REG - James Halstead PLC - Trading Update

James HalsteadAnnouncement

01/08/2022 07:00

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RNS Number : 3521U  James Halstead PLC  01 August 2022

 

1 August 2022

 

 

JAMES HALSTEAD PLC

(the "Company")

Trading Update

James Halstead plc, the commercial flooring manufacturer and international
distributor, is providing the following trading update ahead of its results
for the year ended 30 June 2022.

 

We can report that turnover in the year has been robust and will be around
9-10% ahead of the previous year. The sales growth has been in all our main
markets.

 

Being, principally, a UK manufacturer has definitely been advantageous
throughout the last two years as customers in our main markets look to the
advantages of local supply in a way not seen for a generation, and whilst this
is tempered by the difficulties, delays and costs that we face in export
transportation of goods to our global customers we have the experience to
manage the situation.

 

The inexorable increases in input costs, be it energy, fuel or international
freight rates have affected margins. As a manufacturer we require volume to
maintain our economies of scale and we operate in a sector that has excess
manufacturing capacity. Consequently, in seeking to protect our volume we have
been very cautious in our approach to price increases in regard to scale and
timing. Selling price increases have consistently lagged cost rises, a policy
based on both fairness to customers and awareness of possible migration to
competitors. Nevertheless, during the year we have been able to pass costs
onto the customers in all our markets either as price uplift or by delivery
surcharges, in some cases both. Inevitably delays in increasing prices have
had an effect on margins however the actions we have taken have helped to
contain this impact. Importantly, our volume has been preserved.

 

In recent months the complexities and challenges of rising energy costs, key
material shortages and inflation have required fresh solutions and forward
planning. During the Covid-19 pandemic we were left short of manpower with
many days of lost output and with a resulting reduction in productivity. This
meant that we started our financial year with a much lower than optimal level
of finished goods.

 

In response to these challenges and with more man-hours available
(particularly as the self-isolation rules relaxed) we have worked to raise
stock levels. With better availability of certain bulk raw materials (sourced
from Asia) and labour over the last few months, whilst still facing risks of
further shortages and very uncertain future energy costs, we resolved to
invest in stock. This decision to significantly increase stock holding by
utilising  our significant cash resources gives as a hedge against very
likely increased costs and shortages whilst giving up modest interest
receipts. These stock levels are historically exceptional and are not
sustainable over the long term but against the backdrop of the current world
stage are defensive and risk limiting. All markets are facing inflation and it
may be the case that the ongoing energy crisis curtails our ability to
manufacture or the affordability of doing so. The risks exist that energy
shortages in Europe reduce the availability of raw material supply and that
industrial action in our supply chain curtails the ability to manufacture.
Stock is our hedge and provides us the means to better withstand these
potential challenges, though not indefinitely. Against this we have also
gauged demand risk since it is possible that in the face of cost increases
demand will slow.

 

On the positive side the year has, in many markets, seen strong demand for
commercial contract flooring relative to last year. To a degree this demand
increase results from the low comparatives from sectors such as hospitality
and retail where this year has been more normalised.

 

During the last two years with work from home policies and the lack of foreign
holidays floor layers (that service both domestic and commercial markets) were
busy on extensions and refurbishment of homes. The repair and refurbishment of
flooring is resilient as the work needs to be done. However, these sales are
dependent on the availability of floor layers and we have seen a far greater
focus on commercial work than at any time in the last two years. This means
shortened lead times and for a period the increased demand might lead, at
least to an extent, to a backlog of commercial work. Notwithstanding our
caution about the durability of this demand as a "bubble" we can take
confidence that the demand is there and ongoing.  Furthermore, it is clear
that there is a trend of commercial contract flooring work moving in the
direction of vinyl floorcovering and away from the  alternatives (be it for
example ceramics, timber or carpet). This is not a new trend but is noticeably
increased. Moreover, despite the large increases in raw material costs that
have driven up vinyl flooring prices, our vinyl flooring products cover a
range of price points, typically lower than alternative floor coverings.
Historic experience of previous periods of expenditure constraint or recession
have shown vinyl to have benefited from "trading down" from these
alternatives. Analysis of our sales suggests this is, to a degree, already
happening.

 

This update is in regard to the trading conditions that have prevailed in the
year. It is still the case that our balance sheet remains strong and that the
Company remains ungeared with positive cash balances.

 

The Company continues to be in robust shape to weather the conditions it
faces.

 

The Company will announce its full results for the year to 30 June 2022 around
the end of September 2022.

 

 Enquiries:

 James Halstead plc                         Tel: 0161 767 2500
 Mark Halstead, Chief Executive
 Gordon Oliver, Finance Director

 Hudson Sandler                             Tel: 020 7796 4133
 Nick Lyon / Nick Moore

 Panmure Gordon (Nomad and Joint Broker)    Tel: 020 7886 2500
 Dominic Morley

 WH Ireland (Joint Broker)                  Tel: 020 7220 1666

 Ben Thorne / Chris Hardie

 

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