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
£'000 £'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 £11.7 million
Net capital investment during the period amounted to £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 £232.3 million to
£245.7 million, the improvement principally attributable to organic growth.
Profit before tax increased by 7.4% from £18.2 million to £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 £11.7
million compared with £10.6 million for the equivalent period last year. Net
working capital investment remained virtually unchanged increasing modestly from
£10.2 million to £10.3 million.
The investment in property, plant and equipment totalled £5.8 million of which
£3.6 million related to the new facility in Leeds and £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 £3.4 million to £32.8 million. Net funds at 30
June 2006 totalled £32.3 million compared with £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
£000 £000 £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
£000 £000 £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
£000 £000 £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
£000 £000 £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:
• 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.
• Amendment to IAS 39 Financial Instruments: Cash Flow Hedge Accounting of
Forecast Intragroup Transactions.
• Amendment to IAS 39 Financial Instruments: The Fair Value Options.
• 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
£000 £000 £000 £000 £000 £000 £000 £000 £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
£000 £000 £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
£000 £000 £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
£000 £000 £000 £000 £000 £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
£000 £000 £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
£000 £000 £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
£000 £000 £000 £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.
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