11th Sep 2007 07:30
Headlam Group PLC11 September 2007 11 September 2007 Interim financial results for the six month period ended 30 June 2007 Headlam Group plc ("Headlam"), Europe's leading floorcovering distributor,announces its interim results for the six months ended 30 June 2007. Financial highlights 2007 2006 Change £000 £000 Sales 259,076 245,672 +5.5% Adjusted profit * 21,155 19,743 +7.2% Profit from operations 20,740 19,743 +5.1% Profit before tax 20,593 19,543 +5.4% Basic earnings per share 16.6p 15.6p +6.4% Interim dividend per share 5.35p 4.85p +10.3% Key points Sales on a like for like basis increased by 3.1% in the UK and 7.2% inContinental Europe Profit before amortisation of intangibles, interest and tax increased by 7.2% 2007 interim dividend increased by 10.3% from 4.85p to 5.35p * Adjusted profit is profit before amortisation of intangibles, interest and tax Tony Brewer, Chief Executive of Headlam, said: "During 2007, the group has enjoyed a progressively improving sales trend and weare well positioned entering the traditionally busy autumn selling period. Themanagement teams of our individual businesses in the UK and Continental Europeare clearly focused on their product, sales and operations and we look forwardto achieving our objectives for the year." Enquiries: Headlam Group plcTony Brewer, Chief Executive Tel: 01675 433000Stephen Wilson, Finance Director Chairman's Statement Group sales for the first six months increased by 5.5% from £245.7 million to£259.1 million including a contribution of £4.3 million from the businessesacquired since July last year. Profit before amortisation of intangibles,interest and tax increased by 7.2% from £19.74 million to £21.16 million. Sales on a like for like basis increased by 3.1% in the UK and 7.2% inContinental Europe. Earnings and dividend Basic earnings per share increased by 6.4% from 15.6p to 16.6p. The board ispleased to declare an interim dividend of 5.35p per share, an increase of 10.3%on last year's interim dividend of 4.85p per share. The dividend will be paidon 2 January 2008 to shareholders on the register at 7 December 2007. UK operations With the establishment of the regional commercial business sector, the groupoperates with five clearly defined business sectors. These sectors nowincorporate 50 businesses operating from 21 principal distribution centres and 7service centres. The management teams in these businesses enjoy product, salesand marketing autonomy whilst complying with consistent operating procedures andstrict financial reporting disciplines. The 5 business sectors are: Regional multi-product: these 20 regional businesses, which account for 60% ofUK sales and market and distribute a comprehensive range of residential andcommercial floorcovering, increased their sales by 2.5%. National multi-product: due to the ongoing success of the Mercado business andits national infrastructure, we currently have a project underway to expand itsLeeds distribution hub by 20,000 square feet to 205,000 square feet. This willfurther enhance the opportunity for Mercado to develop its residential andcommercial business throughout England and Wales. Regional commercial: this newly formed sector is growing ahead of expectationswith the benefit of the acquisitions of Concept (Midlands) in October 2006 and3D Flooring Supplies in March 2007. Total sales of the 10 businesses grew by26.6%. It is our intention, either through acquisition or establishing newoperations, to increase the geographical coverage of this sector. Residential specialist: the 13 specialist businesses operating in this sectorcontinue to prosper with sales growing by 8.1%, principally in medium and highquality carpet products. The recent acquisition of the trade and assets ofPlantation Rug Company during July 2007, gives the group an opportunity tofurther develop sales of rugs in addition to our existing activities throughCrucial Trading and National Carpets. Commercial specialist: the original three businesses in this sector have enjoyeda positive first half with sales increasing by 12.7%. The sector has beenenhanced by the acquisition during April 2007 of Florprotec, a leading supplierof floor protection products in the UK. Fundamental to the group's strategy and policy is the ongoing development andrelationships with the leading floorcovering manufacturers of residential andcommercial products. This ensures that the group and subsequently its customersare at the forefront of all new product development for the UK marketplace. The group continues to maximise its market presence through 337 employedexternal sales people who, during the first six months, have positioned 448,000point of sale items into independent floorcovering retailers and flooringcontractors to support the launch of 2,165 new product ranges. This has enabledgrowth through each of our product segments of carpet, residential vinyl, wood,laminate and commercial flooring. Investments The new 105,000 square foot purpose built freehold facility for Wilkies in Leedsbecame operational in October 2006 and this business is operating ahead ofexpectations. We have now commenced construction of a new freehold facility forMCD Wales in Bridgend which will be operational in the spring of 2008. Thegroup continues to assess other opportunities to re-house existing businesses,increasing capacity in conjunction with the latest material handling capability,to allow them to continue to develop their business and exploit marketopportunities. Continental Europe Our three businesses in France, Switzerland and the Netherlands have continuedtheir significantly improved performance from 2006 into 2007. The managementteams of these businesses have capitalised on improving marketing conditions andeach business contributed to a combined increase in sales of 7.2%. This hasresulted in operating margins improving from 2.7% to 3.6%. Acquisitions The three recently acquired businesses; 3D Flooring Supplies, Florprotec andPlantation Rug Company enlarge our activities in the business sectors ofregional commercial, commercial specialist and residential specialistrespectively. Each of these acquisitions, including Concept (Midlands) acquiredin October 2006, are performing ahead of expectations. The group continues toevaluate acquisitions in both the UK and Continental Europe. We wouldanticipate making further acquisitions which enhance our market position andcontribute to an increase in profitability. Purchase of own shares Earlier this year, the board decided to commence a share buy-back programme toreturn cash to shareholders and improve balance sheet efficiency. Further toour announcement on 25 May 2007 regarding the introduction of a share buy-backprogramme, I can report that as at 30 June 2007, the company had acquired2,118,006 shares at an average price of £5.85 per share. Since then, a further1,185,000 million shares have been acquired at an average price of £5.54 pershare bringing expenditure during the year to date to £18.96 million. Adjusted profit Profit before amortisation of intangibles, interest and tax has been calculatedas follows: 2007 2006 £000 £000 Profit for the period 14,415 13,582Add:Taxation 6,178 5,961Net financing costs 147 200Amortisation of intangibles 415 - ------- -------Adjusted profit 21,155 19,743 ------- ------- Cash flow In keeping with our policy of providing our customers with an extensive productoffering and high levels of service, we invested a further £7.5 million ininventory during the first six months of 2007. This was the primary reason forcash generated from operations declining from £11.7 million last year to £6.9million. Cash outflows from investing activities included £2.9 million expended onacquisitions during the first half. Included within this amount is £1.5 millionrelating to the purchase of intangible assets. In line with our policy onintangible assets, £0.4 million has been amortised through the income statementduring the first six months and the balance will be amortised in full during thesix month period to 31 December 2007. Cash flows from financing activities include £12.4 million relating to thepurchase of shares during the first six months. The combination of additional inventory investment, acquisition activity and theshare buy-back programme meant that net cash decreased by £22.1 million duringthe first half of 2007 compared with a decrease of £3.4 million during theequivalent period last year Outlook During 2007, the group has enjoyed a progressively improving sales trend and weare well positioned entering the traditionally busy autumn selling period. Themanagement teams of our individual businesses in the UK and Continental Europeare clearly focused on their product, sales and operations and we look forwardto achieving our objectives for the year. Graham Waldron11 September 2007 Consolidated Income Statement Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000 Revenue 4 259,076 245,672 509,899Cost of sales (179,281) (170,112) (350,506) -------- ---------- --------- --------- Gross profit 79,795 75,560 159,393 Distribution expenses (42,810) (40,662) (81,623)Administrative expenses (16,245) (15,155) (33,829) -------- ---------- --------- --------- Operating profit 4 20,740 19,743 43,941 Financial income 6 3,214 2,270 4,926Financial expenses 6 (3,361) (2,470) (5,309) -------- ---------- --------- --------- Net financing costs (147) (200) (383) -------- ---------- --------- --------- Profit before tax 20,593 19,543 43,558Taxation 7 (6,178) (5,961) (13,067) -------- ---------- --------- --------- Profit for the period 4 14,415 13,582 30,491 -------- ---------- --------- --------- Dividend per share 9 20.15p 18.00p 18.00p Earnings per shareBasic 8 16.6p 15.6p 35.1p -------- ---------- --------- --------- Diluted 8 16.4p 15.5p 34.8p -------- ---------- --------- --------- Consolidated Statement of Recognised Income and Expense Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000Foreign exchange translationdifferences arising ontranslation of overseas operations (199) (174) (419)Actuarial gains and losses ondefined benefit pension plans 5,028 (1,500) (173) ------ --------- ---------- ----------Tax recognised on income and expensesrecognised directly in equity (1,776) 234 1,057 ------ --------- ---------- ---------- Net income recognised directly in equity 3,053 (1,440) 465 Profit for the period 14,415 13,582 30,491 ------ --------- ---------- ---------- Total recognised income and expense 9 17,468 12,142 30,956 ------ --------- ---------- ---------- Consolidated Balance Sheet Unaudited Note At At At 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000Non-current assets Property, plant and equipment 86,999 78,292 85,032 Intangible assets 14,265 13,210 13,210 Deferred tax assets 6,815 8,286 9,182 ------ -------- --------- ---------- 108,079 99,788 107,424 ------ -------- --------- ----------Current Assets Inventories 102,947 92,720 94,217 Trade and other receivables 93,616 86,246 91,284 Cash and cash equivalents 19,169 33,146 41,861 ------ -------- --------- ---------- 215,732 212,112 227,362Non-current assets classified as held for sale - 3,436 - ------ -------- --------- ---------- Total assets 323,811 315,336 334,786 ------ -------- --------- ---------- Current liabilities Bank overdraft (416) (333) (1,010) Other interest-bearing loans and borrowings - (430) (267) Trade and other payables (155,460) (145,692) (149,422) Employee benefits (1,484) (1,078) (1,102) Income tax payable (11,801) (11,723) (10,184) ------ -------- --------- ---------- (169,161) (159,256) (161,985) ------ -------- --------- ----------Non-current liabilities Other interest-bearing loans and borrowings - (80) - Employee benefits (10,819) (20,766) (16,124) Deferred tax liabilities (3,280) (1,256) (3,665) ------ -------- --------- ---------- (14,099) (22,102) (19,789) ------ -------- --------- ----------Total liabilities (183,260) (181,358) (181,774) ------ -------- --------- ----------Net assets 140,551 133,978 153,012 ------ -------- --------- ---------- Equity attributable to equityholders of the parent Share capital 9 4,292 4,352 4,354 Share premium 9 53,512 53,336 53,428 Translation reserves 9 (815) (751) (616) Retained earnings 9 83,562 77,041 95,846 ------ --------- --------- ----------Total equity 140,551 133,978 153,012 ------ --------- --------- ---------- Consolidated Cash Flow Statements Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 1 December 2007 2006 2006 £000 £000 £000Cash flows from operatingactivitiesProfit before tax for the period 20,593 19,543 43,558 Adjustments for: Depreciation, amortisation and impairment 2,735 2,088 4,974 Financial income (3,214) (2,270) (4,926) Financial expense 3,361 2,470 5,309 (Profit)/loss on sale of property, plant and equipment (14) (1) 10 Equity settled share-based payment expenses 250 208 472 ----- ---------- ---------- ----------Operating profit before changes in working capital and provisions 23,711 22,038 49,397 Increase in trade and other receivables (864) (1,802) (6,810) Increase in inventories (7,524) (1,519) (2,930) (Decrease)/increase in trade and other payables (8,401) (7,016) 7,987 ----- ---------- ---------- ---------- Cash generated from operations 6,922 11,701 47,644 Interest paid (1,224) (904) (2,023) Tax paid (4,845) (5,966) (11,622) Additional contributions to defined benefit pension plan (742) (479) (3,927) ----- ---------- ---------- ----------Net cash from operating activities 111 4,352 30,072 ----- ---------- ---------- ---------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 144 61 1,816 Interest received 1,544 964 2,001 Acquisition of subsidiary, net of cash acquired (2,864) - (1,369) Acquisition of property, plant and equipment (4,231) (5,826) (12,884) ----- ---------- ---------- ---------- Net cash from investing activities (5,407) (4,801) (10,436) ----- ---------- ---------- ---------- Cash flows from financing activities Proceeds from the issue of share capital 86 1,082 1,176 Payment to acquire own shares (12,392) - - Payment of finance lease liabilities (267) (228) (497) Dividends paid (4,218) (3,789) (15,612) ----- ---------- ---------- ----------Net cash from financing activities (16,791) (2,935) (14,933) ----- ---------- ---------- ---------- Net (decrease)/increase in cash and cash equivalents (22,087) (3,384) 4,703 Cash and cash equivalents at 1 January 40,851 36,193 36,193 Effect of exchange rate fluctuations of cash held (11) 4 (45) ----- ---------- ---------- ----------Cash and cash equivalents at end of period 10 18,753 32,813 40,851 ----- ---------- ---------- ---------- Notes to the Interim Financial Statements Unaudited 1 ACCOUNTING POLICIES 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 2006. The comparative figures for the financial year ended 31 December 2006 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. 2 ESTIMATES The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets and liabilities, income and expense.Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, thesignificant judgements made by management in applying the group's accountingpolicies and key sources of estimation uncertainty were the same as those thatapplied to the consolidated financial statements as at and for the year ended31 December 2006. 3 FINANCIAL RISK MANAGEMENT All aspects of the group's financial risk management objectives and policies areconsistent with that disclosed in the consolidated financial statements as atand for the year ended 31 December 2006. Notes to the Financial Statements continued Unaudited 4 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 2007 2006 2006 2007 2006 2006 2007 2006 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000RevenueExternal sales 219,414 208,668 434,321 39,662 37,004 75,578 259,076 245,672 509,899 ------- ------- ------- ------- ------- ------ ------- ------- -------ResultSegment result 20,451 19,201 43,670 1,408 1,017 2,044 21,859 20,218 45,714 ------- ------- ------- ------- ------- ------ ------- ------- -------Unallocatedcorporateexpenses (1,119) (475) (1,773) ------- ------- ------- ------- ------- ------ ------- ------- ------- Operating profit 20,740 19,743 43,941 Financial income 3,214 2,270 4,926Financial expense (3,361) (2,470) (5,309)Taxation (6,178) (5,961) (13,067) ------- ------- ------- ------- ------- ------ ------- ------- ------- Profit for the period 14,415 13,582 30,491 ------- ------- ------- ------- ------- ------ ------- ------- -------OtherinformationSegment assets 282,295 270,186 293,280 34,701 33,428 32,324 316,996 303,614 325,604 Unallocated assets 6,815 11,722 9,182 ------- ------- ------- ------- ------- ------ ------- ------- -------Consolidatedtotal assets 323,811 315,336 334,786 ------- ------- ------- ------- ------- ------ ------- ------- ------- Segment (124,140)(116,899)(133,493)(18,499)(17,811)(17,206)(142,639)(134,710)(150,699)liabilities ------- ------- ------- ------- ------- ------ ------- ------- -------Unallocatedliabilities (40,621) (46,648) (31,075) ------- ------- ------- ------- ------- ------ ------- ------- ------- Consolidatedtotalliabilities (183,260)(181,358)(181,774) ------- ------- ------- ------- ------- ------ ------- ------- ------- Capital expenditure 3,908 4,184 10,882 323 1,642 2,002 4,231 5,826 12,884Depreciation 2,009 1,759 3,610 311 329 674 2,320 2,088 4,284Amortisation 415 - 690 - - - 415 - 690 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. Management has access to information that provides details on sales and grossmargin by principal product group and across the five principal business sectorswhich comprise Regional multi-product, National multi-product, Regionalcommercial, Residential specialist and Commercial specialist. However, thisinformation is not provided as a secondary segment since the group's operationsare not managed by reference to these sub classifications and the presentationwould require an arbitrary allocation of overheads, assets and liabilitiesundermining the presentation's validity and usefulness. Notes to the Financial Statements continued Unaudited 5 ACQUISITION OF SUBSIDIARIES On 30 March 2007, the company acquired 3D Flooring Supplies Limited, a regionalcommercial floorcovering distributor located in south Wales and south westEngland, for a cash consideration of £1,377,500. On 27 April 2007, the companyacquired Florprotec Limited for a cash consideration of £1,249,600. Florprotecis a leading supplier, throughout the UK, of floor protection products for theconstruction industry and refurbishment projects. Acquiree's book Fair value Acquisition values adjustments amounts £000 £000 £000Acquiree's net assets at theacquisition date Intangible assets - 1,470 1,470Plant and machinery 293 (27) 266Inventories 1,297 (8) 1,289Trade and other receivables 1,664 - 1,664Cash and cash equivalents 9 - 9Bank overdraft (246) - (246)Trade and other payables (1,683) - (1,683)Income tax payable (67) - (67)Deferred tax liabilities (4) - (4) --------- --------- ---------Net identifiable assets and 1,263 1,435 2,698liabilities --------- --------- --------- Goodwill on acquisition -Consideration paid 2,698 Satisfied by:Cash 2,627Acquisition costs capitalised 71 --------- 2,698 ---------No goodwill has arisen on the transactions and the intangible assets have beenattributed to the customer order books. Notes to the Financial Statements continued Unaudited 6 FINANCE INCOME AND EXPENSE Six months Six months The year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000Interest incomeBank interest 1,432 984 1,823Other - 47 124Return on defined pension plan assets 1,782 1,239 2,979 --------- --------- --------- Financial income 3,214 2,270 4,926 --------- --------- --------- Interest expenseBank loans, overdrafts and other financial expenses (1,474) (953) (1,931)Interest on defined benefit pension plan obligation (1,887) (1,494) (3,342)Finance leases and similar hire purchase contracts - (23) (36) --------- --------- ---------Financial expenses (3,361) (2,470) (5,309) --------- --------- --------- 7 TAXATION The group's consolidated effective tax rate in respect of continuing operationsfor the six months ended 30 June 2007 was 30.0% (for the six months ended 30 June 2006: 30.5%, for the year ended 31 December 2006:30.0%). Notes to the Financial Statements continued Unaudited 8 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 2007 2006 2006 £000 £000 £000Earnings Earnings for the purposes of basicand diluted earnings per sharebeing profit attributable to equityholders of the parent 14,415 13,582 30,491 ========== =========== =========== 2007 2006 2006Number of sharesIssued ordinary shares at 1 January 87,079,521 86,512,854 86,512,854Effect of share movement during the (241,741) 407,028 416,237period ----------- ----------- ----------- Weighted average number of ordinaryshares for the purposes of basicearnings per share 86,837,780 86,919,882 86,929,091 ----------- ----------- ----------- Effect of diluted potentialordinary shares:Weighted average number of ordinary shares at period end 86,837,780 86,919,882 86,929,091Share options 2,209,691 1,878,034 2,046,461Number of shares that would have been issued at fair value (1,377,574) (1,381,753) (1,422,270) ----------- ----------- ----------- Weighted average number of ordinaryshares for the purposes of dilutedearnings per share 87,669,897 87,416,163 87,553,282 ----------- ----------- ----------- Notes to the Financial Statements continued Unaudited 9 CAPITAL AND RESERVES Reconciliation of movement in capital and reserves Capital Share Share Translation redemption Retained Total capital premium reserve reserve earnings equity £000 £000 £000 £000 £000 £000Balance at 1 January 2006 4,326 52,280 (577) - 79,798 135,827 Total recognisedincome andexpense - - (174) - 12,316 12,142 Equity-settledshare basedpaymenttransactions, netof tax - - - - 208 208Share optionsexercised byemployees 26 1,056 - - - 1,082 Deferred tax onSchedule 23 shareoptions (preNovember 2002) - - - - 331 331Dividends - - - - (15,612) (15,612) ------- -------- --------- --------- ------- ------- Balance at 30 June 2006 4,352 53,336 (751) - 77,041 133,978Transfer between reserves - - 380 (380) -Total recognisedincome andexpense - - (245) - 19,059 18,814Equity-settledshare basedpaymenttransactions, netof tax - - - - 264 264Share optionsexercised byemployees 2 92 - - - 94Deferred tax onSchedule 23 shareoptions (preNovember 2002) - - - - (138) (138) ------- -------- --------- --------- ------- ------- Balance at 31 December 2006 4,354 53,428 (616) - 95,846 153,012Total recognisedincome andexpense - - (199) - 17,667 17,468Equity-settledshare basedpaymenttransactions, netof tax - - - - 250 250Cancellation ofown shares (64) - - 64 (7,627) (7,627) Consideration forpurchase of ownshares - - - - (4,765) (4,765)Share optionsexercised byemployees 2 84 - - - 86Deferred tax onSchedule 23 shareoptions (preNovember 2002) - - - - (418) (418)Dividends - - - - (17,455) (17,455) ------- -------- --------- --------- ------- -------Balance at30 June 2007 4,292 53,512 (815) 64 83,498 140,551 ------- -------- --------- --------- ------- ------- Notes to the Financial Statements continued Unaudited 9 CAPITAL AND RESERVES - continued Purchase of own shares Following the announcement on 25 May 2007 of the intention to initiate a sharebuy-back programme, the company acquired 2,118,006 of its own shares for a totalconsideration of £12.4 million. Of the shares acquired, 1,286,478, with a valueof £7.6 million, were cancelled and 831,528, with a value of £4.8 million are held as treasury shares. Dividends Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2007 2006 £000 £000 £000 Interim dividend for 2006 of 4.85p paid 2 January 2007 4,218 - -Final dividend for 2006 of 15.30p proposed 13,237 - -Interim dividend for 2005 of 4.40p paid 3 January 2006 - 3,789 3,789Final dividend for 2005 of 13.60p proposed - 11,823 11,823 --------- --------- --------- 17,455 15,612 15,612 --------- --------- --------- The final proposed dividend for 2006 of 15.30p per share was authorised byshareholders at the Annual General Meeting on 25 May 2007. The final proposeddividend for 2005 of 13.60p per share was authorised by shareholders at theAnnual General Meeting on 1 June 2006. 10 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS At At At 30 June 30 June 31 December 2007 2006 2006 £000 £000 £000 Cash and cash equivalents per balance sheet 19,169 33,146 41,861Bank overdrafts (416) (333) (1,010) --------- -------- ---------Cash and cash equivalents per cash flow statements 18,753 32,813 40,851 --------- -------- --------- Notes to the Financial Statements continued Unaudited 11 SUBSEQUENT EVENTS Since 30 June 2007, the company has acquired a further 1,185,000 million sharesfor a total consideration of £6.56 million. Total expenditure during the yearto date is now amounts to £18.96 million. The interim financial results for the six months ended 30 June 2007 will beposted to shareholders on 19 September 2007 and copies will be availablefrom that date from the company's registered office. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Headlam