Final Results

RNS Number : 5275Z

Headlam Group PLC

08 March 2013

 



8 March 2013

Preliminary Results for the Year Ended 31 December 2012

Headlam Group plc ("Headlam"), Europe's leading floorcoverings distributor, announces its final results for the year ended 31 December 2012.

Financial highlights

	2012 £000	2011 £000	Change
Revenue	585,984	569,795	+2.8%
Operating profit	29,314	28,052	+4.5%
Profit before tax	28,461	27,588	+3.2%
Basic earnings per share	25.8p	24.6p	+4.9%
Dividend per share	14.85p	14.15p	+4.9%

Key points

·     UK like for like revenues increase by 5.3% indicating a further increase in market share

·     Continental European revenues decrease by 3.3% on a like for like basis

·     Profit before tax increased by 3.2%

·     Dividend per share increased by 4.9%

·     Group net funds increase by £8.6 million

Tony Brewer, Headlam's Group Chief Executive, said:

"The continued challenging market conditions combined with unfavourable weather has culminated in a slightly disappointing start to 2013.

Notwithstanding this, the board are confident that the operating strategy and group structure will enable the business to continue to deliver progress in its respective markets over the longer term."

Enquiries:

Headlam Group plc                                                    

Tony Brewer, Group Chief Executive                             Tel: [phone]

Stephen Wilson, Group Finance Director                        

Chairman's Statement

I am pleased to report that the group has achieved another year of progress with revenue and profit showing improvement on 2011.  This was despite the very challenging market conditions that continued to persist throughout the twelve months and which, whilst difficult in the UK, were far more acute in some of the group's Continental markets.

However, notwithstanding market constraint, various indicators would suggest that we have continued to achieve further gains in market share.

Overview

The fact that the group has continued to outperform in these difficult markets suggests that our long term operational strategy is delivering the right results, albeit, at a slightly slower pace than we anticipated.

The board remains convinced that our structure and business diversity are still appropriate but recognises, that during periods of severe market constraint, it is difficult to achieve optimal performance.  However, when markets resume growth, the group will be in a prime position to capitalise and take advantage of the upturn as a result of retaining its structure.

During the year we maintained our investment activities in a number of areas across the business to improve our quality and market position.  These include comprehensive marketing initiatives such as Lifestyle Floors, the continuing optimisation of our customer relationship management system to improve our customer service offering and the extensive introduction of further training programmes to elevate the knowledge and professionalism of our managers and employees.

Each of these investments in conjunction with the extension of our geographical reach through the opening of further service centres in the UK are all intended to maintain and extend the group's position as the leading floorcovering distributor in Europe.

Earnings and dividend

Profit before tax increased by 3.2% from £27.6 million to £28.5 million and earnings per share improved by 4.9% from 24.6p to 25.8p. The board is proposing to increase the final dividend by 3.6% from 9.85p to 10.20p resulting in a total dividend for the year of 14.85p, up 4.9% on 2011.  The final dividend, if approved by shareholders at the Annual General Meeting, will be paid on 1 July 2013 to shareholders on the register at close of business on 7 June 2013.

Employees

The board would like to thank all employees for their efforts and contribution to the ongoing success of the group. It is due to the endeavours of our management teams and employees that we manage to maintain our forward momentum.

Headlam's business is based on lasting relationships with customers and suppliers.  It is a cornerstone of the group's business ethos, without which it would be impossible to deliver progress.  The hard work and commitment from our teams around the group are focused on strengthening these relationships and building for the future.

Board and governance

Excellent governance has its foundation in an effective board.  At Headlam, we seek to foster a culture of openness and transparency in an environment which encourages participation and contribution from all of the board members.  Strong governance creates high standards and in turn creates confidence amongst our investors, management, employees, suppliers and customers.

Outlook

Floorcovering markets remain very challenging and the attendant uncertainty is reducing trading visibility for the immediate future.  However, we enter 2013 with the confidence that the various initiatives implemented across our businesses will deliver performance improvement, particularly when assisted by more buoyant markets, and the group's long term business strategy will ultimately enable us to achieve further progress.

Chief Executive's Review

Strategy

Maintaining a clear focus on the continuing development of our floorcovering business in the UK and Continental Europe is a fundamental component of the group's long term operating strategy.  It's the board's current intention that any future investments or acquisitions will continue to be for the purpose of enlarging and improving our floorcovering distribution businesses.

Our business structure, particularly in the UK, reaches a substantial proportion of the floorcovering market and provides a distribution channel for suppliers, whether UK, European or worldwide, requiring the sales, marketing and distribution of their products into the markets we serve.  This allows a wide range of appropriate products to be available through a number of our businesses into the retail and commercial sectors.

Operating our businesses on an autonomous basis, and encouraging our managers to develop their own individual style, has enabled the group to be active in a significant proportion of the floorcovering market and provided a degree of protection against the downside risk arising from particularly competitive markets.  Furthermore, the investment in our structure and development of our businesses has enabled us to bring together the benefits of market facing culture delivering the latest sales and marketing product initiatives with a comprehensive and sophisticated logistics operation.

This strategy has formed the foundation that has permitted the group to outperform the overall marketplace during the challenging environment of the last few years.

Market sectors

Following the acquisition of Flooring Accessories, which is located in Cardiff and CK Davie, located in Aberdeen and Dundee, the group now has 52 businesses in the UK.  Each of the businesses, depending on their product offering and geographical presence, are positioned in one of five market sectors, which are; regional multi-product, national multi-product, regional commercial, residential specialist and commercial specialist.

These businesses are supported by 18 distribution centres and 23 service centres, which provide a comprehensive stockholding and logistics service to their relevant customers.

Relationship and supply chain

A key ingredient of the group's ongoing success is its strong relationships with suppliers, which have developed over many years, at both senior level and within each of our operating businesses.

Domotex, the principal worldwide flooring exhibition, which takes place in Germany during January, represents an excellent opportunity and venue for the management of Headlam's businesses to meet with the majority of their suppliers to review and order new products.  It is also an ideal time for the businesses to discuss their business plans and objectives with suppliers for the year ahead.

The collaborative effort that exists between our senior and individual management teams and suppliers, is aimed at ensuring that our businesses remain at the forefront of all new products introduced into our particular markets.  This has resulted in 2,855 new product launches during the year, which were supported by 625,114 point of sale items being positioned with our customers.

Despite particularly challenging market conditions, these new products and point of sale items have contributed to the revenue from our residential and commercial product categories increasing against the corresponding period in 2011.  Overall, the mix between residential and commercial flooring in the UK has remained broadly the same compared with 2011 at respectively 69% and 31%.

Lifestyle Floors is now very much established as a trade brand within the floorcovering industry and has been important to the revenue growth through our regional and national multi-product businesses.  We will continue to build on this market presence and further strengthen our position.  As part of this initiative, we have invested in 16 merchandisers to support the brands display stands within independent flooring retailers.

Customers

Although markets remain challenging, our customers continue to perform positively, as reflected in the group's overall increase in revenue.   Credit taken by UK customers at 41.3 days, (2011: 40.9), demonstrates that they continue to pay us to terms. The cost of bad debts decreased compared with last year.

During the year, our sales representatives collectively visited our customers 515,339 times, (2011: 488,660), ensuring that we are able to cater for our customers' needs.  This direct contact with our customers is supported by the service provided by our telesales people, a comprehensive stockholding and a logistics service which allows orders taken up until 16:00 to be delivered to the customer's premises the following working day.  During 2012, we received 3,973,351 orders (2011: 3,877,835) and increased the number of active accounts from 43,347 to 44,086.

Continental Europe

Our businesses in Continental Europe have experienced particularly difficult market conditions again during 2012.  Notwithstanding these challenges, LMS in France and Lethem Vergeer in the Netherlands achieved creditable results, whilst Belcolor in Switzerland delivered a satisfactory performance.

Management and employees

Of key importance to the ongoing success of the group are the individual management teams of the autonomous businesses.  These teams operate their business on a day-to-day basis and have primary responsibility for maintaining their relationships with suppliers and customers.

To further improve the effectiveness of management teams, we are in the process of undertaking external training programmes to develop their management, motivation and selling skills.  This process is also intended to improve the productivity and selling techniques of our sales representatives.  We believe this can be an on-going investment, which will assist in developing the careers of individuals to the benefit of the group as a whole.

Investments

The group made two investments with the acquisition of Flooring Accessories Limited in August and the business and certain assets of CK Davie in December, to enlarge our presence in South Wales and the north east of Scotland respectively.

The group announced that on Friday 22 February, it had entered into an agreement to acquire the business and certain assets of Hall's Floorings Limited, with completion anticipated to occur on Thursday 28 March 2013.  Hall's Floorings, a distributor of residential floorcovering based in Edmonton, north London, is a supplier to independent floorcovering retailers throughout most of England.

We will continue to evaluate similar opportunities to enlarge and complement the group's geographical or product coverage.

We have now completed the extension to the Tamworth distribution centre.  The entire 160,200 square feet site is now fully operational and will allow our Residential and Commercial specialist businesses to further develop their activities in the middle to higher market sectors they serve.

Construction has commenced to significantly enlarge the Coleshill distribution centre.  The first phase will be ready for handover in March 2013 and the total project will be completed by January 2014, giving Coleshill a total capacity of 283,800 square feet.  The increased capacity will enable us to extend our product offering.

The protracted discussions with regard to the planned investment in Ipswich continue, where we are still waiting for the current landowner and local authority to conclude their negotiations.

During 2012, the group invested in additional service centres in Middlesbrough, Liverpool, Sheffield and Coventry and we have recently concluded an agreement to open a service centre in Trafford Park, Manchester.  During 2013, it is our intention to carefully increase the number of service centres in strategic geographical locations, to enlarge our commercial presence.

Innovations

The iPad, launched to our sales teams in 2011, continues to contribute to improved working practices and enhanced customer information.  The device allows each of our sales people to be fully prepared before making their visits and as productive as possible whilst engaging with their customer.  The sophistication of the customer relationship management system used on the iPad will continue to evolve and improve, with the enhancements introduced during 2012 being augmented by further features planned for 2013.

Another example how the group has taken advantage of new technology is the utilisation of the iPad within our distribution centres, where it is used to improve the efficiency of the picking process for palletised goods such as carpet tiles, laminate and adhesives.

The group will continue to monitor developments in technology to ensure that whenever appropriate, investments will be made to keep us at the forefront of sales and marketing techniques, along with streamlined logistics.

Outlook

The continued challenging market conditions combined with unfavourable weather has culminated in a slightly disappointing start to 2013.

Notwithstanding this, the board are confident that the operating strategy and group structure will enable the business to continue to deliver progress in its respective markets over the longer term.

2012 Financial Review

Revenue and operating profit

Group revenue increased during the year by 2.8% from £569.8 million to £586.0 million.  Underlying like for like revenue in the UK increased by 5.3%, whilst the collective like for like performance from the Continental European businesses declined by 3.3%.

The group's gross margin was lower during the year compared with the previous year declining to 30.0% compared with 30.8%.  A change in product mix and an increasingly intensive competitive environment in the UK contributed to this reduction.

Overheads reduced during the year by £1.3 million, down to £146.4 million compared with £147.7 million in the previous year.  As a percentage of revenue, overheads were 25.0% compared with 25.9%.

Operating profit margin improved to 5.0% compared with 4.9% since the dilution in gross margin was compensated for by the reduction in overheads.  Operating profit improved by 4.5% on the previous year increasing from £28.1 million to £29.3 million. 

Looking forward, the group's operating profit margin should start to register further improvement when floorcovering markets, particularly in the UK, resume growth.  Whilst the cost of retaining the group's existing structure has had a diluting impact on profit margin, it has enabled the group to increase its market share and will allow an immediate response to any upturn in market activity.

Net finance costs

Net finance costs increased during the year by £0.4 million compared with 2011, the principal contributors being net bank interest, £0.18 million and £0.26 million attributable to the movement in the cash flow and interest rate hedges.

Taxation

The effective rate of taxation reduced to 24.9% during the year, reflecting the decrease in UK headline corporation tax rate and also the further future reduction already enacted, which impacts upon deferred taxation.  The anticipated effective rate for 2013 is expected to reduce to 23.75% due to further UK rate reductions which have been announced but are not yet enacted.

Earnings per share

Basic earnings per share increased by 4.9% from 24.6 pence to 25.8 pence and diluted earnings increased by 5.3%, up from 24.4 pence to 25.7 pence.

Dividends

Total dividends paid and proposed for 2012 have increased by 4.9% from 14.15 pence to 14.85 pence.  Dividend cover at 1.7 is broadly consistent with where it has remained in recent years and represents a cover ratio which the board anticipates maintaining for the foreseeable future.

Cash flows

Net cash flow from operating activities

Net cash flow from operating activities increased during the year by £15.9 million from £10.1 million to £26.0 million.

Operating cash flows before changes in working capital and other payables accounted for £1.3 million of the overall increase with the principal contribution coming from the improvement in profit before tax of £0.9 million.

The net investment in working capital reduced by £2.2 million during the year compared with an increase in net investment during the previous year of £12.9 million.  Inventory was broadly stable during the year with further investment restricted to £0.5 million and was the main cause behind the modest cash outflow, £0.8 million, relating to trade and other payables.  Cash collection during the final quarter of the year in connection with trade and other receivables was particularly impressive resulting in a cash inflow of £3.5 million.  The change in net working capital investment during 2012 compared with 2011 was the main reason for cash generated from operations increasing from £20.9 million to £37.3 million.

The final components in the movement of net cash flow from operating activities are cash payments covering interest, tax and additional pension liabilities.  During the year these increased by £0.5 million during the year from £10.8 million to £11.3 million.

Cash flows from investing and financing activities

The acquisition of property, plant and equipment amounted to £8.0 million with work on the Tamworth extension completed and work on the development of the Coleshill extension initiated.

The acquisition of Flooring Accessories and CK Davie gave rise to a further outflow of £0.8 million.  These investments were offset by cash received on the sale of two properties, £1.5 million, and interest received of £0.8 million.

Cash outflows from financing activities amounted to £11.0 million compared with £12.1 million for the previous year with the main differences being an increase in dividends, £1.4 million, the absence of share purchases in 2012, which in 2011 amounted to £1.6 million, and the proceeds of £0.9 million on the release of shares from treasury which, were primarily used to support the SAYE awards exercised during the year.

Net debt

Group net funds at the end of the year increased on the previous year by £8.6 million from £7.6 million to £16.2 million as detailed in the table below. 

	At 1 January 2012 £000	Cash flows £000	Non-cash Movement £000	Foreign exchange translation £000	At 31 December 2012 £000
Cash at bank and in hand	41,494	8,476		(172)	49,798
Debt due within one year	(30,219)	-	30,000	6	(213)
Debt due after one year	(3,691)	213	(30,000)	107	(33,371)
	7,584	8,689	-	(59)	16,214

Funding

The group maintains sufficient banking facilities to fund its operations and investments.  As illustrated below, at 31 December 2012, 61.3% of the group's facilities were not being utilised.

During March 2012, the group entered into agreements with Barclays Bank and The Royal Bank of Scotland whereby each bank provided a £20.0 million facility with a four year term ending March 2016.  Both banks have now agreed to the extension of these facilities for a further twelve months to March 2017.

Maturity date	Drawn £000	Undrawn £000	Total facility £000
Less than one year	212	43,294	43,506
Over one year and less than five years	30,636	10,000	40,636
Over five and less than seven years	2,736	-	2,736
	33,584	53,294	86,878

Employee benefits

As at 31 December 2012, the group's net pension liabilities totalled £17.4 million increasing by £2.9 million on the previous year.  The main factor contributing to the increase in the deficit is the 0.5% per annum fall in the discount rate. However, the full impact of the fall has been offset by a slight reduction in expected inflation, better than expected investment returns and the continued payment of additional deficit reduction contributions.

The company has continued to pay additional contributions into the UK plan, as per its agreement with the trustee. The additional deficit reduction contributions amounted to £2.7 million during the year and are expected to rise to £2.8 million for 2013.

Going Concern

Having reviewed the group's resources and a range of likely out-turns, the directors believe they have reasonable grounds for stating that the group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the group's financial accounts.

Managing our risk

The group's business, results and financial condition are influenced by a range of risks and uncertainties a number of which remain beyond the control of the board.  The board reviews key risks and controls and whilst the following highlights some of the key risks it is not intended to provide an exhaustive analysis of the risks affecting the business.

Area of risk	Description	Potential impact	Mitigation
Market demand	A significant proportion of the group's revenue is due to trade with independent retailers and flooring contractors.  The activity levels within this customer base are determined by consumer demand created through residential property refurbishment or moves, new residential housing developments and a wide range of commercial refurbishment and building projects.	Periods of recession that create reduced consumer confidence or contraction in the construction industry and changes in trends and preferences all have the potential to affect market activity and demand for products supplied by the group.	Market activity is monitored daily in each individual business and collectively at group. This visibility allows prompt response to factors adversely affecting trading.  Furthermore, since the group's principal activities are supply and distribution, the group has the ability to quickly react to market changes.  In addition, the development of a range of regional, national and specialist businesses provides the group with broad market penetration and protection against market contractions.
Competitor risk	The group operates across four geographical markets each of which has similar trading characteristics.  Within each market, the group competes directly with a variety of regional and national distributors and manufacturers selling directly to its customer base and indirectly with multiple retail chains.	The emergence of a competitor with a strong business model could undermine the group's growth objectives.	The group seeks to sustain its competitive position by maintaining close relationships with its supplier and customer base.  Substantial and continued investment in management and facilities, an extensive product offering, a knowledgeable selling resource, stock availability, IT, efficient material handling and logistics enables the group to continue to improve its market position.
Area of risk	Description	Potential impact	Mitigation
Credit risk	The group trades with a substantial number of its customers on open credit terms and is therefore, exposed to an ever present risk of certain customers failing to settle their outstanding accounts.	A rise in the number and value of customer defaults can undermine the group's ability to deliver an ongoing improvement in earnings.	The group has standardised credit checking and debt collection procedures in each individual business and a well developed intelligence network that seeks to prevent the escalation of credit risk.  Accounts are subject to credit terms and limits and the group's businesses are required to obtain central approval for credit limits that exceed a predefined threshold.  The procedures, combined with the local knowledge of the credit control teams, not only help contain the risk of default, but, also provide opportunities for customers to trade out of their default position.
Technology	The software platform is a vital component of the group's operating strategy underpinning the delivery of operational objectives and providing the framework for the maintenance of financial control.	Given its importance, any prolonged system failure has the potential to adversely affect business performance.	Each business has its own dedicated hardware and failure in one will not interrupt another. Furthermore, the group operates well defined back up procedures and has contingency plans in place to enable swift recovery from a failure of this nature.
People	The group's ability to deliver continued success is very dependent upon its people.	An inadequate pool of suitably qualified and talented people can disrupt business development and undermine the group's ability to deliver sustainable growth.	Recruitment, training and development are aimed at ensuring the group has suitably skilled and qualified people to meet the current and future operational needs of its businesses.  Furthermore, the group is committed to creating opportunities for individuals to progress their careers.
Area of risk	Description	Potential impact	Mitigation
Employee benefits	There are ongoing risks that that could result in the costs associated with funding the group's defined benefit plans increasing due to a decline in investment returns, movement in interest rates and longer life expectancy.	An increasing deficit on the plans could result in the group having to increase financial support thereby reducing its ability to fund operational investment.	As a result of the triennial actuarial valuation of the UK plan undertaken at 31 March 2011, the group agreed to maintain its deficit reduction contributions until December 2015 at which point, the plan deficit should have been removed.  The outcome from future scheme valuations, the next being 31 March 2014, could result in the deficit reduction contributions increasing or decreasing.
Legislation and regulation	The group's operations are regulated by a variety of laws and regulations, the principal ones relating to health and safety, the environment, employment, commerce, corporate, financial reporting and taxation.	Failure to comply could lead to serious civil or criminal proceedings causing disruption to the group's operations, financial loss and reputational damage.	The group manages its obligations through a framework of set policies and procedures and where appropriate, engages the services of competent third party advisers.

Key Performance Indicators

The group uses the following indicators to assist in determining if it is progressing towards its long term strategic objectives.

KPI	Measurement	Why	Performance
Like for like revenue growth	Like for like revenue growth measures changes in revenue in the current year compared with the previous year.  It excludes the effects of acquisitions and the movement in working days and currency.	The group targets an increase in like for like revenue above anticipated market growth with the objective of maintaining growth in market share.	2010:  0.2% 2011:  5.3% 2012:  3.7%
Gross profit margin	The ratio of gross profit to revenue.	Gross profit margin is a primary indicator of business performance and market competitiveness.  A movement in gross margin generally reflects a change in the business product mix or market pricing or a combination of both.	2010:  30.8% 2011:  30.8% 2012:  30.0%
Operating profit	Operating profit is determined by adding back finance, income and expense to profit before tax.	The majority of the group's operating costs are fixed and the group therefore obtains a substantial benefit from operational gearing as revenues increase.	2010:  £26.1 million 2011:  £28.1 million 2012:  £29.3 million
Earnings per share	Earnings per share, ("EPS") is calculated by reference to post tax profit divided by the weighted average number of issued shares during the year.	EPS and EPS growth are widely used measures of company performance. EPS growth forms the basis of the group's current dividend policy since the board anticipates dividend growth to be broadly in line with the growth in EPS.	2010:  21.5 pence 2011:  24.6 pence 2012:  25.8 pence

KPI	Measurement	Why	Performance
Return on capital employed	Return on capital employed is derived from operating profit divided by the simple average of the net assets plus average debt at the start and end of the year.	Return on capital employed provides an indication of whether the group's performance is creating value for its shareholders.	2010:  13.48% 2011:  14.08% 2012:  14.39%
Credit taken by UK customers and bad debt percentage	Credit taken is calculated by reference to trade receivables net of impairment provisions expressed as a proportion of current and prior months revenue inclusive of VAT.  Bad debts are calculated by expressing the annual impairment loss as a percentage of revenue.	These two indicators provide an accurate representation of the of the independent customer's financial health.	UK credit taken 2010:  42.0 days 2011:  40.9 days 2012:  41.3 days Bad debt percentage 2010:  0.40% 2011:  0.46% 2012:  0.34%

Consolidated Income Statement

for the year ended 31 December 2012

	Note	2012 £000	2011 £000
Revenue	1	585,984	569,795
Cost of sales		(410,251)	(394,056)
Gross profit		175,733	175,739
Distribution expenses		(109,621)	(110,623)
Administrative expenses		(36,798)	(37,064)
Operating profit	1	29,314	28,052
Finance income		4,476	4,520
Finance expenses		(5,329)	(4,984)
Net finance costs		(853)	(464)
Profit before tax		28,461	27,588
Taxation		(7,092)	(7,184)
Profit for the year attributable to the equity shareholders		21,369	20,404
Dividend paid per share	3	14.15p	12.40p
Earnings per share
Basic	2	25.8p	24.6p
Diluted	2	25.7p	24.4p

All group operations during the financial years were continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

		2012 £000	2011 £000
Profit for the year attributable to the equity shareholders		21,369	20,404
Other comprehensive income:
Foreign exchange translation differences arising on translation of overseas operations		(389)	(234)
Actuarial losses and gains on defined benefit plans		(5,595)	(7,839)
Effective portion of changes in fair value of cash flow hedges		(383)	-
Transfers to profit or loss on cash flow hedges		44	-
Income tax on other comprehensive income		1,168	1,855
Other comprehensive (expense)/income for the year		(5,155)	(6,218)
Total comprehensive income attributable to the equity shareholders for the year		16,214	14,186

Statements of Financial Position

at 31 December 2012

		Note		2012 £000	2011 £000
	Assets
	Non-current assets
	Property, plant and equipment			96,182	94,201
	Intangible assets			13,210	13,210
	Deferred tax assets			2,376	962
				111,768	108,373
	Current assets
	Inventories			115,332	114,196
	Trade and other receivables			108,070	111,656
	Cash and cash equivalents			49,798	41,494
	Assets held for sale			212	362
				273,412	267,708
	Total assets	1		385,180	376,081
	Liabilities
	Current liabilities
	Other interest-bearing loans and borrowings			(213)	(30,219)
	Trade and other payables			(153,755)	(154,490)
	Employee benefits			(2,754)	(2,669)
	Income tax payable			(7,117)	(6,678)
				(163,839)	(194,056)
	Non-current liabilities
	Other interest-bearing loans and borrowings			(33,371)	(3,691)
	Employee benefits			(14,641)	(11,789)
				(48,012)	(15,480)
	Total liabilities	1		(211,851)	(209,536)
	Net assets			173,329	166,545
Equity attributable to equity holders
of the parent
Share capital			4,268		4,268
Share premium			53,512		53,512
Other reserves			(5,812)		(7,013)
Retained earnings			121,361		115,778
Total equity			173,329		166,545

Statement of Changes in Equity

for the year ended 31 December 2012

	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 2011	4,268	53,512	88	6,391	-	(13,050)	112,529	163,738
Profit for the year attributable to the equity shareholders	-	-	-	-	-	-	20,404	20,404
Other comprehensive income	-	-	-	(234)	-	-	(5,984)	(6,218)
Total comprehensive income for the year	-	-	-	(234)	-	-	14,420	14,186
Transactions with equity shareholders, recorded directly in equity
Share-based payments	-	-	-	-	-	-	871	871
Consideration for purchase of own shares	-	-	-	-	-	(1,575)	-	(1,575)
Share options exercised by employees	-	-	-	-	-	1,367	(1,357)	10
Deferred tax on share options	-	-	-	-	-	-	(390)	(390)
Dividends to equity holders	-	-	-	-	-	-	(10,295)	(10,295)
Total contributions by and distributions to equity shareholders	-	-	-	-	-	(208)	(11,171)	(11,379)
Balance at 31 December 2011	4,268	53,512	88	6,157	-	(13,258)	115,778	166,545
Balance at 1 January 2012	4,268	53,512	88	6,157	-	(13,258)	115,778	166,545
Profit for the year attributable to the equity shareholders	-	-	-	-	-	-	21,369	21,369
Other comprehensive income	-	-	-	(389)	(339)	-	(4,427)	(5,155)
Total comprehensive income for the year	-	-	-	(389)	(339)	-	16,942	16,214
Transactions with equity shareholders, recorded directly in equity
Share-based payments	-	-	-	-	-	-	1,183	1,183
Share options exercised by employees	-	-	-	-	-	1,929	(1,013)	916
Deferred tax on share options	-	-	-	-	-	-	134	134
Dividends to equity holders	-	-	-	-	-	-	(11,663)	(11,663)
Total contributions by and distributions to equity shareholders	-	-	-	-	-	1,929	(11,359)	(9,430)
Balance at 31 December 2012	4,268	53,512	88	5,768	(339)	(11,329)	121,361	173,329

Cash Flow Statements

for the year ended 31 December 2012

		2012 £000	2011 £000
Cash flows from operating activities
Profit before tax for the year		28,461	27,588
Adjustments for:
Depreciation, amortisation and impairment		4,695	4,883
Net settlement loss on enhanced transfer value exercise		-	56
Finance income		(4,476)	(4,520)
Finance expense		5,329	4,984
Profit on sale of property, plant and equipment		(185)	(86)
Share-based payments		1,183	871
Operating cash flows before changes in working
capital and other payables		35,007	33,776
Change in inventories		(491)	(8,700)
Change in trade and other receivables		3,498	(9,764)
Change in trade and other payables		(819)	5,544
Cash generated from the operations		37,195	20,856
Interest paid		(1,682)	(1,342)
Tax paid		(6,766)	(3,380)
Additional contributions to defined benefit plan		(2,839)	(2,781)
Enhanced transfer value exercise payments		-	(3,302)
Net cash flow from operating activities		25,908	10,051
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		1,530	110
Interest received		768	751
Acquisition of subsidiaries, net of cash acquired		(771)	-
Acquisition of property, plant and equipment		(7,999)	(2,035)
Net cash flow from investing activities		(6,472)	(1,174)
Cash flows from financing activities
Proceeds from the issue of treasury shares		916	10
Payment to acquire own shares		-	(1,575)
Repayment of borrowings		(213)	(228)
Dividends paid		(11,663)	(10,295)
Net cash flow from financing activities		(10,960)	(12,088)
Net increase/(decrease) in cash and cash equivalents		8,476	(3,211)
Cash and cash equivalents at 1 January		41,494	44,758
Effect of exchange rate fluctuations on cash held		(172)	(53)
Cash and cash equivalents at 31 December		49,798	41,494

Notes

1. Segment reporting

The group has 52 operating segments in the UK and 5 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, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate.  The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments.  This distinction is embedded in the construction of operating reports reviewed by the 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
	2012 £000	2011 £000	2012 £000	2011 £000	2012 £000	2011 £000
Revenue
External revenues	492,256	466,968	93,728	102,827	585,984	569,795
Reportable segment operating profit	28,275	25,696	2,036	2,830	30,311	28,526
Reportable segment assets	226,595	220,878	39,583	45,427	266,178	266,305
Reportable segment liabilities	(137,563)	(136,358)	(15,853)	(18,132)	(153,416)	(154,490)

During the year there are no inter-segment revenues for the reportable segments(2011: £nil).

Reconciliations of reportable segment profit, assets and liabilities and other material items:

					2012 £000	2011 £000
Profit for the year
Total profit for reportable segments					30,311	28,526
Unallocated expense					(997)	(474)
Operating profit					29,314	28,052
Finance income					4,476	4,520
Finance expense					(5,329)	(4,984)
Profit before taxation					28,461	27,588
Taxation					(7,092)	(7,184)
Profit for the year					21,369	20,404

Notes (continued)

1. Segment reporting- continued

								2012 £000	2011 £000
Assets
Total assets for reportable segments								266,178	266,305
Unallocated assets:
Properties, plant and equipment								87,651	84,531
Deferred tax assets								2,376	962
Assets held for sale								212	362
Cash and cash equivalents								28,763	23,921
Total assets								385,180	376,081
Liabilities
Total liabilities for reportable segments								(153,416)	(154,490)
Unallocated liabilities:
Employee benefits								(17,395)	(14,458)
Other interest-bearing loans and borrowings								(33,584)	(33,910)
Income tax payable								(7,117)	(6,678)
Derivative liabilities								(339)	-
Total liabilities								(211,851)	(209,536)
		UK £000	Continental Europe £000		Reportable segment total £000		Unallocated £000		Consolidated total £000
Other material items 2012
Capital expenditure		2,008	271		2,279		5,720		7,999
Depreciation		2,193	648		2,841		1,764		4,605
Amortisation		-	-		-		90		90
Other material items 2011
Capital expenditure		1,358	593		1,951		84		2,035
Depreciation		2,240	798		3,038		1,845		4,883

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:

Revenue by principal product group and geographic origin is summarised below:

	UK		Continental Europe		Total
	2012 £000	2011 £000	2012 £000	2011 £000	2012 £000	2011 £000
Revenue
Residential	337,569	320,290	43,959	50,047	381,528	370,337
Commercial	154,687	146,678	49,769	52,780	204,456	199,458
	492,256	466,968	93,728	102,827	585,984	569,795

Notes (continued)

2. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	2012 £000	2011 £000
Earnings
Earnings for the purposes of basic earnings per share being profit attributable to equity holders of the parent	21,369	20,404
	2012	2011
Number of shares
Issued ordinary shares at 1 January	85,363,743	85,363,743
Effect of shares held in treasury	(2,672,553)	(2,423,159)
Weighted average number of ordinary shares for the purposes of basic earnings per share	82,691,190	82,940,584
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December	82,691,190	82,940,584
Dilutive effect of share options	446,420	596,479
Weighted average number of ordinary shares for the purposes of diluted earnings per share	83,137,610	83,537,063

At 31 December 2012, the company held 2,427,794 (2011:2,841,197) shares which have been disclosed in the treasury reserve and these are excluded from the calculation of earnings per share.

3. Dividends

	2012 £000	2011 £000
Interim dividend for 2011 of 4.30p paid 3 January 2012	3,544	-
Final dividend for 2011 of 9.85p paid 2 July 2012	8,119	-
Interim dividend for 2010 of 3.83p paid 4 January 2011	-	3,180
Final dividend for 2010 of 8.57p paid 1 July 2011	-	7,115
	11,663	10,295

The final proposed dividend of 10.20p per share (2011:9.85p per share) will not be provided for until authorised by shareholders at the forthcoming AGM.

Interim dividends of 4.65p per share (2011:4.30p per share) are provided for when the dividend is paid.

The total value of dividends proposed but not recognised at 31 December 2012 is £12,299,000 (2011: £11,663,000).

Notes (continued)

4. Additional information

The financial information set out above does not constitute the company's statutory accounts for the years ended

31 December 2012 or 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the registrar of companies, and those for 2012 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 2013 and will be displayed on the company's website at www.headlam.com during March 2013.  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 2012 was approved by the board on

8 March 2013.

 

END

 

 

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