Interim Results

Headlam Group PLC 05 September 2006 5 September 2006 Interim financial results for the six month period ended 30 June 2006 Headlam Group plc ('Headlam'), Europe's leading floorcovering distributor, announces its interim results for the six months ended 30 June 2006. Financial highlights 2006 2005 Change Â£'000 Â£'000 Sales 245,672 232,336 +5.7% Profit from operations 19,743 18,501 +6.7% Profit before tax 19,543 18,205 +7.4% Basic earnings per share 15.6p 14.7p +6.1% Proposed dividend per share 4.85p 4.40p +10.2% Key points Sales from UK operations increased by 3.6% on a like for like basis Profit before tax increased by 7.4% Cash generated from operations up 10.4 % to Â£11.7 million Net capital investment during the period amounted to Â£5.8 million Interim dividend increased by 10.2% from 4.40p to 4.85p Tony Brewer, Chief Executive of Headlam, said: 'We are particularly encouraged by the positive performance of the group during the first eight months of 2006. With the traditional busy autumn period before us, the group is confident of achieving its operating objectives for the year.' Enquiries: Headlam Group plc Tony Brewer, Chief Executive Tel: 01675 433000 Stephen Wilson, Finance Director Chairman's Statement During the first six months of 2006, sales from UK operations have shown an increase of 3.6% on a like for like basis. Group sales for the first six months increased by 5.7% from Â£232.3 million to Â£245.7 million, the improvement principally attributable to organic growth. Profit before tax increased by 7.4% from Â£18.2 million to Â£19.5 million. Earnings and dividend Basic earnings per share increased by 6.1% from 14.7p to 15.6p. The board have declared an interim dividend of 4.85p per share, an increase of 10.2% on last year's interim dividend of 4.40p per share. The dividend will be paid on 2 January 2007 to shareholders on the register at 1 December 2006. Operations The operational structure and strategy in the UK enables 46 businesses to operate from 22 distribution centres. Whilst enjoying their sales and marketing autonomy, these businesses comply with consistent operating procedures and strict financial reporting disciplines. These businesses are defined into four sectors. Regional multi-product: the 25 regional businesses, that market and distribute a comprehensive product range of residential and commercial floorcovering, increased sales by 4.3%. National multi-product: Mercado, with its six business identities also selling an extensive range of residential and commercial floorcoverings, increased its sales by 7.3%. Residential specialist: our 12 specialist businesses, selling principally medium to high quality carpet products, increased sales by 7.7%. Commercial specialist: our three businesses specialising in the commercial sector were able to increase sales by 5.0%. It is fundamental to these businesses to work closely with the world's leading floorcovering producers, to develop and subsequently present new product to our customers, principally independent floorcovering retailers and flooring contractors. The UK businesses operate with 308 external sales people who have launched 2,214 new product ranges by positioning over 530,000 new point of sale items into our customers' premises. This has resulted in an increase in sales across all product categories of carpet, residential vinyl, carpet underlay, commercial products, wood and laminate. It is particularly encouraging that this positive sales trend has been achieved by each of the four business sectors and across all the individual product categories. This further demonstrates the group's significant market presence throughout the floorcovering industry in the UK. We continue with our policy of constructing new purpose built freehold distribution facilities to re-house existing businesses, providing the business with increased capacity and improved material handling capability. The new facility in Leeds, which will re-house Wilkies, our regional multi-product business, is near completion and will be operational in October of this year. This will enable Wilkies to further strengthen its market position in the north of England. We have now received planning permission for a facility in Bridgend to re-house MCD Wales. This will be operational during 2007 and enable the business to enhance its performance in South Wales. Our Continental European businesses in France, Switzerland and particularly the Netherlands have enjoyed improving market conditions and therefore have been able to increase their sales by 6.1%. This has resulted in operating margins improving from 2.3% to 2.7% during the first six months. Acquisitions Whilst we have not announced any additions to the group during 2006, we continue to evaluate opportunities, both in the UK and Continental Europe. We are committed to enlarging the group's presence in these markets where a business can be acquired which enhances our market position and ultimately achieves the appropriate return on investment. Cash flow Cash generated from operations during the first six months amounted to Â£11.7 million compared with Â£10.6 million for the equivalent period last year. Net working capital investment remained virtually unchanged increasing modestly from Â£10.2 million to Â£10.3 million. The investment in property, plant and equipment totalled Â£5.8 million of which Â£3.6 million related to the new facility in Leeds and Â£1.5 million on the purchase of the freehold interest in the property occupied by our business in the Netherlands. This property was formerly occupied on a leasehold basis. Typically, the group's cash flow is such that during the first six months of the year, there is an overall absorption of cash and a corresponding decline in cash and cash equivalents. The first six months of 2006 are no exception with cash and cash equivalents declining by Â£3.4 million to Â£32.8 million. Net funds at 30 June 2006 totalled Â£32.3 million compared with Â£28.9 million at 30 June 2005. Outlook We are particularly encouraged by the positive performance of the group during the first eight months of 2006. With the traditional busy autumn period before us, the group is confident of achieving its operating objectives for the year. Graham Waldron, Chairman 5 September 2006 Consolidated Income Statement Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Revenue 3 245,672 232,336 486,635 Cost of sales (170,112) (161,475) (336,570) ---------------------- -------- ---------- ---------- ---------- Gross profit 75,560 70,861 150,065 Distribution expenses (40,662) (38,087) (77,507) Administrative expenses (15,155) (14,273) (31,060) ---------------------- -------- ---------- ---------- ---------- Operating profit 3 19,743 18,501 41,498 Financial income 4 2,270 1,667 3,893 Financial expenses 4 (2,470) (1,963) (4,551) ---------------------- -------- ---------- ---------- ---------- Net financing costs (200) (296) (658) ---------------------- -------- ---------- ---------- ---------- Profit before tax 19,543 18,205 40,840 Taxation (5,961) (5,564) (12,352) ---------------------- -------- ---------- ---------- ---------- Profit for the period 3 13,582 12,641 28,488 ---------------------- -------- ---------- ---------- ---------- Dividend per share 6 18.00p 16.25p 16.25p Earnings per share Basic 5 15.6p 14.7p 33.1p ---------------------- -------- ---------- ---------- ---------- Diluted 5 15.5p 14.5p 32.8p ---------------------- -------- ---------- ---------- ---------- Consolidated Statement of Recognised Income and Expense Unaudited Note Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Foreign exchange translation differences arising on translation of overseas operations (174) (815) (321) Recycling of cash flow hedging reserve balance - 13 13 Actuarial gains and losses on defined benefit pension plans (1,500) 395 (2,571) Tax recognised on income and expenses recognised directly in equity 234 (67) 910 --------------------------- ------ --------- ---------- ---------- Net income recognised directly in equity (1,440) (474) (1,969) Profit for the period 13,582 12,641 28,488 --------------------------- ------ --------- ---------- ---------- Total recognised income and expense 6 12,142 12,167 26,519 --------------------------- ------ --------- ---------- ---------- Effect of change in accounting policy - 13 13 Effect of adoption of IAS 32 and 39, net of tax, on 1 January 2005 on: cash flow hedge reserve --------------------------- ------ --------- ---------- ---------- - 13 13 --------------------------- ------ --------- ---------- ---------- Consolidated Balance Sheet Unaudited Note At At At 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Non-current assets Property, plant and equipment 78,292 77,631 74,640 Intangible assets 13,210 13,628 13,210 Deferred tax assets 8,286 8,245 8,199 ------------------------ ------ -------- --------- ---------- 99,788 99,504 96,049 ------------------------ ------ -------- --------- ---------- Current Assets Inventories 92,720 92,505 91,160 Trade and other receivables 86,246 79,881 84,275 Cash and cash equivalents 8 33,146 30,969 36,193 ------------------------ ------ -------- --------- ---------- 212,112 203,355 211,628 Non-current assets classified as held for sale 3,436 203 3,471 ------------------------ ------ -------- --------- ---------- Total assets 315,336 303,062 311,148 ------------------------ ------ -------- --------- ---------- Current liabilities Bank overdraft 8 (333) - - Other interest-bearing loans and borrowings 8 (430) (1,519) (471) Trade and other payables (145,692) (149,172) (141,529) Employee benefits (1,078) (1,080) (1,080) Income tax payable (11,723) (11,640) (11,139) ------------------------ ------ -------- --------- ---------- (159,256) (163,411) (154,219) ------------------------ ------ -------- --------- ---------- Non-current liabilities Other interest-bearing loans and borrowings 8 (80) (537) (267) Employee benefits (20,766) (17,241) (19,432) Deferred tax liabilities (1,256) (1,214) (1,403) ------------------------ ------ -------- --------- ---------- (22,102) (18,992) (21,102) ------------------------ ------ -------- --------- ---------- Total liabilities (181,358) (182,403) (175,321) ------------------------ ------ -------- --------- ---------- Net assets 133,978 120,659 135,827 ------------------------ ------ -------- --------- ---------- Equity attributable to equity holders of the parent Share capital 6 4,352 4,310 4,326 Share premium 6 53,336 51,875 52,280 Translation reserves 6 (751) (1,071) (577) Retained earnings 6 77,041 65,545 79,798 ------------------------ ------ --------- --------- ---------- Total equity 133,978 120,659 135,827 ------------------------ ------ --------- --------- ---------- Consolidated Cash Flow Statements Unaudited Note Six months Six months The year ended ended 30 June ended 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Cash flows from operating activities Profit before tax for the period 19,543 18,205 40,840 Adjustments for: Depreciation, amortisation and impairment 2,088 2,265 5,133 Financial income (2,270) (1,667) (3,893) Financial expense 2,470 1,963 4,551 Profit on sale of property, plant and equipment (1) (8) (228) Equity settled share-based payment expenses 208 29 196 ----------------------------------- ------ --------- --------- ---------- Operating profit before changes in working capital and provisions 22,038 20,787 46,599 (Increase)/decrease in trade and other receivables (1,802) 4,969 1,699 Increase in inventories (1,519) (12,839) (11,335) Decrease in trade and other payables (7,016) (2,316) (1,085) ----------------------------------- ------ --------- --------- ---------- Cash generated from the operations 11,701 10,601 35,878 Interest paid (904) (659) (1,456) Tax paid (5,966) (5,661) (10,994) Additional contributions to defined benefit pension plan (479) - (722) ----------------------------------- ------ --------- --------- ---------- Net cash from operating activities 4,352 4,281 22,706 ----------------------------------- ------ --------- --------- ---------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 61 108 598 Interest received 964 643 1,335 Acquisition of subsidiary, net of cash acquired - (435) (426) Acquisition of property, plant and equipment (5,826) (8,034) (10,965) ----------------------------------- ------ --------- --------- ---------- Net cash from investing activities (4,801) (7,718) (9,458) ----------------------------------- ------ --------- --------- ---------- Cash flows from financing activities Proceeds from the issue of share capital 1,082 149 570 Repayment of borrowings - - (662) Payment of finance lease liabilities (228) (208) (438) Dividends paid (3,789) (3,421) (13,976) ----------------------------------- ------ --------- --------- ---------- Net cash from financing activities (2,935) (3,480) (14,506) ----------------------------------- ------ --------- --------- ---------- Net decrease in cash and cash equivalents (3,384) (6,917) (1,258) Cash and cash equivalents at 1 January 36,193 37,468 37,468 Effect of exchange rate fluctuations of cash held 4 (17) (17) ----------------------------------- ------ --------- --------- ---------- Cash and cash equivalents at end of period 7 32,813 30,534 36,193 ----------------------------------- ------ --------- --------- ---------- Notes to the Interim Financial Statements Unaudited 1. GENERAL INFORMATION The interim financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the group's published consolidated financial statements for the year ended 31 December 2005, except for changes as required by the Listing Rules of the Financial Services Authority, as a result of the endorsement by the EU of new or changed International Financial Reporting Standards (IFRSs) that are applicable or available for early adoption in the preparation of the group's next consolidated financial statements for the year ending 31 December 2006. 2 ACCOUNTING POLICIES The directors have decided not to adopt early the International Accounting Standard (IAS) 34 Interim Financial Reporting. Following initial adoption, the directors have decided not to apply the hedge accounting requirements of IAS 39 Financial Instruments: Recognition and Measurement. Consequently, all movements in the fair value of the hedge are recognised immediately in the income statement, within financial income or expense. The directors have changed the accounting policies in respect of the following matters: â€¢ Amendment to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts - Financial Guarantee Contracts. Where the group enters into financial guarantee contracts to guarantee the indebtedness between group companies, these are considered to be insurance arrangements, and each group company accounts for them as such. In this respect, the group treats the guarantee contract as a contingent liability until such time as it becomes probable that the applicable group company will be required to make a payment under the guarantee. â€¢ Amendment to IAS 39 Financial Instruments: Cash Flow Hedge Accounting of Forecast Intragroup Transactions. â€¢ Amendment to IAS 39 Financial Instruments: The Fair Value Options. â€¢ IFRIC 4: Determining whether an Arrangement Contains a Lease. The implementation of the changes noted above has not had a significant effect on either the profit or net assets of the group for the period commencing 1 January 2006. The comparative figures for the financial year ended 31 December 2005 are not the group's statutory accounts for that financial year. Those accounts have been reported on by the group's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a 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 237 (2) or (3) of the Companies Act 1985. Notes to the Financial Statements continued Unaudited 3 SEGMENT REPORTING The group's activities are wholly aligned to the sales, marketing, supply and distribution of floorcovering products. These activities are carried out from business centres located in both the UK and Continental Europe. The group's internal management structure and financial reporting systems treat the UK and Continental Europe as two separate segments because of the difference in reward arising from these two markets and this forms the basis for the geographical presentation of the primary segment information given below. UK Continental Europe Total 30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec 2006 2005 2005 2006 2005 2005 2006 2005 2005 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue External sales 208,668 197,460 415,038 37,004 34,876 71,597 245,672 232,336 486,635 ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Result Segment result 19,201 18,243 41,905 1,017 803 1,815 20,218 19,046 43,720 ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Unallocated corporate expenses (475) (545) (2,222) --------- --------- --------- Operating profit 19,743 18,501 41,498 Financial income 2,270 1,667 3,893 Financial expense (2,470) (1,963) (4,551) Taxation (5,961) (5,564) (12,352) --------- --------- --------- Profit for the period 13,582 12,641 28,488 --------- --------- --------- Other information Segment assets 270,186 264,511 271,074 33,428 30,103 28,404 303,614 294,614 299,478 Unallocated assets 11,722 8,448 11,670 ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Consolidated total assets 315,336 303,062 311,148 ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Segment liabilities (116,899) 123,400) (127,258) (17,811) (17,274) (15,009) 134,710) (140,674) (142,267) Unallocated liabilities (46,648) (41,729) (33,054) ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Consolidated total liabilities (181,358) (182,403) (175,321) ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Capital expenditure 4,184 7,835 10,462 1,642 199 503 5,826 8,034 10,965 Depreciation 1,759 1,547 3,451 329 300 631 2,088 1,847 4,082 Amortisation - 418 836 - - - - 418 836 Asset impairment - - 215 - - - - - 215 Each segment is a continuing operation. Unallocated assets comprise deferred tax assets and assets held for sale. Unallocated liabilities comprise income tax, deferred tax liabilities and employee benefits. Notes to the Financial Statements continued Unaudited 3 SEGMENT REPORTING - continued Management has access to information that provides details on sales and gross margin by principal product group and across the four principal business sectors which comprise Regional multi-product, National multi-product, Residential specialist and Commercial specialist. However, this information is not provided as a secondary segment since the group's operations are not managed by reference to these sub classifications and the presentation would require an arbitrary allocation of overheads, assets and liabilities undermining the presentations validity and usefulness. 4 FINANCE INCOME AND EXPENSE Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Interest income Bank interest 984 426 1,329 Other 47 12 87 Return on defined pension plan assets 1,239 1,229 2,477 --------------------------------------- --------- --------- --------- Financial income 2,270 1,667 3,893 --------------------------------------- --------- --------- --------- Interest expense Bank loans, overdrafts and other financial expenses (953) (410) (1,503) Interest on defined benefit pension plan obligation (1,494) (1,510) (2,987) Finance leases and similar hire purchase contracts (23) (43) (61) --------------------------------------- --------- --------- --------- Financial expenses (2,470) (1,963) (4,551) --------------------------------------- --------- --------- --------- Notes to the Financial Statements continued Unaudited 5 EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on the following data: Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Earnings Earnings for the purposes of basic earnings per share being profit attributable to equity holders of the parent 13,582 12,641 28,488 ------------------------------------ --------- --------- --------- Earnings for the purposes of diluted earnings per share 13,582 12,641 28,488 ------------------------------------ --------- --------- --------- Number of shares Issued ordinary shares at 1 January 86,512,854 86,111,437 86,111,437 Effect of shares issued during the period 407,028 67,543 86,272 ------------------------------------ ------------ ------------ ------------ Weighted average number of ordinary shares for the purposes of basic earnings per share 86,919,882 86,178,980 86,197,709 ------------------------------------ ------------ ------------ ------------ Effect of diluted potential ordinary shares: Weighted average number of ordinary shares at period end 86,919,882 86,178,980 86,197,709 Share options 1,878,034 1,411,138 2,407,331 Number of shares that would have been issued at fair value (1,381,753) (624,241) (1,813,602) ------------------------------------ ------------ ------------ ------------ Weighted average number of ordinary shares for the purposes of diluted earnings per share 87,416,163 86,965,877 86,791,438 ------------------------------ ------------ ------------ ------------ Notes to the Financial Statements continued Unaudited 6 CAPITAL AND RESERVES Reconciliation of movement in capital and reserves Cash flow Share Share Translation hedging Retained Total capital premium reserve reserve earnings equity Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Balance at 1 January 2005 4,306 51,731 (256) - 66,579 122,360 Adjustment in respect of adoption of IAS 32 and IAS 39 on 1 January, net of tax - - - (13) - (13) Total recognised income and expense - - (815) 13 12,969 12,167 Equity-settled share based payment transactions, net of tax - - - - 29 29 Share options exercised by employees 4 144 - - - 148 Deferred tax on Schedule 23 share options (pre November 2002) - - - - (56) (56) Dividends - - - - (13,976) (13,976) --------------------------- -------- -------- -------- -------- -------- -------- Balance at 30 June 2005 4,310 51,875 (1,071) - 65,545 120,659 Total recognised income and expense - - 494 - 13,858 14,352 Equity-settled share based payment transactions, net of tax - - - - 167 167 Share options exercised by employees 16 405 - - - 421 Deferred tax on Schedule 23 share options (pre November 2002) - - - - 228 228 --------------------------- -------- -------- -------- -------- -------- -------- Balance at 31 December 2005 4,326 52,280 (577) - 79,798 135,827 Total recognised income and expense - - (174) - 12,316 12,142 Equity-settled share based payment transactions, net of tax - - - - 208 208 Share options exercised by employees 26 1,056 - - - 1,082 Deferred tax on Schedule 23 share options (pre November 2002) - - - - 331 331 Dividends - - - - (15,612) (15,612) --------------------------- -------- -------- -------- -------- -------- -------- Balance at 30 June 2006 4,352 53,336 (751) - 77,041 133,978 --------------------------- -------- -------- -------- -------- -------- -------- Notes to the Financial Statements continued Unaudited 6 CAPITAL AND RESERVES - continued Dividends Six months Six months The year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Interim dividend for 2005 of 4.40p paid 3 January 2006 3,789 - - Final dividend for 2005 of 13.60p proposed 11,823 - - Interim dividend for 2004 of 4.00p paid 3 January 2005 - 3,421 3,421 Final dividend for 2004 of 12.25p proposed /paid 4 July 2005 - 10,555 10,555 --------------------------------- --------- --------- --------- 15,612 13,976 13,976 --------------------------------- --------- --------- --------- The final proposed dividend for 2005 of 13.60p per share was authorised by shareholders at the Annual General Meeting on 1 June 2006. The final proposed dividend for 2004 of 12.25p per share was authorised by shareholders at the Annual General Meeting on 27 May 2005. 7 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS At At At 30 June 30 June 31 December 2006 2005 2005 Â£000 Â£000 Â£000 Cash and cash equivalents per balance sheet 33,146 30,969 36,193 Bank overdrafts (333) (435) - --------------------------------- --------- --------- --------- Cash and cash equivalents per cash flow statements 32,813 30,534 36,193 --------------------------------- --------- --------- --------- 8 ANALYSIS OF CHANGES IN NET FUNDS At At 1 January Cash Translation 30 June 2006 flows differences 2006 Â£000 Â£000 Â£000 Â£000 Cash at bank and in hand 36,193 (3,052) 5 33,146 Bank overdraft - (332) (1) (333) --------------------------- --------- --------- --------- --------- 36,193 (3,384) 4 32,813 Finance leases and similar hire purchase contracts (738) 228 - (510) --------------------------- --------- --------- --------- --------- 35,455 (3,156) 4 32,303 --------------------------- --------- --------- --------- --------- Notes to the Financial Statements continued Unaudited 9 RELATED PARTIES Identity of related parties Related party relationships exist between companies within the group, directors of the parent company and the group's executive officers. Transactions with key management personnel As at 30 June 2006, directors of the parent company and their immediate relatives controlled 1.6 per cent of the voting shares of the parent company. The group's key management personnel are the directors of the parent company and their remuneration for the year ending 31 December 2005 is disclosed within the remuneration report in the annual report and accounts for 2005. The interim financial results for the six months ended 30 June 2006 will be posted to shareholders on 11 September 2006 and copies will be available from that date from the Company's registered office. This information is provided by RNS The company news service from the London Stock Exchange

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