5th Sep 2006 07:19
Headlam Group PLC05 September 2006 5 September 2006 Interim financial results for the six month period ended 30 June 2006 Headlam Group plc ("Headlam"), Europe's leading floorcovering distributor,announces its interim results for the six months ended 30 June 2006. Financial highlights 2006 2005 Change £'000 £'000 Sales 245,672 232,336 +5.7% Profit from operations 19,743 18,501 +6.7% Profit before tax 19,543 18,205 +7.4% Basic earnings per share 15.6p 14.7p +6.1% Proposed dividend per share 4.85p 4.40p +10.2% Key points Sales from UK operations increased by 3.6% on a like for like basis Profit before tax increased by 7.4% Cash generated from operations up 10.4 % to £11.7 million Net capital investment during the period amounted to £5.8 million Interim dividend increased by 10.2% from 4.40p to 4.85p Tony Brewer, Chief Executive of Headlam, said: "We are particularly encouraged by the positive performance of the group duringthe first eight months of 2006. With the traditional busy autumn period beforeus, the group is confident of achieving its operating objectives for the year." Enquiries: Headlam Group plcTony Brewer, Chief Executive Tel: 01675 433000Stephen Wilson, Finance Director Chairman's Statement During the first six months of 2006, sales from UK operations have shown anincrease of 3.6% on a like for like basis. Group sales for the first six months increased by 5.7% from £232.3 million to£245.7 million, the improvement principally attributable to organic growth.Profit before tax increased by 7.4% from £18.2 million to £19.5 million. Earnings and dividend Basic earnings per share increased by 6.1% from 14.7p to 15.6p. The board havedeclared an interim dividend of 4.85p per share, an increase of 10.2% on lastyear's interim dividend of 4.40p per share. The dividend will be paid on 2January 2007 to shareholders on the register at 1 December 2006. Operations The operational structure and strategy in the UK enables 46 businesses tooperate from 22 distribution centres. Whilst enjoying their sales and marketingautonomy, these businesses comply with consistent operating procedures andstrict financial reporting disciplines. These businesses are defined into four sectors. Regional multi-product: the 25 regional businesses, that market and distribute acomprehensive product range of residential and commercial floorcovering,increased sales by 4.3%. National multi-product: Mercado, with its six business identities also sellingan extensive range of residential and commercial floorcoverings, increased itssales by 7.3%. Residential specialist: our 12 specialist businesses, selling principally mediumto high quality carpet products, increased sales by 7.7%. Commercial specialist: our three businesses specialising in the commercialsector were able to increase sales by 5.0%. It is fundamental to these businesses to work closely with the world's leadingfloorcovering producers, to develop and subsequently present new product to ourcustomers, principally independent floorcovering retailers and flooringcontractors. The UK businesses operate with 308 external sales people who have launched 2,214new product ranges by positioning over 530,000 new point of sale items into ourcustomers' premises. This has resulted in an increase in sales across allproduct categories of carpet, residential vinyl, carpet underlay, commercialproducts, wood and laminate. It is particularly encouraging that this positive sales trend has been achieved by each of the four business sectors and across all the individual product categories. This further demonstrates the group's significant market presence throughout the floorcovering industry in the UK. We continue with our policy of constructing new purpose built freeholddistribution facilities to re-house existing businesses, providing the businesswith increased capacity and improved material handling capability. The newfacility in Leeds, which will re-house Wilkies, our regional multi-productbusiness, is near completion and will be operational in October of this year.This will enable Wilkies to further strengthen its market position in the northof England. We have now received planning permission for a facility in Bridgendto re-house MCD Wales. This will be operational during 2007 and enable thebusiness to enhance its performance in South Wales. Our Continental European businesses in France, Switzerland and particularly theNetherlands have enjoyed improving market conditions and therefore have beenable to increase their sales by 6.1%. This has resulted in operating margins improving from 2.3% to 2.7% during the first six months. Acquisitions Whilst we have not announced any additions to the group during 2006, we continueto evaluate opportunities, both in the UK and Continental Europe. We arecommitted to enlarging the group's presence in these markets where a businesscan be acquired which enhances our market position and ultimately achieves theappropriate return on investment. Cash flow Cash generated from operations during the first six months amounted to £11.7million compared with £10.6 million for the equivalent period last year. Networking capital investment remained virtually unchanged increasing modestly from£10.2 million to £10.3 million. The investment in property, plant and equipment totalled £5.8 million of which£3.6 million related to the new facility in Leeds and £1.5 million on thepurchase of the freehold interest in the property occupied by our business inthe Netherlands. This property was formerly occupied on a leasehold basis. Typically, the group's cash flow is such that during the first six months of theyear, there is an overall absorption of cash and a corresponding decline in cashand cash equivalents. The first six months of 2006 are no exception with cashand cash equivalents declining by £3.4 million to £32.8 million. Net funds at 30June 2006 totalled £32.3 million compared with £28.9 million at 30 June 2005. Outlook We are particularly encouraged by the positive performance of the group duringthe first eight months of 2006. With the traditional busy autumn period beforeus, the group is confident of achieving its operating objectives for the year. Graham Waldron, Chairman5 September 2006 Consolidated Income Statement Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Revenue 3 245,672 232,336 486,635Cost of sales (170,112) (161,475) (336,570)---------------------- -------- ---------- ---------- ---------- Gross profit 75,560 70,861 150,065 Distribution expenses (40,662) (38,087) (77,507)Administrative expenses (15,155) (14,273) (31,060)---------------------- -------- ---------- ---------- ---------- Operating profit 3 19,743 18,501 41,498 Financial income 4 2,270 1,667 3,893Financial expenses 4 (2,470) (1,963) (4,551)---------------------- -------- ---------- ---------- ---------- Net financing costs (200) (296) (658)---------------------- -------- ---------- ---------- ---------- Profit before tax 19,543 18,205 40,840Taxation (5,961) (5,564) (12,352)---------------------- -------- ---------- ---------- ---------- Profit for the period 3 13,582 12,641 28,488---------------------- -------- ---------- ---------- ---------- Dividend per share 6 18.00p 16.25p 16.25p Earnings per shareBasic 5 15.6p 14.7p 33.1p---------------------- -------- ---------- ---------- ---------- Diluted 5 15.5p 14.5p 32.8p---------------------- -------- ---------- ---------- ---------- Consolidated Statement of Recognised Income and Expense Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000Foreign exchange translationdifferences arising ontranslation of overseasoperations (174) (815) (321)Recycling of cash flowhedging reserve balance - 13 13Actuarial gains and losses on defined benefit pension plans (1,500) 395 (2,571)Tax recognised on incomeand expenses recognised directly in equity 234 (67) 910--------------------------- ------ --------- ---------- ---------- Net income recogniseddirectly in equity (1,440) (474) (1,969) Profit for the period 13,582 12,641 28,488--------------------------- ------ --------- ---------- ---------- Total recognised income and expense 6 12,142 12,167 26,519--------------------------- ------ --------- ---------- ---------- Effect of change inaccounting policy - 13 13Effect of adoption of IAS 32 and 39, net of tax, on1 January 2005 on: cash flow hedge reserve--------------------------- ------ --------- ---------- ---------- - 13 13--------------------------- ------ --------- ---------- ---------- Consolidated Balance Sheet Unaudited Note At At At 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000Non-current assets Property, plant and equipment 78,292 77,631 74,640 Intangible assets 13,210 13,628 13,210 Deferred tax assets 8,286 8,245 8,199------------------------ ------ -------- --------- ---------- 99,788 99,504 96,049------------------------ ------ -------- --------- ----------Current Assets Inventories 92,720 92,505 91,160 Trade and other receivables 86,246 79,881 84,275 Cash and cash equivalents 8 33,146 30,969 36,193------------------------ ------ -------- --------- ---------- 212,112 203,355 211,628Non-current assetsclassified as held for sale 3,436 203 3,471------------------------ ------ -------- --------- ---------- Total assets 315,336 303,062 311,148------------------------ ------ -------- --------- ---------- Current liabilities Bank overdraft 8 (333) - - Other interest-bearing loans and borrowings 8 (430) (1,519) (471) Trade and other payables (145,692) (149,172) (141,529) Employee benefits (1,078) (1,080) (1,080) Income tax payable (11,723) (11,640) (11,139)------------------------ ------ -------- --------- ---------- (159,256) (163,411) (154,219)------------------------ ------ -------- --------- ----------Non-current liabilities Other interest-bearing loans and borrowings 8 (80) (537) (267) Employee benefits (20,766) (17,241) (19,432) Deferred tax liabilities (1,256) (1,214) (1,403)------------------------ ------ -------- --------- ---------- (22,102) (18,992) (21,102)------------------------ ------ -------- --------- ----------Total liabilities (181,358) (182,403) (175,321)------------------------ ------ -------- --------- ----------Net assets 133,978 120,659 135,827------------------------ ------ -------- --------- ---------- Equity attributable to equityholders of the parent Share capital 6 4,352 4,310 4,326 Share premium 6 53,336 51,875 52,280 Translation reserves 6 (751) (1,071) (577) Retained earnings 6 77,041 65,545 79,798------------------------ ------ --------- --------- ---------- Total equity 133,978 120,659 135,827------------------------ ------ --------- --------- ---------- Consolidated Cash Flow Statements Unaudited Note Six months Six months The year ended ended 30 June ended 30 June 31 December 2006 2005 2005 £000 £000 £000Cash flows from operating activitiesProfit before tax for the period 19,543 18,205 40,840 Adjustments for: Depreciation, amortisation and impairment 2,088 2,265 5,133 Financial income (2,270) (1,667) (3,893) Financial expense 2,470 1,963 4,551 Profit on sale of property, plant and equipment (1) (8) (228) Equity settled share-based payment expenses 208 29 196----------------------------------- ------ --------- --------- ----------Operating profit before changesin working capital and provisions 22,038 20,787 46,599 (Increase)/decrease in trade and other receivables (1,802) 4,969 1,699 Increase in inventories (1,519) (12,839) (11,335) Decrease in trade and other payables (7,016) (2,316) (1,085)----------------------------------- ------ --------- --------- ----------Cash generated from the operations 11,701 10,601 35,878 Interest paid (904) (659) (1,456) Tax paid (5,966) (5,661) (10,994) Additional contributions to defined benefit pension plan (479) - (722)----------------------------------- ------ --------- --------- ----------Net cash from operatingactivities 4,352 4,281 22,706----------------------------------- ------ --------- --------- ----------Cash flows from investing activities Proceeds from sale of property, plant and equipment 61 108 598 Interest received 964 643 1,335 Acquisition of subsidiary, net of cash acquired - (435) (426) Acquisition of property, plant and equipment (5,826) (8,034) (10,965)----------------------------------- ------ --------- --------- ----------Net cash from investing activities (4,801) (7,718) (9,458)----------------------------------- ------ --------- --------- ----------Cash flows from financing activities Proceeds from the issue of share capital 1,082 149 570 Repayment of borrowings - - (662) Payment of finance lease liabilities (228) (208) (438) Dividends paid (3,789) (3,421) (13,976)----------------------------------- ------ --------- --------- ----------Net cash from financingactivities (2,935) (3,480) (14,506)----------------------------------- ------ --------- --------- ---------- Net decrease in cash and cash equivalents (3,384) (6,917) (1,258) Cash and cash equivalents at 1 January 36,193 37,468 37,468 Effect of exchange rate fluctuations of cash held 4 (17) (17)----------------------------------- ------ --------- --------- ----------Cash and cash equivalents at end of period 7 32,813 30,534 36,193----------------------------------- ------ --------- --------- ---------- Notes to the Interim Financial Statements Unaudited 1. GENERAL INFORMATION The interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the group'spublished consolidated financial statements for the year ended 31 December 2005,except for changes as required by the Listing Rules of the Financial ServicesAuthority, as a result of the endorsement by the EU of new or changedInternational Financial Reporting Standards (IFRSs) that are applicable oravailable for early adoption in the preparation of the group's next consolidatedfinancial statements for the year ending 31 December 2006. 2 ACCOUNTING POLICIES The directors have decided not to adopt early the International AccountingStandard (IAS) 34 Interim Financial Reporting. Following initial adoption, the directors have decided not to apply the hedgeaccounting requirements of IAS 39 Financial Instruments: Recognition andMeasurement. Consequently, all movements in the fair value of the hedge arerecognised immediately in the income statement, within financial income orexpense. The directors have changed the accounting policies in respect of the followingmatters: • Amendment to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts - Financial Guarantee Contracts. Where the group enters into financial guarantee contracts to guarantee the indebtedness between group companies, these are considered to be insurance arrangements, and each group company accounts for them as such. In this respect, the group treats the guarantee contract as a contingent liability until such time as it becomes probable that the applicable group company will be required to make a payment under the guarantee. • Amendment to IAS 39 Financial Instruments: Cash Flow Hedge Accounting of Forecast Intragroup Transactions. • Amendment to IAS 39 Financial Instruments: The Fair Value Options. • IFRIC 4: Determining whether an Arrangement Contains a Lease. The implementation of the changes noted above has not had a significant effecton either the profit or net assets of the group for the period commencing 1January 2006. The comparative figures for the financial year ended 31 December 2005 are notthe group's statutory accounts for that financial year. Those accounts have beenreported on by the group's auditors and delivered to the registrar of companies.The report of the auditors was (i) unqualified, (ii) did not include a referenceto any matters to which the auditors drew attention by way of emphasis withoutqualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Notes to the Financial Statements continued Unaudited 3 SEGMENT REPORTING The 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 30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec 2006 2005 2005 2006 2005 2005 2006 2005 2005 £000 £000 £000 £000 £000 £000 £000 £000 £000RevenueExternal sales 208,668 197,460 415,038 37,004 34,876 71,597 245,672 232,336 486,635------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ResultSegment result 19,201 18,243 41,905 1,017 803 1,815 20,218 19,046 43,720------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------Unallocatedcorporate expenses (475) (545) (2,222) --------- --------- --------- Operating profit 19,743 18,501 41,498 Financial income 2,270 1,667 3,893Financial expense (2,470) (1,963) (4,551)Taxation (5,961) (5,564) (12,352) --------- --------- --------- Profit for theperiod 13,582 12,641 28,488 --------- --------- ---------Other informationSegment assets 270,186 264,511 271,074 33,428 30,103 28,404 303,614 294,614 299,478 Unallocatedassets 11,722 8,448 11,670------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------Consolidated total assets 315,336 303,062 311,148------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Segment liabilities (116,899) 123,400) (127,258) (17,811) (17,274) (15,009) 134,710) (140,674) (142,267) Unallocatedliabilities (46,648) (41,729) (33,054)------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------Consolidated totalliabilities (181,358) (182,403) (175,321)------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Capital expenditure 4,184 7,835 10,462 1,642 199 503 5,826 8,034 10,965Depreciation 1,759 1,547 3,451 329 300 631 2,088 1,847 4,082Amortisation - 418 836 - - - - 418 836Asset impairment - - 215 - - - - - 215 Each segment is a continuing operation. Unallocated assets comprise deferred tax assets and assets held for sale.Unallocated liabilities comprise income tax, deferred tax liabilities andemployee benefits. Notes to the Financial Statements continued Unaudited 3 SEGMENT REPORTING - continued 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 providedas 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 presentationsvalidity and usefulness. 4 FINANCE INCOME AND EXPENSE Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000Interest income Bank interest 984 426 1,329 Other 47 12 87 Return on defined pension plan assets 1,239 1,229 2,477--------------------------------------- --------- --------- --------- Financial income 2,270 1,667 3,893--------------------------------------- --------- --------- --------- Interest expense Bank loans, overdrafts and other financial expenses (953) (410) (1,503) Interest on defined benefit pension plan obligation (1,494) (1,510) (2,987) Finance leases and similar hire purchase contracts (23) (43) (61)--------------------------------------- --------- --------- --------- Financial expenses (2,470) (1,963) (4,551)--------------------------------------- --------- --------- --------- Notes to the Financial Statements continued Unaudited 5 EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000EarningsEarnings for the purposes of basicearnings per share being profitattributable to equity holders of the parent 13,582 12,641 28,488------------------------------------ --------- --------- --------- Earnings for the purposes of dilutedearnings per share 13,582 12,641 28,488------------------------------------ --------- --------- --------- Number of sharesIssued ordinary shares at 1 January 86,512,854 86,111,437 86,111,437Effect of shares issued during the period 407,028 67,543 86,272------------------------------------ ------------ ------------ ------------ Weighted average number of ordinary shares for the purposes of basicearnings per share 86,919,882 86,178,980 86,197,709------------------------------------ ------------ ------------ ------------ Effect of diluted potential ordinaryshares:Weighted average number of ordinary shares at period end 86,919,882 86,178,980 86,197,709Share options 1,878,034 1,411,138 2,407,331Number of shares that would have beenissued at fair value (1,381,753) (624,241) (1,813,602)------------------------------------ ------------ ------------ ------------ Weighted average number of ordinary shares for the purposes of dilutedearnings per share 87,416,163 86,965,877 86,791,438------------------------------ ------------ ------------ ------------ Notes to the Financial Statements continued Unaudited 6 CAPITAL AND RESERVES Reconciliation of movement in capital and reserves Cash flow Share Share Translation hedging Retained Total capital premium reserve reserve earnings equity £000 £000 £000 £000 £000 £000 Balance at 1 January 2005 4,306 51,731 (256) - 66,579 122,360Adjustment in respect ofadoption of IAS 32 and IAS39 on 1 January, net of tax - - - (13) - (13)Total recognised income andexpense - - (815) 13 12,969 12,167Equity-settled share basedpayment transactions, netof tax - - - - 29 29Share options exercised byemployees 4 144 - - - 148Deferred tax on Schedule 23 share options (pre November 2002) - - - - (56) (56)Dividends - - - - (13,976) (13,976)--------------------------- -------- -------- -------- -------- -------- -------- Balance at 30 June 2005 4,310 51,875 (1,071) - 65,545 120,659Total recognised income and expense - - 494 - 13,858 14,352Equity-settled share basedpayment transactions, netof tax - - - - 167 167Share options exercised byemployees 16 405 - - - 421Deferred tax on Schedule 23 share options (pre November 2002) - - - - 228 228--------------------------- -------- -------- -------- -------- -------- -------- Balance at 31 December 2005 4,326 52,280 (577) - 79,798 135,827Total recognised income and expense - - (174) - 12,316 12,142Equity-settled share basedpayment transactions, netof tax - - - - 208 208Share options exercised byemployees 26 1,056 - - - 1,082Deferred tax on Schedule 23 share options (pre November 2002) - - - - 331 331Dividends - - - - (15,612) (15,612)--------------------------- -------- -------- -------- -------- -------- -------- Balance at 30 June 2006 4,352 53,336 (751) - 77,041 133,978--------------------------- -------- -------- -------- -------- -------- -------- Notes to the Financial Statements continued Unaudited 6 CAPITAL AND RESERVES - continued Dividends Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Interim dividend for 2005 of 4.40p paid 3 January 2006 3,789 - -Final dividend for 2005 of 13.60p proposed 11,823 - -Interim dividend for 2004 of 4.00p paid 3 January 2005 - 3,421 3,421Final dividend for 2004 of 12.25p proposed /paid 4 July 2005 - 10,555 10,555--------------------------------- --------- --------- --------- 15,612 13,976 13,976--------------------------------- --------- --------- --------- The final proposed dividend for 2005 of 13.60p per share was authorised byshareholders at the Annual General Meeting on 1 June 2006. The final proposeddividend for 2004 of 12.25p per share was authorised by shareholders at theAnnual General Meeting on 27 May 2005. 7 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS At At At 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 Cash and cash equivalents perbalance sheet 33,146 30,969 36,193Bank overdrafts (333) (435) ---------------------------------- --------- --------- --------- Cash and cash equivalents per cash flow statements 32,813 30,534 36,193--------------------------------- --------- --------- --------- 8 ANALYSIS OF CHANGES IN NET FUNDS At At 1 January Cash Translation 30 June 2006 flows differences 2006 £000 £000 £000 £000 Cash at bank and in hand 36,193 (3,052) 5 33,146Bank overdraft - (332) (1) (333)--------------------------- --------- --------- --------- --------- 36,193 (3,384) 4 32,813Finance leases and similar hire purchase contracts (738) 228 - (510)--------------------------- --------- --------- --------- --------- 35,455 (3,156) 4 32,303--------------------------- --------- --------- --------- --------- Notes to the Financial Statements continued Unaudited 9 RELATED PARTIES Identity of related parties Related party relationships exist between companies within the group, directorsof the parent company and the group's executive officers. Transactions with key management personnel As at 30 June 2006, directors of the parent company and their immediaterelatives controlled 1.6 per cent of the voting shares of the parent company. The group's key management personnel are the directors of the parent company andtheir remuneration for the year ending 31 December 2005 is disclosed within theremuneration report in the annual report and accounts for 2005. The interim financial results for the six months ended 30 June 2006 will beposted to shareholders on 11 September 2006 and copies will be available fromthat date from the Company's registered office. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Headlam