TIDMHEAD
RNS Number : 6809Y
Headlam Group PLC
07 March 2017
7 March 2017
Headlam Group plc
("Headlam" or the "Company")
Final Results for the year ended 31 December 2016
Headlam Group plc (LSE: HEAD), Europe's largest distributor of
floorcoverings, is pleased to announce its final results for the
year ended 31 December 2016.
Financial Highlights:
-- Total revenue increased by 6.0% to GBP693.6 million (2015: GBP654.1 million)
-- Significant outperformance of the 3.8% growth in the UK
floorcoverings market* with UK like-for-like** revenue growth of
4.7% in 2016 (2015: UK like-for-like** growth 3.9%)
-- Underlying*** profit before tax increased by 12.6% to GBP40.1
million (2015: GBP35.6 million)
-- Statutory profit before tax increased by 7.3% to GBP38.2m (2015: GBP35.6 million)
-- Basic underlying*** earnings per share increased by 14.5% to 38.7 pence (2015: 33.8 pence)
-- Total ordinary dividend in respect of the 2016 financial year
increased by 8.9% to 22.55 pence (2015: 20.70 pence)
-- Special dividend of 8.0 pence also declared in respect of the
2016 financial year (2015: special dividend of 6.0 pence)
-- Net cash position of GBP52.6 million as at 31 December 2016,
an increase of 19.8% on 2015 (31 December 2015: GBP43.9
million)
Operational Highlights:
-- Improved operating performance as a consequence of increased
revenue and leveraging of the extensive distribution network, with
underlying*** operating margin of 5.9% (2015: 5.6% (after adjusting
for one-off benefit))
-- No discernible impact on trading following the EU referendum
in June 2016, and able to implement price increases to mitigate
cost inflation due to a weakening of Sterling
-- Continued expansion of the distribution network with seven
service centres opened in 2016, and one post the year-end, bringing
the total number of service centres to 55
Post Year-End:
-- Tony Judge, who has worked at Headlam for more than 24 years,
will be appointed to the Board as Chief Operating Officer with
effect from 31 March 2017
-- Successful acquisition of Mitchell Carpets Limited, a
floorcovering distribution business based in Poole, Dorset,
bringing the number of wholly-owned businesses to 60
-- 2017 to date has shown continued growth in both the UK and
Continental Europe, and the Company continues to trade in line with
the Board's expectations for the full year
Steve Wilson, Chief Executive, said:
"2016 was another successful year for Headlam and we were able
to significantly outperform the steady growth in the UK
floorcoverings market and thereby gain market share, further
cementing our market leading position in Europe. The 2016 financial
results and overall financial strength of the Company have also
allowed us to declare another special dividend, which supplements
the Company's progressive ordinary dividend policy.
"We are dedicated to building on our existing business model
which has achieved the strong financial results evident to date,
whilst beginning to implement plans to further improve the
operating performance of the business going forward. 2017 to date
has shown continued growth in the UK and Continental Europe, and we
look forward to the year with confidence."
*Source: AMA Research Ltd - Floorcoverings Market Report UK
2016-2020 Analysis
**Like-for-like revenue is calculated based on constant currency
from activities and businesses that were in effect in both 2016 and
2015 and adjusting for variances in working days
***Before non-recurring items
Enquiries:
Headlam Group plc
Steve Wilson, Chief Executive Tel: 01675 433 000
Catherine Miles, Director Tel: 01675 433 006
of Communications
Investec Bank plc (Joint Tel: 020 7597 4000
Corporate Broker)
Garry Levin / David Flin
/ Alex Wright
Arden Partners plc (Joint Tel: 0121 423 8900 / 020
Corporate Broker) 7614 5900
Jonathan Keeling / Steve
Douglas
Buchanan (Financial PR and Tel: 020 7466 5000
IR)
Mark Court / Sophie Cowles
/ Catriona Flint
Notes for Editors:
Headlam is Europe's largest distributor of floorcoverings having
grown significantly via organic growth and acquisition since
1992.
Headlam provides the distribution link between suppliers and
customers of floorcoverings, providing suppliers with the greatest
coverage and customer penetration for their products across the UK
and Continental Europe, and customers with the broadest range of
products supported by next day delivery.
The Company is engaged with suppliers across 16 countries whose
products cover a significant proportion of the floorcoverings
market (including carpet, residential vinyl, wood, laminate, luxury
vinyl tile, underlay and commercial flooring). The Company's
customers are within the residential and commercial sectors and
comprise principally independent retailers and flooring
contractors.
The Company currently comprises 60 wholly-owned businesses in
the UK and Continental Europe each operating under their own trade
brand and utilising their individual sales team which achieves a
greater reach into the customer base.
Each of the businesses is supported by the Company's centralised
and financial resources and extensive distribution network across
the UK and Continental Europe that comprises four distribution
hubs, 18 distribution centres, 55 service centres and a corporate
showroom.
Chairman's Statement
2016 was another successful year for Headlam, with total revenue
and underlying profit before tax increasing by 6.0% and 12.6% to
GBP693.6 million and GBP40.1 million respectively compared with
2015. We were able to significantly outperform the steady growth in
the UK floorcoverings market and thereby gain market share, further
cementing our market leading position in Europe. As a consequence
of the increased revenue and leveraging of our extensive
distribution network, we were also able to deliver an improved
operating performance.
It was especially gratifying that we experienced no discernible
impact on trading following the EU referendum in June 2016, and
were able to implement price increases in August 2016 to mitigate
cost inflation due to a weakening of Sterling.
The 2016 financial results and overall financial strength of the
Company have allowed us to declare a further special dividend,
which supplements the Company's progressive ordinary dividend
policy. Therefore, dividends declared and proposed in respect of
the 2016 financial year, which are a reflection of the cash
generative nature of the business, total 30.55 pence, being a
combination of a total ordinary dividend amounting to 22.55 pence
per ordinary share (2015: 20.70 pence), an increase of 8.9% on
2015, and a special dividend of 8.0 pence per ordinary share (2015:
6.0 pence).
We would like to thank all our employees, without whom this
success would not be possible, and again would like to express our
appreciation to Tony Brewer who stepped down as Chief Executive
during 2016 and was instrumental in building Headlam into the
Company it is today. The Board was delighted that Steve Wilson
moved from Finance Director to Chief Executive ensuring continuity
and also providing the skillset for the future development of the
business. We are advanced with our search for a Chief Financial
Officer and are committed to securing someone of the calibre that
Headlam deserves. We are also pleased to announce that Tony Judge,
52, who has worked at Headlam for more than 24 years, will be
appointed to the Board as Chief Operating Officer with effect from
31 March 2017. Tony has held a number of senior operational roles
at the Company, most recently as the UK's Commercial Director. Tony
has 35 years' experience in the floorcoverings industry and brings
an abundance of knowledge and expertise to the role of Chief
Operating Officer*.
The Board recognises the value derived from good corporate
governance and the setting of high standards, not least in the
confidence it brings to our shareholders, employees, suppliers and
customers. The Board continues to encourage full participation and
contributions from all its employees and promotes a culture of
openness and transparency.
We are dedicated to building on our existing business model
which has achieved the strong financial results evident to date,
whilst beginning to implement plans to further improve the
operating performance of the business going forward.
2017 marks our 25(th) year as a distributor of floorcoverings
and we look forward to continue building on our success.
Dick Peters
Chairman
7 March 2017
*No further information is required to be disclosed pursuant to
LR 9.6.13
Chief Executive's Review
Strategy
Our strategic aim is to continue being the pre-eminent
distribution link between suppliers and customers of
floorcoverings, providing suppliers with the greatest coverage and
customer penetration for their products across Continental Europe,
and customers with the broadest range of products supported by next
day delivery. This is facilitated by our 60 wholly-owned businesses
across the UK and Continental Europe and extensive distribution
network that comprises four distribution hubs, 18 distribution
centres, 55 service centres and a corporate showroom. Each of the
Company's distribution businesses operates under its own brand name
and utilises its individual sales team, while being supported by
the Company's centralised and financial resources, which allows
greater reach into the customer base. The Company's customers are
within the residential and commercial sectors and comprise
principally independent retailers and flooring contractors with
whom the Company's businesses typically have long-standing
relationships.
Performance
The Company continued to experience better than anticipated
trading throughout the year but particularly in the important
fourth quarter which accounted for 26.0% of total revenue in 2016
(2015: 25.6%).
Total revenue for the year of GBP693.6 million was up 6.0%
against 2015, approximately 4.5% in constant currency, with a
strong performance from both the UK and Continental Europe
operations. The second half of the year accounted for 52.6% of
revenue (H2 2015: 52.1%) reflecting the traditional weighting of
activity to the second half.
We experienced no discernible impact on trading following the EU
referendum result in June 2016, and the Company was able to
mitigate cost inflation due to a weakening of Sterling following
the referendum by implementing price increases to our customers
which mirrored those of our suppliers. The price increases were
implemented in August 2016 on virtually all residential sector
products sourced from Continental Europe. Purchases from suppliers
in the Eurozone accounted for roughly 70% of the Company's
residential sector purchases in 2016, and the price increases for
those products averaged approximately 6%. The Company's average
selling price across the majority of its UK products rose by
approximately 1.6% in 2016.
Gross margin was 30.60% versus 30.39% in 2015 (after adjusting
for an one-off benefit in 2015) due to product mix variance and
rebate benefit. The Company achieved an improved operating
performance, with underlying operating profit and underlying profit
before tax increasing 11.7% and 12.6% to GBP41.1 million and
GBP40.1 million respectively against 2015, reflecting utilisation
of the existing network and operational gearing from increased
revenue.
UK
The UK accounted for 86.8% of total revenue in 2016, a marginal
change from the 88.0% in 2015. There were no acquisitions in 2016,
and UK like-for-like growth was 4.7%, a significant outperformance
of the 3.8% growth in the market (Source: AMA Research Ltd -
Floorcoverings Market Report UK 2016-2020 Analysis) and the 3.9%
like-for-like growth in 2015.
Continental Europe
During 2016, the Company's three businesses in the Netherlands
were amalgamated into one trading name, Headlam BV, so that the
Company now has a total of three Continental European businesses
located in each of the Netherlands, France and Switzerland.
Continental Europe revenue grew by 3.6% to GBP81.5 million in
constant currency, strongly reversing the decline of 3.8% in 2015,
and, following translation, accounted for 13.2% of total revenue in
2016 (2015: 12.0%).
Suppliers
We continue to engage with suppliers around the world to provide
them with unique access to market for their products and are now
engaged with 107 significant suppliers in 16 countries. Our
suppliers' products cover a significant proportion of the
floorcoverings market (including carpet, residential vinyl, wood,
laminate, luxury vinyl tile, underlay and commercial flooring) and
we continue to look to supplement product lines either by engaging
with suppliers or via acquisition.
Customers
Our customers are within the residential and commercial sectors,
and the revenue split between the two sectors has remained broadly
similar over the past few years. In 2016 the residential sector
accounted for 67.5% of total revenue (2015: 67.2%) and the
commercial sector for 32.5% (2015: 32.8%). The residential sector
revenue is principally comprised of sales to independent retailers,
and as a consequence is characterised by many smaller orders. In
the UK, the Company's average order cut value for residential
carpet and residential vinyl in 2016 were GBP127.44 and GBP68.03
respectively.
Operational Gearing and Investments
One of the focuses for 2017 and beyond is the operational
gearing of the business above and beyond that which comes from
additional revenue and growing our market leading position. In
relation to this we are looking at the refinement and more
effective and efficient utilisation of our distribution network.
Initiatives already undertaken at negligible cost include merging
IT platforms and de-duplication of inventory in instances where two
distribution centres are located in close proximity to each other,
which has effectively created growth capacity. This can be
replicated across other parts of the network in 2017 and 2018 and
it is our intention to examine other straightforward initiatives as
well as longer-term plans. No job losses are anticipated as part of
these future initiatives and they will also improve service for
customers.
We have re-examined the plans for our proposed purpose built
distribution centre in Ipswich for Faithfulls Floorcovering, one of
our regional multi-product businesses which has experienced good
growth and has outgrown its existing premises in nearby Hadleigh.
Whilst we have received planning permission for our initial
proposed site we are now considering an alternative site also in
the Ipswich area that will better suit our needs and is more in
line with our strategy of making our network ultimately more
efficient while creating growth capacity. This potential new site
is in a purpose-built distribution park, offers a quicker build and
operational timeline, and 33% more cubic capacity in the same
footprint as the initial site. The anticipated total cost,
including land cost and warehouse equipment, is slightly higher at
GBP17 million compared with the approximate GBP15 million for the
initial site, but it is hoped that, due to its simpler nature, the
distribution centre can be operational during the first half of
2018. There is also scope in the future for the new Ipswich site to
support other Company businesses in the area.
Customer service is of paramount importance to our business
model and we continue to develop our low-cost service centre
network allowing ease of customer collection and ordering. Seven
new service centres were opened in strategic locations in 2016, six
in the UK and one in the Netherlands, and a further one in the UK
post the year end bringing the total to 55 across the Company. This
service centre network has led to the number of customer
collections in the UK increasing by 29,528 in 2016 to 953,428
(2015: 923,900) which has the added benefit of reducing
distribution costs.
Acquisitions
We continue to pursue growth both organically and via bolt-on
acquisitions to build on our market leading position, and assess
acquisitions on a continual basis utilising strict criteria. While
no acquisitions were completed during 2016, since the year-end the
Company has completed the acquisition of Mitchell Carpets Limited,
a regional floorcovering distribution business based in Poole,
Dorset. This has brought the total number of wholly-owned
businesses in the UK and Continental Europe to 60, and all our
businesses benefit from being part of the Company through our
continued financial and centralised support and purchasing
economies of scale.
Ordinary and Special Dividends
With the existing capital expenditure plans largely aligned with
previous guidance, coupled with the robust financial performance
and strength of the business, we are pleased to be able to declare
a further special dividend. The special dividend is our mechanism
of returning surplus cash to shareholders when it is not currently
required due to our strong cashflow, cash balances and already
well-invested extensive distribution network. Therefore, total
dividends in respect to the 2016 financial year increased by 14.4%
to 30.55 pence per ordinary share (2015: 26.70 pence). We shall
continue to consider future special dividend payments in
conjunction with potential acquisitions and future capital
expenditure plans.
Current Trading
2017 to date has shown continued growth in both the UK and
Continental Europe, and the Company continues to trade in line with
the Board's expectations for the full year. UK like-for-like
revenue growth was 0.23% and 2.10% in January and February 2017
respectively, with January and February 2016 being particularly
strong comparators having recorded like-for-like growth of 9.18% of
3.33% respectively.
Continental Europe grew by 0.25% and 4.63% in January and
February 2017 respectively in constant currency continuing the
positive performance seen in 2016.
We implemented further price increases in January 2017 averaging
approximately 3% across the majority of our residential sector
products purchased from Continental Europe, again mirroring those
of our suppliers and with no detrimental effect on trading to date.
We will continue to monitor movements in currency and pricing and
endeavour to implement price increases accordingly.
As stated above, a focus of 2017 is the network's effectiveness
and efficiency, and also overheads so that incremental revenue has
a greater impact on operating margin going forward, and we look
forward to the year with confidence.
Steve Wilson
Chief Executive
7 March 2017
Financial Review
Revenue
During the year, revenue increased by GBP39.5 million from
GBP654.1 million to GBP693.6 million, an improvement of 6.0%.
The Company's UK organic like-for-like growth of 4.7% once more
outperformed forecasted annual market growth (Source: AMA Research
Ltd) with the like-for-like performance of 5.1% during the second
half accelerating ahead of the first half performance of 3.4%. UK
residential revenues accounted for 70.1% of total UK revenues in
2016 and achieved an annual like-for-like performance of 5.3%
benefiting from the stronger showing during the second half of
5.8%, compared with the first half of 4.7% as markets strengthened
during the course of the year.
Commercial revenues in the UK, representing 29.9% of total UK
revenues in 2016, increased by 1.9% on a like-for-like basis with a
second half of 3.4% versus 0.4% in the first half.
GBP000 % GBP000 %
-------- ----- -------- ------
Revenue for the year ended
31 December 2015
UK 575,341 88.0
Continental Europe 78,737 12.0
654,078 100.0
Items contributing to growth
during the
twelve-month period
to 31 December 2016
Like for like UK organic
growth 24,356 4.3
Additional working day 2,290 0.4
Acquisition 117 -
26,763 4.7
Growth in Continental
Europe 2,798 3.6
Translation effect 9,933 -
12,731 16.2
Total movement 39,494 6.0
Revenue for the year ended
31 December 2016
UK 602,104 86.8
Continental Europe 91,468 13.2
693,572 100.0
-------- ------
The revenue from the Continental European businesses improved
during the year with the first half like-for-like improvement of
2.8% increasing to 4.3% during the second half giving rise to an
annual increase of 3.6% in constant currency.
Both the Netherlands and France businesses contributed to the
increase, with the Swiss business in line with its performance in
2015.
The weighting between combined residential and commercial
revenue in Continental Europe showed a slight movement to
commercial with 49.3% of revenue (2015: 48.8%).
Gross Margin
Gross margin decreased marginally during the year from 30.7% in
2015 to 30.6%. However, the gross margin achieved during 2015
included a one-off benefit amounting to 31 basis points and
totalling GBP2.0 million, which arose during 2015 because of the
rapid appreciation of Sterling against the Euro during the first
quarter of the year. After adjusting for this one-off benefit,
underlying gross margin in 2016 improved 21 basis points against
2015, attributable to product mix variance of 9 basis points and a
rebate benefit of 12 basis points.
Expenses
Combined distribution and administrative expenses increased by
5.9%, up by GBP9.7 million, from GBP163.7 million to GBP173.4
million. The percentage proportions of distribution and
administration expenses of total expenses for 2016 remained largely
unaltered compared with 2015, with 2016 being 73.8% and 26.2%
respectively (2015: 73.3% and 26.7%).
Total expenses Distribution Administration
GBP000 % GBP000 % GBP000 %
-------- ------- -------- ------- -------- -------
Expenses
for 2015 163,733 120,070 73.3 43,663 26.7
Significant movements
in 2016:
People
cost 5,596 78.4 4,444 79.2 1,152 75.7
Commercial
vehicle expenses 801 11.2 801 14.3 - -
Carriage
costs 330 4.6 330 5.9 - -
Packaging costs 251 3.5 251 4.5 - -
Sampling investment 366 5.1 366 6.5 - -
Bad debts (723) (10.1) (723) (12.9) - -
Depreciation 472 6.6 2 - 470 30.9
Ipswich 305 4.3 - - 305 20.1
Occupancy (232) (3.2) - - (232) (15.2)
Share based
payments 139 1.9 - - 139 9.1
Intangibles (375) (5.3) - - (375) (24.6)
Warehouse repairs 236 3.3 236 4.2 - -
Discounts 496 7.0 - - 496 32.6
Foreign exchange
gains (471) (6.6) - - (471) (30.9)
Other (57) (0.7) (95) (1.7) 38 2.3
7,134 100.0 5,612 100.0 1,522 100.0
Currency translation 2,492 2,300 192
Expenses
for 2016 173,359 127,982 73.8 45,377 26.2
-------- -------- --------
The increase in people cost, GBP5.6 million (2015: increase of
GBP3.0 million), was once more the largest component increase,
being 78.4% of the gross expenses increase before currency
translation. The increase was fuelled by the cost of living
increase of 2.5% awarded to all UK employees, a modest increase in
people numbers, incentive awards relating to annual performance
targets, and non-recurring costs relating to personnel changes of
GBP1.9 million.
Costs relating to the currency translation of the Continental
European businesses amounted to GBP2.5 million, reflecting the
degree to which Sterling depreciated against the Euro and Swiss
Franc in 2016.
The remaining expenses movements were directly linked to the
increase in revenue during 2016 compared with 2015.
Operating profit
The underlying operating profit for 2016 increased by 11.7%
compared with 2015 and the underlying operating margin improved to
5.9%, up from 5.6% (after adjusting for the one-off benefit),
reflecting the absolute gain in gross margin due to the volume
benefits on the additional revenue, product mix variance and rebate
benefit. The operating margin generated by the incremental
year-on-year revenue improvement amounted to 10.9% compared with
28.2% in 2015 due to a substantial increase in overhead costs
primarily related to people and the cost of living award.
GBP000
--------
Operating profit 2015 36,777
Gross margin improvement
in 2016
Volume benefit 11,986
Pricing benefit 2,008
Currency one-off benefit
in 2015 (2,000)
11,994
Expenses increase in 2016
Distribution (7,912)
Administration 213
Total increase (7,699)
Underlying operating profit
2016 41,072
--------
Drop through rate - % 10.9
Operating margin - % 5.9
Improvement - % 11.7
Tax
The underlying effective tax rate for 2016 was 18.9% which is
lower than the headline rate of corporation tax in the UK of 20%.
The main reason for this difference is due to a release in
provisions for uncertain tax positions following a reassessment of
the level of tax risks in the Company. The anticipated effective
underlying rate for 2017 is expected to be 19%.
The Company is committed to being fully compliant with the
relevant tax laws and compliance obligations regarding the filing
of tax returns, payment and collection of tax. The Company
maintains an open relationship with HM Revenue & Customs and
currently operates with a level of tax compliance risk that is
rated as "low".
The Company 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 ordinary dividend policy is aimed at improving
dividends annually, such that the total of the interim and final
dividends for any particular financial 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 Company's cash resource, adequacy of
distributable reserves and the expected cash requirements of the
Company.
Basic underlying earnings per share for the year increased to
38.7 pence, representing an improvement of 14.5% on basic earnings
of 33.8 pence for 2015. Total ordinary dividends declared and
proposed in relation to 2016 have increased by 8.9% from 20.7 pence
to 22.55 pence which represents a cover ratio of 1.63 based on
basic earnings per share of 36.8 pence.
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 dividend 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. Details of current year distributable reserves
are shown in the retained earnings column in the Statement of
Changes in Equity.
Dividend announcements, approvals and payments are typically
expected to be as follows:
Status and
date Approximate
Dividend Announced Approval payment date
--------- ---------------- -------------------- --------------------
Ordinary Declared August The August January in
interim Board meeting the year following
announcement
--------- ---------------- -------------------- --------------------
Ordinary Recommended AGM by shareholders July
final March - May
--------- ---------------- -------------------- --------------------
Special dividends
The Board gives consideration to the distribution of surplus
capital by the use of special dividend payments. As first stated in
the 2015 Annual Report, the circumstances that apply to any special
dividend declaration are: firstly, the Company's 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 earnings before
interest, tax, depreciation and amortisation; 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
Company's asset base.
The Board have decided to declare a special dividend of 8.0
pence per ordinary share (2015: special dividend of 6.0 pence per
ordinary share). The payment will be made on 24 April 2017 to
shareholders on the register at 31 March 2017.
Employee benefits
The liability attaching to employee benefits is as follows:
2016 2015
GBP000 GBP000
------------------------- -------- --------
Current liabilities 2,169 2,171
Non-current liabilities 20,781 16,843
------------------------- -------- --------
Total 22,950 19,014
------------------------- -------- --------
Whilst the liability relates to both the UK and Swiss defined
benefit pension plans, its composition is dominated by the UK plan.
The year-on-year increase in the deficit amounts to GBP3.9 million.
This was mainly caused by the increase in the liabilities of the UK
defined benefit pension plan resulting from the decrease in the
discount rate assumption from 3.7% per annum to 2.7% per annum over
the year. This decrease was a consequence of the significant fall
over the year in UK corporate bond yields, which are used to derive
this assumption.
Cash flow
Net cash flow from operating activities
During the year, net cash flow from operating activities
decreased by GBP3.9 million from GBP36.5 million to GBP32.6
million. The elements contributing to the movement are shown in the
table below.
GBP000
----------------------------------- --------
2015 net cash flow from operating
activities 36,506
Operating profit 2,368
Depreciation and amortisation 97
Profit on asset disposals 16
Share based payments 139
Working capital (5,916)
Interest paid 135
Taxation (1,458)
Lower pension contributions 754
----------------------------------- --------
2016 net cash flow from operating
activities 32,641
----------------------------------- --------
As with previous years, two key contributors to the year-on-year
movement were the operating profit increase of GBP2.4 million and
the net working capital investment of GBP5.9 million. In addition,
there was a significant increase in the tax payment during the
year.
The working capital movement of GBP5.9 million is due to a cash
inflow of GBP3.9 million reported in 2015 and the more normal
working capital profile of 2016 giving a cash outflow of GBP2.0
million. The increase in inventory and receivables, GBP5.9 million
and GBP6.5 million respectively, was driven by the revenue activity
and supported by a GBP10.4 million rise in payables.
The increase in the tax payment is solely due to the timing of
tax payments.
Cash flows from investing and financing activities
The table below summarises the cash flow movements arising from
investing and financing activities during the year. The overall net
cash outflow from the two activities was GBP38.0 million, with the
two main factors being a reduction in debt through the repayment of
borrowings and the additional dividend payment as a result of last
year's maiden special dividend payment.
GBP000
-------------------------------------- ---------
2015 cash flows from investing
activity (3,830)
2015 cash flows from financing
activity (16,467)
-------------------------------------- ---------
(20,297)
Movement in investing activity:
Net reduction in capital expenditure 17
Interest received 26
Acquisitions 1,977
-------------------------------------- ---------
2,020
Movement in financing activity:
Treasury share issues (582)
Share purchase (647)
Repayment of borrowings (10,727)
Dividends paid (7,809)
-------------------------------------- ---------
(19,765)
-------------------------------------- ---------
Net movement (17,745)
-------------------------------------- ---------
2016 cash flows from investing
activity (1,810)
2016 cash flows from financing
activity (36,232)
-------------------------------------- ---------
(38,042)
-------------------------------------- ---------
Net debt
As detailed in the table below, Company net funds at the end of
the year increased by GBP8.7 million, 19.8%, from GBP43.9 million
to GBP52.6 million.
At At
1 January Cash Translation 31 December
2016 flows differences 2016
Group GBP000 GBP000 GBP000 GBP000
------------------ ----------- --------- -------------- -------------
Cash at bank and
in hand 63,932 (5,397) 808 59,343
Bank overdraft - (4) - (4)
Debt due within
one year - (215) (9) (224)
Debt due after
one year (20,000) 13,759 (252) (6,493)
------------------ ----------- --------- -------------- -------------
43,932 8,143 547 52,622
------------------ ----------- --------- -------------- -------------
Funding and going concern
The Company completed a refinancing of its UK banking
facilities, which were due for renewal on 8 March 2017, on 14
December 2016. The Company has entered into two separate agreements
with Barclays Bank PLC and HSBC Bank Plc and include both Sterling
and Euro term facilities. The new banking arrangements, which run
to 14 December 2021, increase the level of Sterling committed
facilities from GBP40 million to GBP47.5 million, and have
additional Euro facilities of EUR8.6 million. The Company also has
short-term uncommitted facilities which amount to GBP25 million,
and are renewable on an annual basis. In addition, the group has
existing facilities of GBP7.8 million in Continental Europe.
The Company maintains sufficient banking facilities to fund its
operations and investments, and as at 31 December 2016 92.3% of the
total facilities were undrawn as shown below.
Total
Drawn Undrawn facility
GBP000 GBP000 GBP000
------------------------ -------- -------- ----------
Less than one year 228 32,819 33,047
Over one year and less
than five years 6,493 48,111 54,604
------------------------ -------- -------- ----------
6,721 80,930 87,651
------------------------ -------- -------- ----------
Having reviewed the Company's resources and a range of likely
outcomes, the Board believes there are reasonable grounds for
stating that the Company has adequate resources to continue in
operational existence for a period no shorter than twelve months
from the date of this financial review and it is appropriate to
adopt the going concern basis in preparing the Company's financial
accounts.
Consolidated Income Statement
for the year ended 31 December 2016
Underlying Non-underlying Total
2016 2016 2016 2015
Note GBP000 GBP000 GBP000 GBP000
--------------------------------- ---- ---------- -------------- --------- ---------
Revenue 1 693,572 - 693,572 654,078
Cost of sales (481,068) - (481,068) (453,568)
--------------------------------- ---- ---------- -------------- --------- ---------
Gross profit 212,504 - 212,504 200,510
Distribution costs (127,982) - (127,982) (120,070)
Administrative expenses 2 (43,450) (1,927) (45,377) (43,663)
--------------------------------- ---- ---------- -------------- --------- ---------
Operating profit 1 41,072 (1,927) 39,145 36,777
Finance income 756 - 756 738
Finance expenses (1,722) - (1,722) (1,891)
--------------------------------- ---- ---------- -------------- --------- ---------
Net finance costs (966) - (966) (1,153)
--------------------------------- ---- ---------- -------------- --------- ---------
Profit before tax 40,106 (1,927) 38,179 35,624
Taxation (7,601) 385 (7,216) (7,213)
--------------------------------- ---- ---------- -------------- --------- ---------
Profit for the year attributable
to the equity shareholders 32,505 (1,542) 30,963 28,411
--------------------------------- ---- ---------- -------------- --------- ---------
Dividend paid per share 5 26.70p 17.50p
Earnings per share
Basic 4 38.7p 36.8p 33.8p
--------------------------------- ---- ---------- -------------- --------- ---------
Diluted 4 38.5p 36.6p 33.7p
--------------------------------- ---- ---------- -------------- --------- ---------
All group operations during the financial years were continuing
operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016 2015
GBP000 GBP000
----------------------------------------------- -------- --------
Profit for the year attributable to
the equity shareholders 30,963 28,411
Other comprehensive income:
Items that will never be reclassified
to profit or loss
Remeasurement of defined benefit plans (4,336) 1,292
Related tax 961 (231)
Impact of change in UK tax rates on
deferred tax (183) (323)
------------------------------------------------ -------- --------
(3,558) 738
Items that are or may be reclassified
to profit or loss
Foreign exchange translation differences
arising on translation of overseas operations 1,707 6
Effective portion of changes in fair
value of cash flow hedges 572 (556)
Transfers to profit or loss on cash
flow hedges 175 172
Related tax (148) 66
Impact of change in UK tax rates on
deferred tax (3) (8)
------------------------------------------------ -------- --------
2,303 (320)
----------------------------------------------- -------- --------
Other comprehensive (expense)/income
for the year (1,255) 418
------------------------------------------------ -------- --------
Total comprehensive income attributable
to the equity shareholders
for the year 29,708 28,829
------------------------------------------------ -------- --------
Statements of Financial Position
at 31 December 2016
Restated* Restated*
2016 2015 2014
Note GBP000 GBP000 GBP000
--------------------------------------- ---- --------- --------- ---------
Assets
Non-current assets
Property, plant and equipment 102,934 104,677 106,875
Investment properties - - -
Intangible assets 10,388 10,388 10,013
Investments in subsidiary undertakings - - -
Deferred tax assets 1,138 629 515
--------------------------------------- ---- --------- --------- ---------
114,460 115,694 117,403
--------------------------------------- ---- --------- --------- ---------
Current assets
Inventories 126,037 118,165 115,591
Trade and other receivables 128,934 120,300 118,962
Cash and cash equivalents 59,343 63,932 47,589
--------------------------------------- ---- --------- --------- ---------
314,314 302,397 282,142
--------------------------------------- ---- --------- --------- ---------
Total assets 3 428,774 418,091 399,545
--------------------------------------- ---- --------- --------- ---------
Liabilities
Current liabilities
Bank overdraft (4) - -
Other interest-bearing loans
and borrowings (224) - (204)
Trade and other payables (183,304) (171,375) (165,240)
Employee benefits (2,169) (2,171) (2,933)
Income tax payable (6,824) (6,974) (6,073)
--------------------------------------- ---- --------- --------- ---------
(192,525) (180,520) (174,450)
--------------------------------------- ---- --------- --------- ---------
Non-current liabilities
Other interest-bearing loans
and borrowings (6,493) (20,000) (22,818)
Provisions (1,531) (1,087) (787)
Deferred tax liabilities (4,077) (4,533) (3,931)
Employee benefits (20,781) (16,843) (18,803)
--------------------------------------- ---- --------- --------- ---------
(32,882) (42,463) (46,339)
--------------------------------------- ---- --------- --------- ---------
Total liabilities 3 (225,407) (222,983) (220,789)
--------------------------------------- ---- --------- --------- ---------
Net assets 203,367 195,108 178,756
--------------------------------------- ---- --------- --------- ---------
Equity attributable to equity
holders of the parent
Share capital 4,268 4,268 4,268
Share premium 53,512 53,512 53,512
Other reserves 2,272 (275) (1,721)
Retained earnings 143,315 137,603 122,697
--------------------------------------- ---- --------- --------- ---------
Total equity 203,367 195,108 178,756
--------------------------------------- ---- --------- --------- ---------
*See note 1.
These financial statements were approved by the board of
directors on 7 March 2017 and were signed on its behalf by:
Steve Wilson
Director
Company Number: 460129
Statement of Changes in Equity
for the year ended 31 December 2016
Cash
Capital flow Restated* Restated*
Share Share redemption Translation hedging Treasury Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Balance at 1 January
2015 4,268 53,512 88 5,423 (132) (7,100) 126,018 182,077
Restatement - - - - - - (3,321) (3,321)
Restated balance
at 1 January 2015 4,268 53,512 88 5,429 (132) (7,100) 122,697 178,756
Profit for the year
attributable to the
equity shareholders - - - - - - 28,411 28,411
Other comprehensive
income - - - 6 (384) - 796 418
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Total comprehensive
income/(expense)
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) 137,603 195,108
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Balance at 1 January
2016 4,268 53,512 88 5,429 (516) (5,276) 137,603 195,108
Profit for the year
attributable to the
equity shareholders - - - - - - 30,963 30,963
Other comprehensive
income - - - 1,707 747 - (3,709) (1,255)
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Total comprehensive
income/(expense)
for the year - - - 1,707 747 - 27,254 29,708
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Transactions with
equity shareholders,
recorded directly
in equity
Share-based payments - - - - - - 1,239 1,239
Share options exercised
by employees - - - - - 740 (317) 423
Consideration for
purchase of own shares - - - - - (647) - (647)
Current tax on share
options - - - - - - 21 21
Deferred tax on share
options - - - - - - (21) (21)
Dividends to equity
holders - - - - - - (22,464) (22,464)
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Total contributions
by and distributions
to equity shareholders - - - - - 93 (21,542) (21,449)
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
Balance at 31 December
2016 4,268 53,512 88 7,136 231 (5,183) 143,315 203,367
------------------------ -------- -------- ----------- ----------- -------- -------- ---------- ----------
*See note 1.
Cash Flow Statements
for the year ended 31 December 2016
2016 2015
GBP000 GBP000
------------------------------------------ -------- --------
Cash flows from operating activities
Profit before tax for the year 38,179 35,624
Adjustments for:
Depreciation, amortisation and impairment 5,276 5,179
Finance income (756) (738)
Finance expense 1,722 1,891
(Profit)/loss on sale of property,
plant and equipment (15) (31)
Share-based payments 1,239 1,100
------------------------------------------- -------- --------
Operating cash flows before changes
in working capital and other payables 45,645 43,025
Change in inventories (5,895) (1,827)
Change in trade and other receivables (6,467) (1,524)
Change in trade and other payables 10,365 7,270
------------------------------------------- -------- --------
Cash generated from the operations 43,648 46,944
Interest paid (1,133) (1,268)
Tax paid (7,703) (6,245)
Additional contributions to defined
benefit plan (2,171) (2,925)
------------------------------------------- -------- --------
Net cash flow from operating activities 32,641 36,506
------------------------------------------- -------- --------
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 401 277
Interest received 752 726
Dividends received - -
Acquisition of subsidiaries, net
of cash acquired - (1,977)
Acquisition of property, plant and
equipment (2,963) (2,856)
------------------------------------------- -------- --------
Net cash flow from investing activities (1,810) (3,830)
------------------------------------------- -------- --------
Cash flows from financing activities
Proceeds from the issue of treasury
shares 423 1,005
Payment to acquire own shares (647) -
Repayment of borrowings (20,000) (2,817)
Drawdown of loans 6,456 -
Dividends paid (22,464) (14,655)
------------------------------------------- -------- --------
Net cash flow from financing activities (36,232) (16,467)
------------------------------------------- -------- --------
Net (decrease)/increase in cash and
cash equivalents (5,401) 16,209
Cash and cash equivalents at 1 January 63,932 47,589
Effect of exchange rate fluctuations
on cash held 808 134
------------------------------------------- -------- --------
Cash and cash equivalents at 31 December 59,339 63,932
------------------------------------------- -------- --------
Notes
1 Accounting Policies
Basis of preparation
The comparative balance sheet has been restated in order to;
align certain accounting policies of overseas companies, better
reflect the net value of certain inventory product lines, reassess
deferred tax in relation to property, and to reclassify certain
balances in order to present them in a consistent manner with the
current year.
The net impact of these changes has been to change the Statement
of Financial Position as follows:
GBP000
----------------------------- -------
Property plant and equipment 3,414
Deferred tax (6,142)
Inventory (978)
Trade and other receivables 146
Trade and other payables 239
Brought forward reserves 3,321
----------------------------- -------
2 Non-underlying items
Non-underlying items relate to non-recurring people costs paid
out during the year and the related tax on these costs.
3 Segment reporting
At 31 December 2016, the Company has 56 operating segments in
the UK and three operating segments in Continental Europe. On 28
February 2017, the group acquired Mitchell Carpets Limited taking
the total to 60 operating segments. Each segment represents an
individual trading operation, and each operation is wholly aligned
to the sales, marketing, supply and distribution of floorcovering
products. The operating results of each operation are regularly
reviewed by the Chief Operating Decision Maker, which is deemed to
be the Chief Executive. Discrete financial information is available
for each segment and used by the Chief Executive to assess
performance and decide on resource allocation.
The operating segments have been aggregated to the extent that
they have similar economic characteristics. The key economic
indicators considered by management in assessing whether operating
segments have similar economic characteristics are the products
supplied, the type and class of customer, method of sale and
distribution and the regulatory environment in which they
operate.
As each operating segment is a trading operation wholly aligned
to the sales, marketing, supply and distribution of floorcovering
products, management 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 Company's internal management structure and financial
reporting systems differentiate the operating segments on the basis
of the differing economic characteristics in the UK and Continental
Europe and accordingly present these as two separate reportable
segments. This distinction is embedded in the construction of
operating reports reviewed by the Chief Executive, the Board and
the executive management team and forms the basis for the
presentation of operating segment information given below.
UK Continental Europe Total
Restated* Restated* Restated*
2016 2015 2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- --------- --------- --------- --------- --------- ---------
Revenue
External revenues 602,104 575,341 91,468 78,737 693,572 654,078
---------------------- --------- --------- --------- --------- --------- ---------
Reportable segment
underlying operating
profit 40,944 37,363 793 575 41,737 37,938
---------------------- --------- --------- --------- --------- --------- ---------
Reportable segment
assets 263,968 255,189 44,516 36,030 308,484 291,219
Reportable segment
liabilities (167,755) (158,859) (23,801) (13,087) (191,556) (171,946)
---------------------- --------- --------- --------- --------- --------- ---------
During the year, there were no inter-segment revenues for the
reportable segments (2015: GBPnil).
*See note 1.
Reconciliations of reportable segment profit, assets and
liabilities and other material items:
2016 2015
GBP000 GBP000
------------------------------------- ------- -------
Profit for the year
Total profit for reportable segments 41,737 37,938
Non-underlying items (1,927) -
Unallocated expense (665) (1,161)
------------------------------------- ------- -------
Operating profit 39,145 36,777
Finance income 756 738
Finance expense (1,722) (1,891)
------------------------------------- ------- -------
Profit before taxation 38,179 35,624
Taxation (7,216) (7,213)
------------------------------------- ------- -------
Profit for the year 30,963 28,411
------------------------------------- ------- -------
Restated*
2016 2015
GBP000 GBP000
-------------------------------------------- --------- ---------
Assets
Total assets for reportable segments 308,484 291,219
Unallocated assets:
Properties, plant and equipment 90,981 93,242
Deferred tax assets 1,138 629
Cash and cash equivalents 28,171 33,001
-------------------------------------------- --------- ---------
Total assets 428,774 418,091
-------------------------------------------- --------- ---------
Liabilities
Total liabilities for reportable segments (191,556) (171,946)
Unallocated liabilities:
Employee benefits (22,950) (19,014)
Other interest-bearing loans and borrowings - (20,000)
Income tax payable (6,824) (6,974)
Derivative liabilities - (516)
Deferred tax liabilities (4,077) (4,533)
-------------------------------------------- --------- ---------
Total liabilities (225,407) (222,983)
-------------------------------------------- --------- ---------
Continental Reportable Consolidated
UK Europe segment total Unallocated total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------- ----------- -------------- ----------- ------------
Other material items 2016
Capital expenditure 1,808 872 2,680 283 2,963
Depreciation 2,388 732 3,120 2,156 5,276
Non-underlying items - - - 1,927 1,927
-------------------------- ------- ----------- -------------- ----------- ------------
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
-------------------------- ------- ----------- -------------- ----------- ------------
In the UK the Company'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 senior executive
management team have access to information that provides details on
revenue by principal product group for the two reportable segments,
as set out in the following table:
Revenue by principal product group and geographic origin is
summarised below:
UK Continental Europe Total
2016 2015 2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ ------- ------- --------- --------- ------- -------
Revenue
Residential 422,048 399,453 46,337 40,281 468,385 439,734
Commercial 180,056 175,888 45,131 38,456 225,187 214,344
------------ ------- ------- --------- --------- ------- -------
602,104 575,341 91,468 78,737 693,572 654,078
------------ ------- ------- --------- --------- ------- -------
*See note 1.
4 Earnings per share
2016 2015
GBP000 GBP000
--------------------------------------------- ------- -------
Earnings
Earnings for underlying basic and underlying
diluted earnings per share 32,505 -
Earnings for basic and diluted earnings per
share 30,963 28,411
--------------------------------------------- ------- -------
2016 2015
------------------------------------------------ ----------- -----------
Number of shares
Issued ordinary shares at 31 December 85,363,743 85,363,743
Effect of shares held in treasury (1,330,339) (1,331,576)
------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares
for the purposes of basic earnings per share 84,033,404 84,032,167
------------------------------------------------ ----------- -----------
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares
at 31 December 84,033,404 84,032,167
Dilutive effect of share options 458,697 282,078
------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted earnings per share 84,492,101 84,314,245
------------------------------------------------ ----------- -----------
5 Dividends
2016 2015
GBP000 GBP000
---------------------------------------------- ------- -------
Interim dividend for 2015 of 6.00p paid 2
January 2016 5,048 -
Special dividend for 2015 of 6.00p paid 25
April 2016 5,048 -
Final dividend for 2015 of 14.70p paid 1 July
2016 12,368 -
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
---------------------------------------------- ------- -------
22,464 14,655
---------------------------------------------- ------- -------
The final proposed dividend of 15.85 pence per share (2015:
14.70 pence per share) will not be provided for until authorised by
shareholders at the forthcoming AGM. There are no income tax
consequences.
Interim dividends of 6.70 pence per share (2015: 6.00 pence per
share) are provided for when the dividend is paid. The dividend was
paid on 3 January 2017 and totalled GBP5,637,000.
The total value of dividends proposed but not recognised at 31
December 2016 is GBP18,974,000 (2015: GBP17,416,000).
A special dividend has been declared of 8.00 pence per share
that will be paid on 24 April 2017 to shareholders on the register
at 31 March 2017.
6 Subsequent events
Management have given due consideration to any events occurring
in the period from the reporting date to the date these financial
statements were authorised for issue and have concluded that there
are no material adjusting or non-adjusting events to be disclosed
in these financial statements, with the exception of the
acquisition of Mitchell Carpets Limited. On 28 February 2017, a
group subsidiary company acquired 100% of the issued share capital
of Mitchell Carpets Limited, a floorcovering distribution business
based in Poole, Dorset, for a consideration of GBP1,980,000,
subject to finalising the net assets position.
7 Additional information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2016
or 2015 but is derived from those accounts. Statutory accounts for
2015 have been delivered to the registrar of companies, and those
for 2016 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 2017 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 final results announcement for the year ended 31 December
2016 was approved by the Board on
7 March 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LQLLBDXFEBBB
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