Half Yearly Report

Interim Financial Results for the six month period ended 30 June 2013

RNS Number : 7937M

Headlam Group PLC

30 August 2013

We confirm to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union;

(b) the interim management report includes a fair review of the information required by:

(i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Headlam Group plc ("Headlam"), Europe's leading floorcoverings distributor, announces its Interim Financial Results for the six months ended 30 June 2013.

Financial highlights

	2013 £000	2012 £000	Change

Revenue	280,385	279,441	+0.3%

Operating profit	9,738	10,759	-9.5%

Profit before tax	9,076	10,092	-10.1%

Basic earnings per share	8.4p	9.1p	-7.7%

Dividend per share	4.65p	4.65p	-

Key points

· UK revenues reduced by 0.8% on a like for like basis

· Continental European revenue reduced by 5.2% on a like for like basis

· Earnings down by 7.7%

· Dividend maintained at 4.65p

· Project to extend the Coleshill distribution hub proceeding as planned

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

"UK like for like revenue during July was broadly flat compared with July last year and the combined monthly performance from our businesses on the Continent was down by 4.8% on the previous year. Whilst August trading in the UK is showing a degree of improvement, it is a further illustration of the variable trading pattern experienced during the eight months of the year so far.

Notwithstanding the current lack of visibility on the very important autumn trading period, the board are confident that subject to the group achieving a reasonable performance during the second six months of the year, the 2013 dividend will not be less than 2012."

Enquiries:

Headlam Group plc

Tony Brewer, Group Chief Executive Tel: 01675 433000

Steve Wilson, Group Finance Director

Chairman's Statement

Total group revenue in the first six months of 2013 increased from £279.4 million to £280.4 million. In challenging market conditions, like for like revenue declined by 0.8% in the UK and 5.2% in Continental Europe.

Earnings and dividend

Basic earnings per share reduced by 7.7% from 9.1p to 8.4p compared with the first six months of 2012. Despite the reduction, your board has decided to leave the interim dividend unchanged and therefore a dividend of 4.65p will be paid on 2 January 2014 to shareholders on the register at 6 December 2013.

UK operations

The group's UK activities are comprised of 53 businesses, operating from 18 distribution centres and 24 service centres, with each business focused upon one of five market sectors; regional multi-product, national multi-product, regional commercial, residential specialist and commercial specialist. We continue to review this structure in order to ensure that the sales and marketing initiatives of our autonomous businesses are optimised and our logistics and distribution is being conducted in the most cost effective manner.

In the commercial flooring sector, indicators suggested a fairly subdued market during the first six months and we believe our performance, set against this background, demonstrates a further increase in market share. Undoubtedly the harsh winter and unseasonably cold spring impacted consumer activity in the residential sector and this coupled with inconsistent consumer spending data, makes movement in the residential market more difficult to assess. However, our extensive activities across this fragmented market and historical outperformance lead us to conclude that we have at least maintained our share of the residential sector. The performance across the two sectors has resulted in the proportions of our residential and commercial business being broadly maintained at 68% and 32% respectively.

Notwithstanding the difficult and inconsistent trading environment, we continue to focus on various initiatives with a view to improving market activity.

The group's extensive product offering has been further enhanced, by our management teams working proactively with our key suppliers, and resulted in the launch of 1,855 new products during the period. These launches were supported by 377,182 point of sale items positioned with independent flooring retailers and contractors by our 411 external sales people.

Further developments have been implemented to improve our sales teams' utilisation of the iPad principally by the migration of our Customer Relationship Management software onto an app based platform. This allows sales representatives even faster access to customer data and has improved the interaction with management. This enhancement further increases the efficiency of our sales management and representatives and the service they are able to provide to our customers.

We have continued with our training programme to improve the effectiveness of our management teams and enhance the productivity and selling techniques of our sales representatives. The tangible benefit of this training is carefully monitored as we believe it is an important ongoing investment which should not only assist with the development of individuals' careers but benefit each business and the group as a whole.

Our customers are generally trading satisfactorily as reflected by the number of active accounts, which, on a like for like basis, are broadly consistent year on year. Debtor days reduced slightly and the occurrence of bad debts decreased compared with the corresponding period last year.

We completed the acquisition of the business and certain assets of Hall's Floorings Limited on 28 March 2013. The main logistics operation of Hall's Floorings was immediately moved to Coleshill, whilst retaining a base in North London from which the business will develop its autonomous sales and marketing activity to independent flooring retailers throughout most of England.

The construction project, to extend our Coleshill distribution hub, is moving forward in line with the agreed timetable and the 283,800 square foot facility will be fully operational at the beginning of 2014. When operational, the distribution hub will contribute to enhancing our supply chain and inventory management.

Continental Europe

Our businesses in the Netherlands, France and Switzerland have each maintained their market position in particularly challenging environments. Currently, the most difficult market is in the Netherlands, where we have streamlined and improved the efficiency of our sales structure. In France we have implemented certain procedures to increase the productivity of our sales management and representatives. Whilst Switzerland experienced a difficult spring, the autumn outlook appears more promising.

Although the profitability in these businesses is fairly modest, they are each making a positive contribution. We will continue to strive for an improved performance but require some uplift in activity in their respective markets to significantly increase profitability.

Cash flow

Operating profit before changes in working capital and other payables amounted to £12.3 million compared with £13.5 million for the prior year period, the half year decline principally attributable to the reduction in profit before tax for the period.

Net working capital cash outflow amounted to £8.9 million compared with a net cash inflow of £3.5 million in 2012. The group typically experiences a net investment in working capital during the first six months followed by divestment through the second six months.

The net outflow during the first six months of 2013 expressed as a percentage of revenue, 3.2%, is more typical of the movement expected during this period and compares favourably with our performance indicator of 3.5%. The inflow from the reduction in net working capital that occurred during the same period last year was principally due to a reduction in receivables.

Net cash outflow from operating activities during the first six months amounted to £1.7 million compared with cash inflow of £12.5 million during the corresponding period, the swing being attributable to the reduction in profit and movement in working capital as touched upon above.

Cash outflows from investing activities during the first half of 2013 totalled £5.8 million and were up on the previous year by £4.1 million due to the continued investment in the Coleshill extension and the acquisition of Hall's Floorings. Cash outflows from financing activities were broadly in line with the previous year.

Overall, cash and cash equivalents decreased during the first six months by £11.4 million compared with an increase of £7.1 million during the equivalent period in 2012 and as shown below, the group ended the first six months with net funds of £4.8 million. This compares with net funds at 30 June 2012 of £14.8 million and £16.2 million at 31 December 2012.

Changes in net funds

	At 1 January 2013 £000	Cash flows £000	Translation differences £000	At 30 June 2013 £000

Cash at bank and in hand	49,798	(9,523)	169	40,444
Bank overdraft	-	(1,910)	(8)	(1,918)

	49,798	(11,433)	161	38,526

Debt due within one year	(213)	-	(12)	(225)

Debt due after one year	(33,371)	93	(190)	(33,468)

	16,214	(11,340)	(41)	4,833

IAS 19

Following the introduction of the amendment to IAS 19, the results for the six and twelve month periods in 2012 have been restated in order to adjust for the measurement of the expected return on net assets. In the income statements, the restatements relate to net finance cost and taxation. The net adjustment to the income statement is matched by an equal and opposite adjustment relating to the re-measurement of defined benefit plans in the statement of consolidated income. As a result of these changes, basic earnings per share for the first six months of 2012 has now been restated from 9.4p to 9.1p.

The net effect in both periods, to comprehensive income attributable to the equity shareholders for the period, is zero.

Principal risks and uncertainties

The board has ultimate responsibility for identifying and managing the affect of risk and uncertainty on the group's business, results and financial condition. Whilst the board maintains a policy of continuous identification and review, it nevertheless recognises that many risks and uncertainties lie beyond its control.

Currently, the key risks and uncertainties, which are or have potential to affect the group's operations are market demand, competition, credit risk, IT failure, people, pension costs, legislation and regulation. In addition, there is an increasing risk that the group's results could be affected by the impairment of certain assets.

The potential impact and mitigation of these risks and uncertainties are discussed in more detail on pages 30 and 31 of the 2012 Annual Report and Accounts.

Board change

After 22 years as a director of Headlam, I have decided to retire from the board. I have been privileged to serve as Chairman for 15 years and throughout that time, very fortunate to have been able to rely on the unswerving support of the board and management teams and employees throughout the group. I will step down immediately and am delighted to announce that Dick Peters will be my successor.

Dick was formerly Senior Partner for the East Midlands practice of Deloitte and Touche and his considerable experience combined with the business knowledge gained through seven and a half years as a non-executive director of Headlam make him ideal for the role. I hand over to Dick with the knowledge that he will receive the same dedicated support that I enjoyed throughout my tenure.

Outlook

UK like for like revenue during July was broadly flat compared with July last year and the combined monthly performance from our businesses on the Continent were down by 4.8% on the previous year. Whilst August trading in the UK is showing a degree of improvement, it is a further illustration the variable trading pattern experienced during the eight months of the year so far.

Furthermore, the underlying fragility in the group's markets combined with the lack of visibility on forward revenue streams is undermining the board's ability to provide guidance on second half trading.

However, as mentioned in our trading update on the 8 July 2013, the board are confident that subject to the group achieving a reasonable performance during the second six months of the year, the 2013 dividend will not be less than 2012.

Condensed Consolidated Interim Income Statement

Unaudited

	Note	Six months ended 30 June 2013 £000	Restated *1 Six months ended 30 June 2012 £000	Restated *1 Year ended 31 December 2012 £000

Revenue	2	280,385	279,441	585,984
Cost of sales		(195,751)	(195,949)	(410,251)
Gross profit		84,634	83,492	175,733
Distribution expenses		(56,161)	(54,504)	(109,621)
Administrative expenses		(18,735)	(18,229)	(36,798)
Operating profit	2	9,738	10,759	29,314
Finance income	3	96	118	783
Finance expenses	3	(758)	(785)	(2,246)
Net finance costs		(662)	(667)	(1,463)
Profit before tax		9,076	10,092	27,851
Taxation	4	(2,110)	(2,523)	(6,939)
Profit for the period attributable to the equity shareholders	2	6,966	7,569	20,912

Dividend paid per share	6	14.85p	14.15p	14.15p

Earnings per share
Basic	5	8.4p	9.1p	25.3p

Diluted	5	8.3p	9.0p	25.2p

All group operations during the financial periods were continuing operations.

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Condensed Consolidated Interim Statement of Comprehensive Income

Unaudited

	Six months ended 30 June 2013 £000	Restated *1 Six months ended 30 June 2012 £000	Restated *1 Year ended 31 December 2012 £000
Profit for the period attributable to the equity shareholders	6,966	7,569	20,912

Other comprehensive income:
Foreign exchange translation differences arising on translation of overseas operations	999	(498)	(389)
Re-measurement of defined benefit plans	(410)	(2,030)	(4,985)
Effective portion of changes in fair value of cash flow hedges	75	(226)	(383)
Transfers to profit or loss on cash flow hedges	68	-	44
Income tax on other comprehensive income	(138)	359	1,015

Other comprehensive income/(expense) for the period	594	(2,395)	(4,698)

Total comprehensive income attributable to the equity shareholders for the period	7,560	5,174	16,214

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Condensed Consolidated Interim Statement of Financial Position

Unaudited

	At 30 June 2013 £000	At 30 June 2012 £000	At 31 December 2012 £000
Assets
Non-current assets
Property, plant and equipment	99,608	93,416	96,182
Intangible assets	13,210	13,210	13,210
Deferred tax assets	2,173	1,327	2,376
	114,991	107,953	111,768
Current assets
Inventories	120,656	114,304	115,332
Trade and other receivables	109,932	104,129	108,070
Cash and cash equivalents	40,444	48,533	49,798
Assets held for sale	-	-	212
	271,032	266,966	273,412
Total assets	386,023	374,919	385,180

Liabilities
Current liabilities
Bank overdraft	(1,918)	-	-
Other interest-bearing loans and borrowings	(225)	(212)	(213)
Trade and other payables	(159,061)	(158,830)	(153,755)
Employee benefits	(2,798)	(2,711)	(2,754)
Income tax payable	(5,863)	(6,362)	(7,117)
	(169,865)	(168,115)	(163,839)
Non-current liabilities
Other interest-bearing loans and borrowings	(33,468)	(33,487)	(33,371)
Employee benefits	(13,917)	(12,733)	(14,641)
	(47,385)	(46,220)	(48,012)
Total liabilities	(217,250)	(214,335)	(211,851)
Net assets	168,773	160,584	173,329

Equity attributable to equity holders
of the parent
Share capital	4,268	4,268	4,268
Share premium	53,512	53,512	53,512
Other reserves	(4,639)	(7,737)	(5,812)
Retained earnings	115,632	110,541	121,361
Total equity	168,773	160,584	173,329

Condensed Consolidated Interim Statement of Changes in Equity

Unaudited

	Share capital £000	Share premium £000	Capital redemption reserve £000	Translation reserve £000	Cash flow hedging reserve £000	Treasury reserve £000	Restated*1 Retained earnings £000	Restated*1 Total equity £000

Balance at 1 January 2012	4,268	53,512	88	6,157	-	(13,258)	115,778	166,545
Profit for the period attributable to the equity shareholders	-	-	-	-	-	-	7,569	7,569
Other comprehensive income	-	-	-	(498)	(226)	-	(1,671)	(2,395)
Total comprehensive income for the period	-	-	-	(498)	(226)	-	5,898	5,174

Transactions with equity shareholders, recorded directly in equity
Share-based payments	-	-	-	-	-	-	507	507
Deferred tax on share options	-	-	-	-	-	-	21	21
Dividends to equity holders	-	-	-	-	-	-	(11,663)	(11,663)
Total contributions by and distributions to equity shareholders	-	-	-	-	-	-	(11,135)	(11,135)
Balance at 30 June 2012	4,268	53,512	88	5,659	(226)	(13,258)	110,541	160,584

Balance at 1 July 2012	4,268	53,512	88	5,659	(226)	(13,258)	110,541	160,584
Profit for the period attributable to the equity shareholders	-	-	-	-	-	-	13,343	13,343
Other comprehensive income	-	-	-	109	(113)	-	(2,299)	(2,303)
Total comprehensive income for the period	-	-	-	109	(113)	-	11,044	11,040

Transactions with equity shareholders, recorded directly in equity
Share-based payments	-	-	-	-	-	-	676	676
Share options exercised by employees	-	-	-	-	-	1,929	(1,013)	916
Deferred tax on share options	-	-	-	-	-	-	113	113
Total contributions by and distributions to equity shareholders	-	-	-	-	-	1,929	(224)	1,705
Balance at 31 December 2012	4,268	53,512	88	5,768	(339)	(11,329)	121,361	173,329

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Condensed Consolidated Interim Statement of Changes in Equity continued

Unaudited

	Share capital £000	Share 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 2013	4,268	53,512	88	5,768	(339)	(11,329)	121,361	173,329
Profit for the period attributable to the equity shareholders	-	-	-	-	-	-	6,966	6,966
Other comprehensive income	-	-	-	999	143	-	(548)	594
Total comprehensive income for the period	-	-	-	999	143	-	6,418	7,560

Transactions with equity shareholders, recorded directly in equity
Share-based payments	-	-	-	-	-	-	166	166
Share options exercised by employees	-	-	-	-	-	31	(16)	15
Deferred tax on share options	-	-	-	-	-	-	3	3
Dividends to equity holders	-	-	-	-	-	-	(12,300)	(12,300)
Total contributions by and distributions to equity shareholders	-	-	-	-	-	31	(12,147)	(12,116)
Balance at 30 June 2013	4,268	53,512	88	6,767	(196)	(11,298)	115,632	168,773

Condensed Consolidated Interim Cash Flow Statements

Unaudited

	Six months ended 30 June 2013 £000	Restated *1 Six months ended 30 June 2012 £000	Restated *1 Year ended 31 December 2012 £000
Cash flows from operating activities
Profit before tax for the period	9,076	10,092	27,851
Adjustments for:
Depreciation, amortisation and impairment	2,412	2,326	4,695
Finance income	(96)	(118)	(783)
Finance expense	758	785	2,246
Profit on sale of property, plant and equipment	(10)	(44)	(185)
Share-based payments	166	507	1,183
Operating profit before changes in working capital and other payables	12,306	13,548	35,007
Change in inventories	(3,790)	(501)	(491)
Change in trade and other receivables	(19)	7,506	3,498
Change in trade and other payables	(5,119)	(3,473)	(819)
Cash generated from the operations	3,378	17,080	37,195
Interest paid	(314)	(336)	(1,682)
Tax paid	(3,307)	(2,827)	(6,766)
Additional contributions to defined benefit plan	(1,449)	(1,413)	(2,839)
Net cash flow from operating activities	(1,692)	12,504	25,908
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	66	109	1,530
Interest received	64	30	768
Acquisition of subsidiaries, net of cash acquired	(600)	-	(771)
Acquisition of property, plant and equipment	(5,343)	(1,883)	(7,999)
Net cash flow from investing activities	(5,813)	(1,744)	(6,472)
Cash flows from financing activities
Proceeds from the issue of treasury shares	15	-	916
Repayment of borrowings	(93)	(90)	(213)
Dividends paid	(3,850)	(3,544)	(11,663)
Net cash flow from financing activities	(3,928)	(3,634)	(10,960)
Net (decrease)/increase in cash and cash equivalents	(11,433)	7,126	8,476
Cash and cash equivalents at 1 January	49,798	41,494	41,494
Effect of exchange rate fluctuations on cash held	161	(87)	(172)
Cash and cash equivalents at end of period	38,526	48,533	49,798

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Notes to the Condensed Consolidated Interim Financial Statements

Unaudited

1 BASIS OF REPORTING

Reporting entity

Headlam Group plc the "company" is a company incorporated in the UK. The Condensed Consolidated Interim Financial Statements consolidate those of the company and its subsidiaries which together are referred to as the "group" as at and for the six months ended 30 June 2013.

The Consolidated Financial Statements of the group as at and for the year ended 31 December 2012 are available upon request from the company's registered office or the website.

The comparative figures for the financial year ended 31 December 2012 are not the group's statutory accounts for that financial year. Those accounts have been reported on by the group's auditor and delivered to the registrar of companies. The report of the auditor was (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.

These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by the auditor pursuant to the Auditing Practices Board's Guidance on Financial Information.

Statement of compliance

These Condensed Consolidated Interim Financial Statements have been prepared and approved by the directors in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the group as at and for the year ended 31 December 2012.

These Condensed Consolidated Interim Financial Statements were approved by the board of directors on

30 August 2013.

Significant accounting policies

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the group's published Consolidated Financial Statements for the year ended 31 December 2012, except as explained below.

Adoption of new and revised standards

The following standards and interpretations are applicable to the group and have been adopted in 2013 as they are mandatory for the year ended 31 December 2013.

· Amendments to IAS 1 Presentation of Items of Other Comprehensive Income: The amendments require that an entity presents separately the items of other comprehensive income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The adoption of this standard has had no significant impact.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

1 BASIS OF REPORTING - continued

Significant accounting policies (continued)

· Amendments to IAS 19 Employee Benefits: The amendments require immediate recognition of actuarial gains and losses in other comprehensive income and eliminate the corridor method. The principal amendment that will affect most entities with a defined benefit plan is the requirement to calculate net interest income or expense using the discount rate used to measure the defined benefit obligation. The new standard requires retrospective application and will impact the group's Income Statement and Statement of Comprehensive Income as a result of the changes in assessing the return on pension scheme assets. A prior year restatement has been made to reflect these changes, which is explained in further detail below.

· IFRS 13 Fair Value Measurement: This is a new standard to replace existing guidance on fair value measurement in different IFRSs with a single definition of fair value, a framework for measuring fair values and disclosures about fair value measurements. This standard applies to assets, liabilities and an entity's own equity instruments that, under other IFRSs, are required or permitted to be measured at fair value or when disclosure of fair value is provided. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The adoption of this standard has had no significant impact.

· Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities: The amendment requires specific disclosure for financial assets and financial liabilities within the scope of the common disclosures. The adoption of this standard has had no significant impact.

At present, there are no other new standards, amendments to standards or interpretations mandatory for the first time for the year ending 31 December 2013.

Going concern

The group's business activities, together with the factors likely to affect its future development, performance and position are described in the Chairman's Statement.

The directors have reviewed current performance and forecasts, combined with borrowing facilities and expenditure commitments, including capital expenditure, pensions and proposed dividends. After making enquiries, the directors have a reasonable expectation that the group has adequate financial resources to continue its current operations, including contractual and commercial commitments for the foreseeable future. For these reasons, the going concern basis has been adopted in preparing the financial statements.

On 15 January 2013, the company requested the extension of its committed facilities for an additional year in line with the facility agreement dated 8 March 2012. This request was agreed by the two lending parties and has therefore extended the termination date to the date falling five years after the date of the facility agreement.

The group has undrawn borrowing facilities, at 30 June 2013, which amounted to £51.8 million. At 30 June 2013, the group had drawn upon £33.7 million of the committed credit facilities, and £1.9 million of the uncommitted credit facilities.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

1 BASIS OF REPORTING - continued

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies 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, the significant judgements made by management in applying the group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2012.

Risks and uncertainties

The risk factors which could cause the group's results to differ materially from expected results and the result of the board's review of those risks are set out in the Chairman's Statement.

Restatement

As a result of the amendments to IAS 19 Employee Benefits, the group has changed its accounting policy with respect to determining the income or expense related to its defined benefit pension plan. The standard prescribes that an interest expense or income is calculated on the net defined benefit liability/(asset) by applying the discount rate to the net defined benefit liability/(asset). This replaces the interest expense on the defined benefit obligation and the expected return on plan assets. The revised standard requires retrospective application, therefore the table below reflects the adjustments made to the comparative amounts for the period to 30 June 2012 and the year to 31 December 2012.

These comprise the reversal of the interest income on pension plan assets (30 June 2012: £1,719,000,

31 December 2012: £3,693,000) and the interest expense on the defined benefit obligation (30 June 2012: £1,693,000, 31 December 2012: £3,628,000) to be replaced by a net interest expense (30 June 2012: £270,000, 31 December 2012: £545,000). The associated income tax has been restated accordingly.

Actuarial losses recognised in the Consolidated Statement of Comprehensive Income of (30 June 2012: £2,326,000, 31 December 2012: £5,595,000) have been restated into a re-measurement loss of (30 June 2012: £2,030,000, 31 December 2012: £4,985,000) with the associated income tax also restated.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

1 BASIS OF REPORTING - continued

Restatement (continued)

	Six months ended 30 June 2012 £000	Year ended 31 December 2012 £000
Consolidated Income Statement
Decrease in finance income	(1,719)	(3,693)
Decrease in finance expense	1,423	3,083
Decrease in income tax expense	74	153
Decrease in profit for the period	(222)	(457)

Decrease in basic and diluted earnings per share	(0.3p)	(0.5p)

	£000	£000
Consolidated Statement of Comprehensive Income
Other comprehensive income:
Decrease in re-measurement of defined benefit plans	296	610
Decrease in income tax on other comprehensive income	(74)	(153)
Increase in other comprehensive income	222	457

The revised standard stipulates that actuarial gains and losses are recognised immediately in the periods in which they occur. The group already adopted this policy and therefore there are no changes to the Consolidated Statement of Financial Position and Consolidated Cash Flow Statement.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

2 SEGMENT REPORTING

The group has 53 operating segments in the UK and 5 operating segments in Continental Europe. Each segment represents an individual trading operation and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products. The operating results of each operation 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 segment and used by the Group Chief Executive to assess performance and decide on resource allocation.

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 present 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
	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000
Revenue
External revenues	234,708	232,779	492,256	45,677	46,662	93,728	280,385	279,441	585,984


Reportable segment operating profit	9,936	10,685	28,275	498	707	2,036	10,434	11,392	30,311


Reportable segment assets	217,195	218,573	226,595	38,611	38,242	39,583	255,806	256,815	266,178

Reportable segment liabilities	(134,740)	(133,901)	(137,563)	(17,593)	(16,585)	(15,853)	(152,333)	(150,486)	(153,416)

During the periods shown above there have been no inter-segment revenues for the reportable segments.

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

	30 June 2013 £000	Restated *1 30 June 2012 £000	Restated *1 31 December 2012 £000
Profit for the period
Total profit for reportable segments	10,434	11,392	30,311
Unallocated expense	(696)	(633)	(997)

Operating profit	9,738	10,759	29,314

Finance income	96	118	783
Finance expense	(758)	(785)	(2,246)

Profit before taxation	9,076	10,092	27,851
Taxation	(2,110)	(2,523)	(6,939)

Profit for the period	6,966	7,569	20,912

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

2 SEGMENT REPORTING - continued


	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000
Assets
Total assets for reportable segments	255,806	256,815	266,178
Unallocated assets:
Properties, plant and equipment	92,364	86,078	87,651
Deferred tax assets	2,173	1,327	2,376
Assets held for sale	-	-	212
Cash and cash equivalents	35,680	30,699	28,763

Total assets	386,023	374,919	385,180

Liabilities
Total liabilities for reportable segments	(152,333)	(150,486)	(153,416)
Unallocated liabilities:
Employee benefits	(16,714)	(15,444)	(17,395)
Net borrowings	(33,693)	(33,699)	(33,584)
Income tax payable	(5,863)	(6,361)	(7,117)
Proposed dividend	(8,450)	(8,119)	-
Derivative liabilities	(196)	(226)	(339)

Total liabilities	(217,250)	(214,335)	(211,851)

	UK	Continental Europe	Reportable segment total	Unallocated	Consolidated total
	£000	£000	£000	£000	£000
Other material items 30 June 2013
Capital expenditure	1,333	470	1,803	3,540	5,343
Depreciation	1,110	318	1,428	905	2,333
Amortisation	-	-	-	79	79

Other material items 30 June 2012
Capital expenditure	1,026	128	1,154	728	1,882
Depreciation	1,076	329	1,405	921	2,326

Other material items 31 December 2012
Capital expenditure	2,008	271	2,279	5,720	7,999
Depreciation	2,193	648	2,841	1,764	4,605
Amortisation	-	-	-	90	90

In the UK the group's freehold properties are held within Headlam Group plc and a rent is charged to the operating segments for the period of use. Therefore the operating reports reviewed by the Group Chief Executive show all the UK properties as unallocated and the operating segments report a segment result that includes a property rent. This is reflected in the above disclosure.

Each segment is a continuing operation.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

2 SEGMENT REPORTING - continued

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

	UK			Continental Europe			Total
	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000	30 June 2013 £000	30 June 2012 £000	31 December 2012 £000
Revenue
Residential	160,567	159,076	337,569	20,816	22,258	43,959	181,383	181,334	381,528
Commercial	74,141	73,703	154,687	24,861	24,404	49,769	99,002	98,107	204,456

	234,708	232,779	492,256	45,677	46,662	93,728	280,385	279,441	585,984

3 FINANCE INCOME AND EXPENSE

	Six months ended 30 June 2013 £000	Restated *1 Six months ended 30 June 2012 £000	Restated *1 Year ended 31 December 2012 £000
Interest income:
Bank interest	65	118	783
Other	31	-	-
Finance income	96	118	783

Interest expense:
Bank loans, overdrafts and other financial expenses	(392)	(457)	(1,490)
Net change in fair value of cash flow hedges transferred from equity	(68)	-	(44)
Interest on net defined benefit plan deficit	(298)	(270)	(545)
Other	-	(58)	(167)
Finance expenses	(758)	(785)	(2,246)

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

4 TAXATION

The group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2013 was 23.25% (for the six months ended 30 June 2012: 25%; for the year ended 31 December 2012: 24.9%).

The Budget 2012 introduced a reduction in the main rate of corporation tax from 25% to 23% with effect from 1 April 2013. This legislation was substantively enacted on 3 July 2012 and as such, in accordance with IFRS, the rate of 23% is used for the calculation of the deferred tax position at 30 June 2013.

The Budget 2013, issued on 20 March 2013, announced that the main rate of corporation tax would be reduced to 21% from 1 April 2014 and to 20% with effect from 1 April 2015. These future rate reductions were substantively enacted on 2 July 2013. As this was after the interim balance sheet date they have not been reflected in these interim financial statements. The effect of these rate reductions will be accounted for in the statutory accounts for the year ended 31 December 2013.

5 EARNINGS PER SHARE

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

	Six months ended 30 June 2013 £000	Restated *1 Six months ended 30 June 2012 £000	Restated *1 Year ended 31 December 2012 £000
Earnings
Earnings for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent	6,966	7,569	20,912

	2013	2012	2012
Number of shares
Issued ordinary shares at end of period	85,363,743	85,363,743	85,363,743
Effect of shares held in treasury	(2,422,387)	(2,241,197)	(2,672,553)

Weighted average number of ordinary shares for the purposes of basic earnings per share	82,941,356	83,122,546	82,691,190

Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at period end	82,941,356	83,122,546	82,691,190
Dilutive effect of share options	744,954	885,026	446,420

Weighted average number of ordinary shares for the purposes of diluted earnings per share	83,686,310	84,007,572	83,137,610

*1 See note 1 of Notes to the Condensed Consolidated Interim Financial Statements.

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

6 DIVIDENDS

	Six months ended 30 June 2013 £000	Six months ended 30 June 2012 £000	Year ended 31 December 2012 £000

Interim dividend for 2012 of 4.65p paid 2 January 2013	3,850	-	-
Final dividend for 2012 of 10.20p proposed	8,450	-	-
Interim dividend for 2011 of 4.30p paid 3 January 2012	-	3,544	3,544
Final dividend for 2011 of 9.85p paid on 2 July 2012	-	8,119	8,119
	12,300	11,663	11,663

The final proposed dividend for 2012 of 10.20p per share was authorised by shareholders at the Annual General Meeting on 24 May 2013 and paid on 1 July 2013. The final proposed dividend for 2011 of 9.85p per share was authorised by shareholders at the Annual General Meeting on 15 June 2012 and paid on 2 July 2012.

7 CAPITAL COMMITMENTS

As at 30 June 2013, the group had contractual commitments relating to the purchase of property, plant and equipment of £8,969,000 (30 June 2012: £5,647,000, 31 December 2012: £11,268,000).

8 RELATED PARTIES

The group has a related party relationship with its subsidiaries and with its key management. There have been no changes to the nature of related party transactions entered into since the last annual report.

Statement of Directors' Responsibilities