Final Results

JAMES HALSTEAD GROUP PLC 5 October 1999 JAMES HALSTEAD GROUP plc PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 1999 KEY FIGURES * Pre-tax profit before exceptional item - £9.3m (£8.6m) * Final dividend per ordinary share - 7.125p (6.5p) * Earnings per ordinary share (before exceptional item and amortisation) - 20.4p (17.8p) * Net assets per ordinary share - 159.75p (150.24p) * Nil net borrowings (Nil) Enquiries: Geoffrey Halstead, Chief Executive Gordon Oliver, Finance Director Telephone: 0171 796 4133 on Tuesday 5 October 1999 0161 767 2500 thereafter JAMES HALSTEAD GROUP plc PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 1999 STATEMENT BY THE CHAIRMAN, VINCENT CLARE Results I am very pleased to report improved pre-tax profits, before exceptional item, of £9.3m (£8.6m) in spite of some difficult trading conditions. The ever-burgeoning strength of sterling has impacted on our exports but has been beneficial to our imports, particularly at Phoenix where profits have again broken past records. Even Driza-Bone (disposed of after the financial year-end and, therefore, included in this year's accounts) showed some improvement over last year. All in all the year has been a good one for the Group with progress on all fronts. Dividend Your Board's confidence in the Group's strength prompts a recommended increase in dividends - a final dividend of 7.125p per ordinary share, making a dividend of 11p for the year - an uplift of 7.3%. The final dividend will be paid on 3 December 1999 to those shareholders who are registered on 5 November 1999. Driza-Bone Pty Limited Last month we achieved our objective in disposing of this subsidiary. We could have sold it earlier but not at a fair price. The price we agreed equates with net assets, on the basis that we retain ownership of the land and buildings and lease them, at market value, to the purchasers. Accounting standards require us to bring back into the Group Profit and Loss Account the original goodwill of £3 million previously written off, and in addition there is a write-down of £167,000 in the value of the land and buildings retained, together with the costs of sale amounting to £133,000. This does not detract from the overall benefit of disposing of a subsidiary (profitable to the Group in earlier years) which had latterly become a distraction for the Group Management Team. Acknowledgements I extend my warm thanks to personnel throughout the Group for their energy, skill and dedication throughout the year and once again a percentage of the Group's net profit will be shared between those who are eligible under the Group's Profit Sharing Scheme. Finance Director On 1 May 1999 we appointed Mr. Gordon Oliver to the post of Finance Director. Gordon has been a valued member of the Group Team for 12 years and I extend to him a very warm welcome to our Board. Company Secretary I very much regret to announce that Mr. Graham Coles has resigned as our Company Secretary because of prolonged illness. I wish him a speedy recovery and thank him for his services over the last 20 years. Pending the appointment of a full-time replacement, Mr. Gordon Oliver has taken on the title of Company Secretary. Outlook We are fully focused on our strategy of improving and extending our world-wide flooring base, both organically and by acquisition. We are constantly examining the development of new, market-led products and new suppliers. At the same time, we are strengthening our position in world markets. The two acquisitions which we have made this year, Karndean International GmbH in Germany and Skellerup Flooring (now Halstead Flooring Concepts Ltd) in New Zealand have already increased our influence in the market and contributed with profits. With our wealth of experience in flooring, a good name throughout the industry and a very healthy balance sheet, we are well placed to enter the Millennium with every confidence. Vincent Clare Chairman 5 October 1999 CHIEF EXECUTIVE'S REVIEW Success in overseas markets The result for the year ended 30 June 1999 has been good. The Group has weathered the Asian crisis and has retained key business in many markets, most notably Hong Kong, Malaysia and Singapore. The Russian debt crisis caused a temporary slow down in our activities but again we have persevered and I am particularly pleased that in this market, James Halstead remains a significant player where many of our competitors have faltered. Because we are major exporters from the UK the strength of sterling has been a challenge. The Group, through its flooring activities, has developed many overseas markets over the last four decades and, whilst the strong pound is not desirable for any exporter, it is just one of the many obstacles that must be overcome when dealing in Global Markets. Seizing opportunities During the year we made two acquisitions, very different in nature, but both excellent additions to the Group. These were both undertaken in November last year, on consecutive days in fact, although the plans for each had been prepared many months in advance. Karndean International GmbH, based in Germany, was the European arm of a small, private group of companies. The company had under-performed for many years and it was acquired to bring critical mass to our existing German business (Objectflor), to unlock synergistic savings and, with a change of management, to give us new growth opportunities in a large marketplace with products allied to our own. Skellerup Flooring Limited in New Zealand, now renamed Halstead Flooring Concepts Limited, was a rather different acquisition. The distributorship of Polyflor in New Zealand was nearing the end of its term, the previous parent company of Halstead Flooring Concepts was suffering financial difficulties and consequently we felt growth prospects were hampered. Therefore, we decided to control our own destiny in New Zealand by acquiring the company. With Polyflor products accounting for 40% of that company's turnover discussions were not protracted. Investment in the future Some £4.1m of capital additions were made to plant and machinery at the flooring factory in Whitefield. At Conway there was a major re-equipping of the workshop and total capital additions of £110,000. Phoenix has secured new premises with a move planned early in the new financial year. The year has been challenging but the strength of the Group, both in the quality of management and in financial strength, gives us the ability to take full advantage of opportunities. FLOORING Our flooring activities are an even larger part of the Group and I am pleased to report that profit from flooring has increased which is satisfying in the difficult market conditions that prevail where falling demand in Asia and Russia have contributed to a climate of cut-throat competition and fierce pricing. Due to a mixture of influences there were ups and downs with some parts of the organisation faring better than others. A summary of individual company achievements follows:- James Halstead Limited Our progress in the export market resulted in the volume of product exported continuing to exceed that sold within the UK. However, the continuing strength of sterling had an adverse effect on margins. We believe there is further scope for increased sales overseas and this we are pursuing. In the UK a very flat market, with very little project work, provided conditions where competition set a general climate of reduced prices. Over the years, however, the company has established strong relationships with its UK distributors and a great deal of time and effort has been, and is still being, devoted to maintaining and building those relationships through service, quality and support. Overall there was a marginal reduction in net profit. The company continued to improve its operational processes and during the year obtained the international ISO 9001 standard, giving a further seal of quality to the company's products. Currently the environmental management standard EN 14001 is being pursued and we hope to obtain certification later in the year. These standards add strength to our market position. Major product development activity took place in the middle of the year when, following significant engineering work to one of our production units, we added protective polyurethane coating to our top range directional product, Polyflor 2000. This was launched to the trade in the UK during the Spring of 1999 and will be extended throughout the Halstead flooring network on a market by market basis. The product has been well received in the marketplace and we have now applied the Polyflor PU branding to all our coated products, which includes all our non-directional products. As the company continues to grow, so must its information and control systems and with this in mind computer software is being upgraded to enhance the benefits obtainable from a fully integrated system. This will have the added benefit of being extended to overseas distribution businesses in due course. So far as the next financial year is concerned, we are optimistic about improving market conditions in South East Asia and Russia, in addition to which there will be some sizeable project business in the UK resulting from the PFI hospital initiative. There are a number of other new product developments in hand and our intention is to preview these at the Domotex Floorcoverings Exhibition in Germany in January 2000. We are confident that the company will continue to do well. Objectflor Art & Design Belags GmbH Our German distribution business, Objectflor, based in Cologne, has performed well despite adverse economic conditions which continued to prevail in Germany. Sales increased and market share expanded whilst most competitors experienced setbacks in these areas. In November 1998 we took a further step in the expansion of our European flooring business by purchasing, through Objectflor, the business of Karndean International GmbH which traded in a number of European markets. Karndean was based near Cologne and we have now combined the presence of both companies onto one site, utilising existing offices plus limited additional warehousing space to accommodate Karndean products. We are now enjoying the benefits of a single site operation and a unified team. We are confident that together the two businesses have an excellent future and we are already working on further developments for the important markets of central Europe. Polyflor Australia Pty Limited For Polyflor Australia Pty Limited, 1998-1999 was a year of significant, nation-wide growth in both sales and profit. The market presented some difficulties with severe price competition evident throughout the whole financial year. Sales growth in both value and product volume were achieved by targeting predetermined market areas and despite the market conditions better gross margins were generated. The market and products still present opportunities for potential growth and this strategy will continue into the short and medium term. Plans have been made for the launching of additional products and product ranges. Infrastructure and personnel are now in place in preparation for these product launches in the next financial year. Perhaps the most exciting of these will be the release of the Expona range of luxury tiles. This is a market of strong growth in Australia and initial reactions to the product from the market decision makers are very encouraging indeed. Halstead Flooring Concepts Limited Following our acquisition of Skellerup Flooring Limited in November last year the company adopted the Halstead Flooring branding in January 1999. Under our ownership the company has made a very useful contribution to group profits during the financial year. Whilst the market in New Zealand may be relatively small, it is important to us in terms of volume for Polyflor sales. The complementary distribution of other non-competing products makes Halstead Flooring Concepts a natural part of the Group. JHT Limited During the year we created separate offices and an enlarged management team for JHT Limited to allow us to focus time, attention and resources in the development of the Group's hot pressed tile product ranges. JHT had a busy year following the re-vitalising of the Expona product, the preparation of a completely revised Polyflor Kudos range and latterly the creation and launch of the Colonia domestic collection. All of these three products are in the hot pressed tile category serving three different sectors of the marketplace. Having now created the specification and marketing plans for these products our intention is to maximise opportunities through our sales and distribution structures in various parts of the Group and beyond. JHT's business is complementary to our other floorcoverings activities. NON-FLOORING BUSINESSES Turning in detail to these businesses: Phoenix Distribution (N.W.) Limited Phoenix recorded another good year producing trading profits in excess of 1997/98. Turnover increased by 12% with the company gaining market share in a competitive yet expanding market sector. Phoenix continues to bring new successful products to the market. Particular success from existing brands has been achieved with the Arai Quantum F helmet, and the innovative Xlite X1001 helmet from Nolan. In addition, Phoenix introduced new brands to their portfolio during the year including 'Styl Martin' boots and 'Xena' locks and in July 1999 secured the UK distribution of 'Autocom', the premier motorcycle communications system, against very strong competition. Belstaff clothing continued its resurgence in the UK market with new products being introduced to meet technical performance and design as required by today's discerning style conscious biker. Motorcycle market conditions remain buoyant and the sector is confident of future growth. Phoenix holds a strong position in the UK motorcycle accessories market and is set to continue its expansion through organic growth and market penetration. It is with this in mind that the management of Phoenix continues to be optimistic for the future progress of the business. Conway Products Limited Conway has built on the improvements of the previous year to achieve a significant increase in profit in the financial year 1998/99. Again this is despite strong competition from our European competitors. We achieved an overall sales volume increase of 11%; 55% on Commercial Trailers and 5% on Leisure products. The company managed to improve its financial performance by increasing volume, developing new higher margin products and persisting with tight financial controls. This has been achieved against a background of heavy management commitment to Product Development, the result of which has enhanced our existing Leisure products and increased the market potential for Commercial Trailers. Further capital expenditure is planned with the purchase of a laminating press to increase productivity of our large Van Trailers. Together with our inherent design and assembly skills, this will assist us with the increased demand for these products. The management believes that this growth and improved profitability can be achieved through our existing strengths. Driza-Bone Pty Limited The trading year for Driza-Bone was moderately successful with sales and profit growth. This was helped by the wettest weather on record in Australia for much of the year. This company had been actively marketed for disposal for some months and whilst the brand has instant recognition in its home market the many offers we had undervalued the company and sought a discount to the asset value. The Board felt that the best price would be achieved from an Australian buyer who valued the long-term potential of the brand. The offer accepted for the business on 1 September represented, in the opinion of the Board, a very good one and gave no discount to the asset value. AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 1999 1999 1998 £ £ Turnover Existing operations 71,804,306 69,576,044 Acquisitions 7,073,319 - ------------------------------ Continuing operations 78,877,625 69,576,044 Discontinued operations 5,426,989 4,078,356 ------------------------------ 84,304,614 73,654,400 ------------------------------ Operating profit Existing operations 8,278,786 8,360,360 Acquisitions 465,019 - ------------------------------ Continuing operations 8,743,805 8,360,360 Discontinued operations 179,412 (138,352) ------------------------------ 8,923,217 8,222,008 Exceptional item: Loss on disposal of discontinued operations and goodwill previously written off (3,362,809) - Net interest receivable 327,836 388,226 ------------------------------ Profit on ordinary activities before taxation 5,888,244 8,610,234 Taxation on ordinary activities (3,029,855) (3,137,482) ------------------------------ Profit on ordinary activities after taxation 2,858,389 5,472,752 Dividends (3,426,376) (3,162,193) ------------------------------ Retained (loss)/profit for the year (567,987) 2,310,559 ------------------------------ Earnings per ordinary share (as defined in Note 4) - headline 20.4p 17.8p - basic and fully diluted 9.2p 17.8p AUDITED CONSOLIDATED BALANCE SHEET as at 30 June 1999 1999 1998 £ £ Fixed assets Intangible assets 2,737,592 - Tangible assets 22,068,110 19,309,356 ------------------------------ 24,805,702 19,309,356 ------------------------------ Current assets Stocks 21,669,448 17,797,718 Debtors 18,624,094 17,467,173 Cash at bank and in hand 7,135,031 10,373,799 ------------------------------ 47,428,573 45,638,690 Creditors - amounts falling due within one year (21,271,914) (18,298,644) Net current assets 26,156,659 27,340,046 ------------------------------ Total assets less current liabilities 50,962,361 46,649,402 Creditors - amounts falling due after more than one year (914,817) (89,718) Provision for liabilities and charges (10,700) (54,871) ------------------------------ 50,036,844 46,504,813 ========== ========== Capital and reserves Equity share capital 3,119,615 3,082,065 Non-equity share capital 200,000 200,000 ------------------------------ Called up share capital 3,319,615 3,282,065 Share premium account 2,932,930 2,318,617 Revaluation reserve 3,670,390 3,828,513 Profit and loss account 40,113,909 37,075,618 ------------------------------ 50,036,844 46,504,813 ========== ========== AUDITED CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 1999 1999 1998 £ £ Net cash inflow from operating activities 11,077,946 12,347,148 Returns on investments and servicing of finance 320,869 219,481 Taxation paid (3,277,219) (3,568,987) Capital expenditure (4,688,163) (1,367,181) Acquisitions and disposals (3,111,664) (1,429,442) Equity dividends paid (2,545,779) (2,748,712) ------------- ------------- Cash (outflow)/inflow before financing (2,224,010) 3,452,307 Financing: Repayment of loans (1,089,109) (6,271,150) ------------- ------------- Decrease in cash (3,313,119) (2,818,843) ------------- ------------- Reconciliation of net cash flow to movement in net funds Decrease in cash (3,313,119) (2,818,843) Cash flow from decrease in debt 1,089,109 6,271,150 ------------- ------------- Change in net funds resulting from cash flows (2,224,010) 3,452,307 Effect of exchange differences 48,429 54,328 Borrowings in subsidiaries acquired (586,117) - ------------- ------------- Movement in net funds for the period (2,761,698) 3,506,635 Net funds as at 30 June 1998 9,361,916 5,855,281 ------------- ------------- Net funds as at 30 June 1999 6,600,218 9,361,916 ========= ========= STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 30 June 1999 1999 1998 £ £ Profit for the financial year 2,858,389 5,472,752 Currency translation differences on foreign currency net investments 542,981 (1,192,226) Property revaluation (158,123) - ------------- ------------- Total recognised gains relating to the year 3,243,247 4,280,526 ------------- ------------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 30 June 1999 1999 1998 £ £ Profit for the financial year 2,858,389 5,472,752 Dividends (3,426,376) (3,162,193) ------------- ------------- (567,987) 2,310,559 Other recognised gains and losses relating to the year 384,858 (1,192,226) Goodwill previously written off/(arising on acquisition) 3,063,297 (452,666) New share capital subscribed 651,863 290,327 ------------- ------------- Net increase in shareholders' funds for the year 3,532,031 955,994 Opening shareholders' funds 46,504,813 45,548,819 -------------- ------------- Closing shareholders' funds 50,036,844 46,504,813 -------------- ------------- Equity shareholders' funds 49,836,844 46,304,813 Non-equity shareholders' funds 200,000 200,000 -------------- ------------- 50,036,844 46,504,813 -------------- ------------- NOTES 1. The final dividend of 7.125p per share will be paid on 3 December 1999 to shareholders on the register as at 5 November 1999. The full report and accounts will be posted to shareholders on 5 November 1999. 2. The financial information on pages 12 to 16 does not represent the statutory accounts of the group. Statutory accounts for the year ended 30 June 1998 have been delivered to the Registrar of Companies, carrying an unqualified audit report and no statement under S.237 (2) or (3) Companies Act 1985. 3. Statutory accounts for the year ended 30 June 1999 have not yet been delivered to the Registrar of Companies. They will carry an unqualified audit report and no statement under S.237 (2) or (3) Companies Act 1985. 4. Calculation of earnings per ordinary share 1999 1998 £ £ Profit on ordinary activities after taxation 2,858,389 5,472,752 Preference dividend (9,350) (7,700) ----------- ---------- Net earnings 2,849,039 5,465,052 Exceptional item 3,362,809 - Goodwill amortisation charge 82,244 - ----------- ---------- Headline earnings 6,294,092 5,465,052 ------------ ---------- Weighted average number of ordinary shares in issue 30,848,428 30,706,153 Headline earnings per ordinary share 20.4p 17.8p Net earnings per ordinary share 9.2p 17.8p There is no dilutive effect on earnings per share resulting from the existence of share options

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