Interim Results

HEADLAM GROUP PLC 12 August 1999 Interim Results for the six months period to 30 June 1999 Headlam Group plc, the floorcoverings and furnishings distributor, announces pre tax profits before goodwill amortisation up 27.2% for the six month period ended 30 June 1999. FINANCIAL HIGHLIGHTS Six months ended 30 June 1999 1998 Change Turnover £169.9m £160.7m + 5.7% Profit before goodwill £11.3m £8.9m + 27.2% amortisation and taxation Profit before taxation £10.7m £8.9m +20.3% Basic earnings per share before goodwill amortisation 10.8p 9.0p +20.0% Dividend per share 2.45p 2.10p + 16.7% Key points * firm start to the year * three focused acquisitions completed * strong cash generation from operations * Group continues its planned strategic development as an international floorcoverings and furnishings business Commenting on the results, Ian Kirkham, Chief Executive, said: 'Headlam continues to make good progress. We believe these results are highly satisfactory given the first half market conditions. We are looking for the industry's traditionally busy autumn period to show signs of increased consumer confidence. Headlam is on course for another successful year.' Enquiries: Headlam Group plc Ian Kirkham, Chief Executive Tel: 0171 457 2345 Stephen Wilson, Finance Director Thereafter: 01604 234121 Gavin Anderson & Company Richard Constant/Jane McLeod Scott Tel: 0171 457 2345 Chairman's Statement The group's interim results show another very satisfactory trading performance as sales rose to £169.9 million (1998:£160.7 million) whilst profit before taxation and goodwill amortisation rose to £11.3 million (1998:£8.9 million). Basic earnings per share before goodwill amortisation increased by 20% from 9.0p to 10.8p. An interim dividend of 2.45p per ordinary share (1998:2.1p) will be paid on 5 January 2000 to shareholders on the register at 10 December 1999. Improved margins and tight control of costs produced an increase in profitability and the group enjoyed a further period of strong cash generation from operations. Following the introduction earlier this year of a group three year strategic plan, I am pleased to report that we are making excellent progress towards our objectives and the planned development of our business is ahead of our own internal timescales. Floorcoverings This division produced a good performance in a market little changed against a strong corresponding period last year, however as the second half of 1998 saw weaker demand we are anticipating some improvement over last year's sales levels during the later months of 1999. Higher gross margins and further operating efficiencies are again propelling the business forward. These sustainable improvements in profitability are a continuing trend and are likely to remain the main driving force behind the division's planned improved performance this year. Furnishings In a turbulent market place we have now completed the implementation of our strategy of developing a smaller, higher margin and more profitable core business. Having achieved this the division is now exploring opportunities to expand organically and by adding selected complementary acquisitions. Recent acquisitions During the period we purchased three businesses. In February we acquired Joseph, Hamilton and Seaton Limited ('JHS'), a UK contract carpet supplier which has made a smooth transition into the group and is already making a useful contribution to the results of the Floorcoverings division. La Maison du Sol ('LMS'), the recently acquired French floorcoverings distributor, is currently being integrated into the group's new continental european floorcoverings structure. Initial results are encouraging and our short term intention for this business revolves around eradicating the traditional small trading losses incurred in recent years. Eclipse Blinds plc ('Eclipse') contributed to the group's results from 1 May. We are encouraged by the additional prospects that Eclipse has brought to the group and the immediate task is to prioritise the growth opportunities and to take full advantage of its market position in the countries where it has a well established presence. Prospects Most of the group's subsidiaries have again improved their operating results in a period when sales growth has been difficult to achieve. With a predicted rise in UK consumer confidence, low interest rates and an enlivened housing market, we are anticipating some improvement in market conditions during the traditionally busy autumn period. With our ability to self generate improved performances from our existing businesses, three focused acquisitions recently completed and a potentially healthier UK consumer environment, the group is anticipating another year of real progress. Financial review Accounting policies The financial statements have been prepared on a basis which is consistent with previous years except to the extent that they have been modified to incorporate the relevant accounting standards issued during the period by the Accounting Standards Board and applicable to accounting periods ending on 30 June 1999. Profit and loss account Turnover During the period, the group's turnover increased by 5.7% from £160.7 million to £169.9 million. Turnover from continuing operations reduced by 4.7% from £160.7 million to £153.1 million and acquisitions during the period contributed £16.8 million. Turnover from continuing operations in the Floorcoverings division reduced by 0.8% from £129.1 million to £128.1 million. The contributions from the two acquired businesses, JHS and LMS, included respectively from 1 March 1999 and 1 June 1999 amounted to £6.9 million. Turnover from continuing operations in the Furnishings division reduced by 20.7% from £31.6 million to £25.0 million mainly as a consequence of the deliberate decision to reduce activity in low margin retail business during the second half of 1998. The contribution from Eclipse Blinds, included in this division from 1 May 1999, amounted to £9.9 million. Profit on ordinary activities before interest and goodwill amortisation During the period, the group's profit on ordinary activities before interest and goodwill amortisation increased by 21.3% from £10.1 million to £12.3 million. The contribution from continuing operations amounted to £11.0 million and acquisitions added a further £1.3 million. The group's gross profit margin increased during the period from 28.3% to 30.6% whilst net operating expenses expressed as a percentage of turnover increased from 22.0% to 23.3%. Operating margins increased from 6.3% to 7.2%. Profit on ordinary activities before interest from continuing operations in the Floorcoverings division, increased by 12.5% from £8.8 million to £9.9 million and operating margins increased from 6.8% to 7.7%. JHS and LMS contributed £0.4 million. The profit on ordinary activities before interest from continuing operations in the Furnishings division reduced by 15.9% during the period from £1.9 million to £1.6 million. However, operating margins increased from 6.1% to 6.5%. Eclipse Blinds contributed £0.9 million during the period. Net interest payable Net interest payable decreased by £0.2 million to £1.0 million compared with the equivalent period last year and interest cover increased to 11.8 from 7.9. Profit on ordinary activities before taxation and goodwill amortisation Profit on ordinary activities before taxation and goodwill amortisation increased by 27.2% from £8.9 million to £11.3 million. Taxation on profit on ordinary activities The effective rate of taxation charged during the period on profit on ordinary activities was unchanged at 31.0%. Earnings per share Basic earnings per share excluding goodwill amortisation increased by 20.0% from 9.0p to 10.8.p. Diluted earnings per share, excluding goodwill amortisation, increased by 21.6% from 8.8p to 10.7p. Basic and diluted earnings per share, after goodwill amortisation, were 9.9p and 9.8p respectively. Goodwill amortisation FRS 10 requires goodwill arising on the acquisition of subsidiary undertakings to be capitalised within fixed assets and amortised over its estimated useful economic life. This basis of accounting has been adopted by the group, for the acquisition of subsidiary undertakings from 1 January 1998. Goodwill, amounting to £69.5 million, arising on the acquisition of subsidiary undertakings before this date has been written off against profit and loss account. The provisional goodwill arising on the acquisitions of JHS, Eclipse Blinds and LMS has been assigned a useful economic life of 20 years and has been recognised in the consolidated profit and loss account on a timing basis in order to match with post acquisition income. The potential economic lives of businesses and goodwill will be reviewed annually and revised if appropriate. Balance sheet Current liquidity During the period, the group's cash position reduced by £12.6 million from £23.0 million to £10.4 million. At 30 June 1999, £7.8 million was held in sterling and the equivalent of £1.1 million in US dollars and £1.5 million in euros. Total group borrowings at 30 June 1999 compared with the position as at 31 December 1998 were as follows 1999 1998 £m £m Bank loans and overdraft 37.1 18.7 Loan notes 2.0 2.7 Obligations under finance leases and similar hire purchase contracts 3.7 4.0 42.8 25.4 On 30 June 1999 and 1 July 1999, the group redeemed the preference shares in Eclipse Blinds plc for £12.1 million. The nominal value of the shares redeemed amounted to £0.6 million and included a redemption premium £11.5 million. In view of the significance of this transaction, the proportion of the redemption that occurred on 1 July 1999, which amounted to £10.3 million, has been treated as an adjusting post balance sheet event. In conjunction with the redemption of the Eclipse preference shares, the group utilised a sterling term loan facility of £15.5 million. The loan was drawn down on 1 July 1999, but has been treated as an adjusting post balance sheet event. The effect on the financial statements is to increase cash at bank by £6.6 million, reduce creditors, amounts falling due within one year, by £8.9 million and increase creditors, amounts falling due after more than one year, by £15.5 million. Net indebtedness at 30 June 1999 amounted to £32.4 million up from £2.4 million at 31 December 1998. Balance sheet gearing, based on shareholders' funds before the capitalisation of goodwill, increased from 4.2% at 31 December 1998 to 71.7%. Balance sheet gearing calculated on shareholders' funds after the capitalisation of goodwill was 28.6%. Cash flows Cash generation during the period was supported by the maintenance of a strong cash inflow from operating activities amounting to £10.3 million compared with £4.3 million for the corresponding period last year. Interest and taxation payments resulted in a £1.6 million (1998: £1.6 million) cash outflow and net capital expenditure during the period amounted to £1.4 million (1998: £0.2 million). The outflow of funds relating to acquisitions during the period amounting to £22.4 million included cash consideration of £13.2 million, acquisition costs of £1.6 million and assumed overdrawn positions in the acquired companies amounting to £7.6 million. The cash outflow before financing amounted to £15.0 million. Financing cash inflows amounted to £2.0 million net. £12.1 million related to the redemption of the Eclipse Blinds plc redeemable preference shares, £1.4 million to the repayment of debt and £15.5 million to the draw down under the term loan. Total cash outflows for the period amounted to £13.0 million compared with £8.9 million for the equivalent period last year. Share capital During the period, the number of ordinary shares in issue increased by 14.8 million from 68.5 million to 83.3 million. 14.6 million shares were issued in connection with the acquisition of Eclipse at a price of 345p per share and a further 0.2 million were allotted under share option schemes at prices ranging between 138.9p and 306.6p. CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited) Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 Note £'000 £'000 £'000 Turnover 1 Continuing operations 153,140 Acquisitions 16,785 ------- -------- -------- 169,925 160,704 327,593 Cost of sales (118,010) (115,233) (233,980) -------- -------- -------- Gross profit 51,915 45,471 93,613 Net operating expenses (39,611) (35,330) (68,461) Operating profit 1 Continuing operations 10,988 Acquisitions 1,316 ------- -------- -------- 12,304 10,141 25,152 Goodwill amortisation (605) - - ------- -------- -------- 11,699 10,141 25,152 Net interest payable (1,039) (1,282) (2,295) ------- -------- -------- Profit on ordinary 10,660 8,859 22,857 activities before taxation Taxation on profit (3,492) (2,746) (7,087) on ordinary activities ------- -------- -------- Profit for the financial 7,168 6,113 15,770 period Dividends paid and proposed on equity and non-equity shares (2,168) (1,432) (5,820) ------- -------- -------- Profit retained for 5,000 4,681 9,950 equity shareholders ------- -------- -------- Earnings per share Basic before goodwill amortisation 2 10.8p 9.0p 23.1p ------- -------- -------- after goodwill amortisation 2 9.9p 9.0p 23.1p ------- -------- -------- Diluted before goodwill amortisation 2 10.7p 8.8p 22.9p ------- -------- -------- after goodwill amortisation 2 9.8p 8.8p 22.9p ------- -------- -------- CONSOLIDATED BALANCE SHEET (unaudited) At At At 30 June 30 June 31 Dec 1999 1998 1998 Note £'000 £'000 £'000 Fixed assets Tangible assets 43,966 38,518 41,181 Intangible assets 68,156 - - ------ ------ ------ 112,122 38,518 41,181 Current assets Stocks 81,449 62,982 61,184 Debtors 82,446 56,534 54,772 Investments 57 53 57 Cash at bank and in hand 10,389 12,715 22,981 ----- ------ ------ 174,341 132,284 138,994 Creditors Amounts falling due within one year (139,313) (98,344) (98,504) ------ ------- ------ Net current assets 35,028 33,940 40,490 ------ ------- ------ Total assets less current liabilities 147,150 72,458 81,671 Creditors Amounts falling due after more than one year (33,346) (21,962) (23,238) Provisions for liabilities and charges (394) (601) (380) ------ ------ ------ 113,410 49,895 58,053 ------ ------ ------- Capital and reserves Called up share capital 4,214 3,469 3,473 Share premium account 97,162 47,410 47,525 Revaluation reserve 3,924 1,137 3,924 Profit and loss account 8,110 (2,121) 3,131 ----- ------ ------- Shareholders' funds Equity 113,360 49,845 58,003 Non-equity 50 50 50 ------ ------ ------- 4 113,410 49,895 58,053 --------- --------- ----------- --- ---- -- Financial gearing after capitalisation of goodwill 28.6% 23.1% 4.2% ------ ------ ------- before capitalisation of goodwill 71.7% 23.1% 4.2% ------ ------ ------- CONSOLIDATED CASH FLOW STATEMENT (unaudited) Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 Note £'000 £'000 £'000 Net cash inflow from 5 operating activities 10,337 4,286 26,158 Returns on investments and servicing of finance (1,054) (1,384) (2,381) Taxation (506) (247) (5,469) Capital expenditure (1,357) (179) (711) Acquisitions and disposals (22,421) 1,855 1,452 Equity dividends paid - - (5,042) ------- ------- -------- Cash (outflow)/inflow (15,001) 4,331 14,007 before financing Financing Issue of shares 323 233 352 Expenses paid in connection with share issues (330) - - Redemption of preference shares (12,121) - - Increase/(reduction) in debt 14,134 (13,511) (13,018) ------ ------- -------- Cash inflow/(outflow) from financing 2,006 (13,278) (12,666) ------ ------- -------- (Reduction)/increase in cash in the period (12,995) (8,947) 1,341 ------- ------- -------- Reconciliation of net cash flow to movements in net debt (unaudited) Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 £'000 £'000 £'000 (Reduction)/increase in cash in the period (12,995) (8,947) 1,341 Cash (inflow)/outflow from (increase)/reduction in debt (14,134) 13,511 13,018 -------- ------- -------- Change in debt resulting from cash flows (27,129) 4,564 14,359 Debt (acquired)/disposed of with subsidiaries (2,513) 372 369 New finance leases and similar hire purchase contracts (567) (459) (936) Translation difference 190 53 (154) ------- ------- ------ Movement in net debt in the period (30,019) 4,530 13,638 Net debt at beginning of period (2,421) (16,059) (16,059) ------- ------- ------ Net debt at end of period (32,440) (11,529) (2,421) ------- ------- ------ CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 £'000 £'000 £'000 Profit for the financial period 7,168 6,113 15,770 Currency translation differences on foreign currency net investments (21) (3) 4 Unrealised surplus on revaluation of properties - - 2,787 ------- -------- -------- Total recognised gains and losses for the financial period 7,147 6,110 18,561 ------- -------- ------- Notes to the interim financial statements (unaudited) 1. Segmental analysis Turnover Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 £'000 £'000 £'000 Floorcoverings Continuing operations 128,084 129,090 268,449 Acquisitions 6,931 - - ------ ------- ------- 135,015 129,090 268,449 ------ ------- ------- Furnishings Continuing operations 25,056 31,614 59,144 Acquisitions 9,854 - - ------ -------- ------- 34,910 31,614 59,144 ------ -------- ------- ------ -------- ------- 169,925 160,704 327,593 ------ -------- ------- Operating profit Floorcoverings Continuing operations 9,872 8,779 22,544 Acquisitions 370 - - ------ ------- ------- 10,242 8,779 22,544 ------ ------- ------- Furnishings Continuing operations 1,618 1,924 3,595 Acquisitions 946 - - ------ ------- ------- 2,564 1,924 3,595 ------ ------- ------- ------ ------- ------- 12,806 10,703 26,139 Central operations (502) (562) (987) ------- ------- ------- 12,304 10,141 25,152 ------- ------- ------- 2. Earnings per share The calculation of earnings per share is based on the average number of ordinary shares in issue during the first six months of the year of 70,934,902 (1998: 68,120,680). The weighted average number of ordinary shares used for the diluted earnings per share calculation is 71,782,628 (1998: 69,158,569). 3. Acquisitions The following companies were acquired during the period. Details of the consideration paid, amounts treated as goodwill and the fair value of assets acquired are set out below. These values are provisional and, following completion of the ongoing review, will be finalised in subsequent financial statements. Fair value of assets Consideration Goodwill acquired £'000 £'000 £'000 Joseph, Hamilton and Seaton Limited 7,024 5,788 1,236 Eclipse Blinds plc 50,972 57,384 (6,412) La Maison du Sol 5,425 3,978 1,447 Acquisition costs 1,611 1,611 - ----- ----- ----- 65,032 68,761 (3,729) ----- ----- ----- 4. Movements in shareholders' funds Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 £'000 £'000 £'000 Profit for the financial period 7,168 6,113 15,770 Dividends Equity shares (2,040) (1,431) (5,817) Non-equity shares (128) (1) (3) Negative goodwill taken to profit and loss account on liquidation of subsidiary undertaking - - (24) Equity share capital issued 50,708 998 1,117 Cost of share issues (330) - - Contribution to Qualifying Employee Share Trust - (765) (765) Currency translation differences on foreign currency net investments (21) (3) 4 Revaluation of properties - - 2,787 ----- ------ ------ Addition to shareholders' funds 55,357 4,911 13,069 Opening shareholders' funds 58,053 44,984 44,984 ------ ------ ------ Closing shareholders' funds 113,410 49,895 58,053 ------ ------ ------ 5. Reconciliation of group operating profit to net cash inflow from operating activities Six months Six months The year ended ended ended 30 June 30 June 31 Dec 1999 1998 1998 £'000 £'000 £'000 Operating profit 11,699 10,141 25,152 Negative goodwill taken to profit and loss account on liquidation of subsidiary undertaking - - (24) Depreciation and goodwill amortisation 2,242 1,706 3,172 Profit on sale of fixed tangible assets (12) (16) (10) Movement in stocks (2,007) (4,351) (2,141) Movement in debtors (1,037) (200) 599 Movement in creditors (548) (2,994) (590) ----- ------ ------ Net cash inflow from operating activities 10,337 4,286 26,158 ------ ------ ----- 6. Analysis of net debt Transl- At At 1 Jan Cash Acquisi- ation 30 June 1999 flow tions Non- differ- 1999 cash ence £'000 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 22,981 (12,614) - - 22 10,389 Bank overdraft (81) (381) - - (96) (558) --- --- --- --- --- --- 22,900 (12,995) - - (74) 9,831 Debt due within one year (662) 430 (2,440) (6,453) (52) (9,177) Debt due after one year (20,637) (15,487) (69) 6,453 316 (29,424) Finance leases and similar hire purchase contracts (4,022) 923 (4) (567) - (3,670) --- --- --- --- --- ---- (2,421) (27,129) (2,513) (567) 190 (32,440) --- --- --- --- --- --- 7. The interim financial statements for the six months ended 30 June 1999 have been prepared using accounting policies stated in the group's report and accounts for the year ended 31 December 1998 and are unaudited. The summary of results for the year ended 31 December 1998 does not constitute full financial statements within the meaning of the Companies Act 1985. The report and full financial statements for that period have been filed with the Registrar of Companies and contain an unqualified audit report within the meaning of the Companies Act 1985 and the auditors have not made any statement under section 237(2) or 237(3) of the Companies Act 1985. 8. The interim financial statements for the six months ended 30 June 1999 will be posted to shareholders on 27 August 1999 and copies will be available from that date from the company's registered office.

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