REG - Headlam Group PLC - Preliminary Results <Origin Href="QuoteRef">HEAD.L</Origin> - Part 1
RNS Number : 8732QHeadlam Group PLC03 March 20163 March 2016
Headlam Group plc
("Headlam" or "the group")
Preliminary Results for the year ended 31 December 2015
Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor, is pleased to announce its preliminary results for the year ended 31 December 2015.
Key financials
Revenue up 3.0% to 654.1 million (2014: 635.2 million)
Operating profit up 16.9% to 36.8 million (2014: 31.5 million)
Profit before tax of 35.6 million up 17.6% (2014: 30.3 million)
Earnings per share up 18.2% to 33.8 pence (2014: 28.6 pence)
Total ordinary dividends paid and proposed up 18.3% to 20.70 pence (2014: 17.50 pence)
Net funds increased by 19.3 million to 43.9 million as at 31 December 2015(31 December 2014: 24.6 million)
Highlights
The board has declared a special dividend of 6.0 pence to be paid on 25 April 2016
Further gains achieved in UK market share, with like-for-like revenues increasing by 3.9% and total UK revenuesincreasing by 4.9%, exceeding the 2015 forecast market growth of 3.4% (Source: AMA Research Limited)
Acquisition of Matty's Wholesale Carpets in January 2015 for 2.0 million, bringing the total number of UK businesses to 56
London showroom opened in Clerkenwell to support Headlam Corporate, a new business unit targeting specified commercial flooring
Tony Brewer, Headlam's Group Chief Executive, said:
"2015 was another year of revenue, profit and market share growth at Headlam and a year of significant cash generation. Given that the current cycle of large capital expenditure is more or less complete, with just the construction of the Ipswich distribution facility remaining, the board has elected to return cash to shareholders by way of a special dividend of 6.0 pence per share."
"Trading in the current year has started well, with like for like growth in the UK of 6.3% during the first eight weeks of the year. We are confident that the group will continue to perform well during the year ahead."
Enquiries:
Headlam Group plc
Tony Brewer, Group Chief Executive Tel: 01675 433000
Stephen Wilson, Group Finance DirectorInvestec Bank plc (Joint Corporate Broker) Tel: 020 7597 4000
Garry Levin / David Flin / Josh LevyArden Partners plc (Joint Corporate Broker) Tel: 0121 423 8900
Jonathan Keeling / Steve DouglasBuchanan Tel: 020 7466 5000
Mark Court / Helen ChanNotes 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 please visit: www.headlam.com
Chairman's Statement
I am pleased to report that 2015 was another year of good progress at Headlam. It was a year that delivered good growth in revenues and profitability, reflecting positive trends in the group's marketplace in the UK along with further progress in the delivery of the group's strategy.
A particular feature of these results is the significant increase in year-end cash balances, demonstrating the ability of our business to benefit from previous capital expenditure and generate significant cash flow. As the current capital expenditure programme is now largely complete, it has been decided to return some of the group's surplus cash to shareholders as a special dividend.
Overview
Group revenues in the year were up 3.0% at 654.1 million. In the UK, which represented 88% of group sales in the year, revenues were up 4.9% at 575.3 million, reflecting organic and acquisitive growth.
On a like for like basis, UK revenues were up 3.9% at 570.0 million. The growth in the second half was less than the first half increase of 5.4%, reflecting in part strong second half comparatives in 2014. The group has again delivered organic growth in excess of the UK floorcoverings market, which for 2015 is forecast to be 3.4% (Source: AMA Research Limited).
Revenues from the Continental European businesses were down 3.8% in constant currency at 83.6 million. The second half decrease of 2.7% was less than the first half decrease of 4.8%, indicating that trading had begun to stabilise and improve. On translation to sterling, Continental European revenues were down 9.3% at 78.7 million. Whilst European markets remain challenging for the group, they represent a decreasing proportion of group revenues, at just 12.0% during 2015 (2014: 13.7%). Since the year end, the aggregate revenue performance from the three Continental territories, France, Switzerland and the Netherlands, in constant currency, has improved by 1.5%.
One bolt-on acquisition was completed during the year, Matty's Wholesale Carpets, a Midlands-based distributor of residential floorcoverings to independent flooring retailers. The acquisition, completed on 30 January 2015, has been earnings enhancing. The group continues to evaluate potential bolt-on acquisitions in line with its growth strategy. The group also continued to invest in the development of its operations, including the opening of a showroom in Clerkenwell, London, as a marketing base for Headlam Corporate, a new business unit targeting specifiers of commercial flooring. The group also added to its network of service centres, opening a new service centre in Cheltenham in July 2015. During March 2016, two additional service centres are expected to open in Croydon and Hull which would bring the total to 31.
Earnings and ordinary dividend
Basic earnings per share for the year increased by 18.2% to 33.8 pence (2014: 28.6 pence), reflecting an increase of 17.6% in the group's profit before tax to 35.6 million.
The board is proposing to increase the final ordinary dividend by 19.5% from 12.30 pence to 14.70 pence resulting in a total ordinary dividend for the year of 20.70p, which represents an increase on 2014 of 18.3%. The final dividend, if approved by shareholders at the group's Annual General Meeting ("AGM"), will be paid on 1 July 2016 to shareholders on the register at close of business on 3 June 2016.
Special dividend
Throughout the downturn in the UK floorcoverings market between 2008 and 2011, the group continued to invest in its infrastructure, particularly in its distribution centre network. This capital expenditure programme, which has positioned the group to benefit from operational gearing as markets improve, is now largely complete. The final significant investment, currently intended as previously announced, is a major distribution centre in Ipswich with an estimated project cost of 13.5 million. Construction of this project has been delayed as a result of the planning process but work is now expected to begin in the latter half of this year.
The revised timing for the construction of the Ipswich facility, and its effect on the amount of capital expenditure this year has created the opportunity to pay a special dividend, which the board believes is the best way to return surplus capital to shareholders. The board has therefore declared that a special dividend of 6.0 pence per ordinary share shall be paid on 25 April 2016 to shareholders on the register at 8 April 2016.
Governance and board
We continue to promote a culture of openness and transparency and encourage participation and contribution from all our board members. The board recognises the value derived from good governance and the setting of high standards, not least in the confidence it brings to our shareholders, management, employees, suppliers and customers.
On 31 May 2015, after serving over nine years as a non-executive director Mike O'Leary resigned from the board. On behalf of the board, I would like to thank Mike for his commitment and participation and we wish him well for the future. Philip Lawrence was appointed to the board with effect from 1 June 2015, at which time he was appointed as a member of the remuneration and nomination committees and chairman of the audit committee. Also, with effect from 1 June 2015, Andrew Eastgate stepped down as chairman of the audit committee and was appointed chairman of the remuneration and nomination committees and senior independent director.
Following a competitive tender process and a recommendation from the audit committee, the board has invited PricewaterhouseCoopers LLP ("PwC") to accept appointment as auditor in respect of the group's accounts for the year ended 31 December 2016. The appointment is in line with guidance in the 2014 Corporate Governance Code. The board would like to thank KPMG for their services to the group since 1992 and look forward to working with PwC in the future.
Employees and shareholders
Once again, our employees' commitment and determination has been pivotal to the continued success of the group. Thank you to all our employees across the group for their dedication and hard work and our shareholders for their continuing support.
Dick Peters
Chairman
3 March 2016Chief Executive's Review
Our Strategy
The group continues to follow a strategy focused on developing its floorcovering distribution business in the UK and Continental Europe and improving the all-round service offering it provides to customers.
The group's size and structure provides a unique competitive advantage allowing it to deliver a range of benefits, including continuous product development, wide and diverse product portfolio, extensive marketing support and next day distribution services, all of which are aimed at supporting and enhancing its customers' market position.
Development of the group's overall business is achieved by operating each of the group's 56 businesses on an autonomous basis and encouraging the managers of each individual business to develop their own unique trading style, albeit within a well-developed and consistently applied framework of operational and financial control.
This diverse business structure, particularly in the UK, covering the retail and commercial sectors, gives the group substantial reach across floorcovering markets and provides suppliers with a flexible channel for the sales, marketing and distribution of their products.
In addition, the structure has allowed the group to be active with a wide and diverse product portfolio across a significant proportion of the floorcovering market and will, to a degree, help insulate the business from the downside risk arising from static or contracting markets.
In the UK, the business operates with 56 businesses (2014: 55) served from four national distribution hubs (2014: 4), 14 distribution centres (2014: 14) and 29 service centres (2014: 27).
Each individual business is supported by the group's commitment to continued investment in people, product, marketing, distribution facilities, service centres and IT. This structural investment, in conjunction with the development of the identity of each individual business, has enabled us to bring together the benefits of a market facing culture delivering the latest selling, marketing and product initiatives with a comprehensive and sophisticated logistics operation.
Ultimately, the total investment has underpinned the growth and performance of each business thus enabling the group to establish itself as Europe's leading floorcovering distributor.
Performance
One of the group's key performance objectives is aimed at achieving growth in market share. We drive this growth by setting each of our individual businesses, in conjunction with the management teams, an annual growth parameter, which is collectively set to outperform the anticipated underlying growth in the market.
Once again, it is pleasing to record that the group's growth in UK revenue during 2015, as has consistently been the case for a number of years, outperformed growth in the UK floorcovering market with the like for like growth of 3.9% exceeding the estimated market growth in 2015 of 3.4%. The increase in like for like revenue reflected slightly stronger growth in residential, up 4.1%, compared with commercial up 3.5%. The revenue mix between residential and commercial floorcoverings in the UK has remained broadly at the same level for a number of years, and 2015 maintained the balance at 69% and 31% respectively.
The resilience of residential sales is in part because a typical purchase by a residential end-user is of one piece of carpet at an average size of 4m by 5m. It is well-established that people in the UK tend to replace carpets one room at a time, helping with the affordability of the purchase. The trend towards grey coloured carpeting has continued and, of the new best-selling carpet products launched during the year, grey carpet accounted for about 40% of the content of each range in the middle to higher price points.
All of the group's principal product groups showed growth on the corresponding period. Sales of the Lifestyle Floors brand increased by 28% as a result of further investment in sampling, an improving product profile and increased market penetration.
On the Continent, economic headwinds continue to influence performance and the overall trading result has registered a further decline during the year. It is encouraging that the rate of decline slowed in the second half with the markets showing signs of stabilisation. We continue to believe that there are opportunities to develop each individual business irrespective of the market conditions in each individual territory. Gross margins continue to be protected and costs managed diligently. As ever, additional revenue volume would transform the operating performance of these businesses.
During the year, we have maintained our investment in people, marketing, infrastructure and the promotion and development of each of our individual business identities. We continue to provide extensive marketing support to our customers and, through our well trained and knowledgeable sales teams, seek to gain an increasing share of their business opportunities. In addition, our teams are also focused on prospecting for new customers and business opportunities.
Developments in the year included a new buyers app for use on an iPad to promote group-wide best practice and an iPhone based driver delivery app to further improve customer service.
Investments
Over the six year period from 2010 to 2015, we have used the group's balance sheet strength, allied with its positive cash flow, to invest 39.1 million in property, plant and equipment with a further 19.7 million expenditure forecast for 2016 and 2017. This level of capital expenditure has been running, on average, at a rate of 1.5 times depreciation.
Expenditure on property, plant and equipment during 2015 was 2.9 million, with the investment being focused on maintenance covering items such as fork lift trucks and racking. Expenditure for 2016 was previously forecast to be 18.0m, a significant portion of which was earmarked for the new 160,000 square foot distribution facility in Ipswich for Faithfull's Floorcovering, one of the group's regional multi-product businesses. Owing to delays to the start of construction at Ipswich, which is now expected in the latter half of 2016, projected expenditure is expected to be 13.5 million over the course of 2016 and 2017.
Once the Ipswich distribution facility is fully operational, the group will have a well invested portfolio of four national distribution hubs and 14 regional distribution centres in the UK as well as four distribution centres on the Continent. These facilities should be able to satisfy the group's capacity requirements and growth expectations for a number of years and there should be no requirement for further investment in additional or replacement distribution facilities in this time frame.
During recent years, we have supplemented our distribution network in the UK with a number of service centres with the aim of improving customer service by making product more readily available. This type of investment is particularly helpful for customers who prefer to collect their product needs as opposed to relying on our delivery service.
During the year, we continued to expand the number of service centres we operate across the UK and at the end of the year they numbered 29. The provision of trade counters is also offered within our distribution centres thereby bringing the number of collection points in the UK to 44. There are still some locations that would benefit from the opening of a service centre and we anticipate expanding our coverage in the future, subject to the availability of suitable sites. The opening of two new service centres in Croydon and Hull is imminent.
Acquisitions
We intend to continue to utilise our capital resource to augment the group's growth with further acquisitions. We have a history of quickly and successfully integrating small bolt-on acquisitions into our existing infrastructure, achieving overhead synergies and an earnings enhancing performance.
During the year, we acquired Matty's Wholesale Carpets, and integrated its operations into our distribution facility in Coleshill. The acquisition has been immediately earnings enhancing and the group has also benefited in 2015 from acquisitions completed in the prior year.
Prospects
Trading in the current year has started well, with like for like growth in the UK of 6.3% during the first eight weeks of the year. We are confident that the group will continue to perform well during the year ahead.
Tony Brewer
Group Chief Executive
3 March 2016Financial Review
Revenue
During the year, group revenue increased by 18.9 million from 635.2 million to 654.1 million.
As highlighted in the table below, the group's UK organic growth of 3.9% once more outperformed the annual market growth, which for 2015 was forecast to be 3.4% (Source: AMA Research Limited). The contribution from the UK acquisitions completed during 2014 in addition to the acquisition of Matty's Wholesale Carpets, completed during 2015, amounted to 5.4 million bringing the total revenue increase in the UK to 4.9%, an improvement of 26.9 million on the previous year.
The combined revenue performance from the Continental European businesses showed further contraction during the year, declining by 3.8% on a like for like basis which, once translated into sterling, showed a reduction of 9.3% for the year.
000
%
000
%
Revenue for the year ended 31 December 2014:
UK
548,393
86.3
Continental Europe
86,849
13.7
635,242
100.0
Movement:
UK organic growth
21,571
3.9
UK acquisitions
5,376
-
26,948
4.9
Contraction in Continental Europe
(3,265)
-3.8
Translation effect
(4,847)
-
(8,112)
-9.3
Total movement
18,836
3.0
Revenue for the year ended 31 December 2015:
UK
575,341
88.0
Continental Europe
78,737
12.0
654,078
100.0
As a result of the increase in UK revenues and a contraction on the Continent during 2015, the proportion of group revenue from the UK increased from 86.3% to 88.0%.
Gross margin
The group's gross margin increased during the year from 30.0% to 30.7%, with three factors contributing to the 0.7% improvement. Firstly a reduction in the cost of goods purchased provided a gain of 17 basis points, secondly, an improvement in volume related purchase rebates generated an improvement of 22 basis points and thirdly, one-off benefits, which are unlikely to repeat during 2016 and beyond, amounting to 31 basis points and totalling 2.0 million, were secured during the year, principally in connection with the appreciation of sterling against the euro.
Expenses
During the year, distribution and administrative expenses increased by 4.6 million, up 2.9% from 159.1 million to 163.7 million. The mix of distribution to administration cost remained broadly unchanged finishing the year at 73.3%:26.7%. People cost in isolation was the largest increase, amounting to 48.4% of the gross cost increase before currency translation. Just over a third of the increase in people cost was offset by the gains arising from the reduction in fuel cost of 1.0 million.
Total
Distribution
Administration
000
%
000
%
000
%
2014 expenses
159,078
117,458
73.8
41,620
26.2
Significant movements:
People cost
2,979
48.4
3,251
86.4
(272)
-11.3
Fuel
(1,011)
-16.4
(974)
-25.9
(37)
-1.5
Sampling investment
747
12.1
747
19.9
-
-
Bad debts
483
7.8
483
12.8
-
-
IT
1,289
20.9
-
-
1,289
53.8
Occupancy
673
10.9
-
-
673
28.1
Share costs
408
6.6
-
-
408
17.0
Intangibles
375
6.1
-
-
375
15.6
Other
218
3.5
256
6.8
(38)
-1.6
6,161
100.0
3,763
100.0
2,398
100.0
Currency translation
(1,506)
(1,151)
(355)
2015 expenses
163,733
120,070
73.3
43,663
26.7
Elsewhere, the continued investment in sampling, IT and the expansion of the service centre infrastructure generated combined cost increases of 2.7 million. The need to impair receivables, an increase in the cost of share based payments, and the intangible cost relating to the acquisition of Matty's Wholesale Carpets created an additional increase of 1.3 million. The currency effect of translating the overseas businesses reduced the gross cost increase by 1.5 million.
Operating profit
000
Operating profit 2014
31,462
Gross margin improvement:
Volume benefit
5,650
Pricing benefit
4,320
9,970
Expenses increase:
Distribution
(2,612)
Administration
(2,043)
Total increase
(4,655)
Operating profit 2015
36,777
Drop through rate as a percentage of incremental revenue
28.2%
EBITDA 2014
36,362
EBITDA 2015
41,956
Increase
15.4%
Operating profit during 2015 increased by 16.9% compared with 2014 with the operating margin improving from 5.0% to 5.6%, reflecting the increase in gross margin and operational gearing generated on the higher revenue base. The operating margin generated by the incremental year on year revenue improvement amounted to 28.2%.
Tax
The effective underlying rate of taxation reduced to 20.25% during the year, reflecting the decrease in UK headline corporation tax rate and also the further future reductions, already enacted, that impact upon deferred taxation. The anticipated effective underlying rate for 2016 is expected to reduce to 20% due to further UK rate reductions which have been enacted.
During the period, the board approved a tax strategy which is aligned to the group's overall strategic aims and values. The strategy sets out the group's approach to tax, including the tax governance framework, attitude to tax risk and its relationship with tax authorities.
The group 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 group maintains an open and honest relationship with HM Revenue & Customs and currently operates with a level of tax compliance risk that is rated as "low".
The group does not undertake any form of artificial tax planning but does seek to maximise tax reliefs available, for example by making capital allowance claims on fixed asset expenditure.
Earnings and dividend
Ordinary dividends
The board's existing ordinary dividend policy is aimed at improving dividends annually, such that the total of the interim and final dividends for any particular year increases in line with the basic earnings per ordinary share for that year.
When declaring the interim and recommending the final dividend, the board considers the group's cash resource and adequacy of distributable reserves.
Over the last five years, the group's total dividends and basic earnings per ordinary share have grown at a compound average growth rate of 9.4% and 10.5% respectively.
Year ending 31 December
Basic EPS
Pence
Dividend
Pence
Cover ratio
2011
24.60
14.15
1.74
2012
25.80
14.85
1.74
2013
24.50
15.30
1.60
2014
28.60
17.50
1.63
2015
33.80
20.70
1.63
Basic earnings per share for the year amounted to 33.8p, an improvement of 18.2% on the basic earnings of 28.6p for 2014. Total ordinary dividends paid and proposed for 2015 have increased by 18.3% from 17.5p to 20.70p.
The relationship between ordinary dividends and basic earnings can also be expressed as a cover ratio which over the last five years has averaged 1.67 but, in the last two years has been lowered to a ratio of 1.63.
The board believes that whilst there is a continuing underlying risk relating to potential volatility around future growth in European floorcovering markets and, as a consequence, a lack of predictability around future earnings, it is nonetheless of the view that the current policy will continue during the medium term. Additionally and subject to the nature and term of any adverse movement in earnings, financial strength, cash resource and the assessment of future trading, the board has the option to allow a temporary fall in the cover ratio in order to maintain the dividend.
In implementing the policy, the board ensures the parent company has sufficient distributable reserves available from which to make the distribution. The table below illustrates the reserves position for the last five years and the ability of the parent to fund the dividend payment as measured by the number of years cover. On average, over the last five years, the parent has maintained reserves sufficient to cover 4.8 years of dividend. Details of current year distributable reserves are shown in the retained earnings column in the Statement of Changes in Equity on page 19.
Distributable reserves
Proposed
Year ending 31
parent
group
dividends
Years
December
000
000
000
Cover
2011
59,679
115,778
11,663
5.1
2012
58,435
121,361
12,300
4.8
2013
71,220
124,465
12,689
5.6
2014
57,241
126,018
14,655
3.9
2015
81,082
140,924
17,416
4.7
Special dividends
For a number of years, the group has undertaken an expansionary investment programme to improve and increase the capacity and reach of its infrastructure in the UK. The final significant element in the current programme will be the construction of a new distribution facility in Ipswich.
Once this project is completed, the group's commitment to expansionary capital expenditure will largely cease and, subject to ongoing levels of cash generation being maintained, should lead to a position whereby the group will carry a level of funding in excess of that which would be required to maintain its asset base.
This development, therefore, paves the way for a return of surplus funds to shareholders and the board is of the opinion that this can be best achieved through the payment of special dividends.
Whilst the timing of the Ipswich construction has been delayed over the last few years, the prospect of initiating the project during the latter half of 2016 now appears likely. This timetable is still behind the schedule previously advised to shareholders and therefore, given that capital expenditure will not be at the levels previously advised, the board is declaring the payment of a special dividend during April 2016.
Once the cash effect of the capital outlay on the Ipswich development has been fully assessed following its completion, the board will give further consideration to the distribution of surplus capital by the use of special dividend payments.
The conditions that will apply to any special dividend payments are firstly, the groups forecast average net debt in the year in which the special dividend is paid should be approximately equal to or less than 0.5 of EBITDA, secondly, the cover ratio of the aggregated ordinary and special dividends when expressed in terms of dividend cover will not be less than one and thirdly, the payment must be made from available distributable reserves.
The board believes this approach provides a flexible mechanism for managing the maintenance and expansion of the group's asset base.
Cash from
Net capital
Dividends
operations
expenditure
proposed
Year ending 31 December
000
000
000
2011
20,856
1,925
11,663
2012
37,195
6,469
12,300
2013
34,849
12,788
12,689
2014
38,023
5,576
14,655
2015
41,557
2,760
17,416
Dividend announcements, approvals and payments are typically expected to be as follows:
Status and date
Approximate
Dividend
Announced
Approval
payment date
Ordinary interim
Declared August
The board August
January in the year
following announcement
Ordinary final
Recommended March
AGM by shareholders May
July
Employee benefits
The liability attaching to employee benefits is as follows:
2015
0002014
000
Current liabilities
2,171
2,933
Non-current liabilities
16,843
18,803
Total
19,014
21,736
The year on year decrease in the deficit amounts to 2.7 million. Whilst the liability relates to both the UK and Swiss defined benefit pension plans its composition is dominated by the UK plan. Relative to the equivalent period last year, average bond yields in the UK have increased, and therefore, the discount rate assumption has increased by 0.3% per annum from 3.4% to 3.7% (causing a reduction in the value placed on the Scheme's liabilities). However, the market implied level of price inflation has edged up slightly, increasing from 3.2% to 3.3% (which, other things being equal, would lead to an increase in the Scheme's liabilities). The net effect of these two factors is positive in the sense of reducing the Scheme's deficit compared to the prior year. With regard to life expectancy assumptions, mortality has been based on the CMI 2013 tables and not the more recent CMI 2015 tables, which predict an improvement in mortality. The later tables have not been adopted in order to avoid potential movements in the liability as a result of a volatility arising from potential short term trends.
Cash flow
Net cash flow from operating activities
During the year, net cash flow from operating activities increased by 9.3 million from 27.2 million to 36.5 million. The components of the movement are shown in the table below.
000
2014 net cash flow from operating activities
27,193
Operating profit
5,324
Depreciation and amortisation
279
Profit on asset disposals
(1)
Share based payments
408
Working capital
2,920
Interest paid
200
Taxation
112
Additional pension contributions
71
2015 net cash flow from operating activities
36,506
As with previous years, the two key contributors to the year on year movement were the operating profit increase of 5.3 million and the net working capital release of 2.9 million driven by a substantial increase in payables of 7.3 million.
The additional contributions funding the UK defined benefit pension plan deficit amounted to 3.0 million but, following the triennial actuarial valuation of the UK plan at 31 March 2014, the additional contributions for 2016 will fall to 2.1 million. The next triennial valuation will take place on 31 March 2017. Subject to the outcome, contributions for 2017 are expected to be 2.2 million.
Cash flows from investing and financing activities
The table below summarises the cash flow movements during the year arising from investing and financing activities. The overall cash outflow from the two activities was down by 6.6 million with the four main factors being a reduction in net capital expenditure of 3.0 million, the incremental investment as a result of the Matty's Wholesale Carpets acquisition, a substantial reduction in cash outflows directed at reducing borrowings and an increase in the dividend payment.
000
2014 cash flows from investing activity
(5,061)
2014 cash flows from financing activity
(21,871)
(26,932)
Movement in investing activity:
Net reduction in capital expenditure
2,997
Interest received
(120)
Acquisitions
(1,646)
1,231
Movement in financing activity:
Treasury share issues
(23)
Repayment of borrowings
7,393
Dividends paid
(1,966)
5,404
Net movement
6,635
2015 cash flows from investing activity
(3,830)
2015 cash flows from financing activity
(16,467)
(20,297)
Net debt
As detailed in the table below, group net funds at the end of the year increased by 19.4 million from 24.6 million to 43.9 million.
Group
At
1 January 2015
Cash flows
Translation
differences
At
31 December 2015
000
000
000
000
Cash at bank and in hand
47,589
16,209
134
63,932
Debt due within one year
(204)
190
14
-
Debt due after one year
(22,818)
2,627
191
(20,000)
24,567
19,026
339
43,932
Funding and going concern
The group maintains sufficient banking facilities to fund its operations and investments and, as at 31 December 2015, the group's total facilities were 75.5% undrawn as shown below.
Drawn
000
Undrawn
000
Total facility
000
Less than one year
-
41,706
41,706
Over one year and less than five years
20,000
20,000
40,000
20,000
61,706
81,706
Having reviewed the group's resources and a range of likely outcomes, the board believes there are reasonable grounds for stating that the group has adequate resources to continue in operational existence for a period no shorter than twelve months from the date of this report and it is appropriate to adopt the going concern basis in preparing the group's financial accounts.
Steve Wilson
Group Finance Director
3 March 2016
Consolidated Income Statement
for the year ended 31 December 2015
2015
2014
000
000
Revenue
1
654,078
635,242
Cost of sales
(453,568)
(444,702)
Gross profit
200,510
190,540
Distribution expenses
(120,070)
(117,458)
Administrative expenses
(43,663)
(41,620)
Operating profit
1
36,777
31,462
Finance income
738
819
Finance expenses
(1,891)
(1,981)
Net finance costs
(1,153)
(1,162)
Profit before tax
35,624
30,300
Taxation
(7,213)
(6,515)
Profit for the year attributable to the equity shareholders
28,411
23,785
Dividend paid per share
3
17.50p
15.30p
Earnings per share
Basic
2
33.8p
28.6p
Diluted
2
33.7p
28.5p
All group operations during the financial years were continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
2015
000
2014
000
Profit for the year attributable to the equity shareholders
28,411
23,785
Other comprehensive income:
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans
1,292
(8,900)
Related tax
(554)
1,789
738
(7,111)
Items that are or may be reclassified to profit or loss
Foreign exchange translation differences arising on translation of overseas operations
6
(742)
Effective portion of changes in fair value of cash flow hedges
(556)
(177)
Transfers to profit or loss on cash flow hedges
172
132
Related tax
58
18
(320)
(769)
Other comprehensive income/(expense) for the year
418
(7,880)
Total comprehensive income attributable to the equity shareholders for the year
28,829
15,905
Statements of Financial Position
at 31 December 2015
Note
2015
000
2014
000
Assets
Non-current assets
Property, plant and equipment
101,263
103,461
Intangible assets
10,388
10,013
Deferred tax assets
2,238
2,726
113,889
116,200
Current assets
Inventories
119,143
116,569
Trade and other receivables
120,154
118,816
Cash and cash equivalents
63,932
47,589
303,229
282,974
Total assets
1
417,118
399,174
Liabilities
Current liabilities
Other interest-bearing loans and borrowings
-
(204)
Trade and other payables
(172,701)
(166,266)
Employee benefits
(2,171)
(2,933)
Income tax payable
(6,974)
(6,073)
(181,846)
(175,476)
Non-current liabilities
Other interest-bearing loans and borrowings
(20,000)
(22,818)
Employee benefits
(16,843)
(18,803)
(36,843)
(41,621)
Total liabilities
1
(218,689)
(217,097)
Net assets
198,429
182,077
Equity attributable to equity holders
of the parent
Share capital
4,268
4,268
Share premium
53,512
53,512
Other reserves
(275)
(1,721)
Retained earnings
140,924
126,018
Total equity
198,429
182,077
These financial statements were approved by the board of directors on 3 March 2016 and were signed on its behalf by:
Tony Brewer Steve Wilson
Director Director
Company Number: 460129
Statement of Changes in Equity
for the year ended 31 December 2015
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 2014
4,268
53,512
88
6,165
(87)
(10,908)
124,465
177,503
Profit for the year attributable to the equity shareholders
-
-
-
-
-
-
23,785
23,785
Other comprehensive income
-
-
-
(742)
(45)
-
(7,093)
(7,880)
Total comprehensive income for the year
-
-
-
(742)
(45)
-
16,692
15,905
Transactions with equity shareholders, recorded directly in equity
Share-based payments
-
-
-
-
-
-
692
692
Share options exercised by employees
-
-
-
-
-
3,808
(2,780)
1,028
Current tax on share options
-
-
-
-
-
-
183
183
Deferred tax on share options
-
-
-
-
-
-
(545)
(545)
Dividends to equity holders
-
-
-
-
-
-
(12,689)
(12,689)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
3,808
(15,139)
(11,331)
Balance at
31 December 2014
4,268
53,512
88
5,423
(132)
(7,100)
126,018
182,077
Balance at
1 January 2015
4,268
53,512
88
5,423
(132)
(7,100)
126,018
182,077
Profit for the year attributable to the equity shareholders
-
-
-
-
-
-
28,411
28,411
Other comprehensive income
-
-
-
6
(384)
-
796
418
Total comprehensive income for the year
-
-
-
6
(384)
-
29,207
28,829
Transactions with equity shareholders, recorded directly in equity
Share-based payments
-
-
-
-
-
-
1,100
1,100
Share options exercised by employees
-
-
-
-
-
1,824
(819)
1,005
Current tax on share options
-
-
-
-
-
-
95
95
Deferred tax on share options
-
-
-
-
-
-
(22)
(22)
Dividends to equity holders
-
-
-
-
-
-
(14,655)
(14,655)
Total contributions by and distributions to equity shareholders
-
-
-
-
-
1,824
(14,301)
(12,477)
Balance at
31 December 2015
4,268
53,512
88
5,429
(516)
(5,276)
140,924
198,429
Cash Flow Statements
for the year ended 31 December 2015
2015
000
2014
000
Cash flows from operating activities
Profit before tax for the year
35,624
30,300
Adjustments for:
Depreciation, amortisation and impairment
5,179
4,900
Finance income
(738)
(819)
Finance expense
1,891
1,981
Profit on sale of property, plant and equipment
(31)
(30)
Share-based payments
1,100
692
Operating cash flows before changes in working
capital and other payables
43,025
37,024
Change in inventories
(1,827)
(1,514)
Change in trade and other receivables
(1,524)
(143)
Change in trade and other payables
7,270
2,656
Cash generated from the operations
46,944
38,023
Interest paid
(1,268)
(1,477)
Tax paid
(6,245)
(6,357)
Additional contributions to defined benefit plan
(2,925)
(2,996)
Net cash flow from operating activities
36,506
27,193
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
277
92
Interest received
726
846
Acquisition of subsidiaries, net of cash acquired
(1,977)
(331)
Acquisition of property, plant and equipment
(2,856)
(5,668)
Net cash flow from investing activities
(3,830)
(5,061)
Cash flows from financing activities
Proceeds from the issue of treasury shares
1,005
1,028
Repayment of borrowings
(2,817)
(10,210)
Dividends paid
(14,655)
(12,689)
Net cash flow from financing activities
(16,467)
(21,871)
Net increase in cash and cash equivalents
16,209
261
Cash and cash equivalents at 1 January
47,589
47,477
Effect of exchange rate fluctuations on cash held
134
(149)
Cash and cash equivalents at 31 December
63,932
47,589
Notes
1 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. The key economic indicators considered by management in assessing whether operating segments have similar economic characteristics are the products supplied, the type and class of customer, method of sale and distribution and the regulatory environment in which they operate.
As each operating segment is a trading operation wholly aligned to the sales, marketing, supply and distribution of floorcovering products, management consider all segments have similar economic characteristics except for the regulatory environment in which they operate, which is determined by the country in which the operating segment resides.
The 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
2015
000
2014
000
2015
000
2014
000
2015
000
2014
000
Revenue
External revenues
575,341
548,393
78,737
86,849
654,078
635,242
Reportable segment operating profit
37,363
30,695
575
1,183
37,938
31,878
Reportable segment assets
257,984
256,274
34,067
34,444
292,051
290,718
Reportable segment liabilities
(158,859)
(151,566)
(13,326)
(14,568)
(172,185)
(166,134)
During the year there are no inter-segment revenues for the reportable segments (2014: nil).
Reconciliations of reportable segment profit, assets and liabilities and other material items:
2015
000
2014
000
Profit for the year
Total profit for reportable segments
37,938
31,878
Unallocated expense
(1,161)
(416)
Operating profit
36,777
31,462
Finance income
738
819
Finance expense
(1,891)
(1,981)
Profit before taxation
35,624
30,300
Taxation
(7,213)
(6,515)
Profit for the year
28,411
23,785
Notes continued
1 Segment reporting- continued
2015
000
2014
000
Assets
Total assets for reportable segments
292,051
290,718
Unallocated assets:
Properties, plant and equipment
89,828
91,493
Deferred tax assets
2,238
2,726
Cash and cash equivalents
33,001
14,237
Total assets
417,118
399,174
Liabilities
Total liabilities for reportable segments
(172,185)
(166,134)
Unallocated liabilities:
Employee benefits
(19,014)
(21,736)
Other interest-bearing loans and borrowings
(20,000)
(23,022)
Income tax payable
(6,974)
(6,073)
Derivative liabilities
(516)
(132)
Total liabilities
(218,689)
(217,097)
UK
000
Continental
Europe
000
Reportable segment total
000
Unallocated
000
Consolidated total
000
Other material items 2015
Capital expenditure
2,064
543
2,607
287
2,894
Depreciation
2,246
538
2,784
2,020
4,804
Amortisation
-
-
-
375
375
Other material items 2014
Capital expenditure
2,586
421
3,007
2,661
5,668
Depreciation
2,260
567
2,827
1,998
4,825
Amortisation
-
-
-
75
75
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.
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:
Notes continued
1 Segment reporting - continued
Revenue by principal product group and geographic origin is summarised below:
UK
Continental Europe
Total
2015
000
2014
000
2015
000
2014
000
2015
000
2014
000
Revenue
Residential
399,453
378,910
40,281
43,415
439,734
422,325
Commercial
175,888
169,483
38,456
43,434
214,344
212,917
575,341
548,393
78,737
86,849
654,078
635,242
2 Earnings per share
2015
000
2014
000
Earnings
Earnings for basic and diluted earnings per share
28,411
23,785
2015
2014
Number of shares
Issued ordinary shares at 31 December
85,363,743
85,363,743
Effect of shares held in treasury
(1,331,576)
(2,053,036)
Weighted average number of ordinary shares for the purposes of basic earnings per share
84,032,167
83,310,707
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
84,032,167
83,310,707
Dilutive effect of share options
282,078
264,178
Weighted average number of ordinary shares for the purposes of diluted earnings per share
84,314,245
83,574,885
Notes continued
3 Dividends
2015
000
2014
000
Interim dividend for 2014 of 5.20p paid 2 January 2015
4,355
-
Final dividend for 2014 of 12.30p paid 1 July 2015
10,300
-
Interim dividend for 2013 of 4.65p paid 2 January 2014
-
3,856
Final dividend for 2013 of 10.65p paid 1 July 2014
-
8,833
14,655
12,689
The final proposed dividend of 14.70p per share (2014: 12.30p per share) will not be provided for until authorised by shareholders at the forthcoming AGM. There are no income tax consequences.
The interim dividends of 6.00p per share (2014: 5.20p per share) was provided for when the dividend was paid. The dividend was paid on 2 January 2016 and totalled 5,048,000.
The total value of dividends proposed but not recognised at 31 December 2015 is 17,416,000 (2014: 14,655,000).
A special dividend has been declared of 6.00p per share that will be paid on 25 April 2016.
4. Additional information
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
We anticipate that the company's statutory accounts will be posted to shareholders during April 2016 and will be displayed on the company's website at www.headlam.com at the same time. Copies of the statutory accounts will also be available from the company's registered office at Headlam Group plc, PO Box 1, Gorsey Lane, Coleshill, Birmingham, B46 1LW.
This preliminary announcement of results for the year ended 31 December 2015 was approved by the board on
3 March 2016.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR DDGDXUGGBGLD
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