 263,171 28,769 29,229 303,072 292,400 Intersegment assets (3,229) (3,424) (365) (187) (3,594) (3,611) --------- --------- -------- -------- --------- ---------Segmentassets 271,074 259,747 28,404 29,042 299,478 288,789Unallocatedassets 11,670 8,370 --------- ---------Consolidatedtotal assets 311,148 297,159 Segmentliabilitiesincludinginter segmentliabilities (127,623) (127,560) (18,238) (20,219) (145,861) (147,779)Intersegment liabilities 365 187 3,229 3,424 3,594 3,611 --------- --------- -------- -------- --------- ---------Segmentliabilities (127,258) (127,373) (15,009) (16,795) (142,267) (144,168)Unallocatedliabilities (33,054) (30,631) --------- ---------Consolidatedtotalliabilities (175,321) (174,799) --------- --------- Capitalexpenditure 10,462 13,907 503 467 10,965 14,374Depreciation 3,451 2,937 631 599 4,082 3,536Amortisation 836 836 - - 836 836Assetimpairment 215 - - - 215 - Each segment is a continuing operation. Unallocated assets comprise deferred tax assets and assets held for resale.Unallocated liabilities comprise income tax, deferred tax liabilities andemployee benefits. Management has access to information that provides details on sales and grossmargin by principal product group and across the four principal business sectorswhich comprise Regional multi-product, National multi-product, Residentialspecialist and Commercial specialist. However, this information is not provided as a secondary segment since the group's operations are not managed by referenceto these sub classifications and the presentation would require an arbitraryallocation of overheads, assets and liabilities undermining the presentations validity and usefulness. 2. Earnings per shareThe calculation of the basic and diluted earnings per share is based on thefollowing data: 2005 2004 £000 £000EarningsEarnings for the purposes of basic earnings pershare being profit attributable to equity holders ofthe parent 28,488 26,746 ------ ------Earnings for the purposes of diluted earnings pershare 28,488 26,746 ------ ------ Number NumberNumber of sharesIssued ordinary shares at 1 January 86,111,437 84,265,339Effect of shares issued during the period 86,272 1,087,250 ---------- ----------Weighted average number of ordinary shares for thepurposes of basic earnings per share 86,197,709 85,352,589 ---------- ----------Effect of diluted potential ordinary shares:Weighted average number of ordinary shares at31 December 86,197,709 85,352,589Share options 2,407,331 1,534,175Number of shares that would have been issued at fairvalue (1,813,602) (737,011) ----------- -----------Weighted average number of ordinary shares for thepurposes of diluted earnings per share 86,791,438 86,149,753 ----------- ----------- 3. Dividends 2005 2004 £000 £000 Interim dividend for 2004 of 4.0p paid 3 January 2005 3,421 -Final dividend for 2004 of 12.25p paid 4 July 2005 10,555 - Interim dividend for 2003 of 3.6p paid 5 January 2004 - 3,030Final dividend for 2003 of 10.25p paid 1 July 2004 - 8,765 ------ ------ 13,976 11,795 ------ ------ The final proposed dividend of 13.6p per share (2004: 12.25p per share) will notbe provided for until authorised by shareholders at the forthcoming AGM. The interim dividend of 4.4p per share (2004: 4.0p) is provided for when the dividend is paid. The total value of dividends proposed but not recognisedat 31 December 2005 is £15,582,000 (2004: £13,976,000). 4. Capital and reserves Share Share Translation Cash flow Retained Total capital premium reserve hedging earnings equity reserve £000 £000 £000 £000 £000 £000 Balance at 1January 2004 4,213 49,061 - - 55,024 108,298Totalrecognisedincome andexpense - - (256) - 24,141 23,885Equity-settledshare basedpaymenttransactions,net of tax - - - - 57 57Share optionsexercised byemployees 93 2,670 - - - 2,763Deferred taxon Schedule 23share options(pre Nov 2002) - - - - (848) (848)Dividends - - - - (11,795) (11,795) ------ ------ ------ ---- -------- --------Balance at 31December 2004 4,306 51,731 (256) - 66,579 122,360 ------ ------ ------ ---- -------- --------Balance at 1January 2005 4,306 51,731 (256) - 66,579 122,360Adjustment inrespect ofadoption ofIAS 32 and IAS39 on 1January, netof tax - - - (13) - (13)Totalrecognisedincome andexpense - - (321) 13 26,827 26,519Equity-settledshare basedpaymenttransactions,net of tax - - - - 196 196Share optionsexercised byemployees 20 549 - - - 569Deferred taxon Schedule 23share options(pre Nov 2002) - - - - 172 172 Dividends - - - - (13,976) (13,976) ------ ------ ------ ---- -------- --------Balance at 31December 2005 4,326 52,280 (577) - 79,798 135,827 ------ ------ ------ ---- -------- -------- 5. Analysis of changes in net funds At At 1 January Cash Translation 31 December 2005 flows differences 2005 £000 £000 £000 £000 Cash at bank and in hand 37,747 (1,527) (27) 36,193Bank overdraft (279) 269 10 - ------- ------- ----- ------- 37,468 (1,258) (17) 36,193Debt due after one year (687) 662 25 -Finance leases and similarhire purchase contracts (1,176) 438 - (738) ------- ------- ----- ------- 35,605 (158) 8 35,455 ------- ------- ----- ------- 6. Explanation of transition to IFRSAs stated previously, these are the group's first consolidated financialstatements prepared in accordance with IFRS. In preparing its opening IFRS balance sheet, the group has adjusted amountsreported previously in financial statements prepared in accordance with its previous basis of accounting under UK GAAP. An explanation of how the transitionfrom UK GAAP to IFRS has affected the group's financial performance and positionis set out in the following tables and the notes that accompany the tables. Reconciliation of profit for year ended 31 December 2004 Effect of UK transition to GAAP IFRS IFRS £000 £000 £000 Revenue 464,789 - 464,789Cost of sales (323,924) - (323,924) --------- ----- ---------Gross profit 140,865 - 140,865Net operating expenses (102,465) 524 (101,941) --------- ----- ---------Operating profit 38,400 524 38,924 --------- ----- ---------Net financing costs (59) (381) (440) --------- ----- ---------Profit before tax 38,341 143 38,484Taxation (11,975) 237 (11,738) --------- ----- ---------Profit for the year 26,366 380 26,746 --------- ----- --------- Reconciliation of equity 1 January 2004 31 December 2004 Effect of Effect of UK transition UK transition GAAP to IFRS IFRS GAAP to IFRS IFRS £000 £000 £000 £000 £000 £000Non-currentassetsProperty,plant andequipment 64,236 (2,612) 61,624 75,256 (3,502) 71,754Intangibleassets 13,210 - 13,210 13,964 82 14,046Deferred taxassets 1,226 6,232 7,458 1,390 6,777 8,167 ------- ------ -------- ------- ------- -------- 78,672 3,620 82,292 90,610 3,357 93,967 ------- ------ -------- ------- ------- --------Current assetsInventories 73,889 - 73,889 79,692 - 79,692Otherfinancialassets 14,202 260 14,462 19,019 257 19,276Trade andotherreceivables 58,675 - 58,675 66,274 - 66,274Cash and cashequivalents 32,336 - 32,336 37,747 - 37,747Assetsclassified asheld for sale 1,043 (892) 151 3,975 (3,772) 203 --------- ------- --------- --------- -------- -------- 180,145 (632) 179,513 206,707 (3,515) 203,192 --------- ------- --------- --------- -------- --------Total assets 258,817 2,988 261,805 297,317 (158) 297,159 --------- ------- --------- --------- -------- --------CurrentliabilitiesShort termborrowings (2,045) - (2,045) (278) - (278)Currentportion oflong term borrowings (499) - (499) (1,125) - (1,125)Trade andother payables (135,210) 8,627 (126,583) (156,045) 14,017 (142,028)Employeebenefits - - - - (722) (722)Tax payable (9,625) - (9,625) (11,053) - (11,053) --------- ------ --------- --------- -------- --------- (147,379) 8,627 (138,752) (168,501) 13,295 (155,206) --------- ------ --------- --------- -------- --------- Non-currentliabilitiesOtherinterest-bearingloans andborrowings (1,175) - (1,175) (738) - (738)Employeebenefits (375) (14,166) (14,541) (451) (17,192) (17,643)Deferred taxliabilities (1,628) (442) (2,070) (758) (454) (1,212) --------- -------- --------- --------- -------- --------- (3,178) (14,608) (17,786) (1,947) (17,646) (19,593) --------- -------- --------- --------- -------- ---------Totalliabilities (150,557) (5,981) (156,538) (170,448) (4,351) (174,799) --------- -------- --------- --------- -------- ---------Net assets 108,260 (2,993) 105,267) 126,869 (4,509) 122,360 --------- -------- --------- --------- -------- ---------Equityattributableto equityholders of theparentShare capital 4,213 - 4,213 4,306 - 4,306Share premium 49,061 - 49,061 51,731 - 51,731Revaluationreserve 2,844 (2,844) - 6,615 (6,615) -Retainedearnings 52,142 (149) 51,993 64,217 2,106 66,323 -------- -------- --------- --------- -------- ---------Total equity 108,260 (2,993) 105,267 126,869 (4,509) 122,360 -------- -------- --------- --------- -------- --------- Notes Removal of property revaluationAs a result of opting to restate land and buildings back to their depreciatedhistorical cost, property reported as a non-current asset has reduced becausethe revaluation surplus has been eliminated and depreciation charged in thetwelve month periods has also decreased. Goodwill amortisationGoodwill represents the excess of the cost of acquisition over the fair value ofthe identifiable net assets of the acquired subsidiary undertakings at the dateof acquisition and is included on the balance sheet as a non-current asset.Under UK GAAP, goodwill was amortised on a straight line basis over a period of20 years representing the estimated useful economic life. This changes underIFRS as goodwill is not amortised but tested at least annually for impairment. Goodwill is then held in the balance sheet at cost less any accumulated impairment losses. Goodwill amortised in the twelve month periods under UK GAAP has therefore been reversed and the amount reported under non-current assets is now subject to an annual impairment review. Non-current assets held for saleUnder IFRS, a non-current asset held for sale must, at the balance sheet date, be available for immediate sale in its present condition and the sale must be highly probable and expected to be completed within one year. As a result, someof the properties that were previously shown as assets held for resale withincurrent assets under UK GAAP have been reclassified to property, plant and equipment under non-current assets. These properties had a net book value of £623,000 at 1 January 2004 and £4,302,000 at 31 December 2004. IFRS 5 has beenadopted early and hence reflected at 31 December 2004. Share based paymentsUnder UK GAAP, the expense of granting employee share options was the differencebetween the exercise price and market price at the date the option was granted. Under IFRS, the expense is the fair value of the option, as spread over the vesting period and adjusted for non-market conditions. The fair value of the share options granted after 7 November 2002 is calculated using an appropriate pricing model and the expense is recognised in the consolidated income statement. The charge for the group has been calculated using the Black-Scholes optionpricing model. In accordance with the transitional provisions of IFRS 2, noincome statement expense has been recorded in respect of grants of share optionsmade prior to 7 November 2002. There is no impact to net assets or distributablereserves as a result of this adjustment which is credited directly to equity. Retirement benefit obligationsUnder UK GAAP, the cost of the group's defined benefit plans was reported byreference to SSAP 24 and further disclosures were provided in accordance withFRS 17. These two standards have now been replaced by IAS 19. The group has taken the option to early adopt the amendment to IAS 19 which allows all actuarial differences to be recognised directly in the consolidatedstatement of recognised gains and losses. Cumulative actuarial gains and losses have been recognised within equity as at 1 January 2004 in respect of the group's defined benefit plans as per the transitional exemption allowed by IFRS 1. This gives rise to a defined benefit plan liability of £14,541,000 at 1 January 2004 and a liability of £18,365,000 at 31 December 2004. Deferred taxUnder UK GAAP, with the exception of permanent differences, deferred tax shouldbe recognised on all timing differences that have originated but not reversed bythe balance sheet date. Non-reversing permanent differences fall outside thescope of deferred tax. Under IFRS, deferred tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying value in the financial statements. Deferred tax is recognisedin the consolidated income statement except if it relates to an item that isrecognised directly in equity, in which case it is dealt with in the consolidated statement of changes in equity. The group's transitional balance sheet at 1 January 2004 includes additionaldeferred tax assets and liabilities amounting to £6,232,000 and £442,000respectively. The deferred tax assets principally relate to the tax provided onthe defined benefit plan liability and the need to provide for the tax on thegains arising on share based payments. The additional deferred tax liabilitiesoccur because of depreciating properties, acquired as part of a businesscombination, which are not eligible for tax relief. The consolidated income statement for the twelve month period ended 31 December2004 contains an additional deferred tax credit of £237,000 because of the taxeffects associated with the amortisation of intangibles assets and therecognition of additional costs relating to the defined benefit plans. Events after balance sheet dateUnder UK GAAP, equity dividends were recognised in the year to which theyrelated and were an adjustable post balance sheet event. Under IFRS, final equity dividends proposed by the board are recognised onlywhen approved by the shareholders at the AGM. Interim dividends are recognisedwhen paid or when they are approved by the shareholders. Dividends are shown asa movement in equity and not on the face of the consolidated income statement. Property leasesUnder IFRS, property leases should be divided into two components with land andbuildings considered as separate elements. Land is normally classified as anoperating lease unless title passes to the lessee at the end of the lease term.The building is classified as an operating or finance lease by applyingclassification criteria in IAS 17 - Leases. At 1 January 2004, one property has been reclassified. Land amounting to£300,000 has been treated as an operating lease and has been transferred fromproperty, plant and equipment under non-current assets and shown within otherfinancial assets in current assets. The value attributed to the land is beingamortised over the life of the lease term and recognised in the consolidatedincome statement and, in the twelve month period to 31 December 2004, gives riseto an additional charge of £3,000. Cash flow atatementThere are no material differences between the cash flow statement presented under IFRS and the cash flow statement presented under UK GAAP. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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