REG - Headlam Group PLC - Final Results 2016 <Origin Href="QuoteRef">HEAD.L</Origin> - Part 1
RNS Number : 6809YHeadlam Group PLC07 March 20177 March 2017
Headlam Group plc
("Headlam" or the "Company")
Final Results for the year ended 31 December 2016
Headlam Group plc (LSE: HEAD), Europe's largest distributor of floorcoverings, is pleased to announce its final results for the year ended 31 December 2016.
Financial Highlights:
Total revenue increased by 6.0% to 693.6 million (2015: 654.1 million)
Significant outperformance of the 3.8% growth in the UK floorcoverings market* with UK like-for-like** revenue growth of 4.7% in 2016 (2015: UK like-for-like** growth 3.9%)
Underlying*** profit before tax increased by 12.6% to 40.1 million (2015: 35.6 million)
Statutory profit before tax increased by 7.3% to 38.2m (2015: 35.6 million)
Basic underlying*** earnings per share increased by 14.5% to 38.7 pence (2015: 33.8 pence)
Total ordinary dividend in respect of the 2016 financial year increased by 8.9% to 22.55 pence (2015: 20.70 pence)
Special dividend of 8.0 pence also declared in respect of the 2016 financial year (2015: special dividend of 6.0 pence)
Net cash position of 52.6 million as at 31 December 2016, an increase of 19.8% on 2015 (31 December 2015: 43.9 million)
Operational Highlights:
Improved operating performance as a consequence of increased revenue and leveraging of the extensive distribution network, with underlying*** operating margin of 5.9% (2015: 5.6% (after adjusting for one-off benefit))
No discernible impact on trading following the EU referendum in June 2016, and able to implement price increases to mitigate cost inflation due to a weakening of Sterling
Continued expansion of the distribution network with seven service centres opened in 2016, and one post the year-end, bringing the total number of service centres to 55
Post Year-End:
Tony Judge, who has worked at Headlam for more than 24 years, will be appointed to the Board as Chief Operating Officer with effect from 31 March 2017
Successful acquisition of Mitchell Carpets Limited, a floorcovering distribution business based in Poole, Dorset, bringing the number of wholly-owned businesses to 60
2017 to date has shown continued growth in both the UK and Continental Europe, and the Company continues to trade in line with the Board's expectations for the full year
Steve Wilson, Chief Executive, said:
"2016 was another successful year for Headlam and we were able to significantly outperform the steady growth in the UK floorcoverings market and thereby gain market share, further cementing our market leading position in Europe. The 2016 financial results and overall financial strength of the Company have also allowed us to declare another special dividend, which supplements the Company's progressive ordinary dividend policy.
"We are dedicated to building on our existing business model which has achieved the strong financial results evident to date, whilst beginning to implement plans to further improve the operating performance of the business going forward. 2017 to date has shown continued growth in the UK and Continental Europe, and we look forward to the year with confidence."
*Source: AMA Research Ltd - Floorcoverings Market Report UK 2016-2020 Analysis
**Like-for-like revenue is calculated based on constant currency from activities and businesses that were in effect in both 2016 and 2015 and adjusting for variances in working days
***Before non-recurring items
Enquiries:
Headlam Group plc
Steve Wilson, Chief Executive
Catherine Miles, Director of Communications
Tel: 01675 433 000
Tel: 01675 433 006
Investec Bank plc(Joint Corporate Broker)
Tel: 020 7597 4000
Garry Levin / David Flin / Alex Wright
Arden Partners plc(Joint Corporate Broker)
Tel: 0121 423 8900 / 020 7614 5900
Jonathan Keeling / Steve Douglas
Buchanan(Financial PR and IR)
Tel: 020 7466 5000
Mark Court / Sophie Cowles / Catriona Flint
Notes for Editors:
Headlam is Europe's largest distributor of floorcoverings having grown significantly via organic growth and acquisition since 1992.
Headlam provides the distribution link between suppliers and customers of floorcoverings, providing suppliers with the greatest coverage and customer penetration for their products across the UK and Continental Europe, and customers with the broadest range of products supported by next day delivery.
The Company is engaged with suppliers across 16 countries whose products cover a significant proportion of the floorcoverings market (including carpet, residential vinyl, wood, laminate, luxury vinyl tile, underlay and commercial flooring). The Company's customers are within the residential and commercial sectors and comprise principally independent retailers and flooring contractors.
The Company currently comprises 60 wholly-owned businesses in the UK and Continental Europe each operating under their own trade brand and utilising their individual sales team which achieves a greater reach into the customer base.
Each of the businesses is supported by the Company's centralised and financial resources and extensive distribution network across the UK and Continental Europe that comprises four distribution hubs, 18 distribution centres, 55 service centres and a corporate showroom.
Chairman's Statement
2016 was another successful year for Headlam, with total revenue and underlying profit before tax increasing by 6.0% and 12.6% to 693.6 million and 40.1 million respectively compared with 2015. We were able to significantly outperform the steady growth in the UK floorcoverings market and thereby gain market share, further cementing our market leading position in Europe. As a consequence of the increased revenue and leveraging of our extensive distribution network, we were also able to deliver an improved operating performance.
It was especially gratifying that we experienced no discernible impact on trading following the EU referendum in June 2016, and were able to implement price increases in August 2016 to mitigate cost inflation due to a weakening of Sterling.
The 2016 financial results and overall financial strength of the Company have allowed us to declare a further special dividend, which supplements the Company's progressive ordinary dividend policy. Therefore, dividends declared and proposed in respect of the 2016 financial year, which are a reflection of the cash generative nature of the business, total 30.55 pence, being a combination of a total ordinary dividend amounting to 22.55 pence per ordinary share (2015: 20.70 pence), an increase of 8.9% on 2015, and a special dividend of 8.0 pence per ordinary share (2015: 6.0 pence).
We would like to thank all our employees, without whom this success would not be possible, and again would like to express our appreciation to Tony Brewer who stepped down as Chief Executive during 2016 and was instrumental in building Headlam into the Company it is today. The Board was delighted that Steve Wilson moved from Finance Director to Chief Executive ensuring continuity and also providing the skillset for the future development of the business. We are advanced with our search for a Chief Financial Officer and are committed to securing someone of the calibre that Headlam deserves. We are also pleased to announce that Tony Judge, 52, who has worked at Headlam for more than 24 years, will be appointed to the Board as Chief Operating Officer with effect from 31 March 2017. Tony has held a number of senior operational roles at the Company, most recently as the UK's Commercial Director. Tony has 35 years' experience in the floorcoverings industry and brings an abundance of knowledge and expertise to the role of Chief Operating Officer*.
The Board recognises the value derived from good corporate governance and the setting of high standards, not least in the confidence it brings to our shareholders, employees, suppliers and customers. The Board continues to encourage full participation and contributions from all its employees and promotes a culture of openness and transparency.
We are dedicated to building on our existing business model which has achieved the strong financial results evident to date, whilst beginning to implement plans to further improve the operating performance of the business going forward.
2017 marks our 25th year as a distributor of floorcoverings and we look forward to continue building on our success.
Dick Peters
Chairman
7 March 2017
*No further information is required to be disclosed pursuant to LR 9.6.13
Chief Executive's Review
Strategy
Our strategic aim is to continue being the pre-eminent distribution link between suppliers and customers of floorcoverings, providing suppliers with the greatest coverage and customer penetration for their products across Continental Europe, and customers with the broadest range of products supported by next day delivery. This is facilitated by our 60 wholly-owned businesses across the UK and Continental Europe and extensive distribution network that comprises four distribution hubs, 18 distribution centres, 55 service centres and a corporate showroom. Each of the Company's distribution businesses operates under its own brand name and utilises its individual sales team, while being supported by the Company's centralised and financial resources, which allows greater reach into the customer base. The Company's customers are within the residential and commercial sectors and comprise principally independent retailers and flooring contractors with whom the Company's businesses typically have long-standing relationships.
Performance
The Company continued to experience better than anticipated trading throughout the year but particularly in the important fourth quarter which accounted for 26.0% of total revenue in 2016 (2015: 25.6%).
Total revenue for the year of 693.6 million was up 6.0% against 2015, approximately 4.5% in constant currency, with a strong performance from both the UK and Continental Europe operations. The second half of the year accounted for 52.6% of revenue (H2 2015: 52.1%) reflecting the traditional weighting of activity to the second half.
We experienced no discernible impact on trading following the EU referendum result in June 2016, and the Company was able to mitigate cost inflation due to a weakening of Sterling following the referendum by implementing price increases to our customers which mirrored those of our suppliers. The price increases were implemented in August 2016 on virtually all residential sector products sourced from Continental Europe. Purchases from suppliers in the Eurozone accounted for roughly 70% of the Company's residential sector purchases in 2016, and the price increases for those products averaged approximately 6%. The Company's average selling price across the majority of its UK products rose by approximately 1.6% in 2016.
Gross margin was 30.60% versus 30.39% in 2015 (after adjusting for an one-off benefit in 2015) due to product mix variance and rebate benefit. The Company achieved an improved operating performance, with underlying operating profit and underlying profit before tax increasing 11.7% and 12.6% to 41.1 million and 40.1 million respectively against 2015, reflecting utilisation of the existing network and operational gearing from increased revenue.
UK
The UK accounted for 86.8% of total revenue in 2016, a marginal change from the 88.0% in 2015. There were no acquisitions in 2016, and UK like-for-like growth was 4.7%, a significant outperformance of the 3.8% growth in the market (Source: AMA Research Ltd - Floorcoverings Market Report UK 2016-2020 Analysis) and the 3.9% like-for-like growth in 2015.
Continental Europe
During 2016, the Company's three businesses in the Netherlands were amalgamated into one trading name, Headlam BV, so that the Company now has a total of three Continental European businesses located in each of the Netherlands, France and Switzerland. Continental Europe revenue grew by 3.6% to 81.5 million in constant currency, strongly reversing the decline of 3.8% in 2015, and, following translation, accounted for 13.2% of total revenue in 2016 (2015: 12.0%).
Suppliers
We continue to engage with suppliers around the world to provide them with unique access to market for their products and are now engaged with 107 significant suppliers in 16 countries. Our suppliers' products cover a significant proportion of the floorcoverings market (including carpet, residential vinyl, wood, laminate, luxury vinyl tile, underlay and commercial flooring) and we continue to look to supplement product lines either by engaging with suppliers or via acquisition.
Customers
Our customers are within the residential and commercial sectors, and the revenue split between the two sectors has remained broadly similar over the past few years. In 2016 the residential sector accounted for 67.5% of total revenue (2015: 67.2%) and the commercial sector for 32.5% (2015: 32.8%). The residential sector revenue is principally comprised of sales to independent retailers, and as a consequence is characterised by many smaller orders. In the UK, the Company's average order cut value for residential carpet and residential vinyl in 2016 were 127.44 and 68.03 respectively.
Operational Gearing and Investments
One of the focuses for 2017 and beyond is the operational gearing of the business above and beyond that which comes from additional revenue and growing our market leading position. In relation to this we are looking at the refinement and more effective and efficient utilisation of our distribution network. Initiatives already undertaken at negligible cost include merging IT platforms and de-duplication of inventory in instances where two distribution centres are located in close proximity to each other, which has effectively created growth capacity. This can be replicated across other parts of the network in 2017 and 2018 and it is our intention to examine other straightforward initiatives as well as longer-term plans. No job losses are anticipated as part of these future initiatives and they will also improve service for customers.
We have re-examined the plans for our proposed purpose built distribution centre in Ipswich for Faithfulls Floorcovering, one of our regional multi-product businesses which has experienced good growth and has outgrown its existing premises in nearby Hadleigh. Whilst we have received planning permission for our initial proposed site we are now considering an alternative site also in the Ipswich area that will better suit our needs and is more in line with our strategy of making our network ultimately more efficient while creating growth capacity. This potential new site is in a purpose-built distribution park, offers a quicker build and operational timeline, and 33% more cubic capacity in the same footprint as the initial site. The anticipated total cost, including land cost and warehouse equipment, is slightly higher at 17 million compared with the approximate 15 million for the initial site, but it is hoped that, due to its simpler nature, the distribution centre can be operational during the first half of 2018. There is also scope in the future for the new Ipswich site to support other Company businesses in the area.
Customer service is of paramount importance to our business model and we continue to develop our low-cost service centre network allowing ease of customer collection and ordering. Seven new service centres were opened in strategic locations in 2016, six in the UK and one in the Netherlands, and a further one in the UK post the year end bringing the total to 55 across the Company. This service centre network has led to the number of customer collections in the UK increasing by 29,528 in 2016 to 953,428 (2015: 923,900) which has the added benefit of reducing distribution costs.
Acquisitions
We continue to pursue growth both organically and via bolt-on acquisitions to build on our market leading position, and assess acquisitions on a continual basis utilising strict criteria. While no acquisitions were completed during 2016, since the year-end the Company has completed the acquisition of Mitchell Carpets Limited, a regional floorcovering distribution business based in Poole, Dorset. This has brought the total number of wholly-owned businesses in the UK and Continental Europe to 60, and all our businesses benefit from being part of the Company through our continued financial and centralised support and purchasing economies of scale.
Ordinary and Special Dividends
With the existing capital expenditure plans largely aligned with previous guidance, coupled with the robust financial performance and strength of the business, we are pleased to be able to declare a further special dividend. The special dividend is our mechanism of returning surplus cash to shareholders when it is not currently required due to our strong cashflow, cash balances and already well-invested extensive distribution network. Therefore, total dividends in respect to the 2016 financial year increased by 14.4% to 30.55 pence per ordinary share (2015: 26.70 pence). We shall continue to consider future special dividend payments in conjunction with potential acquisitions and future capital expenditure plans.
Current Trading
2017 to date has shown continued growth in both the UK and Continental Europe, and the Company continues to trade in line with the Board's expectations for the full year. UK like-for-like revenue growth was 0.23% and 2.10% in January and February 2017 respectively, with January and February 2016 being particularly strong comparators having recorded like-for-like growth of 9.18% of 3.33% respectively.
Continental Europe grew by 0.25% and 4.63% in January and February 2017 respectively in constant currency continuing the positive performance seen in 2016.
We implemented further price increases in January 2017 averaging approximately 3% across the majority of our residential sector products purchased from Continental Europe, again mirroring those of our suppliers and with no detrimental effect on trading to date. We will continue to monitor movements in currency and pricing and endeavour to implement price increases accordingly.
As stated above, a focus of 2017 is the network's effectiveness and efficiency, and also overheads so that incremental revenue has a greater impact on operating margin going forward, and we look forward to the year with confidence.
Steve Wilson
Chief Executive
7 March 2017
Financial Review
Revenue
During the year, revenue increased by 39.5 million from 654.1 million to 693.6 million, an improvement of 6.0%.
The Company's UK organic like-for-like growth of 4.7% once more outperformed forecasted annual market growth (Source: AMA Research Ltd) with the like-for-like performance of 5.1% during the second half accelerating ahead of the first half performance of 3.4%. UK residential revenues accounted for 70.1% of total UK revenues in 2016 and achieved an annual like-for-like performance of 5.3% benefiting from the stronger showing during the second half of 5.8%, compared with the first half of 4.7% as markets strengthened during the course of the year.
Commercial revenues in the UK, representing 29.9% of total UK revenues in 2016, increased by 1.9% on a like-for-like basis with a second half of 3.4% versus 0.4% in the first half.
000
%
000
%
Revenue for the year ended 31 December 2015
UK
575,341
88.0
Continental Europe
78,737
12.0
654,078
100.0
Items contributing to growth during the
twelve-month period to 31 December 2016
Like for like UK organic growth
24,356
4.3
Additional working day
2,290
0.4
Acquisition
117
-
26,763
4.7
Growth in Continental Europe
2,798
3.6
Translation effect
9,933
-
12,731
16.2
Total movement
39,494
6.0
Revenue for the year ended 31 December 2016
UK
602,104
86.8
Continental Europe
91,468
13.2
693,572
100.0
The revenue from the Continental European businesses improved during the year with the first half like-for-like improvement of 2.8% increasing to 4.3% during the second half giving rise to an annual increase of 3.6% in constant currency.
Both the Netherlands and France businesses contributed to the increase, with the Swiss business in line with its performance in 2015.
The weighting between combined residential and commercial revenue in Continental Europe showed a slight movement to commercial with 49.3% of revenue (2015: 48.8%).
Gross Margin
Gross margin decreased marginally during the year from 30.7% in 2015 to 30.6%. However, the gross margin achieved during 2015 included a one-off benefit amounting to 31 basis points and totalling 2.0 million, which arose during 2015 because of the rapid appreciation of Sterling against the Euro during the first quarter of the year. After adjusting for this one-off benefit, underlying gross margin in 2016 improved 21 basis points against 2015, attributable to product mix variance of 9 basis points and a rebate benefit of 12 basis points.
Expenses
Combined distribution and administrative expenses increased by 5.9%, up by 9.7 million, from 163.7 million to 173.4 million. The percentage proportions of distribution and administration expenses of total expenses for 2016 remained largely unaltered compared with 2015, with 2016 being 73.8% and 26.2% respectively (2015: 73.3% and 26.7%).
Total expenses
Distribution
Administration
000
%
000
%
000
%
Expenses for 2015
163,733
120,070
73.3
43,663
26.7
Significant movements in 2016:
People cost
5,596
78.4
4,444
79.2
1,152
75.7
Commercial vehicle expenses
801
11.2
801
14.3
-
-
Carriage costs
330
4.6
330
5.9
-
-
Packaging costs
251
3.5
251
4.5
-
-
Sampling investment
366
5.1
366
6.5
-
-
Bad debts
(723)
(10.1)
(723)
(12.9)
-
-
Depreciation
472
6.6
2
-
470
30.9
Ipswich
305
4.3
-
-
305
20.1
Occupancy
(232)
(3.2)
-
-
(232)
(15.2)
Share based payments
139
1.9
-
-
139
9.1
Intangibles
(375)
(5.3)
-
-
(375)
(24.6)
Warehouse repairs
236
3.3
236
4.2
-
-
Discounts
496
7.0
-
-
496
32.6
Foreign exchange gains
(471)
(6.6)
-
-
(471)
(30.9)
Other
(57)
(0.7)
(95)
(1.7)
38
2.3
7,134
100.0
5,612
100.0
1,522
100.0
Currency translation
2,492
2,300
192
Expenses for 2016
173,359
127,982
73.8
45,377
26.2
The increase in people cost, 5.6 million (2015: increase of 3.0 million), was once more the largest component increase, being 78.4% of the gross expenses increase before currency translation. The increase was fuelled by the cost of living increase of 2.5% awarded to all UK employees, a modest increase in people numbers, incentive awards relating to annual performance targets, and non-recurring costs relating to personnel changes of 1.9 million.
Costs relating to the currency translation of the Continental European businesses amounted to 2.5 million, reflecting the degree to which Sterling depreciated against the Euro and Swiss Franc in 2016.
The remaining expenses movements were directly linked to the increase in revenue during 2016 compared with 2015.
Operating profit
The underlying operating profit for 2016 increased by 11.7% compared with 2015 and the underlying operating margin improved to 5.9%, up from 5.6% (after adjusting for the one-off benefit), reflecting the absolute gain in gross margin due to the volume benefits on the additional revenue, product mix variance and rebate benefit. The operating margin generated by the incremental year-on-year revenue improvement amounted to 10.9% compared with 28.2% in 2015 due to a substantial increase in overhead costs primarily related to people and the cost of living award.
000
Operating profit 2015
36,777
Gross margin improvement in 2016
Volume benefit
11,986
Pricing benefit
2,008
Currency one-off benefit in 2015
(2,000)
11,994
Expenses increase in 2016
Distribution
(7,912)
Administration
213
Total increase
(7,699)
Underlying operating profit 2016
41,072
Drop through rate - %
10.9
Operating margin - %
5.9
Improvement - %
11.7
Tax
The underlying effective tax rate for 2016 was 18.9% which is lower than the headline rate of corporation tax in the UK of 20%. The main reason for this difference is due to a release in provisions for uncertain tax positions following a reassessment of the level of tax risks in the Company. The anticipated effective underlying rate for 2017 is expected to be 19%.
The Company is committed to being fully compliant with the relevant tax laws and compliance obligations regarding the filing of tax returns, payment and collection of tax. The Company maintains an open relationship with HM Revenue & Customs and currently operates with a level of tax compliance risk that is rated as "low".
The Company does not undertake any form of artificial tax planning but, does seek to maximise tax reliefs available, for example by making capital allowance claims on fixed asset expenditure.
Earnings and dividend
Ordinary dividends
The Board's ordinary dividend policy is aimed at improving dividends annually, such that the total of the interim and final dividends for any particular financial year increases in line with the basic earnings per ordinary share for that year.
When declaring the interim and recommending the final dividend, the Board considers the Company's cash resource, adequacy of distributable reserves and the expected cash requirements of the Company.
Basic underlying earnings per share for the year increased to 38.7 pence, representing an improvement of 14.5% on basic earnings of 33.8 pence for 2015. Total ordinary dividends declared and proposed in relation to 2016 have increased by 8.9% from 20.7 pence to 22.55 pence which represents a cover ratio of 1.63 based on basic earnings per share of 36.8 pence.
The Board believes that whilst there is a continuing underlying risk relating to potential volatility around future growth in European floorcovering markets and, as a consequence, a lack of predictability around future earnings, it is nonetheless of the view that the current dividend policy will continue during the medium term. Additionally, and subject to the nature and term of any adverse movement in earnings, financial strength, cash resource and the assessment of future trading, the Board has the option to allow a temporary fall in the cover ratio in order to maintain the dividend.
In implementing the policy, the Board ensures the parent company has sufficient distributable reserves available from which to make the distribution. Details of current year distributable reserves are shown in the retained earnings column in the Statement of Changes in Equity.
Dividend announcements, approvals and payments are typically expected to be as follows:
Dividend
Status and date
Announced
Approval
Approximate
payment date
Ordinary interim
Declared August
The August Board meeting
January in the year following announcement
Ordinary final
Recommended March
AGM by shareholders - May
July
Special dividends
The Board gives consideration to the distribution of surplus capital by the use of special dividend payments. As first stated in the 2015 Annual Report, the circumstances that apply to any special dividend declaration are: firstly, the Company's forecast average net debt in the year in which the special dividend is paid should be approximately equal to or less than 0.5 of earnings before interest, tax, depreciation and amortisation; secondly, the cover ratio of the aggregated ordinary and special dividends when expressed in terms of dividend cover will not be less than one; and thirdly, the payment must be made from available distributable reserves. The Board believes this approach provides a flexible mechanism for managing the maintenance and expansion of the Company's asset base.
The Board have decided to declare a special dividend of 8.0 pence per ordinary share (2015: special dividend of 6.0 pence per ordinary share). The payment will be made on 24 April 2017 to shareholders on the register at 31 March 2017.
Employee benefits
The liability attaching to employee benefits is as follows:
2016
000
2015
000
Current liabilities
2,169
2,171
Non-current liabilities
20,781
16,843
Total
22,950
19,014
Whilst the liability relates to both the UK and Swiss defined benefit pension plans, its composition is dominated by the UK plan. The year-on-year increase in the deficit amounts to 3.9 million. This was mainly caused by the increase in the liabilities of the UK defined benefit pension plan resulting from the decrease in the discount rate assumption from 3.7% per annum to 2.7% per annum over the year. This decrease was a consequence of the significant fall over the year in UK corporate bond yields, which are used to derive this assumption.
Cash flow
Net cash flow from operating activities
During the year, net cash flow from operating activities decreased by 3.9 million from 36.5 million to 32.6 million. The elements contributing to the movement are shown in the table below.
000
2015 net cash flow from operating activities
36,506
Operating profit
2,368
Depreciation and amortisation
97
Profit on asset disposals
16
Share based payments
139
Working capital
(5,916)
Interest paid
135
Taxation
(1,458)
Lower pension contributions
754
2016 net cash flow from operating activities
32,641
As with previous years, two key contributors to the year-on-year movement were the operating profit increase of 2.4 million and the net working capital investment of 5.9 million. In addition, there was a significant increase in the tax payment during the year.
The working capital movement of 5.9 million is due to a cash inflow of 3.9 million reported in 2015 and the more normal working capital profile of 2016 giving a cash outflow of 2.0 million. The increase in inventory and receivables, 5.9 million and 6.5 million respectively, was driven by the revenue activity and supported by a 10.4 million rise in payables.
The increase in the tax payment is solely due to the timing of tax payments.
Cash flows from investing and financing activities
The table below summarises the cash flow movements arising from investing and financing activities during the year. The overall net cash outflow from the two activities was 38.0 million, with the two main factors being a reduction in debt through the repayment of borrowings and the additional dividend payment as a result of last year's maiden special dividend payment.
000
2015 cash flows from investing activity
(3,830)
2015 cash flows from financing activity
(16,467)
(20,297)
Movement in investing activity:
Net reduction in capital expenditure
17
Interest received
26
Acquisitions
1,977
2,020
Movement in financing activity:
Treasury share issues
(582)
Share purchase
(647)
Repayment of borrowings
(10,727)
Dividends paid
(7,809)
(19,765)
Net movement
(17,745)
2016 cash flows from investing activity
(1,810)
2016 cash flows from financing activity
(36,232)
(38,042)
Net debt
As detailed in the table below, Company net funds at the end of the year increased by 8.7 million, 19.8%, from 43.9 million to 52.6 million.
Group
At
1 January
2016000
Cash
flows
000Translation
differences
000At
31 December 2016
000Cash at bank and in hand
63,932
(5,397)
808
59,343
Bank overdraft
-
(4)
-
(4)
Debt due within one year
-
(215)
(9)
(224)
Debt due after one year
(20,000)
13,759
(252)
(6,493)
43,932
8,143
547
52,622
Funding and going concern
The Company completed a refinancing of its UK banking facilities, which were due for renewal on 8 March 2017, on 14 December 2016. The Company has entered into two separate agreements with Barclays Bank PLC and HSBC Bank Plc and include both Sterling and Euro term facilities. The new banking arrangements, which run to 14 December 2021, increase the level of Sterling committed facilities from 40 million to 47.5 million, and have additional Euro facilities of 8.6 million. The Company also has short-term uncommitted facilities which amount to 25 million, and are renewable on an annual basis. In addition, the group has existing facilities of 7.8 million in Continental Europe.
The Company maintains sufficient banking facilities to fund its operations and investments, and as at 31 December 2016 92.3% of the total facilities were undrawn as shown below.
Drawn
000
Undrawn
000
Total facility
000
Less than one year
228
32,819
33,047
Over one year and less than five years
6,493
48,111
54,604
6,721
80,930
87,651
Having reviewed the Company's resources and a range of likely outcomes, the Board believes there are reasonable grounds for stating that the Company has adequate resources to continue in operational existence for a period no shorter than twelve months from the date of this financial review and it is appropriate to adopt the going concern basis in preparing the Company's financial accounts.
Consolidated Income Statement
for the year ended 31 December 2016
Note
Underlying
2016
000
Non-underlying
2016
000
Total
2016
000
2015
000
Revenue
1
693,572
-
693,572
654,078
Cost of sales
(481,068)
-
(481,068)
(453,568)
Gross profit
212,504
-
212,504
200,510
Distribution costs
(127,982)
-
(127,982)
(120,070)
Administrative expenses
2
(43,450)
(1,927)
(45,377)
(43,663)
Operating profit
1
41,072
(1,927)
39,145
36,777
Finance income
756
-
756
738
Finance expenses
(1,722)
-
(1,722)
(1,891)
Net finance costs
(966)
-
(966)
(1,153)
Profit before tax
40,106
(1,927)
38,179
35,624
Taxation
(7,601)
385
(7,216)
(7,213)
Profit for the year attributable to the equity shareholders
32,505
(1,542)
30,963
28,411
Dividend paid per share
5
26.70p
17.50p
Earnings per share
Basic
4
38.7p
36.8p
33.8p
Diluted
4
38.5p
36.6p
33.7p
All group operations during the financial years were continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016
000
2015
000
Profit for the year attributable to the equity shareholders
30,963
28,411
Other comprehensive income:
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans
(4,336)
1,292
Related tax
961
(231)
Impact of change in UK tax rates on deferred tax
(183)
(323)
(3,558)
738
Items that are or may be reclassified to profit or loss
Foreign exchange translation differences arising on translation of overseas operations
1,707
6
Effective portion of changes in fair value of cash flow hedges
572
(556)
Transfers to profit or loss on cash flow hedges
175
172
Related tax
(148)
66
Impact of change in UK tax rates on deferred tax
(3)
(8)
2,303
(320)
Other comprehensive (expense)/income for the year
(1,255)
418
Total comprehensive income attributable to the equity shareholders
for the year
29,708
28,829
Statements of Financial Position
at 31 December 2016
Restated*
Restated*
Note
2016
000
2015
000
2014
000
Assets
Non-current assets
Property, plant and equipment
102,934
104,677
106,875
Investment properties
-
-
-
Intangible assets
10,388
10,388
10,013
Investments in subsidiary undertakings
-
-
-
Deferred tax assets
1,138
629
515
114,460
115,694
117,403
Current assets
Inventories
126,037
118,165
115,591
Trade and other receivables
128,934
120,300
118,962
Cash and cash equivalents
59,343
63,932
47,589
314,314
302,397
282,142
Total assets
3
428,774
418,091
399,545
Liabilities
Current liabilities
Bank overdraft
(4)
-
-
Other interest-bearing loans and borrowings
(224)
-
(204)
Trade and other payables
(183,304)
(171,375)
(165,240)
Employee benefits
(2,169)
(2,171)
(2,933)
Income tax payable
(6,824)
(6,974)
(6,073)
(192,525)
(180,520)
(174,450)
Non-current liabilities
Other interest-bearing loans and borrowings
(6,493)
(20,000)
(22,818)
Provisions
(1,531)
(1,087)
(787)
Deferred tax liabilities
(4,077)
(4,533)
(3,931)
Employee benefits
(20,781)
(16,843)
(18,803)
(32,882)
(42,463)
(46,339)
Total liabilities
3
(225,407)
(222,983)
(220,789)
Net assets
203,367
195,108
178,756
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
2,272
(275)
(1,721)
Retained earnings
143,315
137,603
122,697
Total equity
203,367
195,108
178,756
*See note 1.
These financial statements were approved by the board of directors on 7 March 2017 and were signed on its behalf by:
Steve Wilson
Director
Company Number: 460129
Statement of Changes in Equity
for the year ended 31 December 2016
Share
capital
000
Share
premium
000
Capital
redemption
reserve
000
Translation
reserve
000
Cash flow
hedging
reserve
000
Treasury
reserve
000
Restated*
Retained
earnings
000
Restated*
Total
equity
000
Balance at 1 January 2015
4,268
53,512
88
5,423
(132)
(7,100)
126,018
182,077
Restatement
-
-
-
-
-
-
(3,321)
(3,321)
Restated balance at 1 January 2015
4,268
53,512
88
5,429
(132)
(7,100)
122,697
178,756
Profit for the year attributable to the equity shareholders
-
-
-
-
-
-
28,411
28,411
Other comprehensive income
-
-
-
6
(384)
-
796
418
Total comprehensive income/(expense) for the year
-
-
-
6
(384)
-
29,207
28,829
Transactions with equity shareholders, recorded directly in equity
Share-based payments
-
-
-
-
-
-
1,100
1,100
Share options exercised by employees
-
-
-
-
-
1,824
(819)
1,005
Current tax on share options
-
-
-
-
-
-
95
95
Deferred tax on share options
-
-
-
-
-
-
(22)
(22)
Dividends to equity holders
-
-
-
-
-
-
(14,655)
(14,655)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
1,824
(14,301)
(12,477)
Balance at 31 December 2015
4,268
53,512
88
5,429
(516)
(5,276)
137,603
195,108
Balance at 1 January 2016
4,268
53,512
88
5,429
(516)
(5,276)
137,603
195,108
Profit for the year attributable to the equity shareholders
-
-
-
-
-
-
30,963
30,963
Other comprehensive income
-
-
-
1,707
747
-
(3,709)
(1,255)
Total comprehensive income/(expense) for the year
-
-
-
1,707
747
-
27,254
29,708
Transactions with equity shareholders, recorded directly in equity
Share-based payments
-
-
-
-
-
-
1,239
1,239
Share options exercised by employees
-
-
-
-
-
740
(317)
423
Consideration for purchase of own shares
-
-
-
-
-
(647)
-
(647)
Current tax on share options
-
-
-
-
-
-
21
21
Deferred tax on share options
-
-
-
-
-
-
(21)
(21)
Dividends to equity holders
-
-
-
-
-
-
(22,464)
(22,464)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
93
(21,542)
(21,449)
Balance at 31 December 2016
4,268
53,512
88
7,136
231
(5,183)
143,315
203,367
*See note 1.
Cash Flow Statements
for the year ended 31 December 2016
2016
000
2015
000
Cash flows from operating activities
Profit before tax for the year
38,179
35,624
Adjustments for:
Depreciation, amortisation and impairment
5,276
5,179
Finance income
(756)
(738)
Finance expense
1,722
1,891
(Profit)/loss on sale of property, plant and equipment
(15)
(31)
Share-based payments
1,239
1,100
Operating cash flows before changes in working capital and other payables
45,645
43,025
Change in inventories
(5,895)
(1,827)
Change in trade and other receivables
(6,467)
(1,524)
Change in trade and other payables
10,365
7,270
Cash generated from the operations
43,648
46,944
Interest paid
(1,133)
(1,268)
Tax paid
(7,703)
(6,245)
Additional contributions to defined benefit plan
(2,171)
(2,925)
Net cash flow from operating activities
32,641
36,506
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
401
277
Interest received
752
726
Dividends received
-
-
Acquisition of subsidiaries, net of cash acquired
-
(1,977)
Acquisition of property, plant and equipment
(2,963)
(2,856)
Net cash flow from investing activities
(1,810)
(3,830)
Cash flows from financing activities
Proceeds from the issue of treasury shares
423
1,005
Payment to acquire own shares
(647)
-
Repayment of borrowings
(20,000)
(2,817)
Drawdown of loans
6,456
-
Dividends paid
(22,464)
(14,655)
Net cash flow from financing activities
(36,232)
(16,467)
Net (decrease)/increase in cash and cash equivalents
(5,401)
16,209
Cash and cash equivalents at 1 January
63,932
47,589
Effect of exchange rate fluctuations on cash held
808
134
Cash and cash equivalents at 31 December
59,339
63,932
Notes
1 Accounting Policies
Basis of preparation
The comparative balance sheet has been restated in order to; align certain accounting policies of overseas companies, better reflect the net value of certain inventory product lines, reassess deferred tax in relation to property, and to reclassify certain balances in order to present them in a consistent manner with the current year.
The net impact of these changes has been to change the Statement of Financial Position as follows:
000
Property plant and equipment
3,414
Deferred tax
(6,142)
Inventory
(978)
Trade and other receivables
146
Trade and other payables
239
Brought forward reserves
3,321
2 Non-underlying items
Non-underlying items relate to non-recurring people costs paid out during the year and the related tax on these costs.
3 Segment reporting
At 31 December 2016, the Company has 56 operating segments in the UK and three operating segments in Continental Europe. On 28 February 2017, the group acquired Mitchell Carpets Limited taking the total to 60 operating segments. 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 Chief Executive. Discrete financial information is available for each segment and used by the 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. The key economic indicators considered by management in assessing whether operating segments have similar economic characteristics are the products supplied, the type and class of customer, method of sale and distribution and the regulatory environment in which they operate.
As each operating segment is a trading operation wholly aligned to the sales, marketing, supply and distribution of floorcovering products, management consider all segments have similar economic characteristics except for the regulatory environment in which they operate, which is determined by the country in which the operating segment resides.
The Company'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 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
2016
000
Restated*
2015
000
2016
000
Restated*
2015
000
2016
000
Restated*
2015
000
Revenue
External revenues
602,104
575,341
91,468
78,737
693,572
654,078
Reportable segment underlying operating profit
40,944
37,363
793
575
41,737
37,938
Reportable segment assets
263,968
255,189
44,516
36,030
308,484
291,219
Reportable segment liabilities
(167,755)
(158,859)
(23,801)
(13,087)
(191,556)
(171,946)
During the year, there were no inter-segment revenues for the reportable segments (2015: nil).
*See note 1.
Reconciliations of reportable segment profit, assets and liabilities and other material items:
2016
000
2015
000
Profit for the year
Total profit for reportable segments
41,737
37,938
Non-underlying items
(1,927)
-
Unallocated expense
(665)
(1,161)
Operating profit
39,145
36,777
Finance income
756
738
Finance expense
(1,722)
(1,891)
Profit before taxation
38,179
35,624
Taxation
(7,216)
(7,213)
Profit for the year
30,963
28,411
2016
000
Restated*
2015
000
Assets
Total assets for reportable segments
308,484
291,219
Unallocated assets:
Properties, plant and equipment
90,981
93,242
Deferred tax assets
1,138
629
Cash and cash equivalents
28,171
33,001
Total assets
428,774
418,091
Liabilities
Total liabilities for reportable segments
(191,556)
(171,946)
Unallocated liabilities:
Employee benefits
(22,950)
(19,014)
Other interest-bearing loans and borrowings
-
(20,000)
Income tax payable
(6,824)
(6,974)
Derivative liabilities
-
(516)
Deferred tax liabilities
(4,077)
(4,533)
Total liabilities
(225,407)
(222,983)
UK
000
Continental Europe
000
Reportable segment total
000
Unallocated 000
Consolidated total
000
Other material items 2016
Capital expenditure
1,808
872
2,680
283
2,963
Depreciation
2,388
732
3,120
2,156
5,276
Non-underlying items
-
-
-
1,927
1,927
Other material items 2015
Capital expenditure
2,064
543
2,607
287
2,894
Depreciation
2,246
538
2,784
2,020
4,804
Amortisation
-
-
-
375
375
In the UK the Company'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 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.
The 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:
Revenue by principal product group and geographic origin is summarised below:
UK
Continental Europe
Total
2016
000
2015
000
2016
000
2015
000
2016
000
2015
000
Revenue
Residential
422,048
399,453
46,337
40,281
468,385
439,734
Commercial
180,056
175,888
45,131
38,456
225,187
214,344
602,104
575,341
91,468
78,737
693,572
654,078
*See note 1.
4 Earnings per share
2016
000
2015
000
Earnings
Earnings for underlying basic and underlying diluted earnings per share
32,505
-
Earnings for basic and diluted earnings per share
30,963
28,411
2016
2015
Number of shares
Issued ordinary shares at 31 December
85,363,743
85,363,743
Effect of shares held in treasury
(1,330,339)
(1,331,576)
Weighted average number of ordinary shares for the purposes of basic earnings per share
84,033,404
84,032,167
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
84,033,404
84,032,167
Dilutive effect of share options
458,697
282,078
Weighted average number of ordinary shares for the purposes of diluted earnings per share
84,492,101
84,314,245
5 Dividends
2016
000
2015
000
Interim dividend for 2015 of 6.00p paid 2 January 2016
5,048
-
Special dividend for 2015 of 6.00p paid 25 April 2016
5,048
-
Final dividend for 2015 of 14.70p paid 1 July 2016
12,368
-
Interim dividend for 2014 of 5.20p paid 2 January 2015
-
4,355
Final dividend for 2014 of 12.30p paid 1 July 2015
-
10,300
22,464
14,655
The final proposed dividend of 15.85 pence per share (2015: 14.70 pence per share) will not be provided for until authorised by shareholders at the forthcoming AGM. There are no income tax consequences.
Interim dividends of 6.70 pence per share (2015: 6.00 pence per share) are provided for when the dividend is paid. The dividend was paid on 3 January 2017 and totalled 5,637,000.
The total value of dividends proposed but not recognised at 31 December 2016 is 18,974,000 (2015: 17,416,000).
A special dividend has been declared of 8.00 pence per share that will be paid on 24 April 2017 to shareholders on the register at 31 March 2017.
6 Subsequent events
Management have given due consideration to any events occurring in the period from the reporting date to the date these financial statements were authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these financial statements, with the exception of the acquisition of Mitchell Carpets Limited. On 28 February 2017, a group subsidiary company acquired 100% of the issued share capital of Mitchell Carpets Limited, a floorcovering distribution business based in Poole, Dorset, for a consideration of 1,980,000, subject to finalising the net assets position.
7 Additional information
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditors have reported on those accounts; their reports were (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.
We anticipate that the Company's statutory accounts will be posted to shareholders during April 2017 and will be displayed on the Company's website at www.headlam.com at the same time. Copies of the statutory accounts will also be available from the Company's registered office at Headlam Group plc, PO Box 1, Gorsey Lane, Coleshill, Birmingham, B46 1LW.
This final results announcement for the year ended 31 December 2016 was approved by the Board on
7 March 2017.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR LQLLBDXFEBBB
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