Final Results
Headlam Group PLC
17 March 2003
17 March 2002
Preliminary Results for the Year Ended 31 December 2002
Headlam Group plc ('Headlam'), the floorcoverings distributor, announces its
preliminary results for the year ended 31 December 2002.
Financial highlights
2002 2001 Change
Turnover from continuing operations £374.4m £346.4m +8.1%
Operating profit* £28.8m £25.3m +13.8%
Profit before taxation £29.9m £8.7m +243.7%
Adjusted earnings per share 23.4p 22.4p +4.5%
Total dividend per share 12.55p 11.40p +10.1%
* Before discontinued activities and goodwill amortisation
Key points
• Headlam completed restructuring of the group's activities and is now
focused on floorcovering distribution
• The UK floorcovering distribution business achieved record performance in
sales and operating profit
• Floorcovering operating profit, before goodwill amortisation, increased by
12.3%
• Cash flow from operations contributes to £29.9 million net cash at 31
December 2002
• Dividend per share up 10% to 12.55p
Tony Brewer, Chief Executive of Headlam, said:
'A strong performance from the UK businesses across all geographical regions was
the major contribution to this result. With the planned disposal of the
remaining non-core businesses completed, the group is wholly focused on
floorcovering distribution and is confident of another year of growth'
Enquiries:
Headlam Group plc
Tony Brewer, Chief Executive Tel: 01675 433000
Stephen Wilson, Finance Director
Chairman's Statement
It is pleasing to report that 2002 proved to be another successful year. Out of
the total turnover of £395.7 million, our Floorcoverings distribution businesses
increased turnover by 8.1% to £374.4 million. Group operating profits, before
goodwill amortisation, amounted to £30.4 million. The Floorcoverings
distribution businesses achieved record operating profits increasing by 12.3% to
£29.6 million.
During the year, we also completed the reshaping of the group's operations
concluding the programme of divestment and restructuring that we announced
during November 2000.
Earnings and dividend
Adjusted earnings per ordinary share increased by 4.5% from 22.4p to 23.4p. The
board is recommending that the final dividend is increased by 10.1% to 9.30p per
ordinary share. This increases the total dividend for the year by 10.1% from
11.40p to 12.55p. If approved, the final dividend will be paid on 1 July 2003
to shareholders on the register at 13 June 2003.
Disposals
The two year programme to restructure the group was completed in September 2002
with the disposal of our non-floorcovering interests, Eclipse Blinds in the UK
and Sweden, and William O'Hanlon in the UK, for a total amount of £15.7 million.
This now allows the group to concentrate on the development of its
floorcovering distribution businesses.
Acquisitions
During the year, the group continued with its strategy of acquisitions to
increase its market position in both the residential and commercial sectors.
Eight acquisitions were completed, all of which have been relocated into our
existing distribution centres and are achieving the anticipated return on
investment.
Employees
The performance of experienced managers in the individual operating businesses
has been a key factor in the group's success. Additionally the board recognises
the contribution of all employees for their efforts and dedication to ensure
that our supplier and customer relationships continue to be strengthened, to the
benefit of the group.
Outlook
The early months of 2003 have shown positive year on year sales growth. With
the original businesses continuing strongly and the acquisitions performing
above expectations, the group is confident of another successful year.
Chief Executive's Review
Our UK floorcovering distribution businesses enjoyed another successful year
whilst the European businesses were able to maintain a solid performance in
difficult markets. The planned disposal of the remaining non-core businesses
were completed leaving the group wholly focused on floorcovering distribution.
A positive performance from the UK businesses across all geographical regions
was the major contribution to this result. Sales of carpet products were
particularly strong showing an 8.4% like for like increase whilst all other
product categories produced a year on year improvement in sales.
The senior management team has been further strengthened by the formation of a
management board reporting directly to the main board. In addition to the
executive directors, the members of the management board are Andrew Simpson,
Managing Director of UK floorcovering, Gary Phillips, Finance Director of all
floorcovering operations, Tony Judge, Managing Director of the multi business
Coleshill distribution centre, and Keith Yates, Managing Director of the
national Mercado business.
This team interfaces directly with the experienced local management who are
individually responsible for operating 42 businesses located in 20 distribution
centres. These businesses are encouraged to trade autonomously whilst complying
with group strategy and financial reporting disciplines.
This structure has been enhanced during 2002 by eight acquisitions which have
retained and developed their individual market presence. The acquisitions of
Rikett, HBS Floortrade, Betrex Supplies and Wollimex earlier in the year were
followed in April by the acquisition of D J Hann, a regional distributor of
resilient floorcovering in the south of England. This business was relocated to
our distribution centre in Newbury.
Crucial Trading, the UK's leading supplier of natural floorcovering, was
acquired in May and now operates from our Coleshill distribution centre.
In October the two businesses of GAAS Flooring Distributors located in Cambridge
and Watford were acquired and are now both operational from our Bedford
distribution centre, strengthening our commercial business in southern England.
Wolff Contract Carpet Mills, a national supplier of contract floorcovering, was
also acquired in October and is now operational from our distribution centre in
Tamworth.
Strong relationships with the leading worldwide floorcovering manufacturers
continues to ensure that we are at the forefront of all the latest product
initiatives across our key areas of carpet, residential vinyl, wood and
laminate, commercial flooring and flooring accessories. This ensures that our
customers, the independent retailer and flooring contractor, are serviced with
all their flooring requirements from our multi product distribution centres.
Our traditional customers continue to trade strongly, with the number of active
accounts increasing year on year, and payment profiles maintaining an improving
trend. During the year, we have placed over 600,000 merchandising and point of
sale displays with our customers, providing them with a comprehensive range of
the latest flooring products and substantial market presence.
The business to business website launched in 2001 now has 2,400 registered users
allowing our customers to access real time stock files 24 hours a day, 365 days
a year, to place orders directly into our logistics processing system. Each
month we see an increase in orders through this facility.
We have continued with our policy of replacing or enlarging our distribution
centres and we currently have developments under construction for a new
distribution centre in Belfast and extensions to both our Glasgow and Nottingham
facilities. Our largest project to date is the £11.25 million investment
rehousing the national Mercado business into a new purpose built 185,000 sq ft
freehold distribution centre in Leeds. This facility will open during the
autumn 2003 giving this business a significant operating efficiency and
substantially increased capacity.
Our businesses in Holland, France and Switzerland have experienced difficult
market conditions. The management of these businesses however, have maintained
a firm position, and were able to increase market share and produce a
satisfactory contribution to group profitability. Whilst endeavouring to grow
our businesses organically, we continue to evaluate opportunities to expand our
presence in continental Europe, particularly in the three countries we currently
operate.
Outlook
To date, 2003 has shown similar sales growth trends to those experienced in
2002. With a combination of the ongoing product development, the success of our
multi business strategy and the continued investment in new facilities, we are
confident of another year of sustained growth.
FINANCIAL REVIEW
Trading
Turnover
Group turnover for the year amounted to £395.7 million compared with £434.1
million for the previous year. As previously reported at the half year, this
change was attributable to three factors.
• Turnover from continuing operations, now all floorcovering, increased
by 5.2% from £346.4 million to £364.3 million.
• Acquired operations, all of which were floorcovering businesses located
in the UK, contributed £10.1 million.
• Discontinued operations contributed £21.3 million compared with £87.7
million for the previous year.
Through a combination of increased market share and activity, turnover from
continuing UK floorcovering operations improved by 5.6% from £285.8 million to
£301.9 million.
Operating profit
Operating profit on ordinary activities, before goodwill amortisation, amounted
to £30.4 million compared with £32.1 million for the previous year. As with the
movement in turnover, the change in operating profit was attributable to three
factors.
• Operating profit from continuing operations increased by 9.9% from
£25.3 million to £27.8 million.
• Acquired operations contributed £1.0 million.
• Discontinued operations contributed £1.6 million compared with £6.8
million for the previous year.
The overall improvement in operating profit from continuing operations was
attributable to the UK floorcovering operations, where performance increased by
11.0% from £24.5 million to £27.2 million.
Exceptional items
As commented on in the Chairman's statement, the group completed its
restructuring programme during the year with the disposal of the remaining
Windowcovering businesses on 3 September 2002 for a gross amount of £15.7
million. As previously reported the consideration payable in cash on completion
amounted to £12.1 million and included the discharge of inter-company balances
totalling £3.4 million. Furthermore, the purchaser assumed responsibility for
the bank borrowings, which at completion, amounted to £3.6 million. The trading
results for the discontinued activities have been included up until 31 August
2002.
Taxation
The taxation charge for the year of £9.3 million, is based on an effective rate
of 32% and is calculated by reference to profit before goodwill amortisation and
exceptional items. The rate exceeds the standard UK rate of 30% principally
because of the effects of foreign tax and non-deductible items in the UK. It is
anticipated that the tax rate for 2002 will continue for the foreseeable future.
Cash flow and borrowings
Cash flow from operating activities
Cash flow from operating activities totalled £38.8 million, an increase of £2.7
million on last years £36.1 million.
The depreciation charge this year has reduced from £4.6 million down to £3.0
million because of the business disposals that occurred both last year and this.
However, with £11.1 million incurred on capital projects this year and further
investment, as highlighted below, planned for 2003 and beyond, depreciation will
increase in future years.
The net working capital investment at the end of the year had reduced compared
with the start of the year giving rise to a cash inflow of £5.5 million. This
compares with a net investment of £0.6 million last year. The reasons for the
significant change were the effects of the acquisitions and disposals and the
benefits derived from the extensive and constant effort directed at managing
stock and trade debtors and creditors.
Capital expenditure
The floorcovering businesses operate from twenty sites in the UK, two principal
sites in France and one site in both the Netherlands and Switzerland. In the
UK, the group holds a freehold or long leasehold interest in twelve of the
twenty sites with the remaining sites occupied on a short lease. The sites in
France and Switzerland are freeholds whilst the Dutch site is a short lease.
During the year, the group acquired the freehold interest in three sites, which
were formerly leased, at a cost of £5.2 million. In addition, work commenced on
the new warehouse and distribution centres in Leeds and Belfast and plans
initiated for extensions to two other sites. Due to planning delays in
connection with the Leeds site, the capital investment originally anticipated
for 2002 did not materialise and has been carried forward into 2003.
As at 31 December 2002, the board had authorised capital investments relating to
property of £11.1 million and fixtures and fittings of £3.3 million. This is in
addition to the £11.1 million incurred during the year. Furthermore, it is the
board's intention that the group will continue with its policy of rehousing
existing operations into new facilities, or acquiring the freehold interest in
leasehold sites, where there are sound economic reasons to support the
investment. A number of projects have been identified and it will take three to
four years for these to be completed in full.
Financing
The net financing outflows totalled £25.7 million. As reported at the half
year, £16.0 million related to the repayment of a sterling term facility.
During the second half of the year, the board decided to repay group borrowings
held to hedge the net assets of the floorcovering businesses operating in
Continental Europe. These borrowings amounted to £7.6 million. The removal of
the hedging arrangement provides the potential for increased volatility when
measuring the asset base but, saves on the costs associated with operating the
arrangement.
Financial instruments
The group's financial instruments, other than derivatives, comprise cash,
borrowings and various items that arise directly from its operations such as
trade debtors and trade creditors. The main purpose of these financial
instruments is to raise finance for and support the group's trading operations.
The group's principal derivative transactions, relate to forward foreign
currency contracts which are used to manage the currency risks arising from the
group's operations. These transactions however, are relatively modest since the
majority of day to day transactions are denominated in the currency of the
country where they are based.
It is, and has been throughout the period under review, the group's policy that
trading in financial instruments is not permitted.
The main risks arising from the group's financial instruments are interest rate
risk, liquidity risk and foreign currency risk. The board reviews and agrees
policies for managing each of these risks and they are summarised below. These
policies have remained unchanged during the period under review.
Interest rate risk
The group is exposed to interest rate fluctuations on its borrowings and
deposits. It borrows principally in sterling, euros, Swiss francs and US
dollars at both fixed and floating rates of interest and places deposits in
sterling and euros at floating rates. During the year, with the exception of a
fixed interest term facility amounting to £2.4 million denominated in Swiss
francs, the group maintained its policy of borrowing at floating rates.
Liquidity risk
The board's policy on liquidity is to ensure that the group has sufficient
facilities to fund its medium term requirements. The group's net cash position
at 31 December 2002 was £29.9 million compared with 12.4 million at 31 December
2001.
Foreign currency risk
The group's foreign operations are located in the Netherlands, France and
Switzerland.
The group's exposure to movements in currency exchange rates arises from
transaction currency cash flows and the translation of the results and net
assets of foreign subsidiary undertakings.
As mentioned above, the translation exposure relating to the net assets of these
businesses is no longer hedged by means of foreign currency borrowings.
Accounting policies
The financial statements have been prepared on a basis which is consistent with
previous years. The financial statements include the disclosure required by FRS
19 'Deferred tax' which has been fully adopted in the year. There has been no
prior year adjustment necessary as a result of implementing FRS 19.
Consolidated profit and loss account
for the year ended 31 December 2002
2002 2001
£'000 £'000
Turnover
Continuing operations 364,342 346,377
Acquisitions 10,062 -
374,404 346,377
Discontinued operations 21,319 87,745
395,723 434,122
Cost of sales (279,902) (298,951)
Gross profit 115,821 135,171
Net operating expenses (86,284) (103,843)
Operating profit
Continuing operations 27,036 24,496
Acquisitions 921 -
27,957 24,496
Discontinued operations 1,580 6,832
Operating profit before goodwill amortisation 30,362 32,111
Goodwill amortisation (825) (783)
29,537 31,328
Profit on disposal of operations excluding goodwill 861 13,741
Goodwill previously written off to reserves - (32,552)
Profit/(loss) on disposal of operations 861 (18,811)
Loss on sale of properties in discontinued operations - (434)
Profit on ordinary activities before interest 30,398 12,083
Net interest payable and other similar charges (521) (3,403)
Profit on ordinary activities before taxation 29,877 8,680
Taxation on profit on ordinary activities (9,335) (9,188)
Profit/(loss) for the financial year 20,542 (508)
Dividends paid and proposed on equity and non-equity shares (10,550) (9,558)
Retained profit/(loss) for the financial year 9,992 (10,066)
====== ======
Earnings/(loss) per share
Basic 24.4p (0.6p)
====== ======
Diluted 24.1p (0.6p)
====== ======
Adjusted 23.4p 22.4p
====== ======
Consolidated balance sheet
at 31 December 2002
2002 2001
£'000 £'000
Fixed assets
Intangible assets 13,767 12,741
Tangible assets 44,607 37,913
58,374 50,654
Current assets
Stocks 66,951 70,742
Debtors: amounts falling due within one year 72,696 79,008
Debtors: amounts falling due after more than one year 1,500 2,180
Total debtors 74,196 81,188
Cash at bank and in hand 35,522 44,464
176,669 196,394
Creditors: amounts falling due within one year (135,287) (153,803)
Net current assets 41,382 42,591
Total assets less current liabilities 99,756 93,245
Creditors: amounts falling due after more than one year (1,670) (4,498)
Provisions for liabilities and charges (676) (482)
Net assets 97,410 88,265
====== ======
Capital and reserves
Called up share capital 4,209 4,200
Share premium account 48,899 48,605
Revaluation reserve 4,042 4,102
Profit and loss account 40,260 31,358
Shareholders' funds
Equity 97,410 88,261
Non-equity - 4
97,410 88,265
====== ======
Consolidated cash flow statement
for the year ended 31 December 2002
2002 2001
£'000 £'000
Net cash inflow from operating activities 38,825 36,130
Servicing of finance (578) (3,872)
Taxation (7,476) (4,848)
Capital expenditure (10,592) 5,017
Acquisitions and disposals 7,075 26,874
Equity dividends paid (9,555) (8,657)
Cash inflow before financing 17,699 50,644
Financing (25,691) (14,476)
(Decrease)/increase in cash in year (7,992) 36,168
====== ======
Reconciliation of net cash flow to movements in net cash/(debt)
2002 2001
£'000 £'000
(Decrease)/increase in cash in year (7,992) 36,168
Cash outflow from reduction in debt 26,008 14,744
Change in debt resulting from cash flows 18,016 50,912
Debt disposed of with subsidiaries - 576
New finance leases and similar hire purchase contracts (129) (308)
Translation difference (370) 125
Movement in net cash in the year 17,517 51,305
Net cash/(debt) at 1 January 12,358 (38,947)
Net cash at 31 December 29,875 12,358
====== ======
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2002
2002 2001
£'000 £'000
Profit/(loss) for the financial year 20,542 (508)
Currency translation differences on foreign currency net (1,150) 38
investments
Surplus on revaluation of tangible fixed assets - 1,594
Total recognised gains and losses for the financial year 19,392 1,124
====== ======
Note of consolidated historical cost profits and losses
for the year ended 31 December 2002
2002 2001
£'000 £'000
Reported profit on ordinary activities before taxation 29,877 8,680
Difference between an historical cost depreciation charge and
the actual depreciation charge calculated on the revalued amount 60 78
Realisation of property revaluation gains - 1,098
Historical cost profit on ordinary activities before taxation 29,937 9,856
====== ======
Historical cost profit/(loss) for the year retained after taxation
and dividends
10,052 (8,890)
====== ======
Reconciliation of movements in consolidated shareholders' funds
for the year ended 31 December 2002
2002 2001
£'000 £'000
Profit/(loss) for the financial year 20,542 (508)
Dividends
Equity shares (10,550) (9,556)
Non-equity shares - (2)
Retained profit/(loss) for the financial year 9,992 (10,066)
Equity share capital issued 307 313
Preference share capital redeemed (4) (46)
Goodwill previously written off to reserves - 32,552
Surplus on revaluation of tangible fixed assets - 1,594
Currency translation differences on foreign currency net investments (1,150) 38
Net addition to shareholders' funds 9,145 24,385
Shareholders' funds at 1 January 88,265 63,880
Shareholders' funds at 31 December 97,410 88,265
====== ======
Segmental analysis
Turnover Profit before Operating
interest and taxation net assets
2002 2001 2002 2001 2002 2001
£'000 £'000 £'000 £'000 £'000 £'000
By activity
Floorcoverings 374,404 346,377 29,603 26,365 79,358 72,427
Discontinued operations 21,319 87,745 1,580 6,832 4,571 15,107
395,723 434,122 31,183 33,197 83,929 87,534
Central operations (821) (1,086)
Less: goodwill amortisation (825) (783)
Less: exceptional items 861 (19,245)
30,398 12,083
By origin
UK 330,933 353,025 28,895 29,519 72,012 75,388
Continental Europe 64,790 66,761 1,467 1,880 11,917 12,146
USA - 14,336 - 712 - -
395,723 434,122 30,362 32,111 83,929 87,534
Less: goodwill amortisation (825) (783)
Less: exceptional items 861 (19,245)
30,398 12,083
Earnings per share
The calculation of earnings per share is based on the average number of ordinary
shares in issue during the year of 84,087,778 (2001: 83,846,685). The weighted
average number of ordinary shares used for the diluted earnings per share
calculation is 85,071,792 (2001: 83,434,241). The calculation of profit for the
financial period used for the adjusted earnings per share is shown below.
Adjusted earnings per share
2002 2001
£'000 £'000
Operating profit after goodwill amortisation
29,537 31,328
Net interest payable (521) (3,403)
Profit on ordinary activities before taxation 29,016 27,925
Taxation on profit on ordinary activities (9,335) (9,188)
Adjusted profit for the financial period 19,681 18,737
====== ======
Reconciliation of group operating profit to net cash inflow from operating
activities
2002 2001
£'000 £'000
Profit on ordinary activities before interest 30,398 12,083
Exceptional items (861) 19,245
Operating profit 29,537 31,328
Depreciation of tangible fixed assets 2,976 4,589
Depreciation of intangible fixed assets - 4
Goodwill amortisation 825 783
(Profit)/loss on sale of fixed tangible assets (54) 8
Movement in stocks (2,910) (2,675)
Movement in debtors 733 (6,005)
Movement in creditors 7,718 8,098
Net cash inflow from operating activities 38,825 36,130
====== ======
Gross cash flows
2002 2001
£'000 £'000
Servicing of finance
Bank interest received 1,393 1,806
Bank and loan interest (1,856) (5,286)
Interest payable on finance leases and similar hire purchase contracts (115) (390)
Dividends on non-equity shares - (2)
(578) (3,872)
====== ======
Capital expenditure
Purchase of tangible fixed assets (11,098) (1,735)
Sale of tangible fixed assets 87 6,752
Sale of assets held for resale 419 -
(10,592) 5,017
====== ======
Acquisitions and disposals
Sale of subsidiary undertakings 7,723 34,364
Net (cash)/overdrafts disposed of with subsidiaries 2,799 (6,625)
Net cash outflow from purchase of businesses (3,447) (865)
7,075 26,874
====== ======
Financing
Issue of ordinary share capital 307 313
Repayment of amounts borrowed (24,612) (13,880)
New loans - 546
Redemption of preference shares (4) (46)
Capital element of finance leases and similar hire purchase contract
payments
(1,382) (1,409)
(25,691) (14,476)
====== ======
Analysis of changes in net cash/(debt)
At Other At
non-cash 31 December
1 January Cash
changes Translation 2002
2002 flows differences
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 44,464 (9,082) - 140 35,522
Bank overdraft (1,695) 1,090 - (30) (635)
42,769 (7,992) - 110 34,887
Debt due within one year (24,631) 24,612 (1,904) (480) (2,403)
Debt due after one year (1,904) - 1,904 - -
Finance leases and similar hire
purchase contracts (3,876) 1,396 (129) - (2,609)
12,358 18,016 (129) (370) 29,875
====== ====== ====== ====== ======
The financial information set out in the financial statements and notes above
does not constitute the Company's statutory accounts for the years ended 31
December 2002 or 2001. The financial information for 2001 is derived from the
statutory accounts for 2001 which have been delivered to the registrar of
companies. The auditors have reported on the 2001 accounts; their report was
unqualified and did not contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
The statutory accounts for 2002 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the registrar of companies following the company's annual
general meeting.
The financial statements for the year ended 31 December 2002 will be posted to
shareholders shortly.
This information is provided by RNS
The company news service from the London Stock Exchange
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