REG - Headlam Group PLC - Final Results
09/03/2022 07:00
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RNS Number : 1053E Headlam Group PLC 09 March 2022
9 March 2022
Headlam Group plc
('Headlam' or the 'Company')
Final Results
2021 a very positive year
Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor,
today announces its final results for the year ended 31 December 2021, and
update since the year-end.
2021 Overview
Financials¹
· Total revenue up 15.4% at £667.2 million, a strong rebound from 2020
which was materially impacted by COVID-19 related closures of operations
during the first half (2020: £578.1 million)
· Gross margin increased to a record 33.0% (2020: 30.8%) owing to the
inflationary environment through much of the year, and other factors including
actions under the business change strategy
· Underlying(²) operating margin improved to 5.6% (2020: 3.0%), and on
track to reach the stated 7.5% target during 2023 through the increasing
realisation of benefits from the business change strategy
· Underlying(²) operating profit and underlying(²) profit before tax
of £37.3 million and £35.8 million respectively (2020: £17.4 million;
£15.4 million respectively)
· Statutory operating profit of £29.1 million (2020: £12.2 million
loss), and a statutory profit before tax of £27.6 million (2020: £14.3
million loss)
· Average net funds( )(excluding lease liabilities)( 3) of £38.3
million, a strong recovery from the 2020 average net debt position caused by
COVID-19 and demonstrating the cash generative nature of the business (2020:
£8.6 million average net debt)
· Net funds position as at 31 December 2021 of £17.7 million (1
January 2021: £8.3 million), with a net funds position (excluding lease
liabilities) of £53.7 million (1 January 2021: £51.6 million)
· Proposed final ordinary dividend of 8.6 pence in line with the
capital allocation parameters, giving a total ordinary dividend payout in
respect of 2021 of 16.4 pence
· Surplus capital return totalling £30.0 million announced in addition
to ordinary dividend, return by way of a special dividend of 17.7 pence (total
£15.0 million) plus share buyback programme (total £15.0 million)
Operational
· Company able to largely mitigate the industry wide issues, including
supply issues, with inventory position maintained and levels of availability
preserved
· Belcolor, the Company's Swiss operations, disposed of in the year
allowing greater focus on operations presenting more meaningful growth
opportunities and leveraging of group scale
· Business change strategy focused on substantial revenue growth
opportunities and efficiency now largely embedded in the business, with
benefits increasingly evident, albeit with disruptions arising from some
implementation
· Success already being demonstrated from the active targeting of a
larger share of the overall £3 billion(4) UK market, and improved customer
service propositions:
o Performance of new and improved Trade Counters under the national
roll-out programme exceeding initial expectations, with good customer feedback
and accelerating roll-out
o Several new customers won in the Multiple Retailer customer segment,
with substantial scope to increase business with them
o Pleasing customer response to enhanced digital offer, including new
industry-leading mobile app launched in November 2021
· Good progress in developing the ESG Strategy following initial report
in 2021, including announcement of net zero emissions ambition, ESG Committee
being established in 2022, and strategy planning to enhance diversity
Post Year-End and 2022 Trading
· Banking facilities refinanced and extended in January 2022, providing
a flexible capital structure
· As announced on 8 March 2022, Chris Payne appointed permanent Chief
Executive following an independent search process
· Trading in January and February 2022 in line with plan, with the strong
margin performance in 2021 maintained into 2022
Commenting, Philip Lawrence, Non-Executive Chairman, said:
"2021 was a very positive year for the Company on a number of fronts.
Financial performance rebounded strongly from 2020, when the first half was
materially impacted by the emergence of COVID-19; industry wide issues were
able to be largely mitigated; and significant progress was made in
implementing the business change strategy. Importantly, none of these
achievements would have been possible without the commitment and support of
the Company's people, and the Board wishes to express its thanks to them.
"The Company's strategy is meaningful organic revenue growth from an efficient
and modernised operating base, with its successful delivery being demonstrated
and benefits becoming increasingly evident. The Company enters 2022 a far more
focused, capable and modern business, with greater opportunity and competitive
advantage to support customers and grow financial performance."
This announcement contains information which, prior to its disclosure, was
inside information as stipulated under Regulation 11 of the Market Abuse
(Amendment) (EU Exit) Regulations 2019/310 (as amended).
The Company's final results presentation accompanying this announcement is
available on its website at Reports & presentations | Headlam
(https://www.headlam.com/investors/reports-presentations/) . A video of the
presentation is also available to view on the website and via the following
link, https://bit.ly/HEAD_FY21 (https://bit.ly/HEAD_FY21) .
Analyst presentation
The Company will be holding a webinar for analysts today (9 March 2022) at
9:30am GMT, consisting of the video presentation followed by a live Q&A.
To register your interest, please email headlam@almapr.co.uk
(mailto:headlam@almapr.co.uk) .
Investor presentation
The Company will also be hosting an online investor presentation, consisting
of the video presentation followed by a live Q&A, today (9 March 2022) at
11:30am GMT. The presentation is open to all existing and potential
shareholders. Investors can register to attend the webinar at the following
link: https://bit.ly/HEAD_FY22_11_30 (https://bit.ly/HEAD_FY22_11_30) .
¹The financial results represent continuing operations only, and exclude the
contribution from the Swiss business Belcolor AG ('Belcolor') in the year, and
the comparator year(s), following its disposal in May 2021 (as detailed in the
Financial Review and in Note 7 to the Financial Statements).
(²)Underlying is before non-underlying items, which includes i) amortisation
of acquired intangible assets, ii) impairment of goodwill and intangible
assets, iii) property disposal profit, iv) business restructuring costs, and
v) impairment of property, plant and equipment and inventory (following a
fire) (as detailed in the Financial Review and in Note 2 to the Financial
Statements).
(3)Average net funds / (debt) is calculated by aggregating the net funds /
(debt) position, excluding the impact of IFRS 16 'Leases', for each business
day and dividing by the total number of business days.
(4)Source: LEK Consulting, 2020, calculated at distributors' selling price and
inclusive of sales direct from manufacturers.
Enquiries:
Headlam Group plc Tel: 01675 433 000
Chris Payne, Chief Executive Email: headlamgroup@headlam.com (mailto:headlamgroup@headlam.com)
Catherine Miles, Director of IR and ESG
Panmure Gordon (UK) Limited (Corporate Broker) Tel: 020 7886 2500
Erik Anderson / Edward Walsh / Ailsa MacMaster
Peel Hunt LLP (Corporate Broker) Tel: 020 7418 8900
George Sellar / John Welch / Andrew Clark
Alma PR (Financial PR) Tel: 020 3405 0205
Susie Hudson / Rebecca Sanders-Hewett / Lily Soares Smith Email: headlam@almapr.co.uk
Notes for Editors:
Operating for 30 years, Headlam is Europe's leading floorcoverings
distributor, providing the channel between suppliers and trade customers of
floorcoverings.
Headlam works with suppliers across the globe manufacturing a diverse range of
floorcovering products, and provides them with a cost efficient and effective
route to market for their products into the highly fragmented trade customer
base.
To maximise customer reach, Headlam operates 66 businesses across the UK and
Continental Europe (France and the Netherlands). Each business operates under
its own trade brand and utilises individual sales teams while being supported
by the group's distribution network, central teams and resources.
The Company's extensive customer base covers both the residential and
commercial sectors, with principal customer groups being independent retailers
and smaller flooring contractors alongside other customer segments such as
larger (multiple) retailers, housebuilders, specifiers, and larger contractors
(including local government / authorities).
Headlam provides customers with a market leading service through:
· the broadest product offering;
· unrivalled product knowledge;
· tailored service propositions and solutions;
· sales team and marketing support;
· ecommerce support and digital applications;
· nationwide delivery; and
· trade counter and collection service.
www.headlam.com
Chairman's Statement
2021 was a very positive year for the Company on a number of fronts. Financial
performance rebounded strongly from 2020, when the first half was materially
impacted by the emergence of COVID-19; industry wide issues including supply
issues were able to be largely mitigated; and significant progress was made in
implementing the Company's business change strategy. It is important to say
upfront that none of these achievements would have been possible without the
commitment and support of the Company's people, and the Board wishes to
express its thanks to them, as well as to all its stakeholders. Some
challenges and disruptions arose from the implementation of certain actions
under the business change strategy described in the Chief Executive's Review,
and the Company would like to thank its people and customers affected.
Additionally, a fire at one of the Company's sites in December 2021 caused
significant disruption for the people and business based there and its
customers, albeit pleasingly order taking and deliveries were quickly
restored, and the Company wishes to thank everyone for their support.
During the year, many of the actions under the business change strategy were
completed or integrated, with benefits flowing through both operationally and
financially. Of particular note was the simplification and efficiency
improvements through group restructuring, network and delivery consolidations,
and the many improvements made to customer service propositions. This took the
form of investment in the network, digitalisation, and creation of dedicated
customer service and sales teams. There was also an increased collaborative
approach across the group to better leverage the group's scale.
As a result of these actions, the Company is now more efficient with a strong
foundation to focus on growth.
The Company's strategy is meaningful organic revenue growth from an efficient
and modernised operating base, and the Company is now actively targeting a
larger share of the overall £3 billion UK market with success already being
demonstrated. New customers have been won in the Multiple Retailer segment of
the market where the Company is underweight; the performance of new and
improved Trade Counter sites under the roll-out programme are exceeding
initial expectations; and there has been a pleasing customer response to the
Company's enhanced digital offer, in particular the recently launched
industry-leading mobile app.
Actions under the business change strategy contributed to an improved
operating margin during the year, demonstrating good progress towards the
Company's stated 7.5% underlying operating margin target during 2023. As
referenced in January 2022's Pre-Close Trading Update, the Company's net funds
position is comfortably above current capital requirements despite increased
levels of investment, and the Company is now announcing a surplus capital
return alongside the proposed final ordinary dividend. Full details of the
return are given within the Chief Executive's Review, and in summary the
Company is taking a blended approach and returning a total of £30 million to
shareholders via a special dividend and share buyback programme to provide
both income and value accretion. For the time being an element of capital is
being retained on the balance sheet to allow for further investment in the
business should the Company wish to accelerate growth projects, to provide
flexibility including on the financing of any potential M&A, and also as a
prudent precaution against unforeseen events.
The detailed Environmental, Social and Governance ('ESG') Report within the
2021 Annual Report and Accounts builds on the Company's initial report
published in May 2021. The ESG strategy supports the long-term sustainability
of the business with the Board committed to progressing its development, and
will establish a new ESG Committee in 2022 to support this. Addressing the
environmental challenge is much broader than reducing carbon emissions and
will require close collaboration across the industry. The transition to a
circular economy is a longer term challenge for the floorcoverings industry as
there are both technical and market dynamic obstacles to overcome, with the
Company prepared to work with partners to lead change. As a basis for its long
term ambitions, the Company now has a net zero emissions ambition for 2035,
with detailed planning to commence and details of a costed transition plan to
be provided within the ESG Report in next year's 2022 Annual Report.
Additionally, the Board believes that business has a positive role to play in
society, and as detailed in the Chief Executive's Review has now embarked on a
programme to support a more diverse workforce and the benefits that brings to
the Company, as well as launching a locally focused community programme.
A number of changes have been made at Board level to support the effective
implementation of all the Company's strategic and corporate objectives. The
Non-Executive Director appointments of Simon King and Stephen Bird during 2021
brought highly relevant skills and experience on to the Board, with both
having extensive executive experience leading growth and customer-led
strategies.
In October 2021, Steve Wilson left the Company as Chief Executive following an
extensive executive career with the group, with Chris Payne, Chief Financial
Officer, acting as Interim Chief Executive and subsequently being appointed as
permanent Chief Executive, as announced on 8 March 2022. Steve Wilson was
instrumental in the Company's success throughout his 30 years with Headlam,
including instigating the business change strategy, and the Board offers its
heartfelt gratitude for his contribution to the Company.
The Board is delighted to welcome Chris as Chief Executive. Following an
extensive independent search process, the Board believe that Chris is the best
person to drive delivery of the business change strategy which as above is
focused on substantial revenue growth opportunities across a broader segment
of the market from a more efficient operating base following the actions taken
during the last two years. In the five years since he joined the Company,
Chris has been a highly effective and commercial Chief Financial Officer, and
a key architect of the business change strategy. The Company has commenced the
independent search process for a new Chief Financial Officer and intends to
appoint an Interim Chief Financial Officer shortly while the search process is
ongoing.
Also as announced on 8 March 2022, I shall be stepping down at the AGM in May
2022 having served seven years with the Company. During the last four years as
Chairman, I have overseen the planning, implementation, and considerable
development of the business change strategy, the strengthening of oversight
and governance, and initiation of a comprehensive ESG strategy. I will leave
the Company in a significantly better place to grasp the opportunities of
organic growth and scale. It is the Board's intention to also appoint a new
Independent Non-Executive Director, and will commence this search later in the
year.
As a result of all these actions and progress so far, the Company enters 2022
a far more focused, capable and modern business, with greater opportunity and
competitive advantage to support customers and grow financial performance.
While the current inflationary environment may impact some end-consumer
spending in the coming months, the Company is confident in its current
expectations and the delivery of its strategy which should be able to mitigate
any potential market softening in the residential sector, and looks forward to
demonstrating further progress in 2022.
Philip Lawrence
Non-Executive Chairman
9 March 2022
Chief Executive's Review
The following financial results represent continuing operations only, and
exclude the contribution from the Swiss business Belcolor AG ('Belcolor') in
the year, and the comparator year(s), following its disposal in May 2021 (as
detailed in the Financial Review and in Note 7 to the Financial Statements).
Like-for-like revenue is calculated based on constant currency from activities
and businesses that made a full contribution in both the 2021 and 2020 periods
and is adjusted for any variances in working days.
Underlying is before non-underlying items, which includes i) amortisation of
acquired intangible assets, ii) impairment of goodwill and intangible assets,
iii) property disposal profit, iv) business restructuring costs, and v)
impairment of property, plant and equipment and inventory (following a fire).
The Company has given detail within the Financial Review and accompanying
appendix where it has used Alternative Performance Measures ('APMs'), the
description of, and why it believes in each instance they are a more
appropriate measure of performance than a corresponding IFRS measure.
Introduction
As described in the Chairman's Statement, 2021 was a very positive year with
lots of progress made, not least in the increasing realisation of benefits
from the business change strategy, expanded upon below. There were a number of
external market effects and industry wide issues, not least from the ongoing
impact of COVID-19, which the Company was largely able to mitigate and operate
successfully throughout. Product supply issues during the year led to
significant price increases. However, these were passed directly into the
marketplace and absorbed owing to the relative infrequency of consumer
purchases and proliferation of product at varying price points providing huge
choice at every level. Additionally, through working closely with its
suppliers, the Company was able to maintain its inventory position and
preserve levels of availability.
Outside of the industry wide issues, the Company experienced very limited
direct impact from COVID-19 during 2021, and operated effectively and
uninterruptedly throughout the year despite lockdowns and restrictions. This
is testament to the Company's effective operating procedures, but most of all
to its people, customers and suppliers. Many of the Company's people,
customers and suppliers have been part of the Company for years or even
decades, and they are the backbone of the Company's operating and financial
performance. Heartfelt thanks go to them, particularly in a year that gave
rise to disruptions from the implementation of some of the actions under the
business change strategy (notably arising from the network and delivery
consolidations), and also from a fire at one of the Company's sites (detailed
below) which occurred alongside ongoing COVID-19 related issues.
I am delighted to have now been appointed permanent Chief Executive. Over my
five years with the Company, I have been heavily involved with operations and
the business change strategy in addition to my role as Chief Financial
Officer. I have seen many of our actions now come to fruition, and believe the
Company is poised for greater success in the future, and I intend to drive
through all the opportunities available.
Financial Performance
Revenue rebounded strongly from 2020 which was materially impacted by COVID-19
related temporary closures of the Company's operations during the first half,
and was 15.4% higher at £667.2 million (2020: £578.1 million). Within this,
the UK and Continental Europe both traded well and performed strongly compared
with 2020, up 16.1% and 10.9% respectively, and supported by the Company's
business change strategy. Against 2019, the UK performance was slightly down
and Continental Europe performance slightly up.
A noticeable impact of COVID-19 has been on the relative fortunes of the
residential and commercial sectors. While the residential sector has been a
strong beneficiary of COVID-19 and its knock-on impact on consumer spending
habits, the commercial sector has suffered, although it recovered to a degree
during 2021. During 2021, residential sector revenue was up 2.9% and
commercial sector revenue down 15.0% against 2019 on a like-for-like basis.
Against 2020, 2021 residential sector revenue was up 15.3%, and commercial
sector revenue was up 18.5%. Underscoring the strength of the residential
sector, between 2019 and 2021 the proportion of revenue accounted for the
residential sector increased from 64.2% to 68.5%.
Belcolor, the Company's Swiss operations, was disposed of in the year allowing
a greater focus on operations that present more meaningful organic growth
opportunities and leveraging of group scale in line with the Company's
strategy. Detail on the disposal is given in the Financial Review and Note 7
to the Financial Statements, with Belcolor only accounting for 5.1% of revenue
in 2020.
Gross margin rose to a record 33.0% in the year (2020: 30.8%) owing to the
inflationary environment evident through much of the year, coordinated buying
initiatives across the group, improved inventory management, and contribution
from the higher-margin residential sector. This, combined with other actions
taken under the business change strategy, helped deliver an improved
underlying operating margin of 5.6% (2020: 3.0%).
Underlying operating profit and underlying profit before tax was £37.3
million and £35.8 million respectively (2020: £17.4 million; £15.4 million
respectively). There was a relatively small amount of non-underlying items in
the year compared with 2020, which as detailed was materially impacted by
COVID-19. Non-underlying items are detailed in the Financial Review, with the
largest contributor relating to a fire at one of the Company's sites in
December 2021 detailed below, although this had little impact on overall
underlying business performance. Another item relates to the Company's
Northern Ireland based business CECO which continued to experience challenges
due to COVID-19 impacting its business which is largely focused on bigger,
commercial projects, and it was further impaired in the year. Statutory profit
before tax in the year was £27.6 million (2020: £14.3 million loss).
The ongoing delivery of the Company's strategy detailed below will allow for
further improvement in financial performance, not least from substantial
revenue growth opportunities particularly in the areas of Trade Counters and
Multiple Retailers. Incremental revenue is expected to benefit from an
operational gearing effect to create higher margin on the partially fixed cost
base.
Strategy and Operations
The Company's business change strategy* is now largely embedded in the
business, with benefits increasingly evident. The strategy is now focused on
revenue growth and modernisation, with operational efficiency through cost
control remaining important. The latter has been most noticeably enacted
through network and delivery consolidations, which has enabled a reduction in
headcount, sites and fleet numbers while maintaining or improving the service
proposition, albeit with some disruption to service from implementation
experienced during the year. Increased investment has been made in the
network and systems to optimise performance as well as support revenue growth.
In support of revenue growth, the Company has focused on improving the service
propositions to various customer segments within the overall £3 billion UK
market, and actively targeting those where it has historically been
underweight. As part of the improvements, the Company has developed a suite of
industry-leading digital products and applications, and commenced work on
product and brand development. The main drivers of revenue growth and
modernisation are: Trade Counter roll-out; Multiple Retailers focus; Digital
and Ecommerce applications; and Product and Brand development.
Trade Counter roll-out
As announced at the Capital Markets Day held in July 2021, a plan has been
developed to grow the existing trade counter network from 53 sites to over 90
new and improved sites by 2025. The accompanying new site 'blueprint' is
designed to meet the needs of a broader range of customers (with trade counter
businesses heavily skewed towards commercial) and capture greater market
share. The sites offer pre-ordered collections, a larger selection of stocked
products, as well as a newly launched own-branded flooring range exclusive to
trade counter customers. Through the improved offer and expansion to
additional sites, the Company is targeting revenue growth in this area of
approximately £120 million upon the plan's maturity (from approximately £80
million in 2021). To date, 11 sites are now operating under the new
'blueprint', and their performance has been very pleasing with early
achievement of financial targets and positive feedback from both customers and
employees. In line with the accelerating roll-out, nine new sites /
relocations are already scheduled for 2022, in addition to at least 11 refits,
with a good pipeline of prospective new sites.
Multiple Retailer focus
The Multiple Retailers opportunity is worth approximately one-third of the £3
billion UK market, with the Company currently being significantly underweight
in this customer segment, and having only approximately £60 million of 2021
revenue in this area. Having not traditionally targeted this area, the Company
is now actively focused on enlarging its share. During 2021, the Company
established a dedicated 'key accounts' team, developed tailored propositions,
and put in place digital support and enabling work for customers. The Company
is able to provide Multiple Retailer customers with a highly compelling often
bespoke service through: product insight and exclusivity; competitive pricing;
supply chain management; stockholding / storage solutions; processing
expertise; and national distribution. Good progress has been made in winning
initial orders with a number of new customers, with substantial scope to
increase the number of SKUs with each and develop the revenue opportunity in
2022 and beyond. An example of a new customer is Oak Furnitureland, who has
partnered with Headlam to launch its new engineered wood flooring proposition.
Headlam is the sole supplier to Oak Furnitureland on a range of exclusive,
premium engineered wood products after its customers expressed interest in a
unique flooring offering following market research completed by the retailer.
Oak Furnitureland now has dedicated flooring areas within four of its 70
stores.
Digital and Ecommerce applications
Ecommerce and digital applications were launched in 2021 to increase revenue
opportunities across different customer segments, as well as increase
efficiency and reduce the Company's overall cost to serve. Customers benefit
from an enhanced service offering and more convenient ways of doing business
with Headlam. Of particular note was the launch of the brand new myheadlam
app, an industry-leading fully transactional mobile app allowing customers to
trade with all their Headlam accounts 'on the go', in a quick and easy way.
Customers are able to search for products, check real-time availability /
prices, place orders, review order history, and track live orders. Over £1.4
million of sales have already been received via the app since its full launch
in November 2021. Further enhancements are planned for the app, as well as the
Company's B2B websites, during 2022, and the Company has an ambitious target
of 30% of sales coming from digital channels (Jan 2022: 22%; 2019: 11%).
Product and Brand development
A key objective for 2022 is the investment in product development, with the
refocusing of some of the Company's recognised product brands to keep them
fresh, relevant, and increase the sales opportunity. There has also been
investment in a dedicated team at one of the Company's main sites to support
the product and brand development initiative.
In support of promoting sustainable products and increasing consumer
awareness, the Company launched a sustainable 'Wool Britannia' product range
in 2021 with the support of the British Wool Association which has been very
well received.
Supplier Engagement and Buying
The Company's strong partnerships with its suppliers was demonstrated in the
year through its ability to effectively mitigate the industry wide supply
issues. Levels of engagement have continued to increase, including through
more strategic and centralised ranging discussions, and on sustainability
considerations as detailed in ESG Strategy below. The two substantial
revenue stream opportunities of Trade Counters and Multiple Retailers also
present opportunity to expand on the Company's current strategic conversations
with suppliers.
Fire at MCD Kidderminister
In a devastating incident in which thankfully no one was hurt, the Company
suffered a fire at its MCD Kidderminster business in December 2021, completely
destroying the building. Colleagues and customers were quickly provided with
support, and colleagues and operations transferred to the Company's main
distribution hub in Coleshill. Within four days, MCD Kidderminster customers
were again receiving deliveries from MCD Kidderminster which is testament to
the Company's business continuity planning, and network, systems and
collaborative approach.
Great thanks and appreciation go to those colleagues affected by the fire and
the strength of character they showed in the face of adversity. In early
January 2022, a temporary site was opened in Kidderminster with longer term
options currently being examined. Notwithstanding the non-underlying items
associated with the fire, there was no material impact from the fire on
overall 2021 revenue and underlying profit, nor is there anticipated to be in
2022. Detail on the write-down of MCD Kidderminster PPE and inventory within
non-underlying items and totalling £7.3 million is given within the Financial
Review.
ESG Strategy
The Company published its first ESG Strategy Report in 2021, which outlined
the Company's sustainability ambitions, and tangible progress has been made
since the initial report. The 2021 Annual Report and Accounts being published
shortly contains the Company's first full-form ESG Report, and the Company is
committed to providing an update on ESG actions and future consideration on a
bi-annual basis, with metrics, indicators, and targets to enable measurement
of progress.
Through collaboration with its people and external stakeholders, the Company
has identified three core focuses under its ESG strategy:
· Reduce the Company's contribution to greenhouse gas ('GHG') emissions
and climate change;
· Become a more sustainable business, including through cultural
development and by increasing oversight of ESG related risks and
opportunities; and
· Increase the sustainability of the overall floorcoverings industry
through engagement and example, and support the future transition to a
circular economy.
Outlined below are the Company's main actions to date to address these focuses
under the 'Environmental', 'Social' and 'Governance' pillars and also under
'People and Culture', all of which are expanded upon fully with the full-form
ESG Report.
Environmental
Per the Chairman's Statement, the Board now has a net zero emissions (Scope 1
and Scope 2) ambition for 2035, a new and major milestone for the Company.
This will require various steps including a transition strategy and interim
targets which will be expanded upon within the Company's forthcoming bi-annual
updates, with progress and measurement metrics documented. The Company already
has a number of actions to reduce its emissions, which arise predominately
from its transportation activities (both commercial and non-commercial fleet).
These include:
* Roll-out of the 'Transport Integration' cosolidation project resulting in more
efficient delivery fleet (commerical vehicle) utilisation, and associated
reduction in fleet number (currently a 32 reduction to 356);
* Promotion of digital and trade counters developments thereby reducing the
proportion of carbon intensive ordering and delivery options;
* ‘Good energy behaviours’ to be promoted across the group; and
* Auditing and upgrading of sites with more energy efficient technologies and
equipment.
Social
As part of a wider societal focus, the Company is launching an annual,
centrally funded but locally focused community programme, with each site
across the group allocated a certain monetary amount per employee on site, and
each site donating to a voted-upon local cause.
Governance
One of the material ESG issues identified through consultation with
stakeholders was 'Supply Chain Risk', and it forms an area of key near-term
focus. Actions to mitigate risk in this area include the commencement of an
engagement programme with suppliers on industry sustainability issues,
including on changes to regulation and potential sustainability partnerships.
Additionally, the Company has signed a contract with an independent party to
conduct a full Supply Chain Risk Assessment, with the target of the top 50
suppliers (accounting for approximately 80% of purchases) assessed under the
independent Supply Chain Risk Assessment by the end of 2022. The latter part
of 2022 will see the implementation of a Supplier Sustainability Procurement
Charter, which includes defining a common set of minimum standards and
principles.
Importantly, the new Non-Executive Director appointments have increased
evaluation and oversight of governance (including risk management), strategy,
and corporate objectives, and in 2022 a new ESG Committee is being
established.
People and Culture
The Company is focused on investing in and improving the support to its
people, including through cultural development, engagement, and review of
rewards and benefits. As part of this, various consultations and planning work
took place in 2021, alongside workshops and training. Changes and improvements
being implemented in 2022 include:
· Moving to one pension for all employees (Master Trust Pension,
effective 1 April 2022), providing a more generous and flexible contribution
structure, and creating consistency and fairness across the group;
· Introduced a common approach to bonus provisions for senior management
and sales leadership roles, driving a more collaborative and 'group success'
approach;
· Enhanced and harmonised holiday entitlement;
· Equal sick pay for all colleagues; and
· Cost of living pay increase for all employees.
Diversity, Equity and Inclusion ('DEI') is an integral part of the Company's
objective of providing a safe and inclusive working environment where people
are engaged, recognised and rewarded. The Company has partnered with a
specialist consultancy who are carrying out an independent review
(encompassing an employee survey, focus groups and interviews) before
establishing a plan to enhance DEI across the Company.
Dividends and Surplus Capital Return
Dividends
Following a period of recovery from the impact of COVID-19 and as a sign of
confidence in future trading prospects, the Company resumed dividend payments
and announced a 2.0 pence per share nominal ordinary dividend in March 2021.
This was followed by a 2021 interim ordinary dividend of 5.8 pence per share
after a longer period of recovered trading.
The Company is now proposing a 2021 final ordinary dividend of 8.6 pence per
share for approval at May's Annual General Meeting ('AGM'), giving a total
annual pay-out for the interim plus final of 14.4 pence, being equivalent to a
2x earnings cover ratio and in line with the Company's published Capital
Allocation Priorities, with the 2.0 pence nominal dividend being an additional
payment on top.
Surplus Capital Return
As signposted in the January 2022 Pre-Close Trading Update, and confirmed
within the Chairman's Statement, the Company is now announcing a surplus
capital return in addition to the aforementioned ordinary dividends. Having
recourse to the Company's Capital Allocation Priorities, and taking into
account current and future considerations as described in the Chairman's
Statement, the Company is returning a total of £30 million to shareholders.
Having considered the most appropriate method of returning capital, the
Company is returning £15 million in the form of a special dividend of 17.7
pence per share to shareholders alongside the ordinary dividend, with a
further £15 million being directed towards a share buyback programme ('SBB').
It is the intention that this £15 million SBB will be completed within
approximately 12 months, and commence on 10 March 2022. Details of the SBB
have been announced separately today.
Post Period-End and Current Trading
Trading in January and February 2022, the Company's quietest trading months,
was in line with plan, and pleasingly the strong margin performance in 2021
has been maintained into 2022. In addition, as referenced above, progress on
driving additional revenue opportunities from multiple retailers and the trade
counter activity is encouraging.
The industry wide issues of product supply and price increases are expected to
persist in 2022, though as before, the Company believes it will be able to
continue to largely mitigate them. However, the continuing inflationary
environment may impact some end-consumer spending, leading to potential
softening in the residential sector in the coming months. Early signs of
recovery in the commercial sector from its severely impacted position in 2021
may help partially offset this. Notwithstanding this backdrop, the Company is
confident in its current expectations and the delivery of its strategy, which
provides additional revenue growth which would help mitigate any market
weakness.
Chris Payne
Chief Executive
9 March 2022
*Prior to the business change strategy, the Company referred to the
Operational Improvement Programme ('OIP'). The business change strategy
replaced the OIP, being broader in scope, including encompassing significant
revenue growth opportunities, changes to how the group operates as a whole
going forward, and business restructuring which has now been completed.
Financial Review
The following financial results represent continuing operations only, and
exclude the contribution from the Swiss business Belcolor AG ('Belcolor') in
the year, and the comparator year(s), following its disposal in May 2021 (as
detailed in the Financial Review and in Note 7 to the Financial Statements).
Revenue
As detailed in the Chief Executive's Review, total revenue was £667.2 million
(2020: £578.1 million), 15.4% higher than 2020 which was impacted by COVID-19
related temporary closure of operations. Both the UK and Continental Europe
performed strongly against 2020. The UK accounted for 87.8% of total revenue
(2020: 87.3%), and was up £81.1 million (16.1%) on 2020 at £585.8 million
(2020: £504.7 million). Continental Europe revenue was up £8.0 million
(10.9%) at £81.4 million (2020: £73.4 million) and accounted for 12.2% of
total revenue (2020: 12.7%). On a like-for-like¹ revenue basis, the UK and
Continental Europe were up 16.5% and 15.1% respectively against 2020.
The residential sector continued to account for a higher proportion of revenue
when compared with pre-COVID-19 levels. This is owing to the strong spend on
home improvements since the impact of the pandemic, with the commercial sector
being impacted by COVID-related closures and deferrals. During 2021, the
residential sector accounted for 68.5% of total revenue compared with 64.2% in
2019 (2020: 69.1%)) and the commercial sector 31.5% (2020: 30.9%). The
residential sector accounted for 69.5% of UK revenue (2020: 70.2%), and 61.1%
of Continental Europe revenue (2020: 61.2%), the balance being commercial
sector.
£M % £M %
Revenue for the year ended 31 December 2020
UK 504.7 87.3
Continental Europe 73.4 12.7
578.1 100.0
Incremental items during the 12-month period to 31 December 2021
UK:
Like-for-like(¹) 82.5 16.3
Changes in working days (2.0) (0.4)
Acquisitions 0.6 0.1
81.1 16.0
Continental Europe:
Like-for-like(¹) 11.0 15.0
Changes in working days (0.3) (0.4)
Translation effect (2.7) (3.7)
8.0 10.9
Total movement 89.1 15.4
Revenue for the year ended 31 December 2021
UK 585.8 87.8
Continental Europe 81.4 12.2
667.2 100.0
(³ )Like-for-like revenue is calculated based on constant currency
from activities and businesses that made a full contribution in both the 2021
and 2020 periods, and is adjusted for any variances in working days.
No acquisitions were made during the year. 'Acquisitions' in the table above
refers to the full year effect of the one acquisition made in 2020, Supertex.
Gross Margin
Gross margin increased 220 basis points in the year to 33.0% (2020: 30.8%),
primarily due to the inflationary environment, as well as inventory management
and product mix change due to the strength of the higher-margin residential
sector.
Expenses
Underlying distribution costs and administrative expenses totalled £183.2
million in the year (2020: £160.7 million), an increase of £22.5 million on
the prior year. When stripping out the prior year governmental job retention
scheme ('furlough') grants, the increase was only £11.5 million (7.2%
increase year on year) with 2020 additionally having reduced expenses due to
the COVID-19 related closures. Benefits from the business change strategy
during the year were able to offset wage inflation and performance related
bonus payments. These benefits will increase in 2022 due to full period
contributions, and help mitigate cost inflation in 2022. Pleasingly,
underlying distribution costs and administrative expenses expressed as a
proportion of revenue was steady at 27.5% (2020: 27.8%) despite the one off
benefit of furlough receipts in 2020. The relative proportions of underlying
distribution costs and administrative expenses as a percentage of total
underlying expenses were 68.7% and 31.3%, respectively (2020: 70.9% and
29.1%). Statutory distribution costs and administrative expenses totalled £
191.4 million in 2021 (2020: £190.3 million), with the increase in underlying
expenses described above largely offset by the decrease in non-underlying
items, as below.
Business restructuring costs of £2.3 million were incurred in the year,
classified as non-underlying items due to being deemed out of the ordinary
course of business, and defined below. No further additional costs are
anticipated in 2022 in relation to the business change strategy currently in
place.
The Company has maintained a prudent level of bad and doubtful debts provision
at £6.7 million, being 1.0% of total revenue (31 December 2020: £8.1
million, 1.4% of total revenue but which includes £1.1 million attributable
to Belcolor). This approach has been taken despite strong cash collections
throughout 2021 as the impact of current inflationary and energy cost
pressures on the economic environment, and the withdrawal of certain
government support schemes, might cause this collection experience to lessen.
Alternative Performance Measures
The Company uses alternative performance measures ('APMs') to assess its
financial, operational and social performance towards the achievement of its
strategy. Such measures may either exclude amounts that are included in, or
include amounts that are excluded from, the most directly comparable statutory
measure (where one exists), calculated and presented in accordance with IFRS.
Such exclusions or inclusions give in the Company's opinion more normalised
performance measures, and the Company believes that these APMs are also used
by investors, analysts and other interested parties in their analysis.
The APMs have limitations and may not be comparable to other similarly titled
measures used by other companies. They should not be viewed in isolation, but
as supplementary information.
An explanation of each APM is provided below and a reconciliation of the
adjustments made to the Income Statement to derive underlying profit measures
is also shown below. Underlying items are calculated before charges associated
with the acquisition of businesses and other items which by virtue of their
nature, size or/and expected frequency require adjustment to show the
performance of the Group in a consistent manner which is comparable year on
year. These underlying measures are relevant to investors and other
stakeholders, as supplementary information, to fully understand the underlying
performance of the business. A limitation of underlying profit measures is
that they exclude the recurring amortisation of intangible assets acquired in
business combinations but do not similarly exclude the related revenue.
Non-underlying items
Non-underlying items before tax totalled £8.2 million during the year, much
reduced from 2020 (£29.7 million) which had a significant level of non-cash
items as a direct consequence of the impact of COVID-19.
The below table details the individual non-underlying items:
2021 2020
£M
£M
Non-underlying items
Impairment of goodwill and intangibles 2.1 24.7
Amortisation of intangibles 1.6 1.6
Impairment of property, plant and equipment and inventory (following a fire, 7.3 -
detailed below)
Movements and finance costs for deferred and contingent consideration - -
Non-underlying non-cash items 11.0 26.3
Property disposal profit (5.1) -
Business restructuring costs 2.3 2.4
Acquisitions related fees - 0.7
GMP equalisation - 0.3
Non-underlying cash items (2.8) 3.4
Non-underlying items before tax 8.2 29.7
In December 2021 a fire completely destroyed the MCD Kidderminster
distribution centre and, therefore, the property, plant and equipment and
inventory at the site totalling £7.3 million has required a full write-down.
An insurance claim is currently in progress. Any refunds cannot be recognised
until they are virtually certain, so any credit would be recognised in
non-underlying items in the year the claim is closed, hoped by the Company to
be 2022. A contingent asset has been disclosed relating to the insurance
claim.
The cash items relate to the profit on the disposal of two freehold properties
under network consolidation activities (£5.1 million), offset by £2.3
million of business restructuring costs under the business change strategy and
other events. The business restructuring costs related to material alignment
of headcount with seasonal trading patterns and also with evolving customer
servicing, along with executive settlement agreements. Cumulative
non-underlying business restructuring costs since their initiation as part of
the business change strategy amount to £4.7 million (all cash in nature), and
cover the period July 2020 to December 2021. No further business restructuring
costs are currently anticipated for 2022. Costs associated with the fire at
MCD Kidderminster, disposal of properties and business restructuring do not
reflect trading performance and, therefore, have been adjusted to ensure
consistency between periods.
Operating Profit and Profit Before Tax
The Company has reported an underlying operating profit of £37.3 million
(2020: £17.4 million), which equates to an underlying operating margin of
5.6% (2020: 3.0%), and an underlying profit before tax of £35.8 million
(2020: £15.4 million). After including the non-underlying items above, this
gives a statutory operating profit of £29.1 million (2020: £12.2 million
loss) and a statutory profit before tax of £27.6 million (2020: £14.3
million loss).
Underlying Non-underlying Total
£M
£M
£M
Operating profit/(loss) 2020 17.4 (29.6) (12.2)
Gross margin movement in 2021: 42.4 - 42.4
Expense changes
Volume (3.1) - (3.1)
Furlough grants (11.0) - (11.0)
Bad debt provision 6.7 - 6.7
People costs (including pay increases and performance-related bonus payments) (9.6) - (9.6)
Effect of acquisitions 0.4 - 0.4
Other (5.9) 21.4 15.5
Total increase 19.9 21.4 41.3
Operating profit/(loss) 2021 37.3 (8.2) 29.1
Tax
The Company's consolidated underlying( )effective tax rate for 2021 was 25.8%
(2020: 24.7%), which is higher than the standard rate of corporation tax in
the UK of 19% primarily due to the effect of restating the opening UK deferred
tax liability to reflect the change in the UK tax rate from 19% to 25%, from
April 2023, which was substantively enacted in the year.
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 within a level of tax compliance risk
that is rated as 'low' (2020: 'low').
Dividend and Surplus Capital Return
The proposed final ordinary dividend of 8.6 pence per share, as outlined in
the Chief Executive's Review, if approved by shareholders at the forthcoming
AGM, will be payable on 27 May 2022 to shareholders on the register as at 6
May 2022, and equates to a cash outflow of £7.3 million. As additionally
outlined in the Chief Executive's Review, as part of the return of surplus
capital to shareholders, the Company has also declared a special dividend of
17.7 pence per share (not subject to shareholder approval) which will be paid
alongside the final ordinary dividend to shareholders on the register as at
the same date, namely 6 May 2022. This special dividend payment equates to a
cash outflow of £15.0 million.
The other component of the surplus capital return is a share buyback programme
('SBB') which will be enacted by the Company's corporate brokers, and permits
a cash outflow of up to a maximum of £15.0 million. Details are given in the
separate announcement issued today.
Investments
Total capex in the year was £6.9 million (2020: £15.0 million), and
primarily focused on the Trade Counter network improvement and roll-out, and
replacing or upgrading warehouse equipment. 2020 was disproportionately high
as it included the final tranche of spending on the Ipswich distribution
centre (£9.7 million) which opened in 2020 on top of annual maintenance
capex.
Investment in 2022 is estimated to be in excess of £15 million, with Trade
Counters investment expected to be approximately £7 million as part of the
accelerating roll-out which will see a total capital investment of
approximately £18 million by the end of 2024 to reach the targeted 90 sites.
The balance of the investment will be focussed on improving and replacing
warehouse and material-handling equipment.
Cash Flows and Banking Facilities
During the year, the Company generated net cash inflows of £1.0 million
(2020: £27.0 million) as shown in the table below.
2021 2020
£M
£M
Cash flows from operating activities
Profit / (loss) before tax 33.4 (17.1)
Adjustments for:
Depreciation, amortisation and impairment 30.0 52.0
Finance income and expense 1.5 2.1
Change in inventories (26.6) 15.3
Change in receivables (16.6) 23.2
Change in payables 5.4 (4.8)
(Profit) / loss on sale of property, plant and equipment (11.1) 0.1
Loss on sale of subsidiary 0.1 -
Share-based payments 1.2 (0.1)
Cash generated from the operations 17.3 70.7
Interest and Tax (3.5) (8.2)
Disposal proceeds 16.2 0.1
Capital investment (6.9) (15.0)
Lease payments (15.0) (15.7)
Dividends (6.6) (6.3)
Other (0.5) 1.4
Net cash flows 1.0 27.0
Working capital movements generated a cash outflow of £37.8 million (2020:
£33.7 million inflow), largely due to increasing inventory levels as trade
returned to pre-pandemic levels, and also to mitigate any impact from industry
supply issues by elevating levels of fastest moving products. During 2020,
following the impact of COVID-19, the Company had limited product purchasing
and utilised existing inventory to satisfy demand, before beginning to elevate
purchasing levels in the second half. The Company's inventory position at 31
December 2021 was £130.9 million, similar to the £132.5 million at 31
December 2019 of which £4.9 million was attributable to Belcolor.
Cash collections were strong in the year but working capital saw a return to
pre COVID-19 levels with a normalisation in receivables (resulting in an
outflow) and payables (inflow) respectively.
The other main drivers of cash flow movements in the year were capital
investment (£6.9 million), lease payments (£15.0 million) and disposal
proceeds (£16.2 million). The disposal proceeds include the proceeds from the
sale of two freehold properties under the network consolidation (£7.0
million) as well as proceeds from the disposal of Belcolor. Full detail on
the Belcolor disposal is contained in Note 7 below.
The 2021 cash outflow in respect of dividends relates to the nominal ordinary
dividend, totalling £1.7 million paid in May 2021, and the 2021 interim
ordinary dividend, totalling £4.9 million paid in November 2021.
As at 31 December 2021, the Company had a net funds position of £17.7 million
(1 January 2021: £8.3 million). The net funds position excluding lease
liabilities was £53.7 million (1 January 2021: £51.6 million).
At Cash flows Foreign At
1 January 2021 £M Disposal of subsidiary exchange 31 December
£M Non-cash £M movements 2021
Items £M £M
£M
Cash at bank and in hand 60.8 - 4.5 (3.5) (0.6) 61.2
Debt due within one year (2.0) - 1.2 - 0.2 (0.6)
Debt due after one year (7.2) - - - 0.3 (6.9)
Net funds excluding lease liabilities 51.6 - 5.7 (3.5) (0.1) 53.7
Lease liabilities (43.3) (13.0) 15.0 5.5 (0.2) (36.0)
Net funds 8.3 (13.0) 20.7 2.0 (0.3) 17.7
Average net funds in the year (excluding lease liabilities) were £38.3
million, a strong rebound from the 2020 net debt position caused by COVID-19
(2020: £8.6 million average net debt).
As at 31 December 2021, the Company had total committed banking facilities
available of £76.6 million, of which £69.8 million was undrawn.
At 31 December 2021, the Company had a sterling committed facility of £68.5
million and a euro committed facility of €9.6 million. The Group also had
short term uncommitted facilities of £25.0 million in the UK and €3.8
million in Continental Europe. The total banking facilities available to the
Group at 31 December 2021 were £104.8 million (2020: £110.3 million). During
the year, the disposal of Belcolor led to a reduction in the euro uncommitted
facilities in Continental Europe of €5.0 million.
Following the year end, on 17 January 2022, the Company completed a
refinancing of its banking facilities and now has an increased committed
sterling facility with Barclays Bank, Bank of Ireland and Credit Industriel Et
Commercial for £81.5 million, with the euro committed facilities now
cancelled. The new facility matures in October 2026, with a one year extension
exercisable (with the agreement of the banks) on the first anniversary. An
additional uncommitted facility of €1.0 million was agreed in Continental
Europe in January 2022. The Company's other uncommitted facilities remain
unchanged, but will reduce by £10.0 million in May 2022.
Belcolor Disposal
On 28 April 2021, the Group entered into a sale agreement to dispose of its
Swiss business, Belcolor. On 29 April 2021, as a condition of the sale
agreement, Belcolor undertook a sale and leaseback of its property for gross
proceeds of £12.4 million and paid a dividend of £11.1 million to its parent
company, Headlam Group plc. Cash consideration before costs of £0.9 million
was received on sale of the subsidiary.
The subsidiary was sold on 28 April 2021, with effect from 17 May 2021, and is
reported for the year ending 31 December 2021 as a discontinued operation,
with the sale and leaseback treated as a discrete pre-disposal transaction.
Pensions
The accounting valuation for the legacy UK defined benefit pension scheme
showed a surplus of £12.1 million as at December 2021. However, as the
Company does not have an unconditional right to a surplus refund, the pension
scheme is recorded as a deficit of £4.3 million as at 31 December 2021
reflecting the level of UK deficit recovery plan payments that the Company
committed to following the last actuarial valuation as at 31 March 2020. The
Company no longer has a liability for the Swiss pension scheme following the
disposal of Belcolor.
Viability and Going Concern
Updated principal risks and uncertainties, to those published in the 2020
Annual Report and Accounts, are detailed within the 2021 Annual Report and
Accounts being published shortly. No new Principal Risks have been
identified. The level of risk of two Principal Risks is considered to have
changed, detailed below.
The Board reviewed the Company's resilience to the principal risks and
uncertainties by considering stress testing forecasts through adverse
scenarios, which involve a reduction in market demand - (A) a sustained
recessionary environment characterised by a long period of underperformance
throughout the assessment period, and (B) an economic crisis with a sharp
decline in demand in the first year before a recovery.
The testing indicated that the Company would be able to operate within its
current facilities and meet its financial covenants in both scenarios. A
further, less likely, not plausible, more severe scenario (reverse stress
test) was also considered, where the Company experiences a revenue year on
year decline of 23% in 2022. In 2020 when the Company had COVID-19 related
temporary closures of operations, revenue in the year only declined by 15%
against 2019. In this scenario, the Company would be able to operate within
its current facilities and meet its financial covenants. However, should the
reduction in revenue be greater than this, the Board would need to take
mitigating actions to remain within its banking covenants.
Mitigating actions, which are within the Board and management's control,
include a reduction in the cost base to better align it with market demand and
revenue performance, suspension of ordinary dividend(s), and a freeze on
non-critical capital spend. These actions are not included in any of the
scenarios modelled, but were effectively implemented during 2020 following the
initial impact of COVID-19, and therefore proven to be enacted.
As above, as at 31 December 2021 the Company had a net funds position
excluding lease liabilities of £53.7 million, and as at 2 March 2022 has an
undrawn refinanced banking facility of £109.7 million. The Board was,
therefore, comfortable that the Company would maintain resilience in the event
such scenarios occurred and concluded that there was a reasonable expectation
that the Company would continue to operate and meet its liabilities over a
three year period. Based on the results from these scenarios, and having
considered the available mitigating actions, the Board can have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the three year period of this
assessment. In particular, 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 Statements.
Principal Risks
The level of risk of two Principal Risks is considered to have changed as
compared with the 2020 Annual Report and Accounts, summarised below. No new
Principal Risks have been identified, and none of the existing removed.
· Healthy and safety - level of risk: decreased - as a result of the
mitigating actions undertaken during 2021, the level of risk has been judged
to have decreased.
· Environmental (incorporating climate change) - level of risk:
increased - given the increasing regulation / legislation in relation to the
environment, and increased focus on climate change (including regulatory
disclosures in relation to climate-related risks and opportunities), the level
of risk has been judged to have increased.
Chris Payne
Chief Financial Officer and Chief Executive
9 March 2022
Appendix
Alternative Performance Measures ('APMs')
Glossary of Alternative Performance Measures Closest equivalent statutory measure Definition and purpose
Underlying administrative expenses Administrative expenses Calculated as administrative expenses before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance of the
Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Underlying operating profit Operating profit Calculated as operating profit before charges associated with the acquisition
of businesses and other items which by virtue of their nature, size and
expected frequency require adjustment to show the performance of the Group in
a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Underlying operating margin None Calculated as underlying operating profit divided by revenue. This measure is
used to assess how effective the Group is at converting revenue into
underlying operating profit.
Underlying profit before tax Profit before tax Calculated as profit before tax before charges associated with the acquisition
of businesses and other items which by virtue of their nature, size and
expected frequency require adjustment to show the performance of the Group in
a consistent manner which is comparable year-on-year.
Underlying profit before tax is used in the determination of Executive
Directors' annual bonuses.
See Adjusted Results Reconciliation below.
Underlying profit after tax Profit after tax Calculated as profit after tax before charges associated with the acquisition
of businesses and other items which by virtue of their nature, size and
expected frequency require adjustment to show the performance of the Group in
a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Underlying basic earnings per share Basic earnings per share Calculated as basic earnings per share before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance of the
Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Underlying diluted earnings per share Diluted earnings per share Calculated as diluted earnings per share before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance of the
Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Net funds / debt None Calculated as cash and cash equivalents less other interest- bearing loans and
borrowings and less lease liabilities. This is used as a measure of liquidity.
Net funds / debt excluding lease liabilities None Calculated as cash and cash equivalents less other interest- bearing loans and
borrowings.
This is provided for use by investors, who used this metric before the
adoption of IFRS16 and continue to do so.
Average net funds / debt None Calculated by aggregating the net funds / debt position excluding lease
liabilities for each business day and dividing by the total number of business
days. This is used as a measure of liquidity maintained throughout the year.
Like for like revenue growth None Calculated as year-on-year revenue growth, expressed as a percentage and
adjusted to normalise currency and for consistent working days, for businesses
making a full year's contribution. This allows a consistent measure of
year-on-year performance.
Underlying selling, general and administrative costs None Calculated as distribution costs and underlying administrative expenses
divided by revenue and expressed as a percentage. This measure shows how
effective the Group is at converting gross profit into underlying operating
profit.
Return on capital employed None Calculated as underlying operating profit measured as a percentage of average
capital employed, being total equity less non-current other interest-bearing
loans and borrowings less cash and cash equivalents.
This demonstrates the relative level of profit generated by the capital
employed.
Cash conversion None Calculated as cash generated from the operations divided by operating profit
and expressed as a percentage.
This cash conversion measure demonstrates the success of the Group in
converting profit to cash, which underpins the quality of earnings and
reflects the effectiveness of working capital management.
Adjusted Results Reconciliation
31 December 2021
Total Results Impairment of goodwill and intangibles Impairment of property, plant and equipment and inventory following fire Amortisation of acquired intangibles Business restructuring Property disposal Profit from discontinued operation Adjusted Results
(underlying)
Continuing operations £M £M £M £M £M £M £M £M
Revenue 667.2 - - - - - - 667.2
Cost of sales (446.7) - - - - - - (446.7)
Gross profit 220.5 - - - - - - 220.5
Distribution costs (125.9) - - - - - - (125.9)
Administrative expenses (65.5) 2.1 7.3 1.6 2.3 (5.1) - (57.3)
Operating profit/(loss) 29.1 2.1 7.3 1.6 2.3 (5.1) - 37.3
Finance income 0.4 - - - - - - 0.4
Finance expenses (1.9) - - - - - - (1.9)
Net finance costs (1.5) - - - - - - (1.5)
Profit/(loss) before tax 27.6 2.1 7.3 1.6 2.3 (5.1) - 35.8
Taxation (7.7) (0.2) (1.0) 0.2 (0.4) (0.1) - (9.2)
Profit/(loss) from continuing operations 19.9 1.9 6.3 1.8 1.9 (5.2) - 26.6
Profit/(loss) from discontinued operation 4.5 - - - - - (4.4) 0.1
Profit/(loss) for the year attributable to the equity shareholders 24.4 1.9 6.3 1.8 1.9 (5.2) (4.4) 26.7
Earnings/(loss) per share for profit from continuing operations
Basic 23.5p 2.3p 7.5p 2.2p 2.2p (6.2)p - 31.5p
Diluted** 23.2p 2.3p 7.4p 2.2p 2.2p (6.2)p - 31.1p
Earnings/(loss) per share for profit from discontinued operations
Basic 5.3p - - - - - (5.1)p 0.2p
Diluted** 5.2p - - - - - (5.0)p 0.2p
Adjusted Results Reconciliation
31 December 2020 (re-presented)
Total Results Impairment of goodwill Amortisation of acquired intangibles Acquisitions related fees Business restructuring Other Adjusted Results (underlying)
Continuing operations £M £M £M £M £M £M £M
Revenue 578.1 - - - - - 578.1
Cost of sales (400.0) - - - - - (400.0)
Gross profit 178.1 - - - - - 178.1
Distribution costs (113.9) - - - - - (113.9)
Administrative expenses (76.4) 24.7 1.6 0.7 2.4 0.2 (46.8)
Operating profit/(loss) (12.2) 24.7 1,6 0.7 2.4 0.2 17.4
Finance income 0.8 - - - - - 0.8
Finance expenses (2.9) - - - - 0.1 (2.8)
Net finance costs (2.1) - - - - 0.1 (2.0)
Profit/(loss) before tax (14.3) 24.7 1.6 0.7 2.4 0.3 15.4
Taxation (3.1) (0.1) (0.1) - (0.5) - (3.8)
Profit/(loss) from continuing operations (17.4) 24.6 1.5 0.7 1.9 0.3 11.6
Profit/(loss) from discontinued operation (2.9) 3.3 - - - - 0.4
Profit/(loss) for the year attributable to the equity shareholders (20.3) 27.9 1.5 0.7 1.9 0.3 12.0
Earnings/(loss) per share for profit from continuing operations
Basic (20.7)p 29.1p 1.9p 0.7p 2.3p 0.4p 13.7p
Diluted** (20.7)p 29.2p 1.9p 0.7p 2.3p 0.3p 13.7p
Earnings/(loss) per share for profit from discontinued operations
Basic (3.4)p 3.9p - - - - 0.5p
Diluted** (3.4)p 3.9p - - - - 0.5p
Other comprises: movements in deferred and contingent consideration (£0.1m
credit within total administrative expenses); finance costs on deferred and
contingent consideration (£0.1m cost within total finance expenses); and GMP
equalisation (£0.3m cost within total administrative expenses).
Consolidated Income Statement
For the year ended 31 December 2021
Re-presented*
Non- Non-
underlying underlying
Underlying (Note 2) Total Underlying (Note 2) Total
2021 2021 2021 2020 2020 2020
Continuing operations Note £M £M £M £M £M £M
Revenue 1 667.2 - 667.2 578.1 - 578.1
Cost of sales (446.7) - (446.7) (400.0) - (400.0)
Gross profit 220.5 - 220.5 178.1 - 178.1
Distribution costs (125.9) - (125.9) (113.9) - (113.9)
Administrative expenses (57.3) (8.2) (65.5) (46.8) (29.6) (76.4)
Operating profit/(loss) 1 37.3 (8.2) 29.1 17.4 (29.6) (12.2)
Finance income 0.4 - 0.4 0.8 - 0.8
Finance expenses (1.9) - (1.9) (2.8) (0.1) (2.9)
Net finance costs (1.5) - (1.5) (2.0) (0.1) (2.1)
Profit/(loss) before tax 35.8 (8.2) 27.6 15.4 (29.7) (14.3)
Taxation 4 (9.2) 1.5 (7.7) (3.8) 0.7 (3.1)
Profit/(loss) from continuing operations 26.6 (6.7) 19.9 11.6 (29.0) (17.4)
Profit/(loss) from discontinued operation 0.1 4.4 4.5 0.4 (3.3) (2.9)
Profit/(loss) for the year attributable to the equity shareholders 26.7 (2.3) 24.4 12.0 (32.3) (20.3)
Earnings/(loss) per share for profit from continuing operations
Basic 5 31.5p 23.5p 13.7p (20.7)p
Diluted** 5 31.1p 23.2p 13.7p (20.7)p
Earnings/(loss) per share for profit from discontinued operations
Basic 5 0.2p 5.3p 0.5p (3.4)p
Diluted** 5 0.2p 5.2p 0.5p (3.4)p
Ordinary dividend per share
Interim dividend for the financial year 6 5.80p -
Final dividend declared 6 8.60p -
Declared special dividend 6 17.70p -
Declared dividend 6 - 2.00p
* The results for the year ended 31 December 2020 have been re-presented to
reflect the presentation of the Belcolor business as discontinued.
**For the year ended 31 December 2020, diluted earnings/(loss) per share are
reported the same as basic earnings/(loss) per share, as a result of the
earnings being negative so the impact of them is anti-dilutive.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
£M £M
Profit/(loss) for the year attributable to the equity shareholders 24.4 (20.3)
Other comprehensive income/(expense)
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans (2.6) (0.3)
Related tax 0.8 0.1
(1.8) (0.2)
Items that are or may be reclassified to profit or loss
Exchange differences arising on translation of overseas operations (1.2) 0.9
Reclassification of foreign currency translation reserve on disposal of (4.8) -
subsidiary
(6.0) 0.9
Other comprehensive (expense)/income for the year (7.8) 0.7
Total comprehensive income/(expense) attributable to the equity shareholders 16.6 (19.6)
for the year
Total comprehensive income attributable to the equity shareholders for the
year arising from:
Continuing operations 16.9 (17.5)
Discontinued operations (0.3) (2.1)
16.6 (19.6)
Statements of Financial Position
At 31 December 2021
2021 2020
Note £M £M
Assets
Non-current assets
Property, plant and equipment 113.3 122.9
Right of use assets 35.0 42.1
Intangible assets 18.1 21.1
166.4 186.1
Current assets
Inventories 130.9 118.5
Trade and other receivables 114.0 101.6
Cash and cash equivalents 61.2 60.8
306.1 280.9
Non-current assets classified as held for sale - 0.4
306.1 281.3
Total assets 1 472.5 467.4
Liabilities
Current liabilities
Other interest-bearing loans and borrowings (0.6) (2.0)
Lease liabilities (10.5) (12.5)
Trade and other payables (178.0) (178.4)
Employee benefits (1.0) -
Income tax payable (1.0) (0.2)
(191.1) (193.1)
Non-current liabilities (6.9)
Other interest-bearing loans and borrowings (7.2)
Lease liabilities (25.5) (30.8)
Provisions (2.7) (2.1)
Deferred tax liabilities (10.3) (8.7)
Employee benefits (3.9) (5.5)
(49.3) (54.3)
Total liabilities 1 (240.4) (247.4)
Net assets 232.1 220.0
Equity attributable to equity holders of the parent
Share capital 4.3 4.3
Share premium 53.5 53.5
Other reserves (1.6) 3.4
Retained earnings 175.9 158.8
Total equity 232.1 220.0
Statement of Changes in Equity
For the year ended 31 December 2021
Capital
Share Share redemption Special Translation Treasury Retained Total
capital premium reserve reserve reserve reserve earnings equity
£M £M £M £M £M £M £M £M
Balance at 1 January 2020 4.3 53.5 0.1 0.5 6.8 (6.1) 186.0 245.1
Loss for the year attributable to the equity shareholders - - - - - - (20.3) (20.3)
Other comprehensive income/(expense) - - - - 0.9 - (0.2) 0.7
Total comprehensive income/(expense) for the year - - - - 0.9 - (20.5) (19.6)
Transactions with equity shareholders, recorded directly inequity
Share-based payments - - - - - - (0.1) (0.1)
Share options exercised by employees - - - - - 0.2 (0.1) 0.1
Ordinary shares issued - - - 1.0 - - - 1.0
Deferred tax on share options - - - - - - (0.2) (0.2)
Dividends to equity holders - - - - - - (6.3) (6.3)
Total contributions by and distributions to equity shareholders - - - 1.0 - 0.2 (6.7) (5.5)
Balance at 31 December 2020 4.3 53.5 0.1 1.5 7.7 (5.9) 158.8 220.0
Balance at 1 January 2021 4.3 53.5 0.1 1.5 7.7 (5.9) 158.8 220.0
Profit for the year attributable to the equity shareholders - - - - - - 24.4 24.4
Other comprehensive income/(expense) - - - - (6.0) - (1.8) (7.8)
Total comprehensive income/(expense) for the year - - - - (6.0) - 22.6 16.6
Transactions with equity shareholders, recorded directly inequity
Share-based payments - - - - - - 1.2 1.2
Share options exercised by employees - - - - - 1.0 (0.3) 0.7
Deferred tax on share options - - - - - - 0.2 0.2
Dividends to equity holders - - - - - - (6.6) (6.6)
Total contributions by and distributions to equity shareholders - - - - - 1.0 (5.5) (4.5)
Balance at 31 December 2021 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
Cash Flow Statements
For the year ended 31 December 2021
2021 2020
£M £M
Cash flows from operating activities
Profit/(loss) before tax for the year:
Continuing operations 27.6 (14.3)
Discontinued operations 5.8 (2.8)
33.4 (17.1)
Adjustments for:
Depreciation of property, plant and equipment, amortisation and impairment 9.2 35.8
of intangible assets
Depreciation of right-of-use assets 13.5 16.2
Impairment of investment - -
Finance income (0.4) (0.8)
Finance expense 1.9 2.9
(Profit)/loss on sale of property, plant and equipment (11.1) 0.1
Impairment of property, plant and equipment and inventory, following fire 7.3 -
Loss on sale of subsidiary 0.1 -
Share-based payments 1.2 (0.1)
Operating cash flows before changes in working capital and other payables 55.1 37.0
Change in inventories (26.6) 15.3
Change in trade and other receivables (16.6) 23.2
Change in trade and other payables 5.4 (4.8)
Cash generated from the operations* 17.3 70.7
Interest paid (0.5) (2.7)
Interest received 0.5 0.8
Tax paid (3.5) (6.3)
Net cash flow from operating activities 13.8 62.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 19.7 0.1
Acquisition of subsidiaries, net of cash acquired - (1.0)
Repayment of acquired borrowings on acquisition - (0.2)
Disposal of discontinued operation, net of cash disposed of** (3.5) -
Acquisition of property, plant and equipment (6.1) (15.0)
Acquisition of intangible assets (0.8) -
Net cash flow from investing activities 9.3 (16.1)
Cash flows from financing activities
Proceeds from the issue of treasury shares 0.7 0.2
Proceeds from borrowings - 50.9
Repayment of borrowings (1.2) (48.5)
Principal elements of lease payments (15.0) (15.7)
Dividends paid (6.6) (6.3)
Net cash flow from financing activities (22.1) (19.4)
Net increase/(decrease) in cash and cash equivalents 1.0 27.0
Cash and cash equivalents at 1 January 60.8 33.4
Effect of exchange rate fluctuations on cash held (0.6) 0.4
Cash and cash equivalents at 31 December 61.2 60.8
*Cash generated from the Group operations for the year ended 31 December 2020,
includes an amount of £11.0 million cash received under governmental job
retention schemes in the UK and France (Company £0.1 million). These are
discussed in more detail under Government Grants in Note 1.
**For cash flows of discontinued operations see Note 7 below.
Notes to the Financial Statements
1 Segment reporting
As at 31 December 2021, the Group had 63 operating segments in the UK and
three operating segments in Continental Europe, following the disposal of the
Swiss operating segment in May 2021. 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
considers 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 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 Chief Executive, the Board
and the executive management team and forms the basis for the presentation of
operating segment information given below.
Continuing operations
UK Continental Europe Total
2021 2020 2021 2020 2021 2020
£M £M £M £M £M £M
Revenue
External revenues 585.8 504.7 81.4 73.4 667.2 578.1
Reportable segment underlying operating profit 37.0 15.5 3.1 1.6 40.1 17.1
Reportable segment assets 280.6 296.5 30.3 47.8 310.9 344.3
Reportable segment liabilities (196.4) (200.9) (27.1) (31.3) (223.5) (232.2)
During the year there were no inter-segment revenues for the reportable
segments (2020: £nil).
Reconciliations of reportable segment profit, assets and liabilities and other
material items:
2021 2020
£M £M
Profit for the year
Total underlying operating profit for reportable segments 40.1 17.1
Non-underlying items (8.2) (29.6)
Unallocated (expense)/income (2.8) 0.3
Operating profit/(loss) 29.1 (12.2)
Finance income 0.4 0.8
Finance expense (1.9) (2.9)
Profit/(loss) before taxation 27.6 (14.3)
Taxation (7.7) (3.1)
Profit/(loss) from continuing operations 19.9 (17.4)
Profit/(loss) from discontinued operations 4.5 (2.9)
Profit/(loss) for the year 24.4 (20.3)
2021 2020
£M £M
Assets
Total assets for reportable segments 310.9 344.3
Unallocated assets:
Properties, plant and equipment 97.5 105.4
Right of use assets 0.7 0.7
Non-current assets classified as held for sale - 0.4
Cash and cash equivalents 63.4 16.6
Total assets 472.5 467.4
Liabilities
Total liabilities for reportable segments (223.5) (232.2)
Unallocated liabilities:
Lease liabilities (0.7) (0.8)
Employee benefits (4.9) (5.5)
Income tax payable (1.0) (0.2)
Deferred tax liabilities (10.3) (8.7)
Total liabilities (240.4) (247.4)
Reportable
Continental segment Consolidated
UK Europe total Unallocated total
Continuing operations £M £M £M £M £M
Other material items 2021
Capital expenditure 5.7 0.4 6.1 - 6.1
Impairment of goodwill 1.2 - 1.2 - 1.2
Impairment of intangible assets 0.9 - 0.9 - 0.9
Impairment of property, plant and equipment and inventory (following fire) 7.3 - 7.3 - 7.3
Depreciation 2.3 0.4 2.7 2.5 5.2
Depreciation of right of use assets 11.6 1.9 13.5 - 13.5
Non-underlying items (excluding finance expenses and impairments) (1.1) (0.1) (1.2) - (1.2)
Other material items 2020
Capital expenditure 9.1 0.7 9.8 5.6 15.4
Impairment of goodwill 23.4 1.3 24.7 - 24.7
Depreciation 2.8 0.7 3.5 2.7 6.2
Depreciation of right of use assets 14.0 2.1 16.1 0.1 16.2
Non-underlying items (excluding finance expenses and impairments) 4.8 0.1 4.9 - 4.9
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 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.
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
2021 2020 2021 2020 2021 2020
£M £M £M £M £M £M
Revenue
Residential 407.2 354.3 49.7 44.9 456.9 399.2
Commercial 178.6 150.4 31.7 28.5 210.3 178.9
585.8 504.7 81.4 73.4 667.2 578.1
2 Non-underlying items
In order to illustrate the underlying trading performance of the Group,
presentation has been made of performance measures excluding those items which
it is considered would distort the comparability of the Group's results. These
non-underlying items are defined as those items that are associated with the
acquisition of businesses or other items which by virtue of their nature, size
and expected frequency require adjustment to show the performance of the Group
in a consistent manner which is comparable year-on-year.
The following are the principal items classed as non-underlying:
· Impairment of intangibles, fixed assets and right of use assets
as they are significant, non-recurring items;
· Amortisation of acquired intangibles as they relate to the
acquisition of businesses;
· Property disposal profits as they are not generated from the
normal course of business;
· Acquisitions related fees and deferred and contingent
consideration items as they relate to the acquisition of businesses;
· Impairment of property, plant and equipment (following a fire) as
it is a significant, non-recurring item; and
· Business restructuring cost which is a significant cash item that
falls across 2020 and 2021, and for which no further costs are expected.
See the Financial Review for details on alternative performance measures.
Non-underlying items for continuing and discontinued operations after tax of
£2.3 million (2020: £32.3 million) relate to the following:
2021 2020
£M £M
Continuing operations:
Impairment of intangibles, fixed assets and right of use assets 2.1 24.7
Amortisation of acquired intangibles 1.6 1.6
Property disposal (5.1) -
Acquisitions related fees - 0.7
Movements in deferred and contingent consideration - (0.1)
Finance costs on deferred and contingent consideration - 0.1
Impairment of property, plant and equipment and inventory (following a fire) 7.3 -
Business restructuring costs 2.3 2.4
GMP Equalisation - 0.3
8.2 29.7
Taxation on non-underlying items (1.5) (0.7)
6.7 29.0
Discontinued operation:
Impairment of goodwill - 3.3
Disposal of subsidiary (including Swiss property disposal) (4.4) -
(4.4) 3.3
2.3 32.3
The business restructuring related to aligning overall headcount with trading
patterns and evolving customer servicing, along with executive settlement
agreements, and were all cash in nature. Cumulative non-underlying business
restructuring costs since their initiation as part of the business change
strategy amount to £4.7 million and cover the period July 2020 to December
2021. No further business restructuring costs are currently anticipated for
2022.
See the Financial Review for details on alternative performance measures.
3 Impairment tests for cash-generating units containing goodwill ('CGU')
Goodwill is attributed to the businesses identified below for the purpose of
testing impairment. These businesses are the lowest level at which goodwill is
monitored and represent operating segments.
The aggregate carrying amounts of goodwill allocated to each CGU are as
follows:
Reported 2021 2020
segment £M £M
Joseph, Hamilton & Seaton UK 4.4 4.4
Crucial Trading UK 1.4 1.4
McMillan Flooring UK 0.1 0.1
CECO (Flooring) Limited UK - 1.2
Ashmount Flooring Supplies Limited UK 0.4 0.4
Telenzo UK 0.3 0.3
Other UK 1.0 1.0
7.6 8.8
Impairment
Each year, or whenever events or a change in the economic environment or
performance indicates a risk of impairment, the Group reviews the value of
goodwill balances allocated to its cash-generating units.
An impairment test is a comparison of the carrying value of the assets of a
business or CGU to their recoverable amount. The recoverable amount represents
the higher of the CGU's fair value less the cost to sell and value in use.
Where the recoverable amount is less than the carrying value, an impairment
results.
During the year ended 31 December 2021, all goodwill was tested for
impairment, which resulted in an impairment charge on goodwill attributable to
CECO (Flooring) Limited of £1.2 million. The recoverable amount of CECO
(Flooring) Limited was its value in use, which amounted to £nil.
Value in use was determined by discounting the future cash flows generated
from the continuing use of the CGU on a basis consistent with 2020, and
applying the following key assumptions.
Key assumptions
Cash flows were projected based on actual operating results, the approved 2022
business plan and management's assessment of planned performance in the period
to 2026. For the purpose of impairment testing the cash flows were assumed to
grow into perpetuity at a rate of 2.0% beyond 2026.
The main assumptions within the operating cash flows used for 2022 include the
achievement of future sales volumes and prices for all key product lines,
control of purchase prices, achievement of budgeted operating costs and no
significant adverse foreign exchange rate movements. These assumptions have
been reviewed in light of the current economic environment.
The Directors have estimated the discount rate by reference to an industry
average weighted average cost of capital. This has been adjusted to include an
appropriate risk factor to reflect current economic circumstances and the risk
profile of the CGUs. As the CGUs in the UK, have similar characteristics and
risk profiles, a single discount rate has been applied. The pre-tax weighted
average cost of capital of 11.2% (2020: 11.7%).
Climate-related risks have been considered in relation to the impairment
testing, including possible end-of-life disposal tax (extended producer
responsibility), the transition to electric vehicles and significant changes
in consumer preferences towards more sustainable products, with the latter
able to be mitigated by the Group reflecting this in its product offering. A
high degree of uncertainty surrounds the likelihood, timing and quantum of any
possible end-of-life disposal tax. This risk is not included in the base case
models due to the high levels of uncertainty whilst other risks have been
assumed not to have a material impact. Sensitivity analysis has been performed
assuming an end-of-life disposal tax equating to 0.6% of revenue, taking
effect after year 5 in the model. The Directors have assessed that end-of-life
disposal tax based on this assumption, would not cause further material
impairment.
Sensitivity analysis
The Group has applied sensitivities to assess whether any reasonable possible
changes in these key assumptions could cause a further impairment to goodwill
and subsequently intangible assets, property, plant and equipment and
right-of-use assets that would be material to these Consolidated Financial
Statements.
The Directors performed sensitivity analysis on the estimated recoverable
amounts focusing on a reasonably possible change in key assumptions:
(i) sales growth decrease of 1% in first five years;
(ii) gross margin decrease of 1%; and
(iii) pre-tax discount rate, used to convert the cash flow
forecasts to present values, increase of 1%.
One CGU is materially sensitive to the gross margin sensitivity and would
require a £1.4 million impairment should gross margin decrease by 1%. Three
CGUs are materially sensitive to a combination of all three sensitivities
above and would require an impairment of £6.9 million should all three
sensitivities occur as above, simultaneously.
4 Taxation
Recognised in the income statement
2021 2020
£M £M
Current tax expense:
Current year 6.4 2.7
Adjustments for prior years (0.3) (0.9)
6.1 1.8
Deferred tax expense:
Origination and reversal of temporary differences - 0.1
Effect of change in UK tax rates 2.7 0.9
Adjustments for prior years 0.2 0.4
2.9 1.4
Total tax 9.0 3.2
Total tax continuing operations in income statement 7.7 3.1
Total tax discontinued operations in income statement 1.3 0.1
2021 2020
£M £M
Tax relating to items credited/(charged) to equity
Current tax on:
Income and expenses recognised directly in equity - -
Translation reserve - -
- -
Deferred tax on:
Share options (0.2) 0.2
Deferred tax on other comprehensive income:
Defined benefit plans (0.8) (0.1)
(1.0) 0.1
Total tax reported directly in reserves (1.0) 0.1
Factors that may affect future current and total tax charges
The UK headline corporation tax rate for the year was 19.0% (2020: 19.0%). In
the Spring Budget of 2021, the UK Government announced that from 1 April 2023
the rate of UK corporation tax will increase from 19% to 25%. This new law was
substantively enacted on 24 May 2021. UK deferred tax assets and liabilities
have therefore been calculated at a rate of 25% (2020: 19%).
In addition, an increase in the Dutch corporation tax rate to 25.8% (2020:
25.0%) was enacted in December 2021 which has also been taken into account in
the calculation of the related deferred tax balance.
Reconciliation of effective tax rate
2021 2020
% £M % £M
Profit/(loss) before tax on continuing operations 27.6 (14.3)
Profit/(loss) before tax on discontinued operations 5.8 (2.8)
Total profit/(loss) before tax 33.4 (17.1)
Tax using the UK corporation tax rate 19.0 6.3 19.0 (3.2)
Effect of change in UK tax rate 8.1 2.7 (5.3) 0.9
Local tax incentives (0.5) (0.2) - -
Non-deductible expenses/non-taxable income 1.0 0.4 (2.9) 0.5
Non-deductible non-underlying costs - - (31.0) 5.3
Effect of tax rates in foreign jurisdictions - - 0.1 (0.1)
Impact of losses not recognised (0.3) (0.1) (1.7) 0.3
Adjustments in respect of prior years (0.1) (0.1) 2.9 (0.5)
Total tax in income statement 27.2 9.0 (18.7) 3.2
Add back tax on non-underlying items - continuing 1.5 0.7
Add back tax on non-underlying items - discontinued (1.3) -
Total tax charge excluding non-underlying items 9.2 3.9
Profit before non-underlying items 35.9 15.9
Adjusted effective tax rate excluding non-underlying items 25.8% 24.5%
5 Earnings per share
2021 2020
£M £M
Continuing operations earnings
Earnings/(loss) for basic and diluted earnings per share 19.9 (17.4)
Earnings for underlying basic and underlying diluted earnings per share 26.6 11.6
Discontinued operations earnings
Earnings/(loss) for basic and diluted earnings per share 4.5 (2.9)
Earnings for underlying basic and underlying diluted earnings per share 0.1 0.4
2021 2020
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings 84,484,084 84,228,880
per share
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December 84,484,084 84,228,880
Dilutive effect of share options 1,070,830 543,732
Weighted average number of ordinary shares for the purposes of diluted 85,554,914 84,772,612
earnings per share
Continuing operations earnings per share
Basic 23.5p (20.7)p
Diluted* 23.2p (20.7)p
Underlying basic 31.5p 13.7p
Underlying diluted 31.1p 13.7p
Discontinued operations earnings per share
Basic 5.3p (3.4)p
Diluted* 5.2p (3.4)p
Underlying basic 0.2p 0.5p
Underlying diluted 0.2p 0.5p
* For the year ended 31 December 2020,
diluted earnings/(loss) per share are reported the same as basic
earnings/(loss) per share, as a result of the earnings being negative so the
impact of them is anti-dilutive.
At 31 December 2021, the Company held 1,013,991 shares (2020: 1,211,073) in
relation to treasury stock and shares held in trust for satisfying options and
awards under employee share schemes. These shares have been disclosed in the
treasury reserve and are excluded from the calculation of earnings per share.
6 Dividends
2021 2020
£M £M
Interim dividend for 2019 of 7.55p paid 2 January 2020 - 6.3
Dividend of a nominal amount of 2.00p paid 28 May 2021 1.7 -
Interim dividend for 2021 of 5.80p paid 29 November 2021 4.9 -
6.6 6.3
The Board of Directors have declared a final dividend of 8.60p per share which
if approved by shareholders at the forthcoming AGM, will be payable on 27 May
2022. As part of the return of surplus capital to shareholders, the Company
has also declared a special dividend of 17.70p per share (not subject to
shareholder approval) which will be paid alongside the final ordinary dividend
on the same date.
The total value of dividends proposed or declared but not recognised at 31
December 2021 is £22.3 million (2020: £1.7 million).
7 Discontinued operations
On 28 April 2021, the Group entered into a sale agreement to dispose of
Belcolor AG ('Belcolor'). Belcolor is a floorcoverings distribution business
based in St. Gallen, Switzerland, and represents the entirety of Headlam's
Swiss operations. Headlam's Continental European operations (including
Belcolor) accounted for 17.2% of total revenue in 2020, with Switzerland being
the smallest reflecting the small landmass and population of the country. For
the year ended 31 December 2020, Belcolor reported revenue of £31.1 million
and underlying profit before tax of £1.1 million (£0.5 million after pension
costs incurred under IAS19), with fairly uninterrupted operations during 2020
in contrast to the Company's UK and French operations which were subject to
stringent COVID-19 related lockdown measures.
While Belcolor was highly established and industry-leading in its country,
there were limited avenues for meaningful organic or acquisitive growth.
Additionally, the Swiss market varies significantly from the Company's other
geographic markets in terms of supplier base and product mix, and therefore
there was limited ability to leverage group synergies. The disposal allows the
Company to more effectively focus its activities and investments on its
operations which offer greater opportunity.
On 29 April 2021, as a condition of the sale agreement, Belcolor undertook a
sale and leaseback of its property for gross proceeds of £12.4 million and
paid a dividend of £11.1 million to its parent company, Headlam Group plc.
Gross assets disposed of were £18.8 million. Cash consideration before costs
of £0.9 million was received on sale of the subsidiary.
The subsidiary was sold on 28 April 2021 with effect from 17 May 2021 and was
reported in these financial statements for the year ending 31 December 2021 as
a discontinued operation.
Financial information relating to the discontinued operation for the period to
the date of disposal is set out below.
Financial performance of discontinued operation
Period ended 17 May 2021 Year ended 31 December 2020
Underlying Non-underlying Total Non-underlying
Underlying Total
£M £M £M £M £M £M
Revenue 9.1 - 9.1 31.1 - 31.1
Expenses (9.0) - (9.0) (30.6) (3.3) (33.9)
Other gains/(loss) (profit on sale of building) - 5.8 5.8 - - -
Profit/(loss) before tax 0.1 5.8 5.9 0.5 (3.3) (2.8)
Attributable tax expense - (1.3) (1.3) (0.1) - (0.1)
Profit/(loss) after tax of discontinued operation 0.1 4.5 4.6 0.4 (3.3) (2.9)
Loss on sale of subsidiary after tax - (0.1) (0.1) - - -
Profit/(loss) from discontinued operation 0.1 4.4 4.5 0.4 (3.3) (2.9)
Exchange differences on translation of discontinued operation 4.8
-
Other comprehensive income from discontinued operation 4.8
-
Year ended Year ended
31 December 31 December
2021 2020
£M £M
Consideration received:
Cash 0.9 -
Costs of disposal (0.1) -
Net disposal consideration 0.8 -
Carrying amount of net assets sold (5.7) -
Loss on sale before tax and reclassification of foreign currency translation (4.9)
reserve
-
Reclassification of foreign currency translation reserve 4.8 -
Tax expense on loss - -
Loss on sale after tax (0.1) -
Cash flows from discontinued operation
Net cash outflow from ordinary activities (1.8)
1.2
Net cash inflow from investing activities 12.4
(0.5)
Net cash outflow from financing activities -
(0.2)
Net increase in cash generated by the subsidiary 10.6
0.5
Effect of disposal on the financial position of the Group
£M
Property, plant and equipment (1.4)
Right-of-use-assets (1.2)
Inventories (8.7)
Trade and other receivables (3.2)
Cash and cash equivalents (4.3)
Employee benefits 2.8
Current tax liability 1.5
Trade and other payables 3.0
Deferred tax liabilities 0.3
Lease liabilities 5.5
Net assets and liabilities (5.7)
Net disposal consideration 0.8
Cash and cash equivalents disposed of (4.3)
Net cash outflow (3.5)
The net cash consideration of £0.8 million represents the residual
consideration following the £11.1 million dividend previously paid up to the
parent company. Cash balances of £4.3 million were held by Belcolor on
disposal.
8 Contingent asset
At December 2021, the Group identified a contingent asset relating to an
insurance claim for losses, as a result of the Kidderminster fire, arising
from damage to the Group's property, stock and contents, and trading losses.
The claim was in progress at 31 December 2021 and its outcome, whilst probable
given the insurance contracts in place, was not certain and therefore not
recognised in the financial statements as an asset. It was not practicable to
estimate its financial effect.
9 Contingent liability
There are no contingent liabilities for the year ending 31 December 2021. In
November 2020, the Group provided evidence for an investigation by the
Netherlands Authority for Consumers and Markets ('ACM') concerning possible
anti-competitive behaviour in the industry. In July 2021, the ACM notified
the Group that they had terminated their investigation and no further action
has been taken.
10 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 following:
On 17 January 2022, the Group completed a refinancing of its existing banking
facilities which will expire in October 2026. At 31 December 2021, the Group
had two revolving credit facility agreements with Barclays Bank PLC and HSBC
Bank Plc, with a sterling committed facility of £68.5 million and a euro
committed facility of €9.6 million. These were replaced with a single
revolving credit facility agreement with Barclays Bank PLC, The Bank of
Ireland and Credit Industriel Et Commercial (London Branch) for £81.5
million.
11 Additional information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2021 or 2020 but is derived
from those accounts. Statutory accounts for 2020 have been delivered to the
registrar of companies, and those for 2021 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.
The Company anticipates that the Company's statutory accounts will be posted
to shareholders during March 2022 and will be displayed on the Company's
website at www.headlam.com during March 2022. 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 2021 was
approved by the Board on 9 March 2022.
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