Final Results

RNS Number : 7425C

Headlam Group PLC

11 March 2011

Preliminary Results for the Year Ended 31 December 2010

Headlam Group plc ("Headlam"), Europe's leading floorcoverings distributor, announces its final results for the year ended 31 December 2010.

Financial highlights

	2010 £000	2009 £000	Change

Revenue	535,690	533,793	+0.4%

Operating profit	26,066	24,758	+5.3%

Profit before tax	25,006	22,064	+13.3%

Basic earnings per share	21.5p	19.1p	+12.6%

Dividend per share	12.4p	11.0p	+12.7%

Key points

UK, which represents 80.8% of group revenue, like for like revenue increased by 0.4%

Continental European revenue decreased by 0.7% on a like for like basis

Profit before tax increased by 13.3%

Net cash increased to £10.5 million

Dividend per share increased by 12.7%

Tony Brewer, Headlam's Group Chief Executive, said:

"The performance in 2010 and a positive start to 2011 is a result of the tremendous effort from our management, sales people and all our employees. The group has positioned autonomous businesses into specific market sectors to take full advantage of all opportunities.

Through this structure we have extensive penetration into the floorcovering market encompassing both suppliers and customers.

Each of our business teams are focused on meeting their individual targets, which provides the group with confidence to achieve its overall objectives for the year."

Enquiries:

Headlam Group plc

Tony Brewer, Group Chief Executive Tel: 01675 433000

Stephen Wilson, Group Finance Director

Chairman's Statement

I am pleased to report that in 2010, we were able to increase revenue by 0.4% to £535.7 million. This was against market conditions where most indicators suggested further reductions in market size in both the UK and Continental Europe.

Earnings and dividend

Profit before tax increased from £22.1 million to £25.0 million and earnings per share improved by 12.6% from 19.1p to 21.5p. The board has therefore elected to increase the final dividend by 17.4% from 7.30p to 8.57p. This results in a total dividend for the year of 12.4p, which represents an increase of 12.7% on 2009.

The final dividend, if approved by shareholders at the Annual General Meeting, will be paid on 1 July 2011 to shareholders on the register at close of business on 3 June 2011.

Strategy

Whilst the group implemented limited restructuring in 2008 and 2009, we believe that maintaining our fundamental structure has strengthened our market position in a challenging environment and gives us the opportunity to continue to enlarge the business as market conditions stabilise and improve.

The group remains fully committed to the product development, sales, marketing and distribution of floorcovering in the UK and Continental Europe. In the UK, revenue growth and the consequent increase in profitability, has been achieved through our policy of operating through 49 individual management teams and businesses, focused on their geographical areas and product categories. This performance has been enhanced by a positive contribution from our businesses in Continental Europe.

The group's growth objectives will continue to be focused on the development of our floorcovering businesses in the UK and Continental Europe.

Management and Employees

The board were pleased to advise you in May 2010, of the appointment of Andrew Eastgate as a non-executive director. Andrew brings a wealth of corporate experience and we look forward to working with him in the future.

Following the retirement last year of Andrew Simpson, we have realigned the responsibilities of the senior executive managers, Gary Phillips, Tony Judge, Keith Yates and Mike McMaster, to develop both their group and operational objectives. They direct and encourage the individual management teams to ensure compliance with group strategy, policy and achievement of their individual business objectives.

I would like to thank our management and employees for their contribution to another successful year in the development of our group.

Outlook

We have made a positive start to 2011 and whilst January and February are relatively lower trading months, it does give a good indication to future trading assuming normal seasonality.

With the group's strategic direction established and the individual management teams having many sales and marketing initiatives in place, we are therefore confident, at this stage, of achieving our internal objectives for the year.

Graham Waldron, Chairman

Chief Executive's Review

The 0.4% increase in the group's revenue was achieved in both a challenging market environment and particularly harsh weather conditions in the UK during January and December 2010.

If the effects of these two months are excluded, the increase in revenue from February to November is 1.2% in the UK, which is a better reflection of the underlying performance during the year.

Various market indicators would suggest that conditions remained difficult in both the UK and Continental Europe and therefore, the group's revenue increase reflects an outperformance in our respective markets.

We believe that with our autonomous operating structure and proactive management teams, we can continue to outperform the floorcovering market and develop our business, principally by organic growth, but also, with appropriate strategic acquisitions.

UK Structure

As referred to in the Chairman's Statement, we considered it appropriate for the group to retain the fundamental structure that has been developed over the last 19 years, in order to preserve the inherent culture and maintain the opportunity to increase the group's market presence.

The UK operations incorporate 49 individual businesses, operating from 18 distribution centres and 14 service centres. These businesses are positioned within five market sectors, based on their geographical focus and product offering.

The individual businesses market very diverse product portfolios, therefore offering an extensive choice to our customers throughout the UK.

The five market sectors are:

Regional multi-product: These 20 businesses represent 52% of UK revenue, selling both residential and commercial floorcovering and provide a comprehensive geographical coverage. They have continued to develop their market share providing a solid base for the group to expand.

National multi-product: Operating principally under the Mercado trade brand, these businesses, offering a national service for residential and commercial floorcovering throughout England, Wales and Northern Ireland, maintained their market position.

Regional commercial: Following on from the successful development of this sector, it is our intention over the next three years to increase the number of operations from 16, either through acquisition or development of new service centre operations, to further enhance our position in the regional commercial market.

Residential specialist: Operating mainly in the middle to premium quality carpet market, the performance of these 14 businesses has been particularly encouraging, given the challenging market conditions. They have added an extra dimension to our business over the last 10 years and have undoubtedly taken the group into additional product areas and widened our customer base within the floorcovering market.

Commercial specialist: Following the restructuring of our commercial specialist business in 2009, it is pleasing to report that JHS has prospered and further developed its market position in 2010.

Management

Our individual managers have spent many years gaining a thorough understanding of the floorcovering market. They are clearly focused on their individual objectives against which they are measured and subsequently rewarded.

Within the autonomous teams we have taken the opportunity, due to retirement and certain changes in management, to promote internally and the early results of this are particularly encouraging.

It has been the group's policy to promote from within wherever possible, but there are certain instances, particularly with our more specialist businesses, where it is appropriate to recruit externally.

These various opportunities demonstrate to all our employees that there is a career path within the group and sufficient opportunities for them to expand their individual aspirations.

Suppliers

We continue to work closely from a group strategic perspective and also through our individual operating businesses with our suppliers, principally the leading floorcovering manufacturers in the UK and Continental Europe.

Our supplier base has remained fairly stable throughout the last 12 months and we would like to thank our suppliers for their ongoing support through the launch of new products, which ensures that the independent floorcovering retailers and contractors are at the forefront of all new floorcovering products in our respective markets.

Market Presence

The individual management teams operate within a specified strategy relating to their market position, complying with standard operating disciplines and financial controls. However, within this structure they are given autonomy to develop their business through their relationship with suppliers and customers. This ensures that we have a constant programme of promotional events, customer initiatives, marketing plans and product launches.

During 2010, we have experienced a similar performance from our UK businesses in residential and commercial floorcoverings. This has resulted in the product mix being stable at 69% residential and 31% commercial.

Our individual management teams are continually developing product and during 2010, our businesses in the UK launched 3,109 new products, including carpet, residential vinyl, laminate and wood. These were supported by our 366 external sales people in the UK placing, into independent flooring retailers and contractors, 626,637 new point of sale items, typically display stands and pattern books.

Furthermore, we launched, through our regional and national multi-product businesses, the Lifestyle Floors brand during 2010. This was originally intended to promote a limited number of carpet ranges, but with such a positive reaction from our customer base, we have both extended the number of carpet ranges and also developed other products under the Lifestyle Floors brand, including residential vinyl, laminate, wood and luxury vinyl tile.

The Lifestyle Floors initiative, in conjunction with our normal daily product activities, will undoubtedly further support and develop the market presence of the group.

Customers

In order to maximise our position with independent floorcovering retailers and contractors, we closely monitor the call rate of our individual external sales people, which has culminated in 475,901 visits to our customers during the year.

Our customers are able to place orders until late afternoon for delivery the following working day. This service has resulted in our commercial vehicle drivers making 1,126,676 deliveries to customers' premises during 2010.

This continual interface with customers has been largely responsible for the increase in the number of active accounts during 2010 to 41,994 from 41,334 in 2009. In conjunction with this, our debtor days decreased from 45.4 to 44.8 days. It is encouraging that this activity and the payment to credit terms of our customers further reflect their positive performance and financial health.

Continental Europe

Our three operations in Continental Europe collectively produced a solid operating profit during 2010. The most positive performance was produced by Belcolor in Switzerland. Whilst market conditions in the Netherlands were generally challenging, our three businesses, Lethem Vergeer, Interplan and Silvester, showed some improvement towards the end of 2010. In France our single business, LMS, operating from two distribution centres and 21 service centres, produced a satisfactory result in a difficult market.

Investments

In May, we completed the purchase of a 110,000 square feet freehold distribution centre, located in Rochdale, to provide National Carpets with increased capacity to expand its activities. We are still awaiting planning approval, for the construction of a 127,000 square feet purpose built freehold distribution centre, in connection with the project to relocate Faithfulls, our regional multi-product business in the southeast of England, to a site in Hadleigh near Ipswich.

Outlook

The performance in 2010 and a positive start to 2011 is a result of the tremendous effort from our management, sales people and all our employees. The group has positioned autonomous businesses into specific market sectors to take full advantage of all opportunities.

Through this structure we have extensive penetration into the floorcovering market encompassing both suppliers and customers.

Each of our business teams are focused on meeting their individual targets, which provides the group with confidence to achieve its overall objectives for the year.

Financial review

Trading

Revenue

Group revenue increased during the year by 0.4% from £533.8 million to £535.7 million.

In the UK, which accounts for 80.8% of group revenue (2009: 80.5%), like for like revenue increased by 0.4% from £428.8 million to £430.4 million with new businesses introduced during 2009 and 2010 contributing £2.4 million (2009: £0.8 million).

Based on constant currency, the Continental European businesses, which account for the balance of the group's revenue, recorded a 0.7% decline in revenue. The affects of currency translation increase this to a 1.3% decline with revenue falling from £104.1 million to £102.9 million.

Gross margin and expenses

During the year, the businesses received an increased number of cut length orders for residential carpet, which yielded higher margins and a reduced number of orders for full rolls, which attract a lower margin. In addition, the group continues to develop initiatives to reduce the costs associated with withdrawing product from the market at the end of its life. These two factors were the principal reasons for the gross margin improving by 40 basis points, compared with 2009.

Distribution and administration expenses, collectively representing 25.9% of revenue, were unchanged on the previous year. In isolation, distribution expenses increased, year on year, by 1.3%, fuel costs being the principal cause, whilst administration expenses registered a slight increase of 0.2%.

Net finance costs

Net finance costs reduced during the year by £1.6 million compared with 2009. Approximately half of the decrease was attributable to the reduced interest charge associated with the group's UK borrowings, which occurred on cessation of the interest rate swap contract during April 2010. The other significant contributor to the change in the year was the net reduction in finance cost associated with the group's pension plans.

Taxation

The effective rate of taxation increased to 28.5% during the year, which reflects the group's mix of profits across the UK and Continental Europe and current level of disallowable expenditure. The anticipated effective rate for 2011 is expected to reduce to 28%.

Property valuation

In keeping with the company's practice of updating the valuation of its freehold and long leasehold properties on a triennial basis, the portfolio was valued at 31 December 2010 on an existing use basis. The results of the valuation revealed an £11.3 million shortfall compared with depreciated historical cost. This is a considerable change compared with the position at 31 December 2007, when the valuation exceeded depreciated historical cost by £12.1 million. The result is because the valuation is based on rental yields and of course, commercial property rentals have declined markedly during the period since December 2007.

An impairment review has been undertaken on the portfolio and with the exception of one property, which has been impaired by approximately £0.5 million, no further impairment was considered necessary.

The valuation excludes freehold properties located in Continental Europe and the property classified as held for sale as at 31 December 2010.

Cash flows and net funds

Net cash flow from operating activities

Cash flows from operating profit before changes in working capital were unchanged year on year at £31.5 million.

Investment in net working capital during the year amounted to £0.2 million, which compares with a net contraction in 2009 amounting to £12.2 million. The £12.4 million movement in year on year investment occurred as a result of the businesses moving back into a normal operating cycle following the unusual trading conditions during 2008 and 2009. In particular, the movement in inventory, which changed from a cash inflow of £6.6 million in 2009 to a cash outflow of £5.8 million in 2010, represented a substantial year on year reversal of £12.4 million, as the businesses replenished their product positions following the reductions of 2009.

The additional net working capital investment explains the £12.3 million decline in cash generated from operations. The reduced interest paid of £0.9 million and the £7.5 million cash outflow relating to the enhanced transfer value exercise are the principal reasons for the adverse variance in net cash flow from operating activities increasing by £6.8 million to £19.1 million.

Cash flows from investing and financing activities

Net cash outflows from investing activities totalled £3.0 million compared with £5.8 million during 2009 with investment in property, plant and equipment amounting to £7.0 million, compared with £7.3 million for 2009. The principal investment during the year was the purchase of the freehold distribution centre, located in Rochdale, for National Carpets. Cash proceeds, amounting to £3.2 million, as a result of the sale of property, plant and equipment were significantly higher in 2010 compared with £0.7 million in 2009.

Cash out flows from financing activities totalled £10.0 million compared with £15.2 million during the previous year, with the reduction in dividend payments of £7.2 million being the main reason for the change.

Changes in net funds

Group net funds increased by £0.8 million from £9.7 million to £10.5 million during the year as detailed in the table below.

	At 1 January 2010 £000	Cash flows £000	Translation differences £000	At 31 December 2010 £000

Cash at bank and in hand	45,737	(1,444)	465	44,758
Bank overdraft	(758)	730	28	-

	44,979	(714)	493	44,758
Debt due within one year	(900)	642	33	(225)
Debt due after one year	(34,392)	224	157	(34,011)

	9,687	152	682	10,522

Employee benefits

During the year, the net deficit relating to the defined benefit pension plans decreased by £10.1 million from £22.8 million to £12.7 million. The additional contributions to the plan, £2.7 million (2009: £2.6 million) and the cash spent on the enhanced transfer value exercise, £7.5 million (2009: £nil) significantly contributed to the reduction. As mentioned last year, the company offered deferred members of the UK defined benefit pension plan the opportunity to transfer out. The amount finally expended in connection with this exercise was £0.3 million ahead of the £7.2 million reported at the half year. In addition, associated costs amounted to £0.3 million.

The additional contributions of £2.7 million, made to the plan during 2010, will be reassessed during 2011 when the UK plan's actuary undertakes the triennial valuation as at 31 March 2011. Furthermore, additional enhanced transfer value payments, totalling £3.3 million, have been made in 2011 as the group continues its strategy of eliminating the plan deficit.

Going concern

Having reviewed the group's resources and a range of likely out-turns, the directors believe they have reasonable grounds for stating that the group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the group's financial statements.

Consolidated Income Statement

for the year ended 31 December 2010

	Note	2010 £000	2009 £000

Revenue	1	535,690	533,793
Cost of sales		(370,731)	(371,533)

Gross profit		164,959	162,260

Distribution expenses		(102,016)	(100,698)
Administrative expenses		(36,877)	(36,804)

Operating profit	1	26,066	24,758

Finance income		4,637	3,764
Finance expenses		(5,697)	(6,458)

Net finance costs		(1,060)	(2,694)

Profit before tax		25,006	22,064
Taxation		(7,127)	(6,168)

Profit for the year attributable to the equity shareholders		17,879	15,896

Dividend paid per share	3	11.00p	19.70p

Earnings per share
Basic	2	21.5p	19.1p

Diluted	2	21.5p	19.1p

All group operations during the financial years were continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

	2010 £000	2009 £000

Profit for the year attributable to the equity shareholders	17,879	15,896

Other comprehensive income:
Foreign exchange translation differences arising on translation of overseas operations	1,094	(1,808)
Actuarial gains and losses on defined benefit plans	356	(10,042)
Effective portion of changes in fair value of cash flow hedges	(1)	(157)
Transfers to profit or loss on cash flow hedges	225	781
Income tax on other comprehensive income	9	2,854

Other comprehensive income/(expense)	1,683	(8,372)


Total comprehensive income attributable to the equity shareholders for the year	19,562	7,524

Consolidated Statement of Financial Position

at 31 December 2010


	Notes		2010 £000		2009 £000
Assets
Non-current assets
Property, plant and equipment			97,215		96,530
Intangible assets			13,210		13,210
Deferred tax assets			896		4,731
			111,321		114,471

Current assets
Inventories			105,694		99,637
Trade and other receivables			102,240		101,149
Cash and cash equivalents			44,758		45,737
Assets held for sale			362		2,275

			253,054		248,798


Total assets	1		364,375		363,269

Liabilities
Current liabilities
Bank overdraft			-		(758)
Other interest-bearing loans and borrowings			(225)		(900)
Trade and other payables			(149,476)		(143,216)
Employee benefits			(2,586)		(2,506)
Income tax payable			(4,201)		(8,615)

			(156,488)		(155,995)

Non-current liabilities
Other interest-bearing loans and borrowings			(34,011)		(34,392)
Employee benefits			(10,138)		(20,253)
			(44,149)		(54,645)
Total liabilities	1		(200,637)		(210,640)

Net assets			163,738		152,629

Equity attributable to equity holders
of the parent
Share capital		4,268		4,268
Share premium		53,512		53,512
Other reserves		(6,571)		(7,896)
Retained earnings		112,529		102,745

Total equity		163,738		152,629

Consolidated Statement of Changes in Equity

for the year ended 31 December 2010

capital

£000

premium

£000

Capital

redemption

reserve

£000

Translation

reserve

£000

Cash flow

hedging

reserve

£000

Treasury

reserve

£000

Retained

earnings

£000

Total

equity

£000

Balance at

1 January 2009

4,268

53,512

7,105

(848)

(13,057)

110,066

161,134

Total comprehensive income for the period

(1,808)

624

8,708

7,524

Transactions with equity shareholders, recorded directly in equity

Share-based payments

316

Deferred tax on share options

Dividends to equity holders

(16,354)

Total contributions by and distributions to equity shareholders

(16,029)

Balance at

31 December 2009

4,268

53,512

5,297

(224)

(13,057)

102,745

152,629

Balance at

1 January 2010

4,268

53,512

5,297

(224)

(13,057)

102,745

152,629

Total comprehensive income for the period

1,094

224

18,244

19,562

Transactions with equity shareholders, recorded directly in equity

Share-based payments

448

Share options exercised by employees

Deferred tax on share options

224

Dividends to equity holders

(9,132)

Total contributions by and distributions to equity shareholders

(8,460)

(8,453)

Balance at

31 December 2010

4,268

53,512

6,391

(13,050)

112,529

163,738

Consolidated Cash Flow Statement

for the year ended 31 December 2010

	2010 £000	2009 £000
Cash flows from operating activities
Profit before tax for the year	25,006	22,064
Adjustments for:
Depreciation, amortisation and impairment	5,519	6,524
Net settlement gain on enhanced transfer value exercise	(176)	-
Finance income	(4,637)	(3,764)
Finance expense	5,697	6,458
Profit on sale of property, plant and equipment	(314)	(102)
Share-based payments	448	316

Operating profit before changes in working capital and other payables	31,543	31,496
Change in inventories	(5,770)	6,618
Change in trade and other receivables	(1,405)	3,028
Change in trade and other payables	6,947	2,511

Cash generated from the operations	31,315	43,653
Interest paid	(1,344)	(2,272)
Tax paid	(7,506)	(7,425)
Additional contributions to defined benefit plan	(2,706)	(2,607)
Enhanced transfer value exercise payments	(7,488)	-

Net cash from operating activities	12,271	31,349

Cash flows from investing activities
Proceeds from sale of property, plant and equipment	3,167	664
Interest received	834	846
Acquisition of property, plant and equipment	(6,995)	(7,313)

Net cash from investing activities	(2,994)	(5,803)

Cash flows from financing activities
Proceeds from the issue of treasury shares	7	-
Repayment of borrowings	(866)	-
Proceeds from borrowings	-	1,152
Dividends paid	(9,132)	(16,354)

Net cash from financing activities	(9,991)	(15,202)

Net (decrease)/increase in cash and cash equivalents	(714)	10,344
Cash and cash equivalents at 1 January	44,979	35,193
Effect of exchange rate fluctuations of cash held	493	(558)
Cash and cash equivalents at 31 December	44,758	44,979

Notes

1. Segment reporting

The group has 54 operating segments which represent the individual trading operations throughout the UK (49 segments) and Continental Europe (5 segments). Each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products. The operating results of each are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Group Chief Executive. Discrete financial information is available for each and used by the Group Chief Executive to make decisions about resources to be allocated to the segment and assess its performance.

The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly report these as two separate reportable segments. This distinction is embedded in the construction of operating reports reviewed by the Group Chief Executive, the board and the executive management team and forms the basis for the presentation of operating segment information given below.

	UK		Continental Europe		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Revenue
External revenues	432,815	429,646	102,875	104,147	535,690	533,793

Depreciation	2,503	2,834	747	733	3,250	3,567

Reportable segment result	24,662	23,106	2,553	2,487	27,215	25,593


Reportable segment assets	226,518	223,044	50,267	49,636	276,785	272,680

Capital expenditure	784	926	553	2,197	1,337	3,123

Reportable segment liabilities	(129,365)	(123,088)	(20,111)	(20,662)	(149,476)	(143,750)

During the year there have been no inter-segment revenues (2009: £nil).

Reconciliations of reportable segment profit, assets and liabilities and other material items:

	2010 £000	2009 £000
Profit for the year
Total profit for reportable segments	27,215	25,593
Impairment of assets	(466)	(1,211)
Unallocated (expense)/income	(683)	376

Operating profit	26,066	24,758

Finance income	4,637	3,764
Finance expense	(5,697)	(6,458)

Profit before taxation	25,006	22,064
Taxation	(7,127)	(6,168)

Profit for the year	17,879	15,896

Notes (continued)

1. Segment reporting - Continued

		2010 £000	2009 £000
Assets
Total assets for reportable segments		276,785	272,680
Unallocated assets:
Properties, plant and equipment		86,332	83,583
Deferred tax assets		896	4,731
Assets held for sale		362	2,275

Total assets		364,375	363,269

Liabilities
Total liabilities for reportable segments		(149,476)	(143,750)
Unallocated liabilities:
Employee benefits		(12,724)	(22,759)
Other interest-bearing loans and borrowings		(34,236)	(35,292)
Income tax payable		(4,201)	(8,615)
Derivative liabilities		-	(224)

Total liabilities		(200,637)	(210,640)

	Reportable segment totals	Group items	Consolidated totals
Other material items 2010
Capital expenditure	1,337	5,658	6,995
Depreciation	3,250	1,803	5,053
Impairment of assets	-	466	466

	4,587	7,927	12,514

Other material items 2009
Capital expenditure	3,123	4,190	7,313
Depreciation	3,567	1,746	5,313
Impairment of assets	-	1,211	1,211
	6,690	7,147	13,837

Each segment is a continuing operation.

The Group Chief Executive, the board and the executive management team has access to information that provides details on revenue by principal product group for the two reportable segments, as set out in the following table:

Revenue by principal product group and geographic origin is summarised below:

	UK		Continental Europe		Total
	2010 £000	2009 £000	2010 £000	2009 £000	2010 £000	2009 £000
Revenue
Residential	297,606	295,960	51,992	53,617	349,598	349,577
Commercial	135,209	133,686	50,883	50,530	186,092	184,216

	432,815	429,646	102,875	104,147	535,690	533,793

Notes (continued)

2. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	2010 £000	2009 £000
Earnings
Earnings for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent	17,879	15,896


	2010	2009
Number of shares
Issued ordinary shares at 1 January	85,363,743	85,363,743
Effect of shares held in treasury	(2,246,489)	(2,248,647)

Weighted average number of ordinary shares for the purposes of basic earnings per share	83,117,254	83,115,096

Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December	83,117,254	83,115,096
Dilutive effect of share options	113,570	94,622

Weighted average number of ordinary shares for the purposes of diluted earnings per share	83,230,824	83,209,718

At 31 December 2010, the company held 2,245,603 shares in treasury and these are excluded from the

calculation of earnings per share.

3. Dividends

	2010 £000	2009 £000

Interim dividend for 2009 of 3.70p paid 2 January 2010	3,072	-
Final dividend for 2009 of 7.30p paid 1 July 2010	6,060	-
Interim dividend for 2008 of 5.60p paid 2 January 2009	-	4,649
Final dividend for 2008 of 14.10p paid 1 July 2009	-	11,705

	9,132	16,354

The final proposed dividend of 8.57p per share (2009: 7.30p per share) will not be provided for until authorised by shareholders at the forthcoming AGM.

Interim dividends of 3.83p per share (2009: 3.70p per share) are provided for when the dividend is paid.

The total value of dividends proposed but not recognised at 31 December 2010 is £10,294,000 (2009: £9,132,000).

Notes (continued)

4. Additional information

The financial information set out above does not constitute the company's statutory accounts for the years ended

31 December 2010 or 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the registrar of companies, and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

We anticipate that the company's statutory accounts will be posted to shareholders during April 2011 and will be displayed on the company's website at www.headlam.com during April 2011. Copies of the statutory accounts will also be available from the company's registered office at Headlam Group plc, PO Box 1, Gorsey Lane, Coleshill, Birmingham, B46 1LW.

This preliminary announcement of results for the year ended 31 December 2010 was approved by the board on

11 March 2011.