REG - Headlam Group PLC - Interim Results
06/09/2022 07:00
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RNS Number : 3388Y Headlam Group PLC 06 September 2022
6 September 2022
Headlam Group plc
('Headlam' or the 'Company')
Interim Results
Improved profitability despite economic backdrop
Pleasing progress in delivery on the strategy
Headlam Group plc (LSE: HEAD), the leading floorcoverings distributor, today
announces its interim results for the six months ended 30 June 2022 (the
'Period') and an update on current trading.
Period Overview
Financials¹
· Total revenue of £323.8 million (H1 2021: £329.9 million), with a
5.2% uplift in Continental Europe helping to offset a 2.9% decline in the UK
related to weakness in the residential sector
· Gross margin temporarily lifted to a high of 33.7% (H1 2021: 32.7%) due
to the unprecedented inflationary environment
· Underlying(²) distribution costs and administrative expenses
comparable with H1 2021 despite widespread operational cost inflation due to
focus on operational efficiency and cost control (H1 2022: £91.1 million; H1
2021: £90.5 million)
· Improved underlying(²) operating profit and underlying(²) profit
before tax of £17.9 million and £17.3 million respectively (H1 2021:
underlying(²) operating profit £17.4 million; underlying(²) profit before
tax £16.7 million)
· Statutory profit before tax of £21.6 million (H1 2021: £14.0
million), an uplift on underlying(²) profit due to proceeds received as part
of an ongoing insurance claim creating a net profit from non-underlying items
· Undrawn banking facilities of £74.0 million and net funds³ of £6.0
million at the Period end (31 December 2021: £53.7 million net funds³)
· Progressive dividend reflecting the improved profit performance, with
a 2022 interim ordinary dividend of 6.2 pence per share (2021 interim ordinary
dividend: 5.8 pence per share)
Operational
· Good progress in demonstrating and delivering on the revenue growth
and operational efficiency strategy
· Commissioned specialist research indicating improved market share in
the Period
· New and improved trade counter sites demonstrating strong KPIs
against uninvested sites. On track to have a total of 59 sites (of which 28
invested) by year end towards the 90 target by 2025 (all invested)
· New customers gained in the multiple retailer / larger customer
space, including recent contracts signed with a top 10 UK housebuilder and
Homebase
· Continued progress towards 30% target of sales coming from new and
improved digital channels, 26% at the Period end from a base of 11% in 2019
· New and exclusive 'Everyroom' brand launched post the Period end
offering great quality and design at affordable prices, with initial feedback
very positive
· Ongoing investment in the network (sites and equipment) and systems
to optimise performance and support future revenue growth
Current Trading and Outlook
· Revenue performance year to date continuing to be only marginally
below the prior year period
· Company remains on track to meet market expectations(4) for the year,
although trading remains challenging and operational cost inflation continues
Commenting, Chris Payne, Chief Executive, said:
"The financial performance in the Period was pleasing given the economic
environment and inflationary impact on consumer spending. Underlying(²)
profitability improved year on year, and revenue was only marginally below the
prior year period despite a weak residential sector. Commissioned specialist
research indicated that the Company improved its market share in the Period,
and new customers have also been secured within the multiple retailers /
larger customers space. All of this provides a high degree of confidence that
the Company's strategy of driving additional revenue opportunities from a more
efficient and modernised operating base and improving the service offering to
all customers is the right one. Headlam should be set fair for when the
current headwinds ease, and the Company is focused on long term success."
Presentations
The Company's interim results presentation accompanying this announcement is
available on its website at Reports & presentations | Headlam
(https://www.headlam.com/investors/reports-presentations/) .
The Company will be hosting an in person presentation for analysts in London
today at 10:00am BST. To register your interest, please email
headlam@almapr.co.uk.
The Company will also be hosting an online presentation and Q&A for
investors today at 1:00pm BST. 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_H1_Results
(https://bit.ly/HEAD_H1_Results) . A recording of the webinar will be made
available on the Company's website following its conclusion.
Footnotes
¹The financial results represent continuing operations only, and exclude the
contribution from the Swiss business Belcolor AG ('Belcolor') in the
comparative period(s), following its disposal in May 2021 (as detailed in Note
8 to the Financial Statements).
(²)Underlying is before non-underlying items, which comprises: i)
amortisation of acquired intangible assets; ii) impairment of intangibles,
fixed assets and right of use assets; iii) property disposal profit; iv)
business restructuring costs; v) fire-related impairment of property, plant
and equipment and inventory and related insurance recovery.
( )
³Net funds numbers are given excluding lease liabilities, with this being an
Alternative Performance Measure ('APM'), see Financial Review for detail on
APMs.
(4)Company-compiled consensus market expectations for revenue and underlying
profit before tax, on a mean basis, are available on the Company's website at
www.headlam.com (http://www.headlam.com) .
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
David Ison / Lily Soares Smith / Stephen Samuel Email: headlam@almapr.co.uk
Notes for Editors:
Operating for 30 years, Headlam is the 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 to capture regional
and national sales while being supported by the group's network and
centralised teams and processes.
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
Chief Executive's Statement and Financial Review
Introduction
Headlam is now in its 30(th) year, although some businesses within the group
have far longer heritages, and the Company is the clear market leader. The
Company's comprehensive strategy detailed below is designed to further this
leadership position and support the long-term success of the Company. Key
elements of it include investing in and growing the nationwide network,
developing new customer segments and channels to market, and improving the
customer service proposition to all market segments.
While weak trading environments such as that being experienced across many
consumer facing industries currently may subdue some growth metrics in the
short-term, the Company is still able to deliver on its strategy and capture
market share. This positions it well for when markets improve.
As stated within the July 2022 Pre-Close Trading Update, the financial
performance in the Period was pleasing given the economic environment and
inflationary impact on consumer spending. Underlying(²) profitability
improved year on year, and revenue was only marginally below the prior year
period despite a weak residential sector which accounts for roughly two-thirds
of the Company's revenue. Commissioned specialist research indicated that the
Company improved its market share in the Period, and new customers have also
been secured within the multiple retailers / larger customers space. All of
this provides a high degree of confidence that the Company's strategy is the
right one.
With four months to go, the group still remains on track to meet market
expectations for the year, although trading remains challenging and
operational cost inflation continues so headwinds remain. However, Headlam
should be set fair for when the current headwinds ease, especially as the
group enjoys a high degree of operating leverage, and the Company is focused
on long term success.
Financial Performance for the Period
Revenue
Total revenue in the Period was £323.8 million (H1 2021: £329.9 million),
with a 5.2% uplift in Continental Europe (France and The Netherlands) helping
to offset a 2.9% decline in the UK related to weakness in the residential
sector. The UK and Continental Europe accounted for 86.3% and 13.7% of total
revenue respectively in the Period (H1 2021: UK 87.3%; Continental Europe
12.7%).
Within the UK, the commercial sector was a positive contributor, up 4.8%, as
it showed recovery from mainly COVID-19 related issues in the prior two years.
Conversely the residential sector declined 6.3% as it was particularly
affected by the inflationary impact on consumer spending. However, it is worth
noting that residential sector performance was strong in the prior year period
due to being a beneficiary of limited avenues for discretionary expenditure
due to ongoing COVID-19 restrictions. Continental Europe was a positive
contributor across both the residential and commercial sectors, being up 5.0%
and 5.7% respectively in the Period.
For the group as a whole, residential sector revenue declined 5.0% in the
Period and accounted for 66.4% of total revenue (H1 2021: 68.5%), with
commercial sector revenue increasing 4.9% and accounting for 33.6% of total
revenue (H1 2021: 31.5%).
Gross Margin
Gross margin was temporarily lifted to a high of 33.7% in the Period (H1 2021:
32.7%) despite the higher margin residential sector accounting for a lower
proportion of revenue, and was due to the unprecedented inflationary
environment. The proliferation of manufacturer-led price increases in the
Period were passed directly through to customers, with the Company benefiting
from pricing uplifts on its existing inventory position. This level of gross
margin is therefore not expected to be maintained, and is anticipated to
normalise as the number and scale of price increases reduces in the second
half.
Expenses
Due to the continued focus on operational efficiency and cost control as part
of the Company's strategy, underlying(²) distribution costs and
administrative expenses in the Period were comparable with the prior year
period despite widespread operational cost inflation (Period: £91.1 million;
H1 2021: £90.5 million). Certain actions taken in the prior year had full
period effects in the Period, including network and transport consolidations,
and streamlining of the sales team and other functions. Further actions taken
in the Period such as reducing temporary staff and a focus on continuous
improvement in the efficiency of operations provided further support to
managing costs. An adverse impact on costs later in the year will be a
significant rise in the Company's energy costs from October 2022 following the
expiry of a fixed price energy contract. The Company has actions and plans in
place to reduce energy usage, which will help offset some of these rising
costs going forward (see ESG Strategy below). Statutory distribution costs and
administrative expenses in the Period were £91.8 million (H1 2021: £93.2
million), marginally higher than underlying(²) due to non-cash amortisation
of acquired intangibles detailed below. There was a higher level of
non-underlying expenses, including non-recurring business restructuring costs,
in the prior year period.
Profit and Non-underlying items
The positive gross margin and expenses performances led to an improved
underlying(²) operating profit and underlying(²) profit before tax of £17.9
million and £17.3 million respectively (H1 2021: underlying(²) operating
profit £17.4 million; underlying(²) profit before tax £16.7 million). The
underlying(²) operating margin in the Period was 5.5% (H1 2021: 5.3%). The
statutory profit before tax in the Period was £21.6 million (H1 2021: £14.0
million), an uplift on underlying(²) due to proceeds received as part of an
ongoing insurance claim creating a net profit from non-underlying items.
Total non-underlying items before tax reflected a net profit of £4.3 million
in the Period, and comprised a £5.0 million of received and expected proceeds
from the insurance claim offset by a £0.7 million non-cash amortisation of
acquired intangibles. In the 2021 Annual Report and Accounts the Company
recognised a non-underlying impairment of £7.3 million (pre-tax) following a
fire that completely destroyed the MCD Kidderminster distribution centre in
December 2021. As part of the insurance claim, £5.0 million of proceeds
relating to inventory losses were recognised in the Period, with further
proceeds anticipated to be determined once the plans for the proposed
reinstatement of the building are finalised. MCD Kidderminster is currently
operating effectively out of a temporary site where it was quickly relocated
to in January 2022 and is being supported by other group sites.
Basic earnings per share on an underlying(²) basis increased from 14.7 pence
per share in the prior year period to 16.5 pence per share. 1.6 pence of this
improvement reflected the increased profit performance and 0.2 pence was as a
result of the impact of the Share Buyback programme which reduced the weighted
average number of shares (as detailed in Note 6 to the Financial Statements).
Statutory basic earnings per share was 20.6 pence (H1 2021: 11.6 pence).
Tax
The Company's consolidated underlying effective tax rate for the Period was
20.2%, which reflects the expected effective tax rate for the full year. This
is higher than the standard rate of corporation tax in the UK of 19.0%
primarily due to expenses not deductible for tax purposes and overseas profit
taxed at a higher rate. The planned increase in the UK headline tax rate to
25% will increase the effective tax rate in 2023.
Investments
During the Period investments were made to support delivery of the strategy.
As planned, investment levels will increase in the second half as the
investment momentum builds, although overall capital expenditure will continue
to be modest due to the relatively capital light nature of the strategy (see
the constituents of the strategy in Strategy section).
Capital expenditure in the Period was £2.8 million (H1 2021: £3.4 million)
and primarily focused on trade counter improvement and roll-out (detailed
below), and investment in equipment and systems to optimise performance and
support future revenue growth.
Total capital expenditure for the year is anticipated to be in excess of £10
million, with the majority accounted for by trade counters, and the balance
going towards the ongoing programme to modernise and improve the existing
network and equipment. This will have the benefit of improving service levels
to all customers.
Cash flows and Balance Sheet
There was a cash outflow of £29.8 million in the Period, the largest
component of which was £25.8 million of shareholder returns (a return of
surplus capital alongside the 2021 final ordinary dividend). There was also a
working capital outflow relating to an investment in inventory of £16.9
million and a net increase in supplier payments of £21.3 million to protect
against product supply, to prepare for the busier second half trading months
and to support new product launches to capture market share (see Everyroom
below). Inventory at Period end was £148.1 million (30 June 2021: £120.6
million; 31 December 2021: £130.9 million). There is an ongoing relatively
low risk of inventory obsolescence. This inventory position, alongside the net
funds³ position detailed below and £109.5 million nationwide freehold
property portfolio(5), underpin the Company's strong balance sheet.
The Company had undrawn banking facilities totalling £74.0 million and net
funds³ of £6.0 million at the Period end (31 December 2021: £53.7 million
net funds³). The Company had drawn £26.4 million of banking facilities at 30
June 2022.
Dividend and Share Buyback Programme
Reflecting the improved underlying(²) profitability in the Period, the Board
is declaring a progressive dividend payment with a 2022 interim ordinary
dividend of 6.2 pence per share (2021 interim ordinary dividend: 5.8 pence per
share). This will be payable on 28 November 2022 to shareholders on the
register as at 28 October 2022, and amount to a total payment of approximately
£5.2 million. Reflecting the traditional trading profile of the group, a
higher weighting is typically given to the final ordinary dividend.
The Company is engaged in an ongoing total £15 million Share Buyback
Programme ('SBB') via its brokers which is designed to be earnings per share
enhancing and which formed part of a total £30 million return of surplus
capital to shareholders announced in March 2022. The outflow in the Period
related to the SBB was £3.7 million. As at market close on 2 September 2022,
the Company had purchased 1,281,998 shares through the SBB, all of which are
held in treasury, resulting in a cash outflow to-date since the start of the
programme of £4.3 million.
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 in the Financial Review of the 2021
Annual Report and Accounts and a reconciliation of the adjustments made to the
Income Statement to derive underlying profit measures is shown at the end of
the Financial Statements. 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.
Strategy and Operational Performance in the Period
The Company's strategy is focused on driving additional revenue opportunities
from a more efficient and modernised operating base, and improving the service
offering to all customers. The key revenue growth drivers are:
· Accelerating roll-out of new and improved Trade Counter sites
nationwide
· Actively targeting the Multiple Retailers and other Larger Customer
segments where the Company is very underweight with tailored service
propositions
· Enhanced Digital and Ecommerce capabilities and applications to
increase revenue opportunities in all customer segments
· New launches and relaunches of Products and Brands to increase sales
and capture market share
Alongside these revenue drivers, the Company is focused on operating
efficiency and cost control, continuous improvement, and investment in the
network (sites and equipment) and systems to optimise performance and support
revenue growth. The development of the Company's articulated ESG Strategy,
which sits as part of the overall strategy, is also an important opportunity
for commercial advantage.
Pleasing progress was made in the Period in demonstrating and delivering on
the strategy, which will continue to be built upon during the second half.
Trade Counters
The Company is on-track to have 59 trade counter sites by year end, of which
28 will be new or refurbished, with a maintained target of 90 fully invested
sites by 2025 targeted to add approximately £120 million of revenue to the
£80 million reported for 2021. The sites that have been invested in to-date
have demonstrated strong KPIs against uninvested sites in terms of revenue,
new account openings, and margins. In the Period, the revenue performance of
invested sites was up 12% on the same period last year (on a like for like
basis). In line with the accelerating roll-out, the Company is generating a
strong pipeline of prospective sites, and has the target of a further 25
invested sites in 2023 of which 13 will be new. The capital investment in
relation to the target of 90 sites is currently estimated at £18 million in
total, of which £3.0 million has been incurred thus far with £1.2 million in
the Period.
Multiple Retailers and Larger Customers
In the last 12 months, following the commencement of a concerted approach and
assembly of a dedicated team, a number of new customers have been gained in
the multiple retailer / larger customer space. These include a DIY chain, a
builders merchant, a furniture retailer with a new flooring offering, and a
top 10 UK housebuilder. This demonstrates the breadth and size of the
opportunity open to Headlam in this area, with considerable scalability
opportunity as the number of SKUs with these customers is increased. Headlam
has traditionally held a modest position in this area, belying its market
leading position and strong service proposition, reducing complexity and cost
for the supplier and the customer.
As an example of a new customer, in May 2022 the Company signed a two year
contract with Homebase, a leading home improvement retailer and garden centre
with over 150 stores across the United Kingdom and Republic of Ireland. An
initial number of laminate SKUs are now being delivered to their entire store
network, with the potential to add further products.
Additionally, last month Headlam signed a contract with a top 10 UK
housebuilder representing a potential substantial new revenue opportunity,
particularly as the vast majority of all new homes in the UK are sold with
flooring specified. This is the Company's first national contract with a
housebuilder, and Headlam is providing a product range, sampling, and training
package to the regional sales centres to help secure sales.
Revenue contribution from the trade counters and multiple retailer / larger
customers will have a higher contribution in the second half compared with the
Period as activity rolls out. This will mitigate anticipated weakness in the
Company's existing revenue in the multiple retailer space, which was evident
in the Period due to the economic environment.
Digital and Ecommerce
Enhanced Digital and Ecommerce capabilities and applications not only increase
revenue opportunities by supporting and appealing to a wider base of
customers, but also helps lower the cost to serve customers. The Company
continues to make progress towards its target of 30% of sales coming from its
new and improved digital channels, being 26% at the Period end from a base of
11% in 2019. Since its launch in November 2021, over £3.7 million of sales
have now been received by the Company's industry-leading app myheadlam, with
2,100 registered customers. Importantly, the app is now available to download
at Apple and Google Play stores.
The Company is focused on the development and expansion of its digital and
marketing strategy so it can effectively support the strategy of growth and
efficiency. Investment is being made in people skills, digital capability,
product brand awareness, the core operating system, and further systems
integration to particularly support larger customers and suppliers.
Products and Brands
The Company has a number of well regarded and recognised product brands
spanning price points from less than £10 per sq metre to over £150 per sq
metre (at average selling retail prices), with the majority of the Company's
product offering at lower to middle price points. Several existing brands have
been refreshed / relaunched so far this year, with improved websites to keep
them relevant and help increase sales. Additionally, after the Period end the
Company launched Everyroom, its new and exclusive brand available to all
Headlam customers offering great quality and design at affordable prices.
Initial feedback from customers has been very positive, with the new brand
helping customers secure sales at a time when end-consumers are more cost
conscious.
ESG Strategy
The Company is committed to a bi-annual update on its ESG Strategy and
progress against its actions, with the next timetabled update in November
2022. As a brief summary ahead of this:
· The Company now has an established Executive ESG Committee assisting
the Board on the development of the Company's ESG Strategy, and ensuring the
progression of all constituents within it;
· The Company is engaged in Net Zero emissions transition planning in
support of its 2035 ambition;
· The Company is already actively engaged in reducing its energy usage
(Scope 1 and 2), which will help offset some of its rising energy costs
referred to above. The Company intends rolling out the installation of solar
panels at its larger sites from the start of next year(6); and
· In relation to People and Communities, a number of recent actions
have been taken: i) the locally focused Community Programme launched ii)
increased number of Mental Health First Aiders towards the Company's target
iii) review of National Living Wage completed with a small number of
colleagues' base pay increased; and iv) DEI survey completed, with initial
insights and next steps shared across the group.
People
The Company announced at the beginning of this month the appointment of Karen
Hubbard to the Board as an Independent Non-Executive Director. Karen has over
25 years' experience in retail, at both Executive and Director levels across
various industries and markets and will further enhance the skills on the
Board and oversight of delivery of the strategy. She was previously Chief
Executive Officer of Card Factory plc, the UK's leading specialist retailer
of greeting cards, gifts, wrap and bags, where she diversified their income
from a UK High Street business to a Multi Channel, International, Wholesale
and Franchised operation. Karen has also served as Chief Operating Officer at
B&M, on the ASDA Stores Executive Board as Executive Director for
Property, Multi-Channel and Format Development, in addition to working for BP
Oil in their Retail divisions.
The Company is still in the process of appointing a permanent Chief Financial
Officer due to a candidate withdrawing at the very end of the process
specifying location reasons. However, the Board is pleased with the calibre of
candidates currently being interviewed and hopes to reach a conclusion in the
near future. In the meantime, Patrick Butcher, formerly Group CFO at Capita
plc, The Go-Ahead Group plc and Network Rail, will continue as Interim Chief
Financial Officer while the independent search process is ongoing.
A number of senior management appointments have been made since the beginning
of the year which have materially increased the team's depth and breadth, and
built capability to support and accelerate the strategy. These include the new
position of Managing Director of Trade Counters to head-up this fast growing
business unit, and the strengthening of other functions with the hiring of a
new Chief People Officer and Chief Information Officer.
Headlam's people are its greatest asset, and the pleasing performance in the
Period against the documented headwinds would not have been possible without
their dedication and expertise, and the Board shares its thanks to all. The
Company continues to focus on making Headlam a great place to work at, and
ensure colleagues share in the Company's long-term success. Building on the
improvements detailed in the 2021 Annual Report including in the areas of
pension, holiday entitlement and sick pay, the Company is launching a
recognition programme to celebrate colleagues' great performances and
commitment. Additionally, to recognise and applaud the long heritage of
businesses and colleagues within the group, an awards scheme for long service
is planned.
Current Trading and Summary
The revenue performance in the past two months has continued that of the
Period, with revenue year to date continuing to be only marginally below the
prior year period. Within this, the UK residential sector performance has
weakened slightly further since the Period end. However, the Company's UK
commercial sector activity has continued to be more buoyant, with its
strengthening helping to offset the residential weakness. Additionally,
Continental Europe has again been a positive contributor across both sectors.
The opportunities now available to the group are much expanded from recent
years given the comprehensive strategy being pursued. The maximization and
acceleration of these opportunities is an immediate priority given the current
economic backdrop which is continuing to suppress underlying volumes in the
residential sector. Thus far, the strategy has proven to have provided a
countermeasure and protection against the weaker market. The Company currently
remains on track to meet market expectations(4) for the year, although the
marketplace will undeniably continue to present weakness and uncertainty, and
the operational cost inflation headwinds remain including the Company's energy
costs referred to above. Should the market weakness deepen, the Company has a
number of measures it could take to help offset. It is important though to
look beyond the near-term environment, and as previously highlighted, the
group believes it is set fair especially for when headwinds ease.
Going Concern and Viability
The viability modelling exercise performed for the 2021 Annual Report and
Accounts, including a reverse stress test, has been refreshed (as described in
Note 1 to the Financial Statements) to assess going concern for this interim
report.
The Board has a reasonable expectation that the Company has adequate resources
to continue in operation during the next 12 months and that it is appropriate
for the going concern basis to be adopted in preparing this interim report and
financial statements.
Principal Risks and Uncertainties
Headlam is exposed to a number of principal risks which may affect its
performance, business model, solvency or liquidity. The group has a
well-established framework for reviewing and assessing these risks on a
regular basis; and has put in place appropriate processes, procedures and
actions to mitigate against them. However, no system of control or series of
mitigations can completely eliminate all risks. The principal risks and
uncertainties that may affect the group were last reported on within the 2021
Annual Report and Accounts (on pages 34 to 38).
The principal risks remain broadly unchanged since last reported, and the
Board does not see material changes in the overall, post mitigation likelihood
and impact of principal risks, although specific elements continue to evolve.
The economic backdrop, for example, could impact 'Market Demand' risk.
Market demand in certain consumer facing industries has been adversely
impacted by the current inflationary environment which is reducing consumers'
disposable income and therefore affecting sales.
Directors' Responsibility Statement
We confirm that, to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting';
(b) the interim report includes a fair review of the information required by
DTR 4.2.7R (indication of important events during the Period and description
of principal risks and uncertainties for the remaining six months of the
year); and
(c) the interim report includes a fair review of the information required by
DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
For and on behalf of the Board
Chris Payne
Director
6 September 2022
(5)Value of the Company's current freehold property portfolio at the last
independent valuation date of January 2020, plus the book value of the
freehold Ipswich distribution centre which was built and became operational in
July 2020.
(6)Both the Coleshill and Ipswich sites already have solar panels installed.
Condensed Consolidated Interim Income Statement
Underlying Non-underlying Six months ended Underlying Non-underlying Underlying Non-underlying Year ended
30 June Six months ended 31 December
30 June
(Note 3) (Note 3) (Note 3)
Note 2022 2022 2022 2021 2021 2021 2021 2021 2021
£M £M £M £M £M £M £M £M £M
Continuing operations Unaudited Unaudited Audited
Revenue 2 323.8 - 323.8 329.9 - 329.9 667.2 - 667.2
Cost of sales (214.8) - (214.8) (222.0) - (222.0) (446.7) - (446.7)
Gross profit 109.0 - 109.0 107.9 - 107.9 220.5 - 220.5
Distribution costs (64.6) - (64.6) (61.8) - (61.8) (125.9) - (125.9)
Administrative expenses (26.5) (0.7) (27.2) (28.7) (2.7) (31.4) (57.3) (8.2) (65.5)
Other operating income - 5.0 5.0 - - - - - -
Operating profit/(loss) 2 17.9 4.3 22.2 17.4 (2.7) 14.7 37.3 (8.2) 29.1
Finance income 4 0.4 - 0.4 0.2 - 0.2 0.4 - 0.4
Finance expenses 4 (1.0) - (1.0) (0.9) - (0.9) (1.9) - (1.9)
Net finance costs (0.6) - (0.6) (0.7) - (0.7) (1.5) - (1.5)
Profit/(loss) before tax 17.3 4.3 21.6 16.7 (2.7) 14.0 35.8 (8.2) 27.6
Taxation 5 (3.5) (0.8) (4.3) (4.4) 0.2 (4.2) (9.2) 1.5 (7.7)
Profit/(loss) from continuing operations 2 13.8 3.5 17.3 12.3 (2.5) 9.8 26.6 (6.7) 19.9
Profit from discontinued operation - 0.1 4.4 4.5 0.1 4.4 4.5
- -
Profit/loss) for the period attributable to the equity shareholders 13.8 3.5 17.3 12.4 1.9 14.3 26.7 (2.3) 24.4
Earnings per share for profit from continuing operations
Basic 6 16.5p 20.6p 14.7p 11.6p 31.5p 23.5p
Diluted 6 16.3p 20.4p 14.4p 11.4p 31.1p 23.2p
Earnings per share for profit from discontinued operations
Basic 0.1p 5.3p 0.2p 5.3p
Diluted 0.1p 5.2p 0.2p 5.2p
Ordinary dividend per share
Interim dividend proposed for the financial period 7 6.2p 5.8p 5.8p
Final dividend declared for the financial period 7 - - 8.6p
Declared special dividend for the financial period 7 - - 17.7p
Condensed Consolidated Interim Statement of Comprehensive Income
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
£M £M £M
Unaudited Unaudited Audited
Profit for the period attributable to the equity
shareholders 17.3 14.3 24.4
Other comprehensive income:
Items that will never be reclassified to profit or loss
Re-measurement of defined benefit plans 0.1 (2.6) (2.6)
Related tax - 0.6 0.8
0.1 (2.0) (1.8)
Items that are or may be reclassified to profit or loss
Exchange differences arising on translation of overseas operations 0.2 (0.8) (1.2)
Reclassification of foreign currency translation reserve on disposal of (4.8)
subsidiary
- (4.8)
0.2 (5.6) (6.0)
Other comprehensive income/(expense) for the period 0.3 (7.6) (7.8)
Total comprehensive income attributable to the equity shareholders for the
period
17.6 6.7 16.6
Total comprehensive income attributable to the equity shareholders for the
period arising from:
Continuing operations 17.6 7.0 16.9
Discontinued operations - (0.3) (0.3)
17.6 6.7 16.6
Condensed Consolidated Interim Statement of Financial Position
At At At
30 June 30 June 31 December 2021
2022 2021 £M
£M £M
Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 112.9 115.9 113.3
Right-of-use assets 32.6 37.4 35.0
Intangible assets 17.9 19.0 18.1
163.4 172.3 166.4
Current assets
Inventories 148.1 120.6 130.9
Trade and other receivables 118.8 109.6 114.0
Cash and cash equivalents 32.4 62.7 61.2
299.3 292.9 306.1
Non-current assets classified as held for sale - 1.5 -
299.3 294.4 306.1
Total assets 462.7 466.7 472.5
Liabilities
Current liabilities
Bank overdrafts (0.9) (0.1) -
Other interest-bearing loans and borrowings (25.5) (1.9) (0.6)
Lease liabilities (10.5) (10.7) (10.5)
Trade and other payables (169.3) (176.9) (178.0)
Income tax payable (2.6) (1.1) (1.0)
Employee benefits (1.0) (1.0) (1.0)
(209.8) (191.7) (191.1)
Non-current liabilities
Other interest-bearing loans and borrowings - (6.8) (6.9)
Lease liabilities (23.2) (27.7) (25.5)
Provisions (2.7) (2.1) (2.7)
Deferred tax liabilities (10.3) (8.3) (10.3)
Employee benefits (3.3) (4.0) (3.9)
(39.5) (48.9) (49.3)
Total liabilities (249.3) (240.6) (240.4)
Net assets 213.4 226.1 232.1
Equity attributable to equity holders of the parent
Share capital 4.3 4.3 4.3
Share premium 53.5 53.5 53.5
Other reserves (16.0) (2.0) (1.6)
Retained earnings 171.6 170.3 175.9
Total equity 213.4 226.1 232.1
Condensed Consolidated Interim Statement of Changes in Equity
Unaudited
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 2022 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
Profit for the period attributable to the equity shareholders
- - - - - - 17.3 17.3
Other comprehensive income - - - - 0.2 - 0.1 0.3
Total comprehensive income for the period
- - - - 0.2 - 17.4 17.6
Transactions with equity shareholders, recorded directly in equity
Share based payments - - - - - - 0.6 0.6
Repurchase of own shares - - - - - (15.0) - (15.0)
Share options exercised by employees
- - - - - 0.4 (0.2) 0.2
Dividends to equity holders - - - - - - (22.1) (22.1)
Total contributions by and distributions to equity shareholders
- - - - - (14.6) (21.7) (36.3)
Balance at 30 June 2022 4.3 53.5 0.1 1.5 1.9 (19.5) 171.6 213.4
Condensed Consolidated Interim Statement of Changes in Equity
Unaudited
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 2021 4.3 53.5 0.1 1.5 7.7 (5.9) 158.8 220.0
Profit for the period attributable to the equity shareholders
- - - - - - 14.3 14.3
Other comprehensive expense - - - - (5.6) - (2.0) (7.6)
Total comprehensive (expense)/income for the period
- - - - (5.6) - 12.3 6.7
Transactions with equity shareholders, recorded directly in equity
Share based payments - - - - - - 0.4 0.4
Share options exercised by employees
- - - - - 0.2 (0.1) 0.1
Deferred tax on share options - - - - - - 0.6 0.6
Dividends to equity holders - - - - - - (1.7) (1.7)
Total contributions by and distributions to equity shareholders
- - - - - 0.2 (0.8) (0.6)
Balance at 30 June 2021 4.3 53.5 0.1 1.5 2.1 (5.7) 170.3 226.1
Condensed Consolidated Interim Statement of Changes in Equity continued
Audited
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 2021 4.3 53.5 0.1 1.5 7.7 (5.9) 158.8 220.0
Profit for the period attributable to the equity shareholders
- - - - - - 24.4 24.4
Other comprehensive expense - - - - (6.0) - (1.8) (7.8)
Total comprehensive (expense)/income for the period
- - - - (6.0) - 22.6 16.6
Transactions with equity shareholders, recorded directly in equity
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
Condensed Consolidated Interim Cash Flow Statements
Restated* Year ended
Six months ended Six months ended 31 December
30 June 30 June 2021
2022 2021 £M
£M £M
Unaudited Unaudited Audited
Cash flows from operating activities
Profit before tax for the period:
Continuing operations 21.6 14.0 27.6
Discontinued operations - 5.8 5.8
21.6 19.8 33.4
Adjustments for:
Depreciation of property, plant and equipment, amortisation and impairment
3.6 5.0 9.2
Depreciation of right of use assets 5.8 6.8 13.5
Finance income (0.4) (0.2) (0.4)
Finance expense 1.0 0.9 1.9
Profit on sale of property, plant and equipment - (6.8) (11.1)
Insurance proceeds for property, plant and equipment following fire (0.4) - -
Impairment of property, plant and equipment and inventory following fire - - 7.3
Loss on sale of subsidiary - 0.1 0.1
Share-based payments 0.6 0.4 1.2
Operating cash flows before changes in working capital and other payables
31.8 26.0 55.1
Change in inventories (16.9) (11.5) (26.6)
Change in trade and other receivables (4.4) (12.0) (16.6)
Change in trade and other payables (21.3) 5.1 5.4
Cash generated from the operations (10.8) 7.6 17.3
Interest paid (1.0) (1.5) (0.5)
Interest received 0.5 0.3 0.5
Tax paid (2.7) (2.2) (3.5)
Net cash flow from operating activities (14.0) 4.2 13.8
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 14.1 19.7
Disposal of discontinued operation, net of cash disposed of - (3.5) (3.5)
Acquisition of property, plant and equipment (2.2) (3.4) (6.1)
Insurance proceeds for property, plant and equipment following fire 0.4 - -
Acquisition of intangible assets (0.6) - (0.8)
Net cash flow from investing activities (2.4) 7.2 9.3
Cash flows from financing activities
Proceeds from the issue of treasury shares 0.2 0.1 0.7
Payment to acquire own shares** (3.7) - -
Proceeds from borrowings 25.0 - -
Repayment of borrowings (7.0) (0.1) (1.2)
Principal elements of lease payments (5.8) (7.5) (15.0)
Dividends paid (22.1) (1.7) (6.6)
Net cash flow from financing activities (13.4) (9.2) (22.1)
Net increase in cash and cash equivalents (29.8) 2.2 1.0
Cash and cash equivalents at 1 January 61.2 60.8 60.8
Effect of exchange rate fluctuations on cash held 0.1 (0.4) (0.6)
Cash and cash equivalents at end of period 31.5 62.6 61.2
* Operating cash flows have been restated to separately disclose the loss on
sale of subsidiary.
**During the Period 1,044,042 shares were acquired for £3.7 million under the
Group's share buy-back initiative.
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 2022.
The Consolidated Financial Statements of the Group as at and for the year
ended 31 December 2021 are available upon request from the company's
registered office or the website.
The comparative figures for the financial year ended 31 December 2021 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 Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct Authority and UK
adopted International Accounting Standard IAS 34, Interim Financial
Reporting.
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 2021, which
were prepared in accordance with UK-adopted International Accounting
Standards, with future changes being subject to endorsement by the UK
Endorsement Board.
These Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors on 6 September 2022.
Significant accounting policies
As required by the Disclosure Guidance 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 2021 and has adopted accounting policies as follows:
Insurance proceeds
Insurance proceeds are recognised when recovery is virtually certain and the
amounts can be measured reliably. Insurance proceeds recognised are shown as
other operating income, separately from any related costs. Insurance proceeds
recoverable at the period end are recognised within other receivables.
Taxation
In the prior year, the Group has modified its taxation accounting policy so
that the effect of the taxation rate change from 19% to 25% on deferred
taxation was spread over the full year.
Impacts of standards and interpretations in issue but not yet effective
There are no other new standards, amendments to existing standards, or
interpretations that are not yet effective that would be expected to have a
material impact on the Group.
Going concern
The Group's performance, position and business activities, together with the
factors likely to affect its future development, are described in the Chief
Executive's Statement and Financial Review.
The Directors have reviewed current performance and forecasts, combined with
borrowing facilities and expenditure commitments, and three downside trading
scenarios, as summarised below.
i) A sustained recession, characterised by a long
period of underperformance throughout the assessment period;
ii) An economic crash with a sharp 15% year on year
decline in the first year, before a recovery; and
iii) A less likely, more severe scenario (reverse stress
test) where the Company experiences a significant 22% year on year decline in
revenue in the first year.
The impact of inflation on the results for the Period and the inflationary
impact on consumer spending which could contribute to the occurrence of these
scenarios have been considered as part of the assessment.
In each scenario, even in the absence of any significant mitigating actions,
the Group continues to operate within its current banking facilities and the
covenant restrictions set out therein.
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate financial resources to continue in operation, including
contractual and commercial commitments, for the next 12 months. For these
reasons, the going concern basis has been adopted in preparing the financial
statements.
Bank facilities at 30 June 2022
Committed credit facilities Uncommitted credit facilities
Total facilities
£ million £ million £ million
Drawn funds 25.5 0.9 26.4
Undrawn funds 56.5 17.5 74.0
82.0 18.4 100.4
Judgements and 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 2021, with the addition of the following:
Judgement - Recognition of insurance proceeds
Insurance proceeds are recognised when their recovery is virtually certain and
the amounts can be measured reliably. This therefore requires judgement over
whether the assets can be measured reliably. The Directors judge that the
insurance amounts relating to the reinstatement of the damaged property and
contents, following the fire that destroyed a building in Kidderminster in
December 2021, cannot be measured reliably at June 2022 because:
· the decision to progress with the reinstatement is not yet final and
a change to that decision would cause the insurance refund to be based on a
negotiated settlement rather than the like-for-like reinstatement costs and
the resulting values could be materially different;
· there is uncertainty about whether some significant construction
preparation items will be required for the reinstatement;
· the competitive tendering process for the construction has not yet
started and so the construction costs are not known; and
· the insurance receipts are due as reinstatement progresses alongside
a volatile construction market.
It has therefore been concluded that the insurance proceeds for the insurance
claim relating to the reinstatement of the damaged property and contents
should not be recognised but that a contingent asset should be disclosed.
Risks and uncertainties
The risk factors which could cause the Group's results to differ materially
from expected results are set out in detail in the 2021 Annual Report and
Accounts, with the result of a review of those risks subsequent to the
publication of this interim report listed above.
2 SEGMENT REPORTING
At 30 June 2022, the Group had 63 operating segments in the UK and three
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 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, 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 Chief Executive, the Board and the executive
team and forms the basis for the presentation of operating segment information
given below.
Continuing operations
UK Continental Europe Total
31 December 31 December 31
30 June 30 June 2021 30 June 30 June 2021 30 June 30 June December
2022 2021 £M 2022 2021 £M 2022 2021 2021
£M £M £M £M £M £M £M
Revenue
External revenues 279.6 287.9 585.8 44.2 42.0 81.4 323.8 329.9 667.2
Reportable segment underlying operating profit
16.3 17.1 37.0 2.4 1.8 3.1 18.7 18.9 40.1
Reportable segment assets
316.2 292.8 280.6 37.7 38.9 30.3 353.9 331.7 310.9
Reportable segment liabilities
(211.2) (197.9) (196.4) (20.2) (27.6) (27.1) (231.4) (225.5) (223.5)
During the periods shown above there have been no inter-segment revenues for
the reportable segments (2021: £nil).
Reconciliations of reportable segment profit, assets and liabilities and other
material items:
30 June 30 June 31 December
2022 2021 2021
£M £M £M
Profit for the period
Total underlying profit for reportable segments 18.7 18.9 40.1
Non-underlying items 4.3 (2.7) (8.2)
Unallocated expense (0.8) (1.5) (2.8)
Operating profit 22.2 14.7 29.1
Finance income 0.4 0.2 0.4
Finance expense (1.0) (0.9) (1.9)
Profit before taxation 21.6 14.0 27.6
Taxation (4.3) (4.2) (7.7)
Profit from continuing operations 17.3 9.8 19.9
Profit from discontinued operations - 4.5 4.5
Profit for the period 17.3 14.3 24.4
30 June 30 June 31 December
2022 2021 2021
£M £M £M
Assets
Total assets for reportable segments 353.9 331.7 310.9
Unallocated assets:
Properties, plant and equipment 93.8 98.1 97.5
Right of use assets 0.6 0.7 0.7
Non-current assets classified as held for sale - 1.5 -
Cash and cash equivalents 14.4 34.7 63.4
Total assets 462.7 466.7 472.5
Liabilities
Total liabilities for reportable segments (231.4) (225.5) (223.5)
Unallocated liabilities:
Lease liabilities (0.7) (0.7) (0.7)
Employee benefits (4.3) (5.0) (4.9)
Other interest-bearing loans and borrowings - - -
Income tax payable (2.6) (1.1) (1.0)
Deferred tax liabilities (10.3) (8.3) (10.3)
Total liabilities (249.3) (240.6) (240.4)
Reportable segment
Continental Europe total Consolidated total
UK Unallocated
Continuing operations: £M £M £M £M £M
Other material items 30 June 2022
Capital expenditure 2.2 - 2.2 - 2.2
Depreciation 1.7 0.2 1.9 1.0 2.9
Depreciation of right of use assets 4.9 0.9 5.8 - 5.8
Non-underlying items (excluding finance expenses and impairments)
(4.4) 0.1 (4.3) - (4.3)
Other material items 30 June 2021
Capital expenditure 2.9 0.1 3.0 0.4 3.4
Impairment of goodwill 1.2 - 1.2 - 1.2
Depreciation 1.5 0.4 1.9 1.0 2.9
Depreciation of right of use assets 5.8 1.0 6.8 - 6.8
Non-underlying items (excluding finance expenses and impairments)
1.4 0.1 1.5 - 1.5
Other material items 31 December 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)
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.
Each segment is a continuing operation.
The Chief Executive, the Board and the executive 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
31 December 31 December 31 December
30 June 30 June 2021 30 June 30 June 2021 30 June 30 June 2021
2022 2021 £M 2022 2021 £M 2022 2021 £M
£M £M £M £M £M £M
Revenue
Residential 187.5 200.0 407.2 27.4 26.1 49.7 214.9 226.1 456.9
Commercial 92.1 87.9 178.6 16.8 15.9 31.7 108.9 103.8 210.3
279.6 287.9 585.8 44.2 42.0 81.4 323.8 329.9 667.2
3 NON-UNDERLYING ITEMS
Non-underlying items relate to the following:
Six months Six months
ended ended Year ended
30 June 30 June 31 December 2021
2022 2021 £M
£M £M
Continuing operations:
Impairment of intangibles, fixed assets and right of use assets - 1.2 2.1
Amortisation of acquired intangibles 0.7 0.9 1.6
Property disposal - (0.9) (5.1)
Impairment of property, plant and equipment and inventory (following fire)
- - 7.3
Business restructuring - 1.5 2.3
Insurance proceeds (following fire) (5.0) - -
(4.3) 2.7 8.2
Taxation on non-underlying items 0.8 (0.2) (1.5)
(3.5) 2.5 6.7
Discontinued operation:
Disposal of subsidiary (including Swiss property disposal) - (4.4) (4.4)
(3.5) (1.9) 2.3
4 FINANCE INCOME AND EXPENSE
Six months Six months
ended ended Year ended
30 June 30 June 31 December 2021
2022 2021 £M
£M £M
Interest income:
Bank interest 0.1 0.1 0.3
Other 0.3 0.1 0.1
Finance income 0.4 0.2 0.4
Interest expense:
Bank loans, overdrafts and other financial expenses (0.2) (0.2) (0.4)
Interest on lease liability (0.6) (0.7) (1.3)
Net interest on defined benefit plan obligation - - (0.1)
Other (0.2) - (0.1)
Finance expenses (1.0) (0.9) (1.9)
5 TAXATION
The Group's consolidated underlying effective tax rate ('ETR') for the interim
period is 20.2%. This is slightly higher than the standard rate of corporation
tax in the UK due to expenses not deductible for tax purposes and overseas
profits taxed at a higher rate.
The UK headline corporation tax rate for the six months ended 30 June 2022 was
19% (six months ended 30 June 2021: 19%; 12 months ended 31 December 2021:
19%). The deferred tax balance in respect of UK entities has been calculated
at 25% (30 June 2021: 25%; 31 December 2021: 25%) following the enactment in
2021 of the increase in the UK tax rate from 1 April 2023.
6 EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the
following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December 2021
2022 2021 £M
£M £M
Continuing operations earnings
Earnings for basic and diluted earnings per share 17.3 9.8 19.9
Earnings for underlying basic and underlying diluted earnings per share
13.8 12.3 26.6
Discontinued operations earnings
Earnings for basic and diluted earnings per share - 4.5 4.5
Earnings for underlying basic and underlying diluted earnings per share
- 0.1 0.1
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings
per share
83,872,158 84,409,416 84,484,084
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at period end 83,872,158 84,409,416 84,484,084
Dilutive effect of share options 906,056 1,242,836 1,070,830
Weighted average number of ordinary shares for the purposes of diluted
earnings per share
84,778,214 85,652,252 85,554,914
Continuing operations earnings per share
Basic 20.6p 11.6p 23.5p
Diluted 20.4p 11.4p 23.2p
Underlying basic 16.5p 14.7p 31.5p
Underlying diluted 16.3p 14.4p 31.1p
Discontinued operations earnings per share
Basic - 5.3p 5.3p
Diluted - 5.2p 5.2p
Underlying basic - 0.1p 0.2p
Underlying diluted - 0.1p 0.2p
7 DIVIDENDS
Six months ended Six months ended
30 June 30 June Year ended
2022 2021 31 December 2021
£M £M £M
Final dividend for 2021 of 8.60p paid 27 May 2022 7.2 - -
Special dividend of 17.70p paid 27 May 2022 14.9 - -
Dividend of a nominal amount of 2.00p paid 28 May 2021 - 1.7 1.7
Interim dividend for 2021 of 5.80p paid 29 November 2021 - - 4.9
22.1 1.7 6.6
The Board of Directors have declared for 2022, an interim ordinary dividend of
6.2 pence per share. This dividend is payable on 28 November 2022 to
shareholders on the register as at 28 October 2022, and is discussed further
in the Chief Executive's Statement and Financial Review above.
8 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.
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 the 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
Restated *
Period ended 17 May 2021
Underlying Non-underlying Total
£M £M £M
Revenue 9.1 - 9.1
Expenses (9.0) - (9.0)
Other gains (profit on sale of building) - 5.8 5.8
Profit before tax - 5.8 5.9
Attributable tax expense - (1.3) (1.3)
Profit after tax of discontinued operation 0.1 4.5 4.6
Loss on sale of subsidiary after tax - (0.1) (0.1)
Profit from discontinued operation 0.1 4.4 4.5
Reclassification of foreign currency translation reserve on disposal of 4.8
subsidiary
Other comprehensive income from discontinued operation 4.8
The information reported within this note for Belcolor relates to the prior
year only as the business was discontinued on 17 May 2021.
Restated *
Period ended
17 May
2021
£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 on disposal of 4.8
subsidiary
Tax expense on loss -
Loss on sale after tax (0.1)
Cash flows from discontinued operation
Net cash outflow from ordinary activities (1.8)
Net cash inflow from investing activities 12.4
Net increase in cash generated by the subsidiary 10.6
Effect of disposal on the financial position of the Group
Restated *
Period ended
17 May
2021
£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.
*At the year end 31 December 2021, the allocation of amounts between the loss
on sale of subsidiary and the profit on sale of building was reassessed. As
a result, the disclosures in relation to the discontinued operations made as
part of the 2021 Interim Results have been restated. Other gains (profit on
sale of building) and the attributable tax expense were restated from £8.6m
and £nil, to £5.8m and £(1.3)m respectively, whilst the loss on sale of
subsidiary after tax was restated from £(4.2)m to £(0.1)m. There has been
no change to the total profit from discontinued operations or the Income
Statement previously disclosed in the 2021 Interim Results.
9 FINANCIAL INSTRUMENTS
The fair value of the Group's financial assets and liabilities as detailed
below at 30 June 2022 were not materially different to the carrying value.
The table below sets out the Group's accounting classification of each class
of financial assets and liabilities at 30 June 2022.
Fair value
through profit Amortised cost Total
or loss (FVPL) £M carrying value
£M £M
Cash and cash equivalents - 32.4 32.4
Bank overdraft - (0.9) (0.9)
Borrowings due within one year - (25.5) (25.5)
Trade payables - (119.3) (119.3)
Non-trade payables - (38.5) (38.5)
Leasing liability - (33.7) (33.7)
Trade receivables - 84.9 84.9
Other receivables - 19.1 19.1
Provisions - (2.7) (2.7)
Derivative asset 0.1 - 0.1
0.1 (84.2) (84.1)
Financial instruments carried at fair value are categorised according to their
valuation method. The different levels have been defined below:
■ Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities.
■ Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly, as prices or
indirectly, derived from prices.
■ Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The Group has forward currency contracts which were fair valued in accordance
with level 2 (30 June and 31 December 2021: level 2).
Fair values
The carrying amounts shown in the Statement of Financial Position for
financial instruments are a reasonable approximation of fair value.
Trade receivables, trade payables and cash and cash equivalents
Fair values are assumed to approximate to cost due to the short-term maturity
of the instrument.
Borrowings, other financial assets and other financial liabilities
Where available, market values have been used to determine fair values. Where
market values are not available, fair values have been estimated by
discounting expected future cash flows using prevailing interest rate curves.
Amounts denominated in foreign currencies are valued at the exchange rate
prevailing at the Statement of Financial Position date.
10 CAPITAL COMMITMENTS
As at 30 June 2022, the Group had contractual commitments relating to the
purchase of property, plant and equipment of £10.5 million and intangibles of
£1.5 million (30 June 2021: £3.1 million and £nil; 31 December 2021: £0.4
million and £1.9 million).
11 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.
12 CONTINGENT ASSET
At June 2022, the Group identified a contingent asset relating to parts of an
insurance claim for losses arising from damage to the Group's property and
contents, as a result of the Kidderminster fire in December 2021, whilst the
asset relating to the inventory losses has been recognised in the financial
statements.
The insurers have accepted liability in respect of the Kidderminster fire
claim. However, the refund relating to the property and contents damage cannot
be reliably measured because:
· the decision to progress with the reinstatement is not yet final and
a change to that decision would cause the insurance refund to be based on a
negotiated settlement rather than the like-for-like reinstatement costs and
the resulting values could be materially different;
· there is uncertainty about whether some significant construction
preparation items will be required for the reinstatement;
· the competitive tendering process for the construction has not yet
started and so the construction costs are not known; and
· the insurance receipts are due as reinstatement progresses alongside
a volatile construction market.
An amount of £0.6 million was recognised in the financial statements at June
2022 relating to refunds for property and contents damage, with £0.4 million
received in cash and a further £0.2 million interim payment having been
recommended by the loss adjusters to the insurers.
The £4.4 million insurance claim refund relating to inventory losses as a
result of the Kidderminster fire was recognised in the financial statements at
June 2022, with £2.6 million received in cash in the period and the remaining
£1.8 million payment having been recommended by the loss adjusters to the
insurers at June 2022.
13 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
other than detailed in the Chief Executive's Statement and Financial Review.
Adjusted Results Reconciliation
30 June 2022
Total Results Insurance proceeds (following fire) Amortisation of acquired intangibles Adjusted Results (underlying)
Continuing operations £M £M £M £M
Revenue 323.8 - - 323.8
Cost of sales (214.8) - - (214.8)
Gross profit 109.0 - - 109.0
Distribution costs (64.6) - - (64.6)
Administrative expenses (27.2) - 0.7 (26.5)
Other operating income 5.0 (5.0) - -
Operating profit/(loss) 22.2 (5.0) 0.7 17.9
Finance income 0.4 - - 0.4
Finance expenses (1.0) - - (1.0)
Net finance costs (0.6) - - (0.6)
Profit/(loss) before tax 21.6 (5.0) 0.7 17.3
Taxation (4.3) 1.0 (0.2) (3.5)
Profit/(loss) from continuing operations 17.3 (4.0) 0.5 13.8
Profit/(loss) for the year attributable to the equity shareholders 17.3 (4.0) 0.5 13.8
Earnings/(loss) per share for profit from continuing operations
Basic 20.6p (4.8)p 0.7p 16.5p
Diluted 20.4p (4.8)p 0.7p 16.3p
Adjusted Results Reconciliation
30 June 2021
Total Results Impairment of goodwill and intangibles Amortisation of acquired intangibles Business restructuring Property disposal Profit from discontinued operation Adjusted Results (underlying)
Continuing operations £M £M £M £M £M £M £M
Revenue 329.9 - - - - - 329.9
Cost of sales (222.0) - - - - - (222.0)
Gross profit 107.9 - - - - - 107.9
Distribution costs (61.8) - - - - - (61.8)
Administrative expenses (31.4) 1.2 0.9 1.5 (0.9) - (28.7)
Operating profit/(loss) 14.7 1.2 0.9 1.5 (0.9) - 17.4
Finance income 0.2 - - - - - 0.2
Finance expenses (0.9) - - - - - (0.9)
Net finance costs (0.7) - - - - - (0.7)
Profit/(loss) before tax 14.0 1.2 0.9 1.5 (0.9) - 16.7
Taxation (4.2) (0.1) 0.1 (0.2) - - (4.4)
Profit/(loss) from continuing operations 9.8 1.1 1.0 1.3 (0.9) - 12.3
Profit/(loss) from discontinued operation 4.5 - - - - (4.4) 0.1
Profit/(loss) for the year attributable to the equity shareholders 14.3 1.1 1.0 1.3 (0.9) (4.4) 12.4
Earnings/(loss) per share for profit from continuing operations
Basic 11.6p 1.5p 1.1p 1.5p (1.0)p - 14.7p
Diluted 11.4p 1.5p 1.1p 1.5p (1.1)p - 14.4p
Earnings/(loss) per share for profit from discontinued operations
Basic 5.3p - - - - (5.2)p 0.1p
Diluted 5.2p - - - - (5.1)p 0.1p
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 23.5p 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
-Ends-
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