Half Yearly Report

RNS Number : 7937M
Headlam Group PLC
30 August 2013
 



30 August 2013

 

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

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

 

Financial highlights


2013

£000

2012

£000

Change





Revenue

280,385

279,441

+0.3%





Operating profit

9,738

10,759

-9.5%





Profit before tax

9,076

10,092

-10.1%





Basic earnings per share

8.4p

9.1p

-7.7%





Dividend per share

4.65p

4.65p

-





Key points

 

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

 

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

 

·     Earnings down by 7.7%

 

·     Dividend maintained at 4.65p

 

·     Project to extend the Coleshill distribution hub proceeding as planned

 

 

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

 

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

 

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

 

Enquiries:

 

Headlam Group plc                                                    

Tony Brewer, Group Chief Executive                             Tel: 01675 433000

Steve Wilson, Group Finance Director                           

 



Chairman's Statement

 

 

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

 

 

Earnings and dividend

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

 

 

UK operations

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Continental Europe

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

 

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

 

 

Cash flow

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

 

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

 

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

 

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

 

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

 

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

 

 

Changes in net funds

 


At

1 January

2013

£000

 

Cash

flows

£000

 

Translation

differences

£000

At

30 June

2013

£000






Cash at bank and in hand

49,798

(9,523)

169

40,444

Bank overdraft

-

(1,910)

(8)

(1,918)







49,798

(11,433)

161

38,526






Debt due within one year

(213)

-

(12)

(225)






Debt due after one year

(33,371)

93

(190)

(33,468)







16,214

(11,340)

(41)

4,833

 

 

IAS 19

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

 

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

 

 

Principal risks and uncertainties

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

 

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

 

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

 

 

Board change

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

 

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

 

 

Outlook

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

 

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

 

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

 

 



Condensed Consolidated Interim Income Statement

Unaudited

 

 


Note

 

Six months ended

30 June

2013

£000

Restated *1

Six months ended

30 June

2012

£000

Restated *1

Year 
ended

31 December 2012

£000






Revenue

2

280,385

279,441

585,984

Cost of sales


(195,751)

(195,949)

(410,251)

Gross profit


84,634

83,492

175,733

Distribution expenses


(56,161)

(54,504)

(109,621)

Administrative expenses


(18,735)

(18,229)

(36,798)

Operating profit

2

9,738

10,759

29,314

Finance income

3

96

118

783

Finance expenses

3

(758)

(785)

(2,246)

Net finance costs


(662)

(667)

(1,463)

Profit before tax


9,076

10,092

27,851

Taxation

4

(2,110)

(2,523)

(6,939)

Profit for the period attributable to the equity shareholders

 

2

 

6,966

 

7,569

 

20,912






Dividend paid per share

6

14.85p

14.15p

14.15p






Earnings per share





Basic

5

8.4p

9.1p

25.3p






Diluted

5

8.3p

9.0p

25.2p

 

All group operations during the financial periods were continuing operations.

 

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



Condensed Consolidated Interim Statement of Comprehensive Income

Unaudited

 

 


 

 

Six months

 ended

30 June

 2013

£000

 

Restated *1

Six months

 ended

30 June

 2012

£000

 

Restated *1

Year ended 31 December

 2012

£000

Profit for the period attributable to the equity

  shareholders

 

6,966

 

7,569

 

20,912





Other comprehensive income:




Foreign exchange translation differences arising on

  translation of overseas operations

 

999

 

(498)

 

(389)

Re-measurement of defined benefit plans

(410)

(2,030)

(4,985)

Effective portion of changes in fair value of cash flow hedges

75

(226)

(383)

Transfers to profit or loss on cash flow hedges

68

-

44

Income tax on other comprehensive income

(138)

359

1,015





Other comprehensive income/(expense) for the period

594

(2,395)

(4,698)





Total comprehensive income attributable to the equity shareholders for the period

 

7,560

 

5,174

 

16,214

 

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

 



Condensed Consolidated Interim Statement of Financial Position

Unaudited

 

 



At

30 June

2013

£000

At

30 June

2012

£000

At

31 December 2012

£000

Assets





Non-current assets





Property, plant and equipment


99,608

93,416

96,182

Intangible assets


13,210

13,210

13,210

Deferred tax assets


2,173

1,327

2,376



114,991

107,953

111,768

Current assets





Inventories


120,656

114,304

115,332

Trade and other receivables


109,932

104,129

108,070

Cash and cash equivalents


40,444

48,533

49,798

Assets held for sale


-

-

212



271,032

266,966

273,412

Total assets


386,023

374,919

385,180






Liabilities





Current liabilities





Bank overdraft


(1,918)

-

-

Other interest-bearing loans and borrowings


(225)

(212)

(213)

Trade and other payables


(159,061)

(158,830)

(153,755)

Employee benefits


(2,798)

(2,711)

(2,754)

Income tax payable


(5,863)

(6,362)

(7,117)



(169,865)

(168,115)

(163,839)

Non-current liabilities





Other interest-bearing loans and borrowings


(33,468)

(33,487)

(33,371)

Employee benefits


(13,917)

(12,733)

(14,641)



(47,385)

(46,220)

(48,012)

Total liabilities


(217,250)

(214,335)

(211,851)

Net assets


168,773

160,584

173,329






Equity attributable to equity holders





of the parent





Share capital


4,268

4,268

4,268

Share premium


53,512

53,512

53,512

Other reserves


(4,639)

(7,737)

(5,812)

Retained earnings


115,632

110,541

121,361

Total equity


168,773

160,584

173,329



Condensed Consolidated Interim Statement of Changes in Equity

Unaudited

 


 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

Cash flow

hedging

reserve

£000

 

Treasury

reserve

£000

Restated*1

Retained

earnings

£000

Restated*1

Total

equity

£000










Balance at 

1 January 2012

 

4,268

 

53,512

 

88

 

6,157

 

-

 

(13,258)

 

115,778

 

166,545

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7,569

 

 

7,569

Other comprehensive income

-

-

-

(498)

(226)

-

(1,671)

(2,395)

Total comprehensive income for the period

 

-

 

-

 

-

 

(498)

 

(226)

 

-

 

5,898

 

5,174










Transactions with equity shareholders, recorded directly in equity









Share-based payments

-

-

-

-

-

-

507

507

Deferred tax on share options

-

-

-

-

-

-

21

21

Dividends to equity holders

-

-

-

-

-

-

(11,663)

(11,663)

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(11,135)

 

 

(11,135)

Balance at 

30 June 2012

 

4,268

 

53,512

 

88

 

5,659

 

(226)

 

(13,258)

 

110,541

 

160,584










Balance at 

1 July 2012

 

4,268

 

53,512

 

88

 

5,659

 

(226)

 

(13,258)

 

110,541

 

160,584

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

13,343

 

 

13,343

Other comprehensive income

-

-

-

109

(113)

-

(2,299)

(2,303)

Total comprehensive income for the period

 

-

 

-

 

-

 

109

 

(113)

 

-

 

11,044

 

11,040










Transactions with equity shareholders, recorded directly in equity









Share-based payments

-

-

-

-

-

-

676

676

Share options exercised by employees

 

-

 

-

 

-

 

-

 

-

 

1,929

 

(1,013)

 

916

Deferred tax on share options

-

-

-

-

-

-

113

113

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,929

 

 

(224)

 

 

1,705

Balance at

  31 December 2012

 

4,268

 

53,512

 

88

 

5,768

 

(339)

 

(11,329)

 

121,361

 

173,329

 

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

 



 

Condensed Consolidated Interim Statement of Changes in Equity continued

Unaudited

 

 


 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

Cash flow hedging reserve £000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000










Balance at

  1 January 2013

 

4,268

 

53,512

 

88

 

5,768

 

(339)

 

(11,329)

 

121,361

 

173,329

Profit for the period attributable to the equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

6,966

 

 

6,966

Other comprehensive income

-

-

-

999

143

-

(548)

594

Total comprehensive income for the period

 

-

 

-

 

-

 

999

 

143

 

-

 

6,418

 

7,560










Transactions with equity shareholders, recorded directly in equity









Share-based payments

-

-

-

-

-

-

166

166

Share options exercised by employees

 

-

 

-

 

-

 

-

 

-

 

31

 

(16)

 

15

Deferred tax on share options

-

-

-

-

-

-

3

3

Dividends to equity holders

-

-

-

-

-

-

(12,300)

(12,300)

Total contributions by and distributions to equity shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

31

 

 

(12,147)

 

 

(12,116)

Balance at

  30 June 2013

 

4,268

 

53,512

 

88

 

6,767

 

(196)

 

(11,298)

 

115,632

 

168,773

 

 

 

 



 

Condensed Consolidated Interim Cash Flow Statements

Unaudited

 

 


 

 

Six months ended

30 June 2013

£000

 

Restated *1

Six months ended

30 June 2012

£000

Restated *1

Year ended

31 December

 2012

£000

Cash flows from operating activities




Profit before tax for the period

9,076

10,092

27,851

Adjustments for:




Depreciation, amortisation and impairment

2,412

2,326

4,695

Finance income

(96)

(118)

(783)

Finance expense

758

785

2,246

Profit on sale of property, plant and equipment

(10)

(44)

(185)

Share-based payments


166

507

1,183

Operating profit before changes in working capital and other payables


12,306

13,548

35,007

Change in inventories

(3,790)

(501)

(491)

Change in trade and other receivables

(19)

7,506

3,498

Change in trade and other payables


(5,119)

(3,473)

(819)

Cash generated from the operations


3,378

17,080

37,195

Interest paid

(314)

(336)

(1,682)

Tax paid

(3,307)

(2,827)

(6,766)

Additional contributions to defined benefit plan


(1,449)

(1,413)

(2,839)

Net cash flow from operating activities


(1,692)

12,504

25,908

Cash flows from investing activities





Proceeds from sale of property, plant and equipment

66

109

1,530

Interest received

64

30

768

Acquisition of subsidiaries, net of cash acquired

(600)

-

(771)

Acquisition of property, plant and equipment


(5,343)

(1,883)

(7,999)

Net cash flow from investing activities


(5,813)

(1,744)

(6,472)

Cash flows from financing activities





Proceeds from the issue of treasury shares


15

-

916

Repayment of borrowings


(93)

(90)

(213)

Dividends paid


(3,850)

(3,544)

(11,663)

Net cash flow from financing activities


(3,928)

(3,634)

(10,960)

Net (decrease)/increase in cash and cash equivalents


(11,433)

7,126

8,476

Cash and cash equivalents at 1 January

49,798

41,494

41,494

Effect of exchange rate fluctuations on cash held


161

(87)

(172)

Cash and cash equivalents at end of period


38,526

48,533

49,798

 

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



Notes to the Condensed Consolidated Interim Financial Statements

Unaudited

 

1 BASIS OF REPORTING

 

Reporting entity

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

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

The comparative figures for the financial year ended 31 December 2012 are not the group's statutory accounts for that financial year. Those accounts have been reported on by the group's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2)or(3) of the Companies Act 2006.

 

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

 

 

Statement of compliance

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

 

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

30 August 2013.

 

 

Significant accounting policies

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

 

Adoption of new and revised standards

 

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

 

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



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

1 BASIS OF REPORTING - continued

 

Significant accounting policies (continued)

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

 

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

 

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

 

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

 

 

Going concern

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

 

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

 

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

 

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

 



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

1 BASIS OF REPORTING - continued

 

 

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2012.

 

 

Risks and uncertainties

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

 

 

Restatement

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

 

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

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

 

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

 



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

1 BASIS OF REPORTING - continued

 

Restatement (continued)

 


Six months ended

30 June

2012

£000

Year ended

31 December 2012

£000

Consolidated Income Statement



Decrease in finance income

(1,719)

(3,693)

Decrease in finance expense

1,423

3,083

Decrease in income tax expense

74

153

Decrease in profit for the period

(222)

(457)




Decrease in basic and diluted earnings per share

(0.3p)

(0.5p)





£000

£000

Consolidated Statement of Comprehensive Income



Other comprehensive income:



Decrease in re-measurement of defined benefit plans

296

610

Decrease in income tax on other comprehensive income

(74)

(153)

Increase in other comprehensive income

222

457

 

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

 



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

2 SEGMENT REPORTING

 

The group has 53 operating segments in the UK and 5 operating segments in Continental Europe.  Each segment represents an individual trading operation and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products.  The operating results of each operation are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Group Chief Executive.  Discrete financial information is available for each segment and used by the Group Chief Executive to assess performance and decide on resource allocation. 

 

The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate.  The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments.  This distinction is embedded in the construction of operating reports reviewed by the Group Chief Executive, the board and the executive management team and forms the basis for the presentation of operating segment information given below.

 


UK

Continental Europe

Total


 

30 June

2013

£000

 

30 June

2012

£000

 

31 December

2012

£000

 

30 June

2013

£000

 

30 June

2012

£000

 

31 December

2012

£000

 

30 June

2013

£000

 

30 June

2012

£000

 

31 December

2012

£000

Revenue










External revenues

234,708

232,779

492,256

45,677

46,662

93,728

280,385

279,441

585,984





















Reportable segment operating profit

 

9,936

 

10,685

 

28,275

 

498

 

707

 

2,036

 

10,434

 

11,392

 

30,311





















Reportable segment assets

 

217,195

 

218,573

 

226,595

 

38,611

 

38,242

 

39,583

 

255,806

 

256,815

 

266,178











Reportable segment liabilities

 

(134,740)

 

(133,901)

 

(137,563)

 

(17,593)

 

(16,585)

 

(15,853)

 

(152,333)

 

(150,486)

 

(153,416)

 

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

 

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

 





 

 

30 June

2013

£000

Restated *1

30 June

2012

£000

Restated *1

31 December

2012

£000

Profit for the period







Total profit for reportable segments



10,434

11,392

30,311

Unallocated expense




(696)

(633)

(997)








Operating profit




9,738

10,759

29,314








Finance income




96

118

783

Finance expense




(758)

(785)

(2,246)








Profit before taxation




9,076

10,092

27,851

Taxation




(2,110)

(2,523)

(6,939)








Profit for the period




6,966

7,569

20,912








 

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



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

2 SEGMENT REPORTING - continued

 








 

 

 

 




 

30 June

2013

£000

 

30 June

2012

£000

 

31 December

2012

£000

Assets







Total assets for reportable segments



255,806

256,815

266,178

Unallocated assets:







Properties, plant and equipment




92,364

86,078

87,651

Deferred tax assets




2,173

1,327

2,376

Assets held for sale




-

-

212

Cash and cash equivalents




35,680

30,699

28,763








Total assets




386,023

374,919

385,180








Liabilities







Total liabilities for reportable segments



(152,333)

(150,486)

(153,416)

Unallocated liabilities:







Employee benefits




(16,714)

(15,444)

(17,395)

Net borrowings




(33,693)

(33,699)

(33,584)

Income tax payable




(5,863)

(6,361)

(7,117)

Proposed dividend




(8,450)

(8,119)

-

Derivative liabilities




(196)

(226)

(339)








Total liabilities




(217,250)

(214,335)

(211,851)








 

 


 

 

UK

 

Continental Europe

Reportable segment

total

 

 

Unallocated

 

Consolidated total


£000

£000

£000

£000

£000

Other material items 30 June 2013






Capital expenditure

1,333

470

1,803

3,540

5,343

Depreciation

1,110

318

1,428

905

2,333

Amortisation

-

-

-

79

79







Other material items 30 June 2012






Capital expenditure

1,026

128

1,154

728

1,882

Depreciation

1,076

329

1,405

921

2,326







Other material items 31 December 2012






Capital expenditure

2,008

271

2,279

5,720

7,999

Depreciation

2,193

648

2,841

1,764

4,605

Amortisation

-

-

-

90

90

 

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

 

Each segment is a continuing operation.

Notes to the Condensed Consolidated Interim Financial Statements
 continued

Unaudited

 

 

2 SEGMENT REPORTING - continued

 

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

 


UK

Continental Europe

Total


 

30 June

2013

£000

 

30 June

2012

£000

31 December

2012

£000

 

30 June

2013

£000

 

30 June

2012

£000

31 December

2012

£000

 

30 June

2013

£000

 

30 June

2012

£000

31 December

2012

£000

Revenue










Residential

160,567

159,076

337,569

20,816

22,258

43,959

181,383

181,334

381,528

Commercial

74,141

73,703

154,687

24,861

24,404

49,769

99,002

98,107

204,456












234,708

232,779

492,256

45,677

46,662

93,728

280,385

279,441

585,984

 

 

3 FINANCE INCOME AND EXPENSE

 


 

Six months

 ended

30 June

2013

£000

 

Restated *1

Six months

 ended

30 June

2012

£000

 

Restated *1

Year ended

31 December 2012

£000

Interest income:




Bank interest

65

118

783

Other

31

-

-

Finance income

96

118

783





Interest expense:




Bank loans, overdrafts and other financial expenses

(392)

(457)

(1,490)

Net change in fair value of cash flow hedges transferred from equity

(68)

-

(44)

Interest on net defined benefit plan deficit

(298)

(270)

(545)

Other

-

(58)

(167)

Finance expenses

(758)

(785)

(2,246)

 

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

 



Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

4 TAXATION

 

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

 

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

 

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

 

5 EARNINGS PER SHARE

 

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

 


 

Six months

 ended

30 June

2013

£000

Restated *1

Six months

 ended

30 June

2012

£000

 

Restated *1

Year ended

31 December 2012

£000

Earnings




Earnings for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent

 

6,966

 

7,569

 

20,912






2013

2012

2012

Number of shares




Issued ordinary shares at end of period

85,363,743

85,363,743

85,363,743

Effect of shares held in treasury

(2,422,387)

(2,241,197)

(2,672,553)





Weighted average number of ordinary shares for the purposes of basic earnings per share

 

82,941,356

 

83,122,546

 

82,691,190





Effect of diluted potential ordinary shares:




Weighted average number of ordinary shares at period end

82,941,356

83,122,546

82,691,190

Dilutive effect of share options

744,954

885,026

446,420





Weighted average number of ordinary shares for the purposes of diluted earnings per share

 

83,686,310

 

84,007,572

 

83,137,610

 

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

 



 

Notes to the Condensed Consolidated Interim Financial Statements continued

Unaudited

 

 

6 DIVIDENDS


Six months ended

30 June

2013

£000

Six months ended

30 June

2012

£000

 

Year ended

31 December 2012

£000





Interim dividend for 2012 of 4.65p paid 2 January 2013

3,850

-

-

Final dividend for 2012 of 10.20p proposed

8,450

-

-

Interim dividend for 2011 of 4.30p paid 3 January 2012

-

3,544

3,544

Final dividend for 2011 of 9.85p paid on 2 July 2012

-

8,119

8,119


12,300

11,663

11,663

 

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

 

 

7 CAPITAL COMMITMENTS

 

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

 

8 RELATED PARTIES

 

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

 



Statement of Directors' Responsibilities

 

 

 

We confirm to the best of our knowledge:








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

 

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

 

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

 

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

 

This report has been approved by the board of directors and signed on its behalf by

 

 

 

 

Graham Waldron

Chairman

30 August 2013

 

 

 

 

 

 

 

 

 

 

 


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