Final Results
Headlam Group PLC
15 March 2004
15 March 2004
Preliminary Results for the Year Ended 31 December 2003
Headlam Group plc ('Headlam'), the UK's leading floorcoverings distributor,
announces its preliminary results for the twelve months ended 31 December 2003.
Financial highlights
2003 2002 Change
Turnover from continuing operations £412.3m £374.4m +10.1%
Operating profit from continuing operations before
goodwill amortisation £33.5m £28.8m +16.3%
Profit before taxation £32.6m £29.9m +9.0%
Adjusted earnings per share 27.3p 24.4p +11.9%
Dividend per share 13.85p 12.55p +10.4%
Key points
• Turnover from continuing operations increased by 10.1% and operating
profit before goodwill amortisation improved by 16.3%
• Strong cash flow from operating activities amounting to £36.0 million
• £21.2 million invested during the year to fund future expansion
• Dividend per share increased by 10.4% from 12.55p to 13.85p
Tony Brewer, Headlam's Chief Executive, said:
'2003 proved to be another successful year by increasing sales throughout our
product categories and across all geographical operations. The first 10 weeks
of 2004 have again shown a positive trend, both in the UK and Continental
Europe. With a constant focus on product development and satisfying our
customers' requirements, we look forward to another successful year.'
Enquiries:
Headlam Group plc
Tony Brewer, Chief Executive Tel: 01675 433000
Stephen Wilson, Finance Director
Chairman's Statement
During a year in which we were able to concentrate exclusively on our
floorcoverings business, it is extremely satisfying to report that 2003 was
another record performance with both turnover and operating profits reaching new
heights.
Turnover from continuing operations increased by 10.1% to £412.3 million and
operating profits from continuing operations before goodwill amortisation
improved by 16.3% to £33.5 million.
Earnings and dividend
Adjusted earnings per share increased by 11.9% from 24.4p to 27.3p. The board
is recommending that the final dividend be increased by 10.2% to 10.25p per
share. This will increase the total dividend for the year by 10.4% from 12.55p
to 13.85p. If approved, the final dividend will be paid on 1 July 2004 to
shareholders on the register at 11 June 2004.
Operations
We have a clear and focused operating strategy that revolves around the
deliberate creation of a diverse and autonomous structure. We now have 44
separate businesses operating in the UK market place.
To ensure that our customers and suppliers continue to benefit from high service
and cost effective distribution, we have maintained our commitment to improving
the base of the business through a progressive investment programme. This has
included expenditure on new freehold facilities, extensions to existing centres
and new material handling and cutting equipment. When appropriate, we have also
acquired the freehold interest in facilities that were formerly leased, leading
to improvements in profitability and increased flexibility. During the last two
years, we have spent £28.7 million and expect to invest a further £13.9 million
during 2004.
Board
During early February 2004, we announced the appointment of Roger Dickens as a
non-executive director. He brings to our board a considerable wealth of
business knowledge, financial and management expertise. We are confident that
Roger will make a valuable contribution to our team and the development of the
business.
Employees
The continued success of the group is derived from the careful execution of our
operating strategy. The quality of our experienced management teams coupled
with the dedicated contribution from all our employees provides the foundation
for this success. They deserve our warm congratulations for their endeavours
throughout the year.
Outlook
During the forthcoming year, our efforts will remain focused on sustainable
organic growth and if the opportunity presents itself, with selective expansion
through careful acquisition.
All our businesses have made a good start to 2004. The UK operations have
continued to perform well and with an improved contribution from Continental
Europe, we look forward to another year of growth.
Chief Executive's Review
2003 proved to be another successful year for the group with regard to growth in
sales and subsequent profitability. The UK business, excluding the benefit of
those businesses acquired in 2001 and 2002, showed sales growth of 6.9% on a
like for like basis. This was achieved by increasing sales throughout our
product categories and across all geographical operations.
Operations
The UK operating structure incorporates 44 individual businesses located in 20
distribution centres. Of these businesses, 31 distribute an extensive range of
all types of floorcovering. The other 13 are suppliers of specific types of
floorcovering, targeting certain market sectors. A key factor in the success of
all of our businesses, is the individuality of experienced management teams
responsible for their market presence, business development and ultimate
profitability. Whilst encouraging their autonomy, these businesses utilise an
identical IT platform to comply with the group's operating policies and strict
financial procedures.
Suppliers
Each of our businesses, in co-ordination with the group strategy, have a
continual product development programme with the leading floorcovering
manufacturers. This ensures that our customers in both the residential and
commercial sectors are at the forefront of all the latest product innovations.
During 2003, this activity resulted in the launch of 2,700 new product lines.
Product
Carpet continues to be the largest individual product area, accounting for 53%
of total UK turnover and achieved 7% like for like sales growth in the year.
Products suitable for various types of commercial locations grew at 8% and
contributed 21% of our total UK turnover. Sales of residential vinyl were
stable, although showed an 8% increase in the independent sector. Wood and
laminate products continued their growth and now account for 6.6% of total
sales.
Sales Presence
All of our Sales Managers and external Sales Representatives now operate with
IPAQ hand-held computers. This enables them to access up to the minute
information with regard to their customers' trading position; also allowing them
to establish stock availability and place orders, both during and out of
business hours. This immediate access to customer and internal information,
significantly improves the service we are able to offer to our customers.
Customers
Our customers, primarily independent floorcovering retailers and contractors,
continue to trade positively. An important element is our ongoing launch of new
products and to support this, we have placed over 650,000 point of sale items
during the year, principally display stands and sample books, ensuring our
customer is able to meet the latest consumer trends. During 2003, the UK
businesses received over 4,000,000 orders. These were processed on a daily
basis and subject to the customers' requirement, delivered the following working
day.
Acquisitions
The 10 businesses acquired in 2001 and 2002 contributed £21.7 million in sales
and produced an operating profit of £2.4 million, therefore realising a
successful initial return on total consideration of £4.3 million. During
October 2003, the acquisition of Manx Carpets was completed, further
strengthening our position in high quality woollen carpet. We continue to
evaluate other opportunities and look forward to businesses joining the group to
complement and enhance our position in both residential and commercial flooring.
Investments
During 2003, the construction of a number of new freehold distribution centres
was completed. Our largest business, Mercado in Leeds, moved into its new
185,000 square feet distribution centre in the autumn and was fully operational
for the final quarter of 2003. The Mercado business in Belfast also relocated
to purpose built premises in the summer of 2003. We completed extensions to our
Glasgow and Nottingham distribution centres, giving these businesses increased
capacity, of 50% and 33% respectively, to further enhance their market position.
Developments are under way this year to extend our facility in Thatcham and
also to construct a new distribution centre to house the businesses currently
located in Tamworth. It is intended that both these projects will be completed
by the end of 2004. Preliminary planning is also being undertaken, to extend
our distribution centre in Stockport and also re-house our regional distribution
business, Wilkies, in Leeds.
Continental Europe
Whilst experiencing more difficult trading conditions than in the UK, our
businesses in France, Holland and Switzerland have delivered positive
performances in the year and increased their profitability. This was
contributed to by an improved trend in the second half of 2003, which has
continued into 2004. Along with the local management, we strive for an ongoing
improvement in their market position and subsequent profitability.
Outlook
The first 10 weeks of 2004 have again shown a positive trend, both in the UK and
Continental Europe. With a constant focus on product development and satisfying
our customers' requirements, we look forward to another successful year.
Financial review
Trading performance
Group turnover from continuing operations increased by 10.1% from £374.4 million
to £412.3 million and operating profit from continuing operations, before
goodwill amortisation, increased by 16.3% from £28.8 million to £33.5 million.
Approximately 84% of the group's turnover arises from its activities based in
the UK and currency translation has not had a significant impact on the group's
reported results.
Interest and taxation
Average net funds remained at a neutral level over the course of the year and
consequently, net interest payable was virtually eliminated.
The effective total rate of taxation remains at 32% giving rise to a charge for
the year of £10.5 million. The rate continues to exceed the standard UK rate of
30% because of the affects of foreign tax and non-deductible items.
Cash flows and net funds
Net cash flow from operating activities
Net cash inflow from operating activities during 2003 amounted to £36.0 million
compared with £38.8 million in 2002. The year on year decrease of £2.8 million
was attributable to the net effect of a £3.1 million increase in operating
profit less a £5.9 million movement in net working capital.
Shown below, are the cash flows associated with working capital during 2003 and
2002 and the net variance arising between the two years.
2003 2002 Variance
£'000 £'000 £'000
Stock (5,619) (2,910) (2,709)
Debtors (3,667) 733 (4,400)
Creditors 8,897 7,718 1,179
Net working capital cash flow (389) 5,541 (5,930)
In 2003, the net working capital cash flow equated to a net investment of £0.4
million compared with a net reduction in investment of £5.5 million in 2002.
The higher level of investment in stock and particularly debtors in 2003,
together totalling £9.3 million, occurred because of increased sales activity
during the last quarter of the year. This was partially balanced by an increase
in amounts due to suppliers of £8.9 million caused by higher purchases during
that period.
Capital expenditure
The businesses operate from twenty principal distribution centres in the UK, two
main centres in France and one centre in both the Netherlands and Switzerland.
At 31 December 2003, the group held a freehold or long leasehold interest in
fourteen of the twenty centres in the UK with the remaining centres occupied on
a short lease. The centres in France and Switzerland are freehold and the Dutch
centre is a short lease.
In order to provide our customers with high levels of service, minimise
operating expenses and increase capacity, the group has, for a number of years,
adopted a policy of continually improving its distribution centres. The group
initiated its freehold new build programme during 1993 when work commenced on
the construction of the distribution centre in Thatcham. Since then, seven
further centres have been built and as already mentioned in the Chief
Executive's Review, it is intended to complete the construction of a further
centre, located in Tamworth, by the end of 2004.
During the last two years, development has not only accelerated, but expenditure
has broadened to include extensions to existing facilities and the purchase of
freehold interests in centres that were formerly occupied on a leasehold basis.
The table below illustrates the number of projects either initiated or completed
during 2003 and 2002.
2003 2002 Total
£'000 £'000 £'000
Mercado warehouse and distribution facility 10,536 964 11,500
Belfast warehouse and distribution facility 1,768 231 1,999
Purchase of the Stockport freehold interest 3,934 - 3,934
Glasgow extension 833 8 841
Nottingham extension 680 51 731
Thatcham extension 507 10 517
Purchase of land in Tamworth 2,924 - 2,924
Purchase of the Bristol freehold interest - 515 515
Purchase of the Nottingham freehold interest - 2,781 2,781
Purchase of the Leeds freehold interest - 1,890 1,890
Newcastle warehouse and distribution facility - 1,071 1,071
Maintenance expenditure 1,704 3,577 5,281
22,886 11,098 33,984
Disposals (5,934) (506) (6,440)
16,952 10,592 27,544
Net expenditure in 2002 amounted to £10.6 million. Gross capital expenditure
during 2003 amounted to £22.9 million which net of the £5.9 million received
from disposals, resulted in expenditure of £17.0 million. Forecast gross
expenditure during 2004, including £1.1 million for maintenance, is expected to
be approximately £15.0 million. This level of expenditure reflects the board's
commitment to relocating operations into new facilities or extending existing
facilities where there are sound operational and financial reasons to support
the investment. The forecast may be exceeded if a worthwhile opportunity
presents itself ahead of schedule.
Acquisitions
During October 2003, the group acquired the business and assets less certain
liabilities of Manx Carpets for a cash consideration of £0.5 million. The
business was subsequently transferred to the distribution centre located at
Coleshill. The contribution from Manx during 2003 has been included in
continuing activities because its contribution during the period was not
sufficiently material to warrant separate disclosure. Turnover from Manx during
2003 amounted to £0.6 million.
Net funds
The net cash outflow before financing for 2003 amounted to £1.5 million.
Financing cash outflows of £1.4 million relating to the repayment of debt and
hire purchase gave rise to a decrease in cash balances of £2.9 million. The
group's net cash declined from £29.9 million to £28.6 million.
Capital and treasury
Shareholder returns and dividends
Adjusted earnings per share for the year, calculated on profit after taxation
but before goodwill, increased by 11.9% from 24.4p to 27.3p. The board is
proposing a final dividend of 10.25p giving a total dividend for the year of
13.85p which represents an increase of 10.4% over the previous year. Dividend
cover remains at 1.9.
It is the board's intention to maintain dividend increases generally in line
with earnings growth. Dividend cover of 1.9 leaves the group with sufficient
resource to fund its investment programme in the operational infrastructure.
Total shareholder return, being the increase in the share price plus reinvested
dividends, has been 65.1% over the last five years compared to the FTSE Mid 250
average of 39.9%. Over the last three years, it has been 174.1% compared with
the FTSE Mid 250 average of (0.87%) and during the last year, 51.7% compared
with the FTSE Mid 250 average of 38.4%.
Treasury management
Financial instruments
The group's financial instruments, other than derivatives, comprise cash,
borrowings and various items that arise directly from its operations such as
trade debtors and trade creditors. The main purpose of these financial
instruments is to raise finance for and support the group's trading operations.
Derivative transactions relate to forward foreign currency contracts used to
manage the currency risks arising from the group's selling and buying
activities.
The main risks arising from the group's financial instruments are interest rate
risk, liquidity risk and foreign currency risk. The board reviews and agrees
policies for managing each of these risks and these policies have remained
unchanged throughout the year. Furthermore, trading in financial instruments is
not permitted.
Interest rate risk
The group is exposed to interest rate fluctuations on its borrowings and
deposits. It borrows principally in sterling, euros and Swiss francs at both
fixed and floating rates of interest and places deposits in sterling and euros
at floating rates. During the year, with the exception of a fixed interest term
facility amounting to £1.8 million denominated in Swiss francs, the group
maintained its policy of borrowing at floating rates.
Liquidity risk
The board's policy on liquidity is to ensure that sufficient facilities are
available to fund the group's trading and investment requirements. In recent
years, reliance on uncommitted facilities has increased and greater emphasis
placed on the flexibility associated with bank overdraft. This move away from
committed facilities has been possible because of the group's strong cash flow
and neutral net funding.
Foreign currency risk
The group is exposed to movements in currency exchange rates arising from
transaction currency cash flows and the translation of the results and net
assets of overseas subsidiary operations. These risks however, presently do not
have any significant affect on the results and financial position of the group
overall.
The majority of the day-to-day transactions of the group's operations are
denominated in the currency of the countries in which they are located, as
illustrated by the table below,
Domestic Foreign
% %
UK - sterling 97.4 2.6
France - euro 99.1 0.9
Switzerland - Swiss franc 76.1 23.9
The Netherlands - euro 99.8 0.2
Transactions analysed by currency are as follows,
%
Sterling 82.3
Euro 13.6
Swiss francs 3.7
Other 0.4
100.0
The two tables illustrate that foreign currency cash flows arising from
transactions are not material. Furthermore, the foreign currency earnings
generated by overseas subsidiary operations are reinvested into the businesses.
At 31 December 2003, 11.7% of the group's operating net assets related to
overseas subsidiary operations. Given the relative size, there are no
arrangements in place to hedge the net assets and cash flows of overseas
operations other than natural hedging arising by virtue of local borrowings.
International Financial Reporting Standards
From 1 January 2005, the consolidated financial statements of the group must
comply with International Financial Reporting Standards (IFRS). The initial
assessment of the differences between UK GAAP and IFRS has indicated that it
should be possible to make the transition to the new reporting requirements with
minimal amendment to existing systems and processes.
The actual impact on the consolidated financial statements of the adoption of
IFRS will depend on the Standards applicable and particular circumstances
prevailing on adoption of IFRS on 1 January 2005. However, there have been no
differences identified to date as potentially having a significant effect on the
consolidated financial statements.
The group has not yet completed the process of identifying all disclosure,
presentation or classification differences that would affect the manner in which
transactions or events are processed nor has it completed its quantification of
the differences.
Consolidated profit and loss account
for the year ended 31 December 2003
2003 2002
£'000 £'000
Turnover
Continuing operations 412,295 374,404
Discontinued operations - 21,319
412,295 395,723
Cost of sales (289,315) (279,902)
Gross profit 122,980 115,821
Net operating expenses (90,301) (86,284)
Operating profit
Continuing operations 32,679 27,957
Discontinued operations - 1,580
Operating profit before goodwill amortisation 33,514 30,362
Goodwill amortisation (835) (825)
32,679 29,537
Profit on disposal of operations excluding goodwill - 861
Profit on ordinary activities before interest 32,679 30,398
Net interest payable and other similar charges (86) (521)
Profit on ordinary activities before taxation 32,593 29,877
Taxation on profit on ordinary activities (10,464) (9,335)
Profit for the financial year 22,129 20,542
Dividends paid and proposed on equity shares (11,657) (10,550)
Retained profit for the financial year 10,472 9,992
Earnings per share
Basic 26.3p 24.4p
Diluted 25.9p 24.1p
Adjusted 27.3p 24.4p
Consolidated balance sheet
at 31 December 2003
2003 2002
£'000 £'000
Fixed assets
Intangible assets 13,210 13,767
Tangible assets 64,236 44,607
77,446 58,374
Current assets
Stock 73,889 66,951
Debtors: amounts falling due within one year 72,419 72,696
Debtors: amounts falling due after more than one year 1,500 1,500
Total debtors 73,919 74,196
Cash at bank and in hand 32,336 35,522
180,144 176,669
Creditors: amounts falling due within one year (147,378) (135,287)
Net current assets 32,766 41,382
Total assets less current liabilities 110,212 99,756
Creditors: amounts falling due after more than one year (1,175) (1,670)
Provisions for liabilities and charges (777) (676)
Net assets 108,260 97,410
Capital and reserves
Called up share capital 4,213 4,209
Share premium account 49,061 48,899
Revaluation reserve 2,844 4,042
Profit and loss account 52,142 40,260
Equity Shareholders' funds 108,260 97,410
Consolidated cash flow statement
for the year ended 31 December 2003
2003 2002
£'000 £'000
Net cash inflow from operating activities 36,046 38,825
Returns on investments and servicing of finance (105) (578)
Taxation (8,750) (7,476)
Capital expenditure (16,952) (10,592)
Acquisitions and disposals (1,189) 7,075
Equity dividends paid (10,550) (9,555)
Cash (outflow)/inflow before financing (1,500) 17,699
Financing (1,360) (25,691)
Decrease in cash in year (2,860) (7,992)
Reconciliation of net cash flow to movements in net cash
2003 2002
£'000 £'000
Decrease in cash in year (2,860) (7,992)
Cash outflow from reduction in debt 1,526 26,008
Change in debt resulting from cash flows (1,334) 18,016
Debt disposed of with subsidiaries - -
New finance leases and similar hire purchase contracts - (129)
Translation difference 75 (370)
Movement in net cash in the year (1,259) 17,517
Net cash at 1 January 29,875 12,358
Net cash at 31 December 28,616 29,875
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2003
2003 2002
£'000 £'000
Profit for the financial year 22,129 20,542
Currency translation differences on foreign currency net investments 212 (1,150)
Total recognised gains and losses for the financial year 22,341 19,392
Note of consolidated historical cost profits and losses
For the year ended 31 December 2003
2003 2002
£'000 £'000
Reported profit on ordinary activities before taxation 32,593 29,877
Difference between an historical cost depreciation charge and the actual
depreciation charge calculated on the revalued amount 59 60
Realisation of property revaluation gains 1,139 -
Historical cost profit on ordinary activities before taxation 33,791 29,937
Historical cost profit for the year retained after taxation and dividends 11,630 10,052
Reconciliation of movements in consolidated shareholders' funds
For the year ended 31 December 2003
2003 2002
£'000 £'000
Profit for the financial year 22,129 20,542
Dividends on equity shares (11,657) (10,550)
Retained profit for the financial year 10,472 9,992
Equity share capital issued 166 307
Preference share capital redeemed - (4)
Currency translation differences on foreign currency net investments 212 (1,150)
Net addition to shareholders' funds 10,850 9,145
Shareholders' funds at 1 January 97,410 88,265
Shareholders' funds at 31 December 108,260 97,410
Segmental Analysis
Turnover Profit before Operating net assets
interest and
taxation
2003 2002 2003 2002 2003 2002
£'000 £'000 £'000 £'000 £'000 £'000
By activity
Floorcoverings 412,295 374,404 34,464 29,603 99,653 78,707
Discontinued operations - 21,319 - 1,580 - 4,571
412,295 395,723 34,464 31,183 99,653 83,278
Central operations (950) (821)
Less: goodwill amortisation (835) (825)
Less: exceptional items - 861
32,679 30,398
By origin
UK 345,300 330,933 31,974 28,895 87,949 71,361
Continental Europe 66,995 64,790 1,540 1,467 11,704 11,917
412,295 395,723 33,514 30,362 99,653 83,278
Less: goodwill amortisation (835) (825)
Less: exceptional items - 861
32,679 30,398
Earnings per share
The calculation of earnings per share is based on the average number of ordinary
shares in issue during the year of 84,203,287 (2002: 84,087,778). The weighted
average number of ordinary shares used for the diluted earnings per share
calculation is 85,572,233 (2002: 85,071,792). The calculation of profit for the
financial period used for the adjusted earnings per share is shown below.
Adjusted earnings per share
2003 2002
£'000 £'000
Operating profit before goodwill amortisation 33,514 30,362
Net interest payable (86) (521)
Profit on ordinary activities before taxation 33,428 29,841
Taxation on profit on ordinary activities (10,464) (9,335)
Adjusted profit for the financial period 22,964 20,506
Reconciliation of group operating profit to net cash inflow from operating
activities
2003 2002
£'000 £'000
Profit on ordinary activities before interest 32,679 30,398
Exceptional items - (861)
Operating profit 32,679 29,537
Depreciation of tangible fixed assets 2,947 2,976
Goodwill amortisation 835 825
Profit on sale of fixed tangible assets (26) (54)
Movement in stocks (5,619) (2,910)
Movement in debtors (3,667) 733
Movement in creditors 8,897 7,718
Net cash inflow from operating activities 36,046 38,825
Gross cash flows
2003 2002
£'000 £'000
Returns on investments and servicing of finance
Bank interest received 881 1,393
Bank and loan interest (864) (1,856)
Interest payable on finance leases and similar hire purchase contracts (122) (115)
(105) (578)
Capital expenditure
Purchase of tangible fixed assets (22,886) (11,098)
Sale of tangible fixed assets 406 87
Sale of assets held for resale 5,528 419
(16,952) (10,592)
Acquisitions and disposals
Sale of subsidiary undertakings - 7,723
Net overdrafts disposed of with subsidiaries - 2,799
Net cash outflow from purchase of businesses (522) (3,447)
Net overdraft acquired with businesses (667) -
(1,189) 7,075
Financing
Issue of ordinary share capital 166 307
Repayment of amounts borrowed (591) (24,612)
Redemption of preference shares - (4)
Capital element of finance leases and similar hire purchase contract
payments (935) (1,382)
(1,360) (25,691)
Analysis of changes in net funds
At At
1 January Cash Translation 31 December
2003 flows differences 2003
£'000 £'000 £'000 £'000
Cash at bank and in hand 35,522 (3,321) 135 32,336
Bank overdraft (635) 461 (43) (217)
34,887 (2,860) 92 32,119
Debt due within one year (2,403) 591 (17) (1,829)
Finance leases and similar hire
purchase contracts (2,609) 935 - (1,674)
29,875 (1,334) 75 28,616
The financial information set out in the financial statements and notes above
does not constitute the Company's statutory accounts for the years ended 31
December 2003 or 2002. The financial information for 2002 is derived from the
statutory accounts for 2002 which have been delivered to the registrar of
companies. The auditors have reported on the 2002 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 2003 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 following the company's annual
general meeting.
The financial statements for the year ended 31 December 2003 will be posted to
shareholders shortly.
This information is provided by RNS
The company news service from the London Stock Exchange JBBJI
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