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