Preliminary Results

RNS Number : 3633P

James Halstead PLC

03 October 2011

 



3 October 2011

JAMES HALSTEAD PLC

PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS

FOR THE YEAR ENDED 30 JUNE 2011

Key Figures

·	Record revenue increased to £213.9 million (2010: £186.4 million) - up 14.8%
·	Record operating profit increased to £38.3 million (2010: £35.9 million) - up 6.9%
·	Record earnings per 5p ordinary share of 26.4p  (2010: 24.8p) - up 6.5%
·	Record final dividend per ordinary share proposed of 9.8p (2010: 9.375p) - up 4.5%
·	Strong cash inflow from operations of £32.9 million (2010: £36.5 million)
·	Nil net gearing

Mr Mark Halstead, Chief Executive, commenting on the results, said:

"A solid performance in the UK was the bedrock with outstanding international sales giving us another record year." 

Enquiries:
James Halstead:
Mark Halstead, Chief Executive
Gordon Oliver, Finance Director	Telephone: [phone]
Hudson Sandler:
Nick Lyon	Telephone: [phone]
Altium:
Ben Thorne, Paul Chamberlain	Telephone: [phone]

CHAIRMAN'S STATEMENT

I have great pleasure in announcing these results in a year in which we have increased revenue beyond £200 million to achieve a new record level of £213.9 million (2010: £186.4 million), an increase of 14.8%.

Our profit before tax at £38.5 million (2010: £35.8 million) is also a record achievement, and 7.6% ahead of the comparative.

Notwithstanding these figures, it was a difficult year. The UK economy and the construction sector in particular faced an austere backdrop.  Additional challenges were the price, and at times availability, of basic raw materials. This resulted in an inevitable degree of margin erosion. Having said this, the UK turnover progressed by 2.7%.

Our success in overseas markets was impressive with a 22% increase in revenue over the prior year and some 66% of our turnover is now outside the UK.

Investment continued throughout the year. Polyflor has completed a major refurbishment and upgrade to its production lines in Manchester and in Oldham our marketing and distribution facilities were completed with a showroom facility that has welcomed many of our partners.

In addition to this, Polyflor Australia has extended its warehouse facilities and Phoenix has relocated a short distance to modern premises. In addition, Riverside Flooring (Teesside) has successfully brought our newest facility into production.

I am proud to report that once again we received recognition for our export achievements in receiving the Queen's Award, our third award.  In addition, our industry not only voted us as supplier of the year (for the fifth consecutive year) but, uniquely, selected the entire Polyflor range as the flooring product of the year.

Once again I can report that we have been associated with landmark installations across the world. These include the event centre at the famous Nürburgring F1 grand prix circuit, the Niagara Falls Convention Centre in Canada and the Kokura Railway Station in Kitakyushu Japan.

The diversity and global geographic spread of our product penetration is further evidenced by projects such as the Wuxi Grand Theatre in Jiangsu, China, the Indian Naval Ship Vikramaditya and the Gorgan Gas project on Barrow Island, Western Australia. I can also report that our more usual hospital and education projects continue to be supplied.

Dividend

For the 35^th consecutive year the Board proposes to increase the final dividend. The final dividend of 9.8p (2010: 9.375p) represents an increase of 4.5% and combined with the interim dividend, paid in May 2011 of 4.5p (2010: 4.0p), makes a total of 14.30p (2010: 13.375p) for the year, an increase of 6.9%.

Acknowledgements

On behalf of the Directors I would like to give thanks to our staff and customers for their contribution to these results.

Outlook

Although the prevailing challenge of this year was the increasing cost of raw materials and energy we remain vigilant to the fragile state of our home market.  The coming year will be testing as our competitors look to our volume growth and seek to take back market share.  I am, however, of the firm belief that as a result of the key structural investments that we have made and our worldwide experience we will continue to progress in the coming year.

Geoffrey Halstead

CHIEF EXECUTIVE'S REVIEW

The year to 30 June 2011 was creditable.  Once again we have achieved record turnover and profits. With over a 20% increase in international sales we continued to expand our global operations. The 2.7% growth in the UK is more modest but the market has been challenging.

Looking at the geographical split of revenue we have seen growth in all our major markets.  The most notable of these are revenue increases in Australia (28%), Germany (25%), France (18.7%) and Scandinavia (16.6%).

Operating profit has risen to £38.3 million (2010: £35.9 million) an increase of 6.9%.  The profit before tax is slightly higher as a result of net finance income in the year of £167,000 (2010: a net finance cost of £102,000).

There was a drop in the overall margin on sales to 40.2% (2010: 42.6%) which was caused by a combination of keenly priced export projects, persistent raw material price increases and the start-up costs of production at Riverside, in Teesside. Raw material cost increases have been largely passed on through selective price increases. I am pleased to say Riverside is now fully operational and indeed, by the close of the year Riverside was supplying Polyflor UK, Objectflor and Polyflor Pacific with new contract flooring collections. This objective was achieved quickly but Teesside's latent value is considerable in terms of both its capacity and its capability and in August 2011 there were significant plant modifications and capital expenditure that will allow us to access new markets.

We anticipate consistent expansion at Teesside in the coming years.

 In the fragile economic climate I think we have successfully balanced the defence of margin against the need for growth and I expect that the investments in productivity made this year will underpin ongoing competitiveness.

Recycling and environmental issues continue to be a major area of focus.  In recent years specifiers have taken these criteria into account when assessing potential suppliers. Our experience is that often environmental credentials are no more than 'green-washing', i.e. glossy marketing and web site presentations that present an overall green impression. However, our credentials, which are often market leading, are substantiated by independent bodies.  Examples of this are:

-      Over 25 of our ranges feature the highest (A+) rating in the BRE Global verification system.

-      Our Recofloor vinyl take back system continues to grow and not only lowers landfill usage but delivers to us raw materials. Consequently, the recycled content of our products continues to grow.

-      The amount of energy required per square metre of product continues to fall and since 2000 has reduced by 43%, which of course aids competitiveness. 

Cash stands at £34.0 million (2010: £33.4 million) even after the payment of £14.4 million in dividends, £9.7 million in tax and £9.7 million of capital expenditure.  The cash inflow from operations remains strong at £32.9 million (2010: £36.5 million) obviously lower because of the absorption of an extra £10.3 million into inventories.

Stock levels have risen and stand at £48.9 million (2010: £35.9 million) and this 36% increase is larger than the growth in turnover but it reflects the larger value of stock due to raw material price rises and some significant stock for key infrastructure projects that will be delivered after the year end. It is certainly true that with interest rates on our cash deposits at less than 1% and raw material price inflation in double digits the building of stock offered a very real return. The physical volume of stock is 18% higher than last year.

James Halstead plc is focused almost entirely on the manufacture and distribution of flooring and operates through separate legal entities across the globe. In order to provide information in a structured manner to shareholders the following gives an overview of the year at the subsidiary level. We do not regard these as business segments.

Polyflor, based in Oldham and Manchester

Product update and design are crucial to maintaining our market position and during the year we have had several key initiatives.  In January 2011 we launched 'Pearlazzo' featuring a distinctive and bold colour palette which is not only targeted at specifiers for its look but also its extremely hard wearing capabilities.  In addition, Polysafe 'Hydro-Evolve' (with its raised emboss surface, designed to reduce slip risk in barefoot and continually wet areas) has been extremely well received.

During the year there have been key developments in our production plants.  The 'Polysafe' production line has been extensively refurbished concluding a 2 year programme of improvements.  Our technical staff met the challenge of accomplishing these changes whilst production was maintained, almost continuously.  The project included replacement ovens (which improve line speed and reduce energy costs), continuous in-line inspection (to reduce manning levels), totally automated packaging and new coating equipment.  Factory finish coatings are important to end users. Our PUR (polyurethane reinforced) coatings give a strong cross linked surface coat which has been progressively added across our product offering. It was inevitable that output and efficiency were affected during this major series of projects but our ingenuity at preventing a plant closure was commendable.

Objectflor and Karndean, our European based organisation, based in Cologne.

Last year I reported 19% growth in our German and central European organisation and I am pleased to report further progress. Looking at the currency on a like for like basis, our businesses have achieved a further 27.3% increase in revenue with all the territories reporting in excess of 20% growth. A good year and a commendable achievement. The record sales translated into a record level of profitability for our German business.

The year was a busy one for the business. The Expona Art & Design collection (Objectflor's flagship range) was augmented with a focused design collection ("Flooring Trends") which sold well. In addition, we enjoyed the full year benefit of last year's extremely successful launch of the Expona Domestic collection. During the year the Polyflor Performa collection of sheet vinyl was re-launched and the Polyflor Pearlazzo range was launched. As the financial year drew to a close, Objectflor previewed the Riverside collections of Ligno FX (a wood design heterogeneous range) and Mineral FX (a stone design sheet vinyl). All of these have been well received.

During the year there was a major focus on project sales with the creation of a dedicated project team created to look at larger projects. Often these are national shop-chains or institutions that require a longer review of the flooring options.

Examples of the projects delivered in the year were the new ADAC headquarters in Munich (Europe's largest automobile association), the refurbishment of the Bank Nationale de Paris in the Opéra District of Paris and the new Rolex headquarters in Cologne.

Polyflor Nordic, comprising our Norwegian and Swedish operations.

A year of progress, with a 16.6% growth in revenue over the previous year.

Across the region there was noticeable growth in the shop fitting sector with examples such as the Team Sportia shop chain and the Em Möbler furniture stores in Sweden. The Polyflor collection also had its successes with examples such as the new Pearlazzo being installed in the Lidköpings Hospital and the Lernia School in Malmö. The Norwegian business also had its share of key projects with a major involvement in the refurbishment of the Dressman retail chain and the Gmax sports retailers.

It is clear that some of the best designed installations are by Scandinavian architects. Overall there was a marked uplift in the sales of design floorings with the consequent beneficial effect on margins and improved profitability.

Polyflor Pacific, encompassing Australia and New Zealand

Both our businesses in this region have shown positive growth with Australia in particular winning many projects. As the year progressed the mining sector, in particular, further added to the growth of our business which achieved 14% like for like increase (which is further enhanced when translated into sterling).

A customised colour was created for one major project, Liverpool Hospital in New South Wales and this helped us secure the Royal North Shore Hospital which is one of the largest resilient sheet flooring projects in Australia over the last 25 years.

Many buyers in our market look to environmental credentials and Polyflor Pacific has achieved the maximum 'Green Tag' ™ accreditation rating, making it the only vinyl flooring to achieve this status with the Green Building Councils of both Australia and New Zealand.  In addition, our Recofloor vinyl take back scheme won a recycling sustainability award in Western Australia.  These factors are important in many new build projects but price competitiveness and customer service remain key to specifiers and Polyflor's competitive edge remains firm on both these fronts.

Performance in the early part of the year was assisted by a government initiative for investment in all major schools to refurbish the education infrastructure under the Building Education Revolution (BER) programme. As Polyflor Australia has stock located in six warehouses across the country we were well placed to service this widespread increase in demand. 

Phoenix Distribution, the motorcycle accessories business 

It has been a difficult year for Phoenix.  The retail motorcycle trade has suffered and Phoenix is focused on high end sales which are problematic in a fragile consumer economy.  A measure of the market conditions is that one of the largest of Phoenix's competitors, Frank Thomas Group, went into administration and exited the marketplace. Furthermore, against the backdrop of a weak value of sterling and almost all of the brands imported we expected a tough period of trading.  Nevertheless, despite an 18% decline in turnover, Phoenix remains profitable.

Phoenix continues to have a solid product range, principally the Arai range of helmets. Its brand leading status was confirmed with Arai taking the JD Power Award for customer satisfaction for the 12^thconsecutive year and Phoenix awarded the Wholesaler of the Year (by Motorcycle News) for the fifth time.

In these difficult times Phoenix has been, and remains, focused on cost control, but it is encouraging to see the prominence of Arai continuing with high profile customers such as Tom Cruise and Cameron Diaz (on Top Gear) and the Duke of Cambridge in the run up to the Royal wedding widely photographed in this iconic helmet. 

Outlook

The three key features of the year were the continued effectiveness and success of our sales strategy, a major focus on the re-equipping and opening of the Teesside production facility and the constant pressure of raw material and energy cost increases. In combination these factors led us to focus on production, productivity and the growth of stock holdings throughout the year.

As the new financial year commences we have the sales structures, the production capabilities, trusted brands and the stock availability to continue our progress and I look forward to 2011/12 with confidence.

Mark Halstead

Audited Consolidated Income Statement

for the year ended 30 June 2011

	Year  Ended  30.06.11  £'000		Year  Ended  30.06.10  £'000
Revenue	213,944		186,424
Cost of sales	(127,857)		(107,052)
Gross profit	86,087		79,372
Selling and distribution costs	(37,846)		(34,190)
Administration expenses	(9,931)		(9,329)
Operating profit	38,310		35,853
Finance income	3,304		3,209
Finance cost	(3,137)		(3,311)
Profit before income tax	38,477		35,751
Income tax expense	(11,012)		(10,072)
Profit for the period attributable to equity shareholders	27,465		25,679
Earnings per ordinary share of 5p:
- basic	26.4p		24.8p
- diluted	26.3p		24.8p

Audited Consolidated Balance Sheet

as at 30 June 2011

		As at 30.06.11 £'000	As at 30.06.10 £'000
Non-current assets
Property, plant and equipment		33,631	26,120
Intangible assets		3,232	3,232
Deferred tax assets		5,911	7,837
		42,774	37,189
Current assets
Inventories		48,862	35,926
Trade and other receivables		32,119	28,561
Derivative financial instruments		18	1,230
Cash and cash equivalents		34,031	33,364
		115,030	99,081
Current liabilities
Trade and other payables		50,722	45,706
Derivative financial instruments		1,824	188
Current income tax liabilities		5,655	4,806
		58,201	50,700
Net current assets		56,829	48,381
Non-current liabilities
Retirement benefit obligations		12,338	17,170
Deferred tax liabilities		921	992
Borrowings		200	200
Other payables		493	366
		13,952	18,728
Net Assets		85,651	66,842
Equity
Equity share capital		5,200	2,594
Equity share capital (B shares)		160	160
		5,360	2,754
Share premium account		1,084	3,031
Retained earnings		65,839	49,997
Other reserves		13,368	11,060
Total equity attributable to shareholders of the parent		85,651	66,842

Audited Consolidated Cash Flow Statement

for the year ended 30 June 2011

		Year  Ended  30.06.11  £'000	Year  Ended  30.06.10  £'000
Cash inflow from operations		32,944	36,472
Interest received		238	537
Interest paid		(107)	(111)
Taxation paid		(9,734)	(8,038)
Cash inflow from operating activities		23,341	28,860
Purchase of property, plant and equipment		(9,696)	(4,014)
Proceeds from disposal of property, plant and equipment		252	289
Cash outflow from investing activities		(9,444)	(3,725)
Equity dividends paid		(14,411)	(20,674)
Shares issued		659	1,313
Cash outflow from financing activities		(13,752)	(19,361)
Net  increase in cash and cash equivalents		145	5,774
Effect of exchange differences		522	29
Cash and cash equivalents at start of year		33,364	27,561
Cash and cash equivalents at end of year		34,031	33,364

Audited Consolidated Statement of Comprehensive Income

for the year ended 30 June 2011

		Year  Ended  30.06.11  £'000	Year  Ended  30.06.10  £'000
Profit for the year		27,465	25,679
Other comprehensive income (net of tax):
Foreign currency translation differences		3,219	530
Actuarial gain/(loss) on the defined benefit  pension scheme		2,710	(2,314)
Deferred taxation - change of rate		71	-
Fair value movements on hedging instruments		(911)	-
Other comprehensive income for the year (net of tax)		5,089	(1,784)
Total comprehensive income for the year		32,554	23,895
Attributable to :
Equity holders of the Company		32,554	23,895

Items in the statement above are disclosed net of tax

NOTES

1.	The final dividend of 9.8p per ordinary share will be paid on 2 December 2011 to shareholders on the register as at 4 November 2011.  The full report and accounts will be posted to shareholders on 24 October 2011.
2.	The financial information in this statement does not represent the statutory accounts of the Group.  Statutory accounts for the year ended 30 June 2010 have been delivered to the Registrar of Companies, carrying an unqualified audit report and no statement under section 498 (2) or (3) of the Companies Act 2006.
3.	Statutory accounts for the year ended 30 June 2011 have not yet been delivered to the Registrar of Companies.  They will carry an unqualified audit report and no statement under section 498 (2) or (3) of the Companies Act 2006.
4.	Earnings per ordinary share

	2011		2010
	Pence per share		Pence per share
Basic earnings per ordinary share	26.4		24.8
Diluted earnings per ordinary share	26.3		24.8

Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £27,465,000 (2010: £25,679,000) by 103,856,972 (2010: 103,391,436) shares, being the weighted average number of shares in issue throughout the year.

Diluted earnings per share is calculated by dividing the profit for the year attributable to equity shareholders of £27,465,000 (2010: £25,679,000) by 104,347,570 (2010: 103,606,570) shares, being the weighted average number of shares in issue throughout the year, adjusted for the effect of all potentially dilutive shares.

 

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