REG - Headlam Group PLC - Interim Results <Origin Href="QuoteRef">HEAD.L</Origin> - Part 1

HeadlamAnnouncement

24/08/2016 07:06

RNS Number : 9545H
Headlam Group PLC
24 August 2016
24 August 2016
Headlam Group plc
("Headlam" or "the group")
Interim Results for the six-month period ended 30 June 2016
Headlam Group plc (LSE: HEAD), Europe's leading floorcovering distributor, announces its Interim Results for the six months ended 30 June 2016.
Financial highlights
 Group revenue up 4.8% to 328.7 million (H1 2015: 313.5 million)
 Operating profit up 18.5% to 15.4 million (H1 2015: 13.0 million)
 Profit before tax up 22.4% to 15.11 million (H1 2015: 12.35 million)
 Basic earnings per share up 23.1% to 14.4 pence (H1 2015: 11.7 pence)
 Interim dividend up 11.7% to 6.7 pence (H1 2015: 6.0 pence)
 Net funds of 33.9 million as at 30 June 2016 (30 June 2015: 26.0 million)
Operational highlights
 Further gains achieved in UK market share with like-for-like revenues increasing by 3.4% and an additional working day in 2016 adding a further increase of 0.9%
 Headlam Corporate, the group's newest business, making good progress in its target market of specified commercial flooring
 Lifestyle Floors' revenue up 34.8% to 21.1 million (H1 2015: 15.6 million)
 Further expansion of the service centre network with centres in Croydon, Hull and Bristol opened in the first half bringing the total to 32 with a further three centres in development
Tony Brewer, Headlam's Group Chief Executive, said:
"It is pleasing to report further progress during the first half of 2016, reflecting the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.
"August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions. To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.
"However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe. It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date.
"Our market appears to be robust and, subject to the key trading period in the run-up to Christmas, the board remains confident of achieving full year expectations."
Analyst meeting
A meeting for analysts will be held at 10am this morning, 24 August 2016, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, please contact Buchanan on 020 7466 5000.
Enquiries:
Headlam Group plc
Tel: 01675 433000
Tony Brewer, Group Chief Executive
Stephen Wilson, Group Finance Director


Investec Bank plc (Joint Corporate Broker) 
Tel: 020 7597 4000
Garry Levin / David Flin / Alex Wright



Arden Partners plc (Joint Corporate Broker)
Tel: 0121 423 8900/020 7614 5900
Jonathan Keeling / Steve Douglas / Catherine Miles



Buchanan (Financial PR and IR)
Tel: 020 7466 5000
Mark Court / Sophie Cowles / Catriona Flint

Notes for Editors
About Headlam
Headlam is engaged in the marketing, supply and distribution of an extensive range of floorcovering products. The group's activities and facilities are located throughout the UK,France, Switzerland and the Netherlands.
The group's operations are focused on providing customers, principally independent floorcovering retailers and contractors, with a comprehensive and up to date range of competitively priced floorcovering products supported by a next day delivery service. 
The approach provides Headlam's suppliers with an opportunity to achieve extensive market access backed by cost effective distribution. 
In order to offer this level of service to its customers and suppliers, Headlam has developed a diverse and autonomous operating structure that includes 56 businesses across the UK and a further five in continental Europe all trading under their individual brands.
The autonomous operating structure is a key contributor to the group's success, presenting experienced management teams with an opportunity to develop the individual identity, market presence and profitability of the business for which they are responsible. 
Each business is supported by the group's continued commitment to investment in people, product, operating infrastructure and IT. This commitment has underpinned the group's overall development and enabled Headlam to establish itself as Europe's leadingfloorcovering distributor. 
For further detail on our business please visit: www.headlam.com
Chairman's Statement
It is pleasing to report further progress during the first half of 2016 with group revenue increasing by 4.8% from 313.5 million to 328.7 million, reflecting the continued outperformance of our UK business, a modest improvement in our Continental European businesses and the ongoing delivery of our strategy to increase market share. 
In the UK, overall revenue growth was 4.3%, with like-for-like revenue increasing by 3.4% and an additional working day in the first half of 2016 adding additional growth of 0.9%.
During the year to date, we have continued to concentrate on developing and maintaining the group's operational excellence and achieving further benefits from the development of our infrastructure, staff and IT systems. 
The group's cash balances remain robust, with net funds at 30 June 2016 of 33.9 million, an increase of 30.4% compared with 26.0 million at 30 June 2015, despite the first half including the payment of a special dividend in April 2016 totalling 5.0 million and the repayment of 5.0 million on a term loan. The increase in net funds highlights the cash generative nature of the group's operations.
Earnings and dividend
Basic earnings per share increased by 23.1% from 11.7p to 14.4p compared with the first six months of 2015. As a result, the Board has decided to increase the interim dividend by 11.7% to 6.7p (H1 2015: 6.0p). The interim dividend will be paid on 3 January 2017 to shareholders on the register as at 2 December 2016.
UK operations
Business performance
The UK is by far the largest part of Headlam's business, representing 87.1% (H1 2015: 87.6%) of group revenue during the first half of the year. UK revenues in the first half were up 4.3% at 286.3 million (H1 2015: 274.6 million), which is comfortably ahead of the estimated market growth in 2016 of 3.2% forecast by AMA Research Ltd. 
The split of residential and commercial revenue moved slightly in favour of residential at 70%, with commercial at 30% (H1 2015: residential 69%, commercial 31%). Residential demand has been robust and the slight movement in the split is due to stronger residential growth during the first half.
On a like-for-like basis, the total commercial business grew by 0.4% (H1 2015: 6.1%) and residential by 4.7% (H1 2015: 5.0%). The lower growth rate in commercial against last year can be attributed, anecdotally at least, to the run-up to the referendum in June on the UK's membership of the European Union, which gave rise to some order deferral.
As we highlighted in our July 2016 Half Year Trading Update, the weakening of sterling following the referendum has increased the cost to the group of imported residential floorcoverings, which predominantly come from Belgium and the Netherlands. We have passed this increased cost on to our customers by introducing earlier this month an average price rise of 6% for these products. To date, we have not seen any adverse impact on residential revenues following these price increases.
The continuing resilience in residential revenues is in part owing to the affordability of a typical purchase by a residential end-user, who tends to replace carpets one room at a time with an average purchase size of 20 square metres. In contrast, a typical commercial purchase amounts to 200 square metres. In both cases, orders are processed in our distribution centres using sophisticated, computer-controlled picking, cutting and packing machines prior to delivery which is usually on the next day following receipt of the order.
The residential trend towards carpet colours based on a grey palette and the use of polypropylene and nylon yarns with a softer touch has continued and the increasing demand for luxury vinyl tile products has been maintained.
All of the group's principal product groups comprising carpets, residential vinyl, wood and laminate, luxury vinyl tile, commercial, rugs and underlay, showed growth over the same period last year.
Sales at Lifestyle Floors (http://www.lifestyle-floors.co.uk/home), the group's contemporary floorcovering brand continued to grow well compared with the first half last year.
During the first half we continued to develop the group's newest business, Headlam Corporate, which is targeting the specified commercial flooring market. The business, which has a showroom in London's Clerkenwell, is seeking to capitalise on the many opportunities of combining the extensive product portfolio of a number of our premium businesses, principally JHS, Crucial Trading and Kersaint Cobb.
The Headlam Corporate sales team has already visited 250 of the 500 architects' practices in the Clerkenwell area and is targeting projects ranging in size from 100 to 10,000 square metres with a typical order being between 250 and 750 square metres.
Investment
In the UK, the group operates with 56 businesses (H1 2015: 56) served from four national distribution hubs (H1 2015: 4), 14 regional distribution centres (H1 2015: 14) and 32 service centres (H1 2015: 29).
The three new service centres opened in the first half are in Croydon, Hull and Bristol and we anticipate opening a further three service centres in the second half, in Peterborough, Derby and Warrington.
This investment in the service centre network, which has a bias towards the commercial sector, is aimed at providing an enhanced service to our customers, and attracting new customers, through the establishment of readily accessible product collection points. 
The UK operations are structured into the five business sectors of regional multi-product, national multi-product, regional commercial, residential specialist and commercial specialist. 
We are making progress in the planned construction of the 160,000 square foot purpose built distribution centre in Ipswich for Faithfull's Floorcovering, one of our regional multi-product businesses. The cost of the land is approximately 3.2 million and the total cost of the project, including land cost, is expected to be around 15.0 million. In common with all of our other distribution centres, the Ipswich site will be owned on a freehold basis. Planning permission, approving the development of the facility, is expected towards the end of 2016 with construction commencing during early 2017 and the facility operational by the end of 2017 or early 2018. The new facility will enable Faithfull's to increase its presence and improve the level of customer service across the south east of England.
In addition to the expansion of our distribution infrastructure, we have continued to develop our IT and digital capabilities. Highlights in the first half have included the roll out of the driver app on the iPhone Plus which provides the delivery drivers with a comprehensive range of information aimed at increasing customer satisfaction and business efficiency.


Customers
Our market presence in independent floorcovering retailers and contractors continues to be enhanced through our ongoing product development with suppliers, resulting in the launch during the first half of 2,054 new products (H1 2015: 2,057) supported by 377,430 point of sale items (H1 2015: 414,498).
Continental Europe
Headlam's businesses in Continental Europe, which are located in the Netherlands, France and Switzerland, collectively achieved further progress during the first half. The businesses on the Continent represent a relatively modest part of Headlam's revenues, contributing 12.9% of group revenues in the first six months of the year at 42.4 million (H1 2015: 39.0 million).
Continental Europe's overall like-for-like revenues were up 2.8% at constant currency, 8.9% when translated into sterling, reflecting improvements in France and the Netherlands. Whilst revenues have continued to be a little more subdued in Switzerland, the business is still the most significant contributor to the combined Continental profitability.
Trading performance
Gross margin
Gross margin increased by 30 basis points from 29.7% to 30.0% during the period, the improvement being driven by favourable pricing and product mix. In absolute terms, gross margin increased by 5.6 million from 93.1 million to 98.7 million of which 1.1 million was attributable to pricing and mix.
Expenses
Distribution and administrative expenses increased by 3.2 million, up 4.1%, from 80.1 million to 83.3 million. People cost continues to be the single largest contributor to the overall increase, which at 2.7 million represents 83% of the total movement compared with the first half of 2015. A cost of living award implemented at the start of the year amounting to 2.5% accounts for 46.3% of the increase with the balance attributable to an increase in people numbers, 91, compared with the first half of 2015, recruited to support the organic growth.
Other expense increases tended to relate to the revenue improvement and in total amounted to 1.0 million. However, a one off currency gain of 0.5 million reduced the overall increase to 0.5 million.


Operating profit


000



Operating profit 2015
13,022
Gross margin improvement:


Volume benefit
4,492

Pricing benefit 
1,102


5,594
Expenses increase:


Distribution
(2,985)

Administration
(266)

Total increase
(3,251)



Operating profit 2016
15,365



Drop through rate as a percentage of incremental revenue
15.5%
Operating profit during the first six months of 2016 increased by 18.0% compared with 2015 with the operating margin improving from 4.2% to 4.7%. The drop through rate of additional operating profit arising from the additional revenue generated in 2016 compared with 2015 amounted to 15.5%. 
Cash flow
As highlighted in the table below, the movement in cash flows during the first six months of 2016 compared with 2015 amounted to a net outflow of 16.2 million.



000




Cash flow first half of 2015
986





Cash flow from operating activities
2,464

Working capital
(9,501)

Dividends
(5,741)

Taxation

(1,286)

Acquisitions
1,978

Movement in net debt
(4,921)

Other

798



(16,209)




Cash flow first half of 2016
(15,223)
The three principal contributors to the movement were the net working capital investment of 9.5 million, dividend payments of 5.7 million and a decrease in net debt of 4.9 million.
The working capital investment was simply due to re-establishing a normalised working capital position following the unusually favourable working capital reduction at 31 December 2015. 
The movement in dividend payments was a consequence of the special dividend payment during April and the reduction in debt due to a repayment of 5.0 million on the term loan.
The favourable acquisitions movement is due to the absence of further activity during the first half compared with the prior year when the group acquired Matty's Wholesale Carpets. We will continue to look at making additional acquisitions as opportunities arise.
Changes in net funds
As shown below, the group's net funds at 30 June 2016, 33.9 million, highlights further improvement compared to 26.0 million as at 30 June 2015. The contraction in net funds during the first half compared with the position at 31 December 2015 is not unusual and tends to be a typical feature of the first half cash flow.

At
1 January
2016
000
Cash
flows
000
Translation
differences
000
At
30 June 
2016
000





Cash at bank and in hand
63,932
(14,818)
184
49,298
Bank overdraft
-
(405)
(24)
(429)






63,932
(15,223)
160
48,869





Debt due within one year
-
(15,000)
-
(15,000)





Debt due after one year
(20,000)
20,000
-
-






43,932
(10,223)
160
33,869
The group's total bank facilities at 30 June 2016 amounted to 82.2 million of which 42.2 million is repayable on demand and 40.0 million relates to committed facilities which expire on 7 March 2017. Given the expiry date falls within the next twelve months, the amount drawn on the facility, 15.0 million, has been reclassified as a current liability in the Consolidated Interim Statement of Financial Position and therefore transferred from debt due after one year to debt due within one year in the table above. The group is satisfied that renewed facilities will be in place prior to 7 March 2017.
Principal risks and uncertainties
The board has ultimate responsibility for identifying and managing the effect of risk and uncertainty on the group's business, results and financial condition. Whilst the board maintains a policy of continuous identification and review, it nevertheless recognises that a number of risks and uncertainties lie beyond its control.
Currently, the key risks and uncertainties, which have potential to affect the group's operations are, market demand, competition, credit risk, IT failure, people, pension costs, legislation and regulation. The potential impact and mitigation of these risks and uncertainties are discussed in more detail on pages 38 and 39 of the 2015 Annual Report and Accounts.


Outlook
It is pleasing to report further progress during the first half of 2016, reflecting the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.
August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions. To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.
However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe. It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date.
Our market appears to be robust and, subject to the key trading period in the run-up to Christmas, the board remains confident of achieving full year expectations.

Statement of Directors' Responsibilities
We confirm to the best of our knowledge:







(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the European Union;
(b) the interim management report includes a fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
This report has been approved by the board of directors and signed on its behalf by
Tony Brewer
Group Chief Executive 
24 August 2016 


Condensed Consolidated Interim Income Statement
Unaudited

Note
Six months ended 
30 June 
2016
000
Six months ended 
30 June 
2015
000
Year ended
31 December 2015
000





Revenue
2
328,673
313,546
654,078
Cost of sales

(229,961)
(220,428)
(453,568)
Gross profit

98,712
93,118
200,510
Distribution expenses

(62,150)
(59,165)
(120,070)
Administrative expenses

(21,197)
(20,931)
(43,663)
Operating profit
2
15,365
13,022
36,777
Finance income
3
498
115
738
Finance expenses
3
(752)
(789)
(1,891)
Net finance costs

(254)
(674)
(1,153)
Profit before tax

15,111
12,348
35,624
Taxation
4
(3,022)
(2,500)
(7,213)
Profit for the period attributable to the equity
shareholders
2
12,089
9,848
28,411





Dividend paid per share
6
20.70p
17.50p
17.50p





Earnings per share




Basic
5
14.4p
11.7p
33.8p





Diluted
5
14.3p
11.7p
33.7p
All group operations during the financial periods were continuing operations.


Condensed Consolidated Interim Statement of Comprehensive Income
Unaudited

Six months
ended 
30 June
2016
000
Six months
ended 
30 June
2015
000
Year ended 
31 December
2015
000
Profit for the period attributable to the equity
 shareholders
12,089
9,848
28,411




Other comprehensive income:



Items that will never be reclassified to profit or loss



Re-measurement of defined benefit plans
908
2,039
1,292
Related tax
(61)
(396)
(554)

847
1,643
738
Items that are or may be reclassified to profit or loss



Foreign exchange translation differences arising on
 translation of overseas operations
778
(132)
6
Effective portion of changes in fair value of cash flow hedges
362
(14)
(556)
Transfers to profit or loss on cash flow hedges
205
63
172
Related tax
(102)
(12)
58

1,243
(95)
(320)




Other comprehensive income for the period
2,090
1,548
418




Total comprehensive income attributable to the equity shareholders for the period
14,179
11,396
28,829


Condensed Consolidated Interim Statement of Financial Position
Unaudited


At
30 June 
2016
000
At
30 June 
2015
000
At
31 December 2015
000
Assets




Non-current assets




Property, plant and equipment

100,749
102,581
101,263
Intangible assets

10,388
10,013
10,388
Deferred tax assets

1,981
2,509
2,238


113,118
115,103
113,889
Current assets




Inventories

128,029
122,598
119,143
Trade and other receivables

123,499
119,714
120,154
Cash and cash equivalents

49,298
49,061
63,932


300,826
291,373
303,229
Total assets

413,944
406,476
417,118





Liabilities




Current liabilities




Bank overdraft

(429)
(393)
-
Other interest-bearing loans and borrowings

(15,000)
(2,681)
-
Trade and other payables

(172,300)
(168,983)
(172,701)
Dividends payable

(12,368)
(10,300)
-
Employee benefits

(2,135)
(2,980)
(2,171)
Income tax payable

(5,640)
(5,514)
(6,974)


(207,872)
(190,851)
(181,846)
Non-current liabilities




Other interest-bearing loans and borrowings

-
(20,000)
(20,000)
Employee benefits

(15,301)
(15,842)
(16,843)


(15,301)
(35,842)
(36,843)
Total liabilities

(223,173)
(226,693)
(218,689)
Net assets

190,771
179,783
198,429





Equity attributable to equity holders




of the parent




Share capital

4,268
4,268
4,268
Share premium

53,512
53,512
53,512
Other reserves

1,076
(1,632)
(275)
Retained earnings

131,915
123,635
140,924
Total equity

190,771
179,783
198,429


Condensed Consolidated Interim Statement of Changes in Equity 
Unaudited

Share
capital
000
Share
premium
000
Capital
redemption
reserve
000
Translation
reserve
000
Cash flow hedging reserve 000
Treasury
reserve
000
Retained
earnings
000
Total
equity
000









Balance at 
 1 January 2016
4,268
53,512
88
5,429
(516)
(5,276)
140,924
198,429
Profit for the period attributable to the equity shareholders
-
-
-
-
-
-
12,089
12,089
Other comprehensive income
-
-
-
778
567
-
745
2,090
Total comprehensive income for the period
-
-
-
778
567
-
12,834
14,179









Transactions with equity shareholders, recorded directly in equity








Share-based payments
-
-
-
-
-
-
714
714
Share options exercised by employees
-
-
-
-
-
6
(2)
4
Current tax on share options
-
-
-
-
-
-
2
2
Deferred tax on share options 
-
-
-
-
-
-
(93)
(93)
Dividends to equity holders
-
-
-
-
-
-
(22,464)
(22,464)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
6
(21,843)
(21,837)
Balance at 
 30 June 2016
4,268
53,512
88
6,207
51
(5,270)
131,915
190,771


Condensed Consolidated Interim Statement of Changes in Equity continued
Unaudited

Share
capital
000
Share
premium
000
Capital
redemption
reserve
000
Translation
reserve
000
Cash flow
hedging
reserve
000
Treasury
reserve
000
Retained
earnings
000
Total
equity
000









Balance at 
 1 January 2015
4,268
53,512
88
5,423
(132)
(7,100)
126,018
182,077
Profit for the period attributable to the equity shareholders
-
-
-
-
-
-
9,848
9,848
Other comprehensive income
-
-
-
(132)
49
-
1,631
1,548
Total comprehensive income for the period
-
-
-
(132)
49
-
11,479
11,396









Transactions with equity shareholders, recorded directly in equity








Share-based payments
-
-
-
-
-
-
557
557
Share options exercised by employees
-
-
-
-
-
172
(19)
153
Deferred tax on share options 
-
-
-
-
-
-
255
255
Dividends to equity holders
-
-
-
-
-
-
(14,655)
(14,655)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
172
(13,862)
(13,690)
Balance at 
 30 June 2015
4,268
53,512
88
5,291
(83)
(6,928)
123,635
179,783


Condensed Consolidated Interim Statement of Changes in Equity continued
Unaudited

Share
capital
000
Share
premium
000
Capital
redemption
reserve
000
Translation
reserve
000
Cash flow
hedging
reserve
000
Treasury
reserve
000
Retained
earnings
000
Total
equity
000









Balance at 
 1 January 2015
4,268
53,512
88
5,423
(132)
(7,100)
126,018
182,077
Profit for the period attributable to the equity shareholders
-
-
-
-
-
-
28,411
9,848
Other comprehensive income
-
-
-
6
(384)
-
796
1,548
Total comprehensive income for the period
-
-
-
6
(384)
-
29,207
11,396









Transactions with equity shareholders, recorded directly in equity








Share-based payments
-
-
-
-
-
-
1,100
1,100
Share options exercised by employees
-
-
-
-
-
1,824
(819)
1,005
Current tax on share options
-
-
-
-
-
-
95
95
Deferred tax on share options 
-
-
-
-
-
-
(22)
(22)
Dividends to equity holders
-
-
-
-
-
-
(14,655)
(14,655)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
1,824
(14,301)
(12,477)
Balance at 
 31 December 2015
4,268
53,512
88
5,429
(516)
(5,276)
140,924
198,429


Condensed Consolidated Interim Cash Flow Statements
Unaudited


Six months ended 
30 June 2016
000
Six months ended 
30 June 2015
000
Year ended 
31 December
2015
000
Cash flows from operating activities




Profit before tax for the period

15,111
12,348
35,624
Adjustments for:




Depreciation, amortisation and impairment

2,389
2,422
5,179
Finance income

(498)
(115)
(738)
Finance expense

752
789
1,891
Profit on sale of property, plant and equipment

(11)
(8)
(31)
Share-based payments

714
557
1,100
Operating profit before changes in working capital and other payables

18,457
15,993
43,025
Change in inventories

(7,682)
(5,506)
(1,827)
Change in trade and other receivables

(4,251)
(725)
(1,524)
Change in trade and other payables

166
3,965
7,270
Cash generated from the operations

6,690
13,727
46,944
Interest paid

(487)
(461)
(1,268)
Tax paid

(4,306)
(3,020)
(6,245)
Additional contributions to defined benefit plan

(1,121)
(1,447)
(2,925)
Net cash flow from operating activities

776
8,799
36,506
Cash flows from investing activities




Proceeds from sale of property, plant and equipment

37
119
277
Interest received

512
95
726
Acquisition of subsidiaries, net of cash acquired

-
(1,978)
(1,977)
Acquisition of property, plant and equipment

(1,456)
(1,768)
(2,856)
Net cash flow from investing activities

(907)
(3,532)
(3,830)
Cash flows from financing activities




Proceeds from the issue of treasury shares

4
153
1,005
Repayment of borrowings

(5,000)
(79)
(2,817)
Dividends paid

(10,096)
(4,355)
(14,655)
Net cash flow from financing activities

(15,092)
(4,281)
(16,467)
Net (decrease)/increase in cash and cash equivalents

(15,223)
986
16,209
Cash and cash equivalents at 1 January

63,932
47,589
47,589
Effect of exchange rate fluctuations on cash held

160
93
134
Cash and cash equivalents at end of period

48,869
48,668
63,932


Notes to the Condensed Consolidated Interim Financial Statements
Unaudited
1 BASIS OF REPORTING
Reporting entity
Headlam Group plc, the "company", is a company incorporated in the UK. The Condensed Consolidated Interim Financial Statements consolidate those of the company and its subsidiaries which together are referred to as the "group" as at and for the six months ended 30 June 2016. 
The Consolidated Financial Statements of the group as at and for the year ended 31 December 2015 are available upon request from the company's registered office or the website.
The comparative figures for the financial year ended 31 December 2015 are not the group's statutory accounts for that financial year. Those accounts have been reported on by the group's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by the auditor pursuant to the Auditing Practices Board's Guidance on Financial Information. 
Statement of compliance
These Condensed Consolidated Interim Financial Statements have been prepared and approved by the directors in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the group as at and for the year ended 31 December 2015.
These Condensed Consolidated Interim Financial Statements were approved by the board of directors on 24 August 2016.
Significant accounting policies
As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the group's published Consolidated Financial Statements for the year ended 31 December 2015, except as explained below.
Impacts of standards and interpretations in issue but not yet effective
The following standards and interpretations, which were not effective as at 30 June 2016 and have not been early adopted by the group, will be adopted in future accounting periods:
 International Financial Reporting Standard (IFRS) 15 'Revenue from contracts with customers' (effective 1 January 2018)
 International Financial Reporting Standard (IFRS) 9 'Financial instruments' (effective 1 January 2018)
 International Financial Reporting Standard (IFRS) 16 'Leases' (effective 1 January 2019)
 Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38.
 Equity Method in Separate Financial Statements - Amendments to IAS 27
 Disclosure Initiative - Amendments to IAS 1
 Annual Improvements to IFRSs - 2012 -2014 Cycle.
The Directors anticipate that adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the group.
Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
1 BASIS OF REPORTING - continued
Going concern
The group's business activities, together with the factors likely to affect its future development, performance and position are described in the Chairman's Statement.
The directors have reviewed current performance and forecasts, combined with borrowing facilities and expenditure commitments, including capital expenditure, pensions and proposed dividends. After making enquiries, the directors have a reasonable expectation that the group has adequate financial resources to continue its current operations, including contractual and commercial commitments for the foreseeable future. For these reasons, the going concern basis has been adopted in preparing the financial statements. 
Bank facilities at 30 June 2016

Committed credit facilities
Uncommitted credit facilities
Total facilities

 million
 million
 million
Drawn funds
15.0
0.4
15.4
Undrawn funds
25.0
41.8
66.8

40.0
42.2
82.2
The group will renew the terms of its banking facilities by March 2017 and therefore the committed credit facilities drawn funds of 15 million are shown on the Consolidated Interim Statement of Financial Position as due within one year.
Estimates 
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2015.
Risks and uncertainties
The risk factors which could cause the group's results to differ materially from expected results and the result of the board's review of those risks are set out in the Chairman's Statement.

Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
2 SEGMENT REPORTING
The group has 56 operating segments in the UK and five operating segments in Continental Europe. Each segment represents an individual trading operation and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products. The operating results of each operation are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Group Chief Executive. Discrete financial information is available for each segment and used by the Group Chief Executive to assess performance and decide on resource allocation. 
The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments. This distinction is embedded in the construction of operating reports reviewed by the Group Chief Executive, the board and the executive management team and forms the basis for the presentation of operating segment information given below.

UK
Continental Europe
Total

30 June
2016
000
30 June
2015
000
31 December
2015
000
30 June
2016
000
30 June
2015
000
31 December
2015
000
30 June
2016
000
30 June
2015
000
31
December
2015
000
Revenue









External revenues
286,260
274,587
575,341
42,413
38,959
78,737
328,673
313,546
654,078




















Reportable segment operating profit
15,504
13,786
37,363
528
206
575
16,032
13,992
37,938




















Reportable segment assets 
255,194
247,961
257,984
34,333
30,720
34,067
289,527
278,681
292,051










Reportable segment liabilities
(156,387)
(154,039)
(158,859)
(16,342)
(15,254)
(13,326)
(172,729)
(169,293)
(172,185)
During the periods shown above there have been no inter-segment revenues for the reportable segments (2015: nil).
Reconciliations of reportable segment profit, assets and liabilities and other material items:




30 June
2016
000
30 June
2015
000
31 December
2015
000
Profit for the period






Total profit for reportable segments


16,032
13,992
37,938
Unallocated expense



(667)
(970)
(1,161)







Operating profit



15,365
13,022
36,777







Finance income



498
115
738
Finance expense



(752)
(789)
(1,891)







Profit before taxation



15,111
12,348
35,624
Taxation



(3,022)
(2,500)
(7,213)







Profit for the period



12,089
9,848
28,411







Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
2 SEGMENT REPORTING - continued


30 June
2016
000
30 June
2015
000
31 December
2015
000
Assets





Total assets for reportable segments

289,527
278,681
292,051
Unallocated assets:





Properties, plant and equipment


91,637
95,403
89,828
Deferred tax assets


1,981
2,509
2,238
Cash and cash equivalents


30,747
29,883
33,001
Derivative assets


52
-
-






Total assets


413,944
406,476
417,118






Liabilities





Total liabilities for reportable segments

(172,729)
(169,293)
(172,185)
Unallocated liabilities:





Employee benefits


(17,436)
(18,822)
(19,014)
Other interest-bearing loans and borrowings


(15,000)
(22,681)
(20,000)
Income tax payable


(5,640)
(5,514)
(6,974)
Proposed dividend


(12,368)
(10,300)
-
Derivative liabilities


-
(83)
(516)






Total liabilities


(223,173)
(226,693)
(218,689)







UK
Continental Europe
Reportable segment
total
Unallocated
Consolidated total

000
000
000
000
000
Other material items 30 June 2016





Capital expenditure
991
412
1,403
53
1,456
Depreciation
1,108
276
1,384
1,005
2,389






Other material items 30 June 2015





Capital expenditure
1,142
309
1,451
317
1,768
Depreciation
1,147
261
1,408
1,014
2,422






Other material items 31 December 2015





Capital expenditure
2,064
543
2,607
287
2,894
Depreciation
2,246
538
2,784
2,020
4,804
Amortisation
-
-
-
375
375
In the UK the group's freehold properties are held within Headlam Group plc and a rent is charged to the operating segments for the period of use. Therefore, the operating reports reviewed by the Group Chief Executive show all the UK properties as unallocated and the operating segments report a segment result that includes a property rent. This is reflected in the above disclosure.
Each segment is a continuing operation.

Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
2 SEGMENT REPORTING - continued
The Group Chief Executive, the board and the senior executive management team have access to information that provides details on revenue by principal product group for the two reportable segments, as set out in the following table:

UK
Continental Europe
Total

30 June
2016
000
30 June
2015
000
31 December
2015
000
30 June
2016
000
30 June
2015
000
31 December
2015
000
30 June
2016
000
30 June
2015
000
31 December
2015
000
Revenue









Residential
200,610
189,972
399,453
20,777
19,345
40,281
221,387
209,317
439,734
Commercial
85,650
84,615
175,888
21,636
19,614
38,456
107,286
104,229
214,344











286,260
274,587
575,341
42,413
38,959
78,737
328,673
313,546
654,078
3 FINANCE INCOME AND EXPENSE

Six months
ended 
30 June
2016
000
Six months
ended 
30 June
2015
000
Year ended 
31 December 2015
000
Interest income:



Bank interest
243
115
699
Other
255
-
39
Finance income
498
115
738




Interest expense:



Bank loans, overdrafts and other financial expenses
(449)
(356)
(1,150)
Net change in fair value of cash flow hedges transferred from equity
(23)
(63)
(125)
Net interest on defined benefit plan obligation
(280)
(310)
(616)
Other
-
(60)
-
Finance expenses
(752)
(789)
(1,891)


Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
4 TAXATION
The group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2016 was 20% (for the six months ended 30 June 2015: 20.25%; for the year ended 31 December 2015: 20.25%).
Reductions in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. A further reduction to 17% (effective from 1 April 2020) was announced in the Budget on 16 March 2016. This will reduce the company's future current tax charge accordingly. The deferred tax asset at 30 June 2016 has been calculated based on the rate of 18% substantively enacted at the balance sheet date.
5 EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:

Six months
ended 
30 June
2016
000
Six months
ended 
30 June
2015
000
Year ended 
31 December 2015
000
Earnings



Earnings for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent
12,089
9,848
28,411





2016
2015
2015
Number of shares



Issued ordinary shares at end of period
85,363,743
85,363,743
85,363,743
Effect of shares held in treasury
(1,330,565)
(1,501,893)
(1,331,576)




Weighted average number of ordinary shares for the purposes of basic earnings per share
84,033,178
83,861,850
84,032,167




Effect of diluted potential ordinary shares:



Weighted average number of ordinary shares at period end
84,033,178
83,861,850
84,032,167
Dilutive effect of share options
617,808
402,528
282,078




Weighted average number of ordinary shares for the purposes of diluted earnings per share
84,650,986
84,264,378
84,314,245


Notes to the Condensed Consolidated Interim Financial Statements continued
Unaudited
6 DIVIDENDS

Six months ended
30 June
2016
000
Six months ended
30 June 
2015
000
Year ended
31 December 2015
000




Interim dividend for 2015 of 6.0p paid 2 January 2016
5,048
-
-
Special dividend for 2015 of 6.0p paid 25 April 2016
5,048
-
-
Final dividend for 2015 of 14.7p proposed
12,368
-
-
Interim dividend for 2014 of 5.2p paid 2 January 2015
-
4,355
4,355
Final dividend for 2014 of 12.3p proposed
-
10,300
10,300

22,464
14,655
14,655
The final proposed dividend for 2015 of 14.7p per share was authorised by shareholders at the Annual General Meeting on 20 May 2016 and paid on 1 July 2016. The final proposed dividend for 2014 of 12.3p per share was authorised by shareholders at the Annual General Meeting on 21 May 2015 and paid on 1 July 2015.
7 CAPITAL COMMITMENTS
As at 30 June 2016, the group had contractual commitments relating to the purchase of property, plant and equipment of 408,000 (30 June 2015: 371,000, 31 December 2015: 728,000). 
8 RELATED PARTIES
The group has a related party relationship with its subsidiaries and with its key management. There have been no changes to the nature of related party transactions entered into since the last annual report.
9 SUBSEQUENT EVENTS
Management have given due consideration to any events occurring in the period from the reporting date to the date these Interim Financial Statements were authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these Interim Financial Statements. 

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The company news service from the London Stock Exchange
  END
IR AKNDPABKDBFB