TIDMHEAD
RNS Number : 3334L
Headlam Group PLC
05 September 2023
5 September 2023
Headlam Group plc
('Headlam', the 'Company', the 'Group')
Half Year Results
Revenue growth and good cash generation; profits lower due to
macro and industry headwinds
Headlam Group plc (LSE: HEAD), the UK's leading floorcoverings
distributor, today announces its results in respect of the first
six months of the year to 30 June 2023 (the 'Period').
Financial overview
-- Revenue up 2.5% at GBP331.8 million despite challenging
market backdrop with UK volumes 5% lower
-- Revenue contributions from strategic initiatives successfully
offsetting regional distribution decline
-- Underlying Profit Before Tax of GBP6.0 million (H1 2022:
GBP17.3 million) principally impacted by the macro and industry
headwinds of lower residential trading volumes and high operating
cost inflation
-- Efficiency and mitigating actions contributed GBP5.0 million
of benefit in the first half, expected to build in H2
-- Strong cash generation with GBP19.8 million of positive
Underlying Operating Cash Flow (H1 2022: GBP15.4 million
outflow)
-- Interim ordinary dividend of 4.0 pence (2022: 6.2 pence
interim ordinary dividend); cover lowered to 1.5x reflecting
confidence for future and strong balance sheet
Operational and strategic highlights
-- Strategic-related investments on trade counters, people and
capability, and improvements to network
-- Strong revenue growth from Larger Customers and Trade
Counters, up 26.5% and 8.5% respectively
-- Own Product Brand revenue up 7.4%, supported by successful
launch of Everyroom brand in H2 last year
Current trading and outlook
-- UK volumes in July and August 2023 broadly in line with expectations
-- Full year 2023 expectations unchanged
-- Macroeconomic and industry headwinds likely to continue in 2024
-- With rolling annual volumes currently 20% lower than 2019,
volumes expected to significantly improve over the medium-term
providing opportunity for material uplift to profit due to high
operational gearing
-- Future profitability also supported by strategic initiatives maturing
Commenting, Chris Payne, Chief Executive, said:
"I am pleased to say the Group delivered revenue growth and good
cash generation in the first half, particularly in the strategic
growth areas with strong growth in larger customers and trade
counters. However, the macroeconomic and industry headwinds that
drove residential volumes, and our first half profit, lower are
likely to persist into 2024. Despite this, the continued investment
in broadening Headlam's business base will provide the foundation
for significant profit uplift in the coming years as the market
improves."
Presentations
The Group's half year presentation that accompanies this
announcement is available on its website at www.headlam.com
The Group will be hosting an in-person presentation for analysts
in London today at 10.00am UK time at the offices of Peel Hunt LLP.
To register interest in attending, please email:
headlamgroup@headlam.com
The Group will also be hosting an online presentation and
Q&A for investors today at 11.30am UK time. The presentation is
open to all existing and potential shareholders. Investors can
register to attend by clicking
on this link : https://bit.ly/HEAD_H1_23_webinar
A video of the presentation by the Chief Executive and Chief
Financial Officer will be made available on the Group's website
following the conclusion of the investor presentation, with the
Q&A from the online presentation also made available.
Footnotes
-- To supplement IFRS reporting, we also present our results on
an underlying basis to show the performance of the business before
non-underlying items. These items are detailed in note 3 and
principally comprise amortisation of acquired intangibles and other
acquisition-related costs and insurance proceeds (following fire).
These underlying measures, along with other alternative financial
measures including debt and cash flow metrics, form the Group's
Alternative Performance Measures (APMs) that are used internally by
management as key measures to assess performance. Further
explanation in relation to these measures can be found in the
glossary of APMs following the Financial Review section of this
announcement.
-- Company-compiled consensus market expectations for revenue
and underlying profit before tax, on a mean basis, are available on
the Group's website at www.headlam.com
Enquiries
Headlam Group plc Tel: 01675 433 000
Chris Payne, Chief Executive Email: headlamgroup@headlam.com
Adam Phillips, Chief Financial Officer
Catherine Miles, Director of IR and
ESG
Panmure Gordon (UK) Limited (Corporate Tel: 020 7886 2500
Broker)
Tom Scrivens / Atholl Tweedie
Peel Hunt LLP (Corporate Broker) Tel: 020 7418 8900
George Sellar / John Welch
Notes to Editors
Operating for over 30 years, Headlam is the UK's leading
floorcoverings distributor. The Group works with suppliers across
the globe manufacturing the broadest range of products, and gives
them a highly effective route to market, selling their products
into the large and diverse trade customer base. The Group has an
extensive customer base spanning independent and multiple
retailers, small and large contractors, and housebuilders. It
provides its customers with a market leading service through the
largest product range, in-depth knowledge, ecommerce and marketing
support, and nationwide next day delivery service. To maximise
customer reach and sales opportunity, Headlam operates 68
businesses and trade brands across the UK and Continental Europe
(France and the Netherlands), which are supported by the group's
network, central resources and processes.
Chief Executive's Review
Introduction and Market Backdrop
2023 has been a challenging year so far for the flooring market
which reflects a number of macroeconomic indicators, including:
lower RMI (residential maintenance and improvement) spend, a
reduction in housing completions; and a decline in residential
consumer spending.
Despite this market backdrop, the Group has continued to deliver
on its strategy, and achieved both revenue and market share growth
in the Period. However, profitability was significantly impacted by
the industry headwinds of volume decline and cost inflation,
partially offset by the mitigating actions that we have taken.
We have continued to make investments across the business to
support future growth, which positions the Group favourably as
volumes recover. The Group's UK volumes are now around 20% lower
(on a rolling 12-month basis) than in 2019, and therefore are
expected to improve significantly over the coming years. This
provides a strong opportunity for material profit improvement over
the medium term, reflecting the Group's relatively high operational
gearing.
Financial Performance Summary
Revenue was up 2.5% at GBP331.8 million despite the challenging
market backdrop due to revenue contributions from the strategic
initiatives. However, profitability was significantly impacted by
the macro and industry headwinds of lower residential trading
volumes, limited manufacturer-led price increases, and high
operating cost inflation. Underlying Profit Before Tax was GBP6.0
million (H1 2022: GBP17.3 million), and included some positive
contributions from mitigating actions implemented in the Period
including reducing operational headcount and other cost savings,
and targeted price increases on certain products. These actions
will build in the second half and into 2024.
Cash generation was strong with GBP19.8 million of positive
Underlying Operating Cash Flow (H1 2022: GBP15.4 million outflow).
During the Period the Group invested GBP10.1 million in capital
expenditure (H1 2022: GBP2.8 million) and GBP3.7 million in
relation to the acquisition of Melrose Interiors, and returned a
total of GBP14.2 million of cash to shareholders, comprising the
GBP9.0 million 2022 final ordinary dividend payment in June 2023
and GBP5.2 million in relation to the share buyback programme which
completed in March 2023. Net debt excluding lease liabilities was
GBP19.6 million at 30 June 2023 (31 December 2022: GBP1.8 million
net funds excluding lease liabilities) and represented Leverage of
0.5x.
Full detail of the Group's financial performance is given in the
Chief Financial Officer's Review, including a breakdown of the
movement in year-on-year profit.
Strategy and Strategic Progress
Despite the macro and industry headwinds impacting overall
financial performance, the strategic growth initiatives delivered
good results in the Period. Revenue from Larger Customers and Trade
Counters, the two main revenue growth drivers, was up 26.5% and
8.5% respectively in the Period compared with H1 2022.
Revenue attributable to Larger Customers was GBP39.0 million in
the Period (H1 2022: GBP30.9 million). This reflects the building
of new and existing customer relationships, and evidences the
scalability with each through fulfilling an increasing number of
SKUs. Newer customer relationships include Screwfix, the UK's
leading retailer of trade tools, accessories and hardware
products.
12 trade counters were opened, relocated or refitted
('invested') in the Period, with 59 trade counters at Period end of
which 36 were invested (31 December 2022: 58 total, 24 invested).
Invested sites are collectively performing in line with the
business case and a further 11 are planned to be invested in before
the end of 2023, with the aim of 47 invested sites out of a total
66 by 31 December 2023. Revenue in the Period was GBP45.9 million
(H1 2022: GBP42.3 million) and over 1,000 customer accounts were
opened across the business unit in the Period. The Group has also
been able to reduce the capital investment required to open a
typical new site by around 15%. The positive performance of the
invested sites to date along with further modelling of the optimal
geographic footprint, means we are now targeting a total of around
100 trade counters by the end of 2025 (an increase from 90
previously). This remains subject to new site performance
continuing to be in line with the business case. As previously
stated, due to the upfront investment required and modelled sales
profile, the business unit is expected to be year-on-year profit
diluting to the Group in 2023 and 2024, and then profit enhancing
from 2025 onwards.
Whilst overall residential volumes in the UK were 7% down in the
Period compared to H1 2022, revenue from Own Product Brands, which
are mainly residential focused, was up 7.4% at GBP72.5 million,
supported by the successful launch of the Group's newest brand
Everyroom in the second half of last year.
Efficiencies and Mitigating Actions
Alongside progressing the strategic initiatives, the Group has
implemented further efficiency and mitigating actions during 2023,
to support margins and better align costs with the market backdrop.
These include reducing operational headcount, other cost control
actions, implementing targeted price increases, and transport
centralisation and dynamic route planning. This last action will
enable a significant reduction in vehicle and associated costs over
the coming months.
Efficiency and mitigating actions contributed GBP5.0 million in
H1 2023, providing a partial offset against the impact of volume
decline and operational cost inflation, and these benefits are
expected to build in H2.
Acquisitions
The Group continues to actively assess M&A which supports
and accelerates its strategy. Following the acquisition of Melrose
Interiors in the first half of the year, the Group has made two
further small acquisitions in H2 2023 to date; one in the
Netherlands, integrated into our existing businesses and providing
an increased product range, and the other in the UK which enables
in-house sampling production. The latter is being integrated into
the nearby Melrose Interiors site. Collectively, the purchase price
for the two acquisitions is GBP2.3 million.
Dividend
As announced within the July 2023 Trading Update, reflecting
both confidence for the future and the strong balance sheet, the
Group intends to temporarily lower its dividend cover in respect of
the ordinary dividend. In line with this, the Group is declaring an
interim ordinary dividend of 4.0 pence per share (2022: 6.2 pence
interim ordinary dividend), representing a dividend cover of 1.5x
compared to underlying basic earnings per share. The Group intends
to retain this lower level of cover through 2023 and 2024, and then
re-evaluate with a view to potentially building back to 2.0x cover
as the market and Group earnings improve.
Capital Allocation
The Group has reviewed and refreshed its capital allocation
framework and policy on leverage levels with the intent of
furthering value creation and more effectively utilising, whilst
also maintaining, its strong balance sheet. Due to the cash
generative nature of the business and relatively low capital
requirements (including in relation to the strategic initiatives),
the Group is able to consider ordinary dividends, other shareholder
returns, investments, and M&A concurrently while maintaining a
strong balance sheet. Ordinary dividends remain the first method of
shareholder return.
Following the review, we are making two changes:
-- a medium-term average target Leverage range of 0.5-1.0x Net
Debt to EBITDA (on a pre-IFRS16 basis, i.e. excluding capitalised
leases); and,
-- equal prioritisation given to share buybacks, M&A, and
special dividends, with the choice at any given time dependent on
both market conditions and available opportunities.
The target Leverage range is considered prudent by the Board and
has been set with reference to the balance sheet underpin provided
by the Group's substantial freehold property portfolio (with an
independent market valuation of GBP148.8 million at January 2023)
plus its inventory position (GBP147.5 million at 30 June 2023), and
the strong cash generation characteristics of the business, whilst
also recognising the increased cost of debt compared to recent
years. Any substantial potential acquisition funded in part or
mainly by cash could potentially result in temporarily going above
the target Leverage range, but with the intention of reverting back
to the range in a reasonable timescale.
Sustainability and ESG Strategy
The ongoing progression and development of the Group's ESG
Strategy is closely aligned with the Group's purpose, mission,
values, and overall strategy. The Group continues to receive
positive stakeholder feedback and 'low risk' ESG scores from rating
agencies.
The key updates during the Period are:
-- Environmental: the Group has previously set Net Zero and SBTi
aligned interim targets for Scope 1 and 2 emissions, and has now
formally notified SBTi of its intention to submit Net Zero and
interim targets for Scope 1, 2 and 3 emissions for validation. It
is currently intended that this will happen in H2 2024 following an
updated assessment and publication of its 2023 Scope 1, 2 and 3
emissions within its 2023 Annual Report in H1 2024.
-- Social: the key current undertakings include i) creating a
comprehensive learning and development plan; ii) improving two-way
communication including through an employee survey; iii) rolling
out its Inclusion and Wellbeing strategy; iv) and mental health
training and support.
Governance: to reflect safety being the number one value in the
"Headlam Way" the Group engaged the services of DSS+ to focus on
developing a Health and Safety culture including the roll out of
H&S "felt leadership" training across the UK leadership
teams.
Current trading and outlook
Trading in July and August 2023 has been broadly in line with
expectations. Furthermore, we have made good progress in
implementing mitigations. As such, management's expectations for
the full year are unchanged.
Looking ahead, the ongoing macroeconomic and industry headwinds
are likely to prevail into 2024, with suppressed residential
consumer spending continuing. However, the medium-term market
outlook is strong; annual volumes are currently around 20% lower
than in 2019 and we expect volumes to improve significantly over
the coming years. This, combined with the increasing benefits as
the strategic initiatives mature, provides opportunities for
material profit improvement over the medium term including as a
consequence of high operational gearing. Furthermore, the cash
requirement, albeit relatively modest, from the strategic
initiatives is anticipated to reduce, providing a further boost to
cash generation.
The Group is well positioned despite the market backdrop, with
ongoing expansion of its market leading position, broadening of its
market presence, increased revenue streams, and ongoing
efficiencies. All of which will support future financial
performance, particularly as volumes return and as upfront
strategic investment moderates.
The Board thanks all of the Group's colleagues for their
continued hard work, particularly in this challenging period for
the wider industry.
Chris Payne
Chief Executive
5 September 2023
Chief Financial Officer's Review
Revenue
Total revenue in the Period increased by 2.5% to GBP331.8
million (H1 2022: GBP323.8 million), with a 3.3% uplift in the UK
offset by a 2.9% decline in Continental Europe (France and The
Netherlands) as shown in the table below . The UK and Continental
Europe accounted for 87.1% and 12.9% of total revenue respectively
in the Period (H1 2022: UK 86.3%; Continental Europe 13.7%).
H1 2023 H1 2022 Year-on-year
GBPm GBPm %
Larger Customers 39.0 30.9 26.5%
Trade Counters 45.9 42.3 8.5%
Regional Distribution 190.6 196.2 (2.6)%
Other 13.4 10.2 31.4%
---------------------- ------- ------- ------------
UK 288.9 279.6 3.3%
---------------------- ------- ------- ------------
Europe 42.9 44.2 (2.9)%
Group 331.8 323.8 2.5%
---------------------- ------- ------- ------------
For the G roup as a whole, commercial sector revenue increased
by 7.0%, whilst residential sector revenue increased by 0.2%.
Commercial sector revenue accounted for 35.1% of total revenue in
the Period (H1 2022: 33.6%) and residential revenue accounted for
64.9% (H1 2022: 66.4%).
Within the UK, commercial sector revenue increased by 8.4%, as
it continued its more buoyant performance following very subdued
activity during and in the aftermath of C ovid -19. R esidential
sector revenue increase d by 0.9% , comprising a volume decline of
7% offset by price increases - principally the annualisation of
significant manufacturer-led price increases during 2022 .
Continental Europe saw a similar trend by the two sectors with
commercial sector revenue down just 0.6% but residential revenue
declining by 4.4% .
Gross Margin
The reduction in manufacturer-led price increases and lower
residential volumes had a significant impact on gross margin in H1
2023 compared to the previous year. Gross margin in the Period was
31.5% (H1 2022: 33.7%) and improved sequentially during the
Period.
As previously detailed, gross margin in 2022 was temporarily
elevated by the proliferation of manufacturer-led price increases
due to the unprecedented inflationary environment. During the
Period there have been limited manufacturer-led price increases and
the Group had already sold through the stock it was holding at the
pre-increase prices. Accordingly, gross margin has returned to the
levels previously reported prior to 2021 and 2022.
Costs
Operating costs increased by 6.1% (GBP5.6 million) to GBP96.7
million (H1 2022: GBP91.1 million). GBP1.9 million of this related
to Melrose Interiors. On a like-for-like basis, operating costs
increased by 4.1% (GBP3.7 million). This reflected a combination of
inflationary pressures and strategic investments, partially offset
by cost efficiencies, as set out below:
Operating costs
GBPm
H1 2022 91.1
Melrose Interiors 1.9
Payroll cost inflation 2.9
Energy cost inflation 1.4
Other cost inflation 1.5
Strategic investments 1.4
Cost efficiencies and savings (3.5)
H1 2023 96.7
Payroll inflation averaged 6.7% year-on-year, contributing
GBP2.9 million of increased cost. Energy costs increased by GBP1.4
million, reflecting the end of the previous fixed rate contract in
the UK in September 2022 (in which prices had been fixed prior to
the Ukraine war and hence were much lower than spot rates). Other
cost inflation contributed GBP1.5 million of additional cost.
The Group also made strategic investments, including the
roll-out of trade counters along with investments in capability and
resource to deliver on the other strategic growth areas.
Operational cost savings in H1 2023 amounted to GBP3.5 million.
These included lower operational headcount (to better align with
the lower year-on-year volumes), cost savings from transport
consolidation and lower bonus accruals. These savings initiatives
will continue into H2 2023 and be supplemented by savings in
relation to the implementation of dynamic planning in the transport
network and the renegotiation of energy contracts.
Underlying Profit
Underlying Operating Profit of GBP8.2 million (H1 2022: GBP17.9
million) was a reduction of GBP9.7 million and reflected the
decline in volumes, normalisation in gross margin, cost inflation,
and strategic investments, as explained above. Consequently,
operating profit margin was 2.5% in H1 2023 (H1 2022: 5.5%). The
table below breaks down the year-on-year movement:
Underlying Operating Profit
GBPm
H1 2022 17.9
Volume (4.0)
Unwind of prior year impact of manufacturer-led price increases (3.1)
Strategic investments (1.8)
Cost inflation (5.8)
Mitigating actions 5.0
H1 2023 8.2
Volume decline contributed to a GBP4.0 million reduction in
profit; volumes were 5% lower year-on-year in the UK business
(residential and commercial combined) and even lower in Continental
Europe. This was net of volume growth from Larger Customers and
Trade Counters.
As explained above, the lack of manufacturer-led price increases
resulted in a return in gross margin back to pre-2021 levels. This
equated to an adverse GBP3.1 million profit impact in the
Period.
Strategic investments also contributed to a GBP1.8 million
reduction in profit. These investments comprised: a new dedicated
management team for the Trade Counter business unit; the operating
losses on newly invested Trade Counters; and incremental
investments in people and capability to deliver on other elements
of the strategy (including digital, brand and customer
enhancements).
Cost inflation was a GBP5.8 million headwind as explained above.
Mitigating actions provided GBP5.0 million of offsetting benefit.
These actions included cost savings plus targeted price increases
on certain ranges.
Interest costs of GBP2.2 million (H1 2022: GBP0.6 million) were
GBP1.6 million higher year-on-year reflecting higher average
borrowings, principally due to the deployment of surplus capital
last year by way of a special dividend and share buybacks, combined
with the base rate increases.
Reflecting the movement in Underlying Operating Profit explained
above, and the increase in interest costs, Underlying Profit Before
Tax reduced to GBP6.0 million in the Period (H1 2022: GBP17.3
million).
The Group's profit performance is traditionally second half
weighted, but is expected to be more so in 2023 due to the
following factors:
-- volume performance: UK volume declined 5% in H1 2023, which
we anticipate to improve to be broadly flat year-on-year in H2
2023, reflecting a stabilisation in the decline trend combined with
softer comparatives, particularly in Q4 2023;
-- annualisation of the manufacturer-led price increase impact
as we progress through H2, resulting in a lower headwind from the
normalisation in gross margin;
-- targeted price increases implemented during Q2 2023; and,
-- cost savings, including the implementation of national
transport and dynamic planning, the renegotiation of energy
contracts and lower electricity consumption as a result of solar
panel installations.
Non-Underlying Items
Non-underlying items before tax in the Period totalled GBP1.5
million (H1 2022: GBP4.3m credit largely related to the
Kidderminster insurance claim) and related to amortisation of
acquired intangibles and other acquisition-related costs, of which
GBP1.3 million were non-cash in nature.
Non-underlying items are expected to increase in H2 2023,
reflecting one-off costs associated with the mitigating actions
being taken. It is also expected that the Kidderminster insurance
claim will continue to be progressed, and could result in a
significant non-underlying credit in H2 2023.
EPS and Dividend
Basic earnings per share on an underlying basis decreased from
16.5 pence per share in the prior year period to 6.1 pence per
share, reflecting the factors set out above.
The share buyback programme, which completed in March 2023,
reduced the weighted average number of shares for H1 2023 compared
to H1 2022 (as detailed in Note 6 to the Financial Statements).
Statutory basic earnings per share was 4.6 pence (H1 2022: 20.6
pence).
The Board have declared an interim ordinary dividend of 4.0
pence per share (2022: interim ordinary dividend 6.2 pence per
share). This will be payable on 28 November 2023 to shareholders on
the register as at 27 October 2023 and equates to a cash outflow of
GBP3.2 million.
Tax
The Group's consolidated underlying effective tax rate for the
Period was 18.3% (H1 2022: 20.2%), which reflects the expected
effective tax rate for the full year. This is lower than the
standard rate of corporation tax in the UK primarily due to the
recognition of previously unrecognised tax losses in the
period.
Cash Flow and Net Debt
The Group has strong cash generation characteristics. Underlying
Operating Cash Flow in the Period was a GBP19.8 million inflow
compared to a GBP15.4 million outflow in H1 2022. This is despite
the profit headwinds from lower volumes, cost inflation and
strategic investments, and reflects good underlying cash generation
plus a stabilisation in the working capital requirements after the
impact of unprecedented levels of inflation on inventory costs in
the previous two years.
Capital expenditure in the Period was GBP10.1 million (H1 2022:
GBP2.8 million). GBP3.3 million related to Trade Counters, GBP2.8
million was in respect of cutting tables and associated safety
equipment, and GBP1.5m related to solar panels. We continue to
expect total capital expenditure to be around GBP20 million for the
year.
GBP3.7 million, net of cash acquired, was invested in the
acquisition of Melrose Interiors in January 2023. Subsequent to the
end of the Period we have made two further small acquisitions, as
set out in the Chief Executive's Review, totalling a net cash
outflow of GBP2.3 million.
GBP14.2 million of shareholder returns were made in the Period,
comprising GBP5.2 million of payments to acquire own shares under
the share buyback programme (H1 2022: GBP3.7 million) and GBP9.0
million of ordinary dividend payments (H1 2022: GBP22.1 million,
comprising GBP7.2 million ordinary and GBP14.9 million special
dividends).
Net Debt excluding lease liabilities was GBP19.6 million at the
end of the Period, an increase of GBP21.4 million from 31 December
2022. This equates to Leverage of 0.5x, being the ratio of Net Debt
excluding leases to EBITDA (pre-IFRS16 basis). As set out in the
Chief Executive's Review, we now target an average Leverage range
of 0.5x to 1.0x. After completing the two small acquisitions in H2
to date, we anticipate a broadly flat movement in Net Debt
excluding leases by the end of 2023 compared to the end of the
first half, prior to upside opportunities from freehold property
disposals and stock optimisation currently being developed.
At Period end, the Group had total banking facilities available
of GBP99.9 million (31 December 2022: GBP100.3 million). The Group
had GBP79.8 million of cash and undrawn facilities at 30 June 2023
(31 December 2022: GBP102.1 million).
Going Concern
The Directors have reviewed the going concern assessment,
including a reverse stress test, and have concluded that the Group
has adequate resources to continue in operation during the next 12
months and that it is appropriate for the going concern basis to be
adopted in preparing this Interim Report and Financial
Statements.
Principal Risks and Uncertainties
The Group is exposed to a number of principal risks which may
affect its performance, business model, solvency or liquidity. The
Group has a well-established framework for reviewing and assessing
these risks on a regular basis; and has put in place appropriate
processes, procedures and actions to mitigate against them. The
principal risks and uncertainties that may affect the Group were
last reported on within the 2022 Annual Report and Accounts (on
pages 81 to 86). The principal risks remain broadly unchanged since
last reported, other than an increase in the risk profile of the
"Market - economy and competition" risk. Whilst the medium and
long-term outlook for the flooring market looks positive, there is
uncertainty and potential volatility in the short-term,
particularly the residential sector part of the market.
Adam Phillips
Chief Financial Officer
5 September 2023
Directors' Responsibility Statement
We confirm that, to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
Period and description of principal risks and uncertainties for the
remaining six months of the year); and
(c) the interim report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions
and changes therein).
Alternative Performance Measures
The Group uses Alternative Performance Measures ('APMs') to
assess its financial, operational and social performance towards
the achievement of its strategy. Such measures may either exclude
amounts that are included in, or include amounts that are excluded
from, the most directly comparable statutory measure (where one
exists), calculated and presented in accordance with IFRS. Such
exclusions or inclusions give, in the Group's opinion, more
normalised performance measures and the Group believes that these
APMs are also used by investors, analysts and other interested
parties in their analysis.
The APMs have limitations and may not be comparable to other
similarly titled measures used by other companies. They should not
be viewed in isolation, but as supplementary information.
An explanation of each APM is provided in the Financial Review
of the 2022 Annual Report and Accounts. The table below shows new
APMs which have been included in the Period, to provide more
meaningful metrics on cash generation and to allow leverage
multiples to be expressed.
New or amended APM Closest equivalent statutory measure Definition and purpose
Underlying Operating Cash Flow Cash generated from the operations Calculated as cash generated from operations
less any cash inflow or outflow from
non-underlying
items. This measure reflects the level of cash
generated by the operations before
non-underlying
items.
------------------------------------ ------------------------------------------------
EBITDA (pre IFRS16 basis) Operating profit Calculated as Underlying Operating Profit adding
back depreciation, amortisation and impairment
but including rent payable.
------------------------------------ ------------------------------------------------
Leverage None Calculated as the ratio of net debt excluding
lease liabilities to EBITDA (pre IFRS16 basis).
------------------------------------ ------------------------------------------------
A reconciliation of the adjustments made to the Income Statement
to derive underlying profit measures is shown at the end of this
Interim Report. Underlying items are calculated before charges
associated with the acquisition of businesses and other items which
by virtue of their nature, size or/and expected frequency require
adjustment to show the performance of the group in a consistent
manner which is comparable year on year. These underlying measures
are relevant to investors and other stakeholders, as supplementary
information, to fully understand the underlying performance of the
business. A limitation of underlying profit measures is that they
exclude the recurring amortisation of intangible assets acquired in
business combinations but do not similarly exclude the related
revenue.
Condensed Consolidated Income Statement
For the six months ended 30 June 2023
Six
Six months Year
months ended ended
Non-underlying ended Non-underlying 30 Non-underlying 31
Underlying (Note 3) 30 June Underlying (Note 3) June Underlying (Note 3) December
Note 2023 2023 2023 2022 2022 2022 2022 2022 2022
GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM
Unaudited Unaudited Audited
--------------- ---- ----------------------------------- ----------------------------------- ------------------------------------
Revenue 2 331.8 - 331.8 323.8 - 323.8 663.6 - 663.6
Cost of sales (227.3) - (227.3) (214.8) - (214.8) (444.1) - (444.1)
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Gross profit 104.5 - 104.5 109.0 - 109.0 219.5 - 219.5
Distribution
costs (67.1) - (67.1) (64.6) - (64.6) (129.5) - (129.5)
Administrative
expenses (29.6) (1.5) (31.1) (26.5) (0.7) (27.2) (51.3) (1.5) (52.8)
Other operating
income 0.4 - 0.4 - 5.0 5.0 0.5 6.2 6.7
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Operating
profit/(loss) 2 8.2 (1.5) 6.7 17.9 4.3 22.2 39.2 4.7 43.9
Finance income 4 - - - 0.4 - 0.4 0.7 - 0.7
Finance
expenses 4 (2.2) - (2.2) (1.0) - (1.0) (2.8) - (2.8)
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Net finance
costs (2.2) - (2.2) (0.6) - (0.6) (2.1) - (2.1)
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Profit/(loss)
before tax 6.0 (1.5) 4.5 17.3 4.3 21.6 37.1 4.7 41.8
Taxation 5 (1.1) -0.3 (0.8) (3.5) (0.8) (4.3) (7.4) (0.8) (8.2)
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Profit/loss)
for the period
attributable
to the equity
shareholders 2 4.9 (1.2) 3.7 13.8 3.5 17.3 29.7 3.9 33.6
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Earnings per
share
Basic 6 6.1p 4.6p 16.5p 20.6p 35.5p 40.1p
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Diluted 6 6.1p 4.6p 16.3p 20.4p 35.2p 39.8p
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Ordinary
dividend per
share
Interim
dividend
proposed for
the financial
period 7 4.0p 6.2p 6.2p
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Final dividend
declared for
the financial
period 7 - - 11.2p
--------------- ---- ---------- -------------- ------- ---------- -------------- ------- ---------- -------------- --------
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Unaudited Unaudited Audited
Profit for the period attributable to
the equity
shareholders 3.7 17.3 33.6
Other comprehensive income:
Items that will never be reclassified
to profit or loss
Remeasurement of defined benefit plans - 0.1 0.1
- 0.1 0.1
Items that are or may be reclassified
to profit or loss
Exchange differences arising on translation
of overseas operations (0.3) 0.2 0.4
(0.3) 0.2 0.4
--------------------------------------------- ----------- ----------- --------------
Other comprehensive (expense)/income
for the period (0.3) 0.3 0.5
Total comprehensive income attributable
to the equity shareholders for the period 3.4 17.6 34.1
--------------------------------------------- ----------- ----------- --------------
Condensed Consolidated Statement of Financial Position
At 30 June 2023
At At At
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Unaudited Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 126.7 112.9 119.9
Right-of-use assets 37.2 32.6 36.7
Intangible assets 21.3 17.9 17.8
185.2 163.4 174.4
----------------------------------- ---------- ---------- -------------
Current assets
Inventories 147.5 148.1 139.8
Trade and other receivables 115.5 118.8 119.1
Income tax receivable 1.4 - -
Cash and cash equivalents 18.0 32.4 2.1
282.4 299.3 261.0
----------------------------------- ---------- ---------- -------------
Total assets 467.6 462.7 435.4
------------------------------------ ---------- ---------- -------------
Liabilities
Current liabilities
Bank overdrafts (0.5) (0.9) -
Other interest-bearing loans and
borrowings (37.1) (25.5) (0.3)
Lease liabilities (11.4) (10.5) (11.4)
Trade and other payables (154.9) (169.3) (153.2)
Employee benefits (1.3) (1.0) (1.0)
Income tax payable - (2.6) (1.9)
(205.2) (209.8) (167.8)
----------------------------------- ---------- ---------- -------------
Non-current liabilities
Lease liabilities (26.9) (23.2) (26.3)
Provisions (1.7) (2.7) (1.7)
Deferred tax liabilities (11.9) (10.3) (12.1)
Employee benefits (2.0) (3.3) (2.7)
(42.5) (39.5) (42.8)
----------------------------------- ---------- ---------- -------------
Total liabilities (247.7) (249.3) (210.6)
------------------------------------ ---------- ---------- -------------
Net assets 219.9 213.4 224.8
------------------------------------ ---------- ---------- -------------
Equity attributable to equity
holders of the parent
Share capital 4.3 4.3 4.3
Share premium 53.5 53.5 53.5
Other reserves (15.7) (16.0) (15.8)
Retained earnings 177.8 171.6 182.8
Total equity 219.9 213.4 224.8
------------------------------------ ---------- ---------- -------------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
Unaudited
Capital
Share Share redemption Special Translation Treasury Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM
Balance at 1
January
2023 4.3 53.5 0.1 1.5 2.1 (19.5) 182.8 224.8
Profit for the
period
attributable to
the
equity
shareholders - - - - - - 3.7 3.7
Other
comprehensive
expense - - - - (0.3) - - (0.3)
------------------ ---------- ---------- ----------- ---------- ------------- ---------- ----------- ---------
Total
comprehensive
(expense)/income
for
the period - - - - (0.3) - 3.7 3.4
------------------ ---------- ---------- ----------- ---------- ------------- ---------- ----------- ---------
Transactions with
equity
shareholders,
recorded directly
in
equity
Share based
payments - - - - - - 0.7 0.7
Share options
exercised
by employees - - - - - 0.4 (0.4) -
Dividends to
equity
holders - - - - - - (9.0) (9.0)
------------------ ---------- ---------- ----------- ---------- ------------- ---------- ----------- ---------
Total
contributions
by and
distributions
to equity
shareholders - - - - - 0.4 (8.7) (8.3)
------------------ ---------- ---------- ----------- ---------- ------------- ---------- ----------- ---------
Balance at 30
June
2023 4.3 53.5 0.1 1.5 1.8 (19.1) 177.8 219.9
------------------ ---------- ---------- ----------- ---------- ------------- ---------- ----------- ---------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Unaudited
Capital
Share Share redemption Special Translation Treasury Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM
Balance at 1
January
2022 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
Profit for the
period
attributable
to the
equity
shareholders - - - - - - 17.3 17.3
Other
comprehensive
income - - - - 0.2 - 0.1 0.3
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Total
comprehensive
income for
the period - - - - 0.2 - 17.4 17.6
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Transactions
with
equity
shareholders,
recorded
directly in
equity
Share based
payments - - - - - - 0.6 0.6
Repurchase of
own shares - - - - - (15.0) - (15.0)
Share options
exercised
by employees - - - - - 0.4 (0.2) 0.2
Dividends to
equity
holders - - - - - - (22.1) (22.1)
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Total
contributions
by and
distributions
to equity
shareholders - - - - - (14.6) (21.7) (36.3)
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Balance at 30
June
2022 4.3 53.5 0.1 1.5 1.9 (19.5) 171.6 213.4
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Audited
Capital
Share Share redemption Special Translation Treasury Retained Total
capital premium reserve Reserve reserve reserve earnings equity
GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM
Balance at 1
January
2022 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
Profit for the
period
attributable
to the
equity
shareholders - - - - - - 33.6 33.6
Other
comprehensive
income - - - - 0.4 - 0.1 0.5
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Total
comprehensive
income for
the year - - - - 0.4 - 33.7 34.1
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Transactions
with equity
shareholders,
recorded
directly in
equity
Share-based
payments - - - - - - 0.9 0.9
Share options
exercised
by employees - - - - - 0.4 (0.2) 0.2
Deferred tax
on share
options - - - - - - (0.2) (0.2)
Repurchase of
own shares - - - - - (15.0) - (15.0)
Dividends to
equity
holders - - - - - - (27.3) (27.3)
Total
contributions
by and
distributions
to equity
shareholders - - - - - (14.6) (26.8) (41.4)
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Balance at 31
December
2022 4.3 53.5 0.1 1.5 2.1 (19.5) 182.8 224.8
--------------- ---------- ---------- ------------ ---------- -------------- ----------- ----------- ---------
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2023
Year ended
Six months Six months 31 December
ended ended 2022
30 June 30 June GBPM
2023 2022
GBPM GBPM
Unaudited Unaudited Audited
Cash flows from operating activities
Profit before tax for the period 4.5 21.6 41.8
Adjustments for:
Depreciation of property, plant and equipment,
amortisation and impairment 4.6 3.6 7.7
Depreciation of right of use assets 6.5 5.8 12.5
Finance income - (0.4) (0.7)
Finance expense 2.2 1.0 2.8
Insurance proceeds for property, plant
and equipment following fire - (0.4) (1.7)
Share-based payments 0.7 0.6 0.9
Operating cash flows before changes in
working capital and other payables 18.5 31.8 63.3
Change in inventories (6.9) (16.9) (8.3)
Change in trade and other receivables 4.0 (4.4) (3.5)
Change in trade and other payables 4.0 (21.3) (34.2)
------------------------------------------------- ------------- ------------- -------------
Cash generated from the operations 19.6 (10.8) 17.3
Interest paid (0.9) (1.0) (1.2)
Interest received - 0.5 0.6
Tax paid (4.8) (2.7) (5.8)
Net cash flow from operating activities 13.9 (14.0) 10.9
------------------------------------------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of subsidiary, net of cash (3.7) - -
acquired (note 8)
Acquisition of property, plant and equipment (9.7) (2.2) (12.6)
Insurance proceeds for property, plant
and equipment following fire - 0.4 1.7
Acquisition of intangible assets (0.4) (0.6) (1.2)
------------------------------------------------- ------------- ------------- -------------
Net cash flow from investing activities (13.8) (2.4) (12.1)
------------------------------------------------- ------------- ------------- -------------
Cash flows from financing activities
Proceeds from the issue of treasury shares - 0.2 0.2
Payment to acquire own shares (5.2) (3.7) (9.8)
Proceeds from borrowings 60.0 25.0 25.0
Repayment of borrowings (23.2) (7.0) (32.3)
Principal elements of lease payments (7.2) (5.8) (14.0)
Dividends paid (9.0) (22.1) (27.3)
------------------------------------------------- ------------- ------------- -------------
Net cash flow from financing activities 15.4 (13.4) (58.2)
------------------------------------------------- ------------- ------------- -------------
Net increase/(decrease) in cash and cash
equivalents 15.5 (29.8) (59.4)
Cash and cash equivalents at 1 January 2.1 61.2 61.2
Effect of exchange rate fluctuations on
cash held (0.1) 0.1 0.3
Cash and cash equivalents at end of period 17.5 31.5 2.1
------------------------------------------------- ------------- ------------- -------------
Notes to the Condensed Consolidated Interim Financial
Statements
Unaudited
1 BASIS OF REPORTING
Reporting entity
Headlam Group plc, the 'company', is a company incorporated in
the UK. The Condensed Consolidated Interim Financial Statements
consolidate those of the company and its subsidiaries which
together are referred to as the 'Group' as at and for the six
months ended 30 June 2023.
The Consolidated Financial Statements of the Group as at and for
the year ended 31 December 2022 are available upon request from the
company's registered office or the website.
The comparative figures for the financial year ended 31 December
2022 are not the Group's statutory accounts for that financial
year. Those accounts have been reported on by the Group's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
These Condensed Consolidated Interim Financial Statements have
not been audited or reviewed by the auditor pursuant to the
Auditing Practices Board's Guidance on Financial Information.
Statement of compliance
These Condensed Consolidated Interim Financial Statements have
been prepared and approved by the directors in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority and UK adopted International Accounting
Standard IAS 34, Interim Financial Reporting.
They do not include all of the information required for full
annual financial statements and should be read in conjunction with
the Consolidated Financial Statements of the Group as at and for
the year ended 31 December 2022, which were prepared in accordance
with UK-adopted International Accounting Standards.
These Condensed Consolidated Interim Financial Statements were
approved by the Board of Directors on 5 September 2023.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the Group's
published Consolidated Financial Statements for the year ended 31
December 2022.
Impacts of standards and interpretations in issue but not yet
effective
There are no other new standards, amendments to existing
standards, or interpretations that are not yet effective that would
be expected to have a material impact on the Group.
Going concern
The Group's performance, position and business activities,
together with the factors likely to affect its future development,
are described in the Chief Executive's Statement and Financial
Review.
The Directors have reviewed current performance and latest
forecasts, along with borrowing facilities and expenditure
commitments. A reverse stress test has also been performed,
considering the period of 12 months from the approval of this
Interim Report. This shows that the Group could withstand an 11%
reduction in revenues compared to the latest forecasts and continue
to operate within its current banking facilities and the covenant
restrictions set out therein. The latest forecasts are
representative of the current trading environment which already
factors in reduced levels of consumer and business confidence which
had been modelled in downside scenarios at previous reporting
dates.
Should the reduction in revenues be greater than 11% in the next
12 months, the Board would need to take mitigating actions to
remain within its banking covenants. Mitigating actions, which are
within the Board and management's control, include a further
reduction in the cost base to align it with market demand, a freeze
on non-critical capital spend, disposal of freehold properties and
cancellation of the dividend.
The impact of inflation on the results for the Period and the
inflationary impact on consumer spending has been considered as
part of the assessment.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate financial resources to
continue in operation, including contractual and commercial
commitments, for the next 12 months. For these reasons, the going
concern basis has been adopted in preparing the financial
statements.
Bank facilities at 30 June 2023
Committed credit Uncommitted credit
facilities facilities Total facilities
GBP million GBP million GBP million
Drawn funds 37.1 0.5 37.6
Undrawn funds 44.5 17.8 62.3
----------------- ------------------- -------------------
81.6 18.3 99.9
================= =================== ===================
Judgements and estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements as at and for the year ended 31
December 2022.
Risks and uncertainties
The risk factors which could cause the Group's results to differ
materially from expected results are set out in detail in the 2022
Annual Report and Accounts, with the result of a review of those
risks subsequent to the publication of this interim report listed
above.
2 SEGMENT REPORTING
At 30 June 2023, the Group had 17 operating segments in the UK
and three operating segments in Continental Europe. Each segment
represents an individual distribution centre, and each operation is
wholly aligned to the sales, marketing, supply and distribution of
floorcovering products. The operating results of each operation are
regularly reviewed by the Chief Operating Decision Maker, which is
deemed to be the Chief Executive. Discrete financial information is
available for each segment and used by the Chief Executive to
assess performance and decide on resource allocation.
The operating segments have been aggregated to the extent that
they have similar economic characteristics, with relevance to
products and services, type and class of customer, methods of sale
and distribution and the regulatory environment in which they
operate. The Group's internal management structure and financial
reporting systems differentiate the operating segments on the basis
of the differing economic characteristics in the UK and Continental
Europe and accordingly present these as two separate reportable
segments. This distinction is embedded in the construction of
operating reports reviewed by the Chief Executive, the Board and
the executive team and forms the basis for the presentation of
operating segment information given below.
The assets and liabilities at 30 June 2022 have been
re-presented to better reflect their segmental allocation.
Continuing operations
UK Continental Europe Total
Restated 31 31 December Restated 31
30 June 30 June December 30 30 June 2022 30 June 30 June December
2023 2022 2022 June 2022 GBPM 2023 2022 2022
GBPM GBPM GBPM 2023 GBPM GBPM GBPM GBPM
GBPM
Revenue
External
revenues 288.9 279.6 577.8 42.9 44.2 85.8 331.8 323.8 663.6
------------- ---------- ---------- ---------- --------- --------- ------------ ---------- ---------- ----------
Reportable
segment
underlying
operating
profit 11.3 16.3 36.8 0.7 2.4 3.4 12.0 18.7 40.2
------------- ---------- ---------- ---------- --------- --------- ------------ ---------- ---------- ----------
Reportable
segment
assets 380.7 408.2 371.0 36.6 37.7 40.7 417.3 445.9 411.7
Reportable
segment
liabilities (215.3) (216.2) (173.8) (20.5) (20.2) (22.8) (235.8) (236.4) (196.6)
------------- ---------- ---------- ---------- --------- --------- ------------ ---------- ---------- ----------
During the periods shown above there have been no inter-segment
revenues for the reportable segments (2022: GBPnil).
Reconciliations of reportable segment profit, assets and
liabilities and other material items:
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Profit for the period
Total underlying profit for reportable
segments 12.0 18.7 40.2
Non-underlying items (1.5) 4.3 4.7
Unallocated expense (3.8) (0.8) (1.0)
------------------------------------------ -------- -------- ------------
Operating profit 6.7 22.2 43.9
Finance income - 0.4 0.7
Finance expense (2.2) (1.0) (2.8)
------------------------------------------ -------- -------- ------------
Profit before taxation 4.5 21.6 41.8
Taxation (0.8) (4.3) (8.2)
------------------------------------------ -------- -------- ------------
Profit for the period 3.7 17.3 33.6
------------------------------------------ -------- -------- ------------
In the UK the Group's freehold properties are held within
Headlam Group plc and a rent is charged to the operating segments.
In the current Period this rent has been allocated to the operating
segments to better reflect their performance.
Restated
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Assets
Total assets for reportable segments 417.3 445.9 411.7
Unallocated assets:
Intangible assets 3.4 2.4 3.0
Income tax receivable 1.4 - -
Cash and cash equivalents 45.5 14.4 20.7
--------------------------------------------- -------- --------- ------------
Total assets 467.6 462.7 435.4
--------------------------------------------- -------- --------- ------------
Liabilities
Total liabilities for reportable segments (235.8) (236.4) (196.6)
Unallocated liabilities:
Income tax payable - (2.6) (1.9)
Deferred tax liabilities (11.9) (10.3) (12.1)
--------------------------------------------- -------- --------- ------------
Total liabilities (247.7) (249.3) (210.6)
============================================= ======== ========= ============
Reportable
Continental segment Consolidated
UK Europe total Unallocated total
GBPM GBPM GBPM GBPM GBPM
Other material items
30 June 2023
Acquisition of property,
plant and equipment 9.6 0.1 9.7 - 9.7
Depreciation 3.1 0.2 3.3 - 3.3
Depreciation of right
of use assets 5.7 0.8 6.5 - 6.5
Non-underlying items 1.4 0.1 1.5 - 1.5
Other material items 30
June 2022
Acquisition of property,
plant and equipment 2.2 - 2.2 - 2.2
Depreciation 2.7 0.2 2.9 - 2.9
Depreciation of right
of use assets 4.9 0.9 5.8 - 5.8
Non-underlying items (4.4) 0.1 (4.3) - (4.3)
Other material items 31
December 2022
Acquisition of property,
plant and equipment 12.1 0.5 12.6 - 12.6
Depreciation 5.9 0.3 6.2 - 6.2
Depreciation of right
of use assets 10.7 1.8 12.5 - 12.5
Non-underlying items (4.8) 0.1 (4.7) - (4.7)
-------------------------- ------ -------------- ----------- -------------- ---------------
The Chief Executive, the Board and the executive team have
access to information that provides details on revenue by principal
product group for the two reportable segments, as set out in the
following table:
UK Continental Europe Total
31 31 December 31 December
30 30 June December 30 30 June 2022 30 30 June 2022
June 2022 2022 June 2022 GBPM June 2022 GBPM
2023 GBPM GBPM 2023 GBPM 2023 GBPM
GBPM GBPM GBPM
Revenue
Residential 189.1 187.5 382.8 26.2 27.4 52.5 215.3 214.9 435.3
Commercial 99.8 92.1 195.0 16.7 16.8 33.3 116.5 108.9 228.3
------------- ------- ---------- ----------- ------- ---------- ------------ ------- ---------- -------------
288.9 279.6 577.8 42.9 44.2 85.8 331.8 323.8 663.6
------------- ------- ---------- ----------- ------- ---------- ------------ ------- ---------- -------------
3 NON-UNDERLYING ITEMS
Non-underlying items relate to the following:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Amortisation of acquired intangibles
and other acquisition-related costs 1.5 0.7 1.5
Insurance proceeds (following fire) - (5.0) (6.2)
1.5 (4.3) (4.7)
Taxation on non-underlying items (0.3) 0.8 0.8
-------------------------------------- ----------- ----------- --------------
1.2 (3.5) (3.9)
-------------------------------------- ----------- ----------- --------------
4 FINANCE INCOME AND EXPENSE
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Interest income:
Bank interest - 0.1 0.6
Other - 0.3 0.1
Finance income - 0.4 0.7
--------------------------------------------- ----------- ----------- --------------
Interest expense:
Bank loans, overdrafts and other financial
expenses (1.0) (0.2) (1.3)
Interest on lease liability (0.9) (0.6) (1.4)
Net interest on defined benefit plan
obligation (0.1) - (0.1)
Other (0.2) (0.2) -
Finance expenses (2.2) (1.0) (2.8)
--------------------------------------------- ----------- ----------- --------------
5 TAXATION
The Group's consolidated underlying effective tax rate ('ETR')
for the interim period is 18.3%. This is lower than the standard
rate of corporation tax in the UK predominantly due to the
recognition of previously unrecognised tax losses in the
period.
The UK headline corporation tax rate for the six months ended 30
June 2023 was increased from 19% to 25% from 1 April 2023 (six
months ended 30 June 2022: 19%; 12 months ended 31 December 2022:
19%). The deferred tax balance in respect of UK entities has been
calculated at 25% (30 June 2022: 25%; 31 December 2022: 25%)
following the enactment in 2021 of the increase in the UK tax rate
from 1 April 2023.
6 EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is
based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Earnings
Earnings for basic and diluted earnings
per share 3.7 17.3 33.6
Earnings for underlying basic and underlying
diluted earnings per share 4.9 13.8 29.7
---------------------------------------------- ------------- ------------- --------------
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Number of shares
Weighted average number of ordinary
shares for the purposes of basic earnings
per share 80,354,717 83,872,158 83,626,126
Effect of diluted potential ordinary
shares:
Weighted average number of ordinary
shares at period end 80,354,717 83,872,158 83,626,126
Dilutive effect of share options 209,262 906,056 615,584
---------------------------------------------- ------------- ------------- --------------
Weighted average number of ordinary
shares for the purposes of diluted earnings
per share 80,563,979 84,778,214 84,241,710
---------------------------------------------- ------------- ------------- --------------
Continuing operations earnings per
share
Basic 4.6p 20.6p 40.1p
Diluted 4.6p 20.4p 39.8p
Underlying basic 6.1p 16.5p 35.5p
Underlying diluted 6.1p 16.3p 35.2p
---------------------------------------------- ------------- ------------- --------------
7 DIVIDS
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPM GBPM GBPM
Final dividend for 2022 of 11.20p paid 9.0 - -
2 June 2023
Final dividend for 2021 of 8.60p paid
27 May 2022 - 7.2 7.2
Special dividend of 17.70p paid 27 May
2022 - 14.9 14.9
Interim dividend for 2022 of 6.20p paid
28 November 2022 - - 5.2
9.0 22.1 27.3
----------------------------------------- ----------- ----------- --------------
The Board of Directors have declared for 2023, an interim
ordinary dividend of 4.0 pence per share. This dividend is payable
on 28 November 2023 to shareholders on the register as at 27
October 2023, and is discussed further in the Chief Executive's
Statement and Chief Financial Officer's Review above.
8 ACQUISITIONS
On 4 January 2023 the Group acquired 100% of the issued share
capital of Birch Close Trading Limited, and its subsidiaries, for a
consideration of GBP4.7 million, including GBP0.4 million in
respect of cash acquired and GBP0.6 million of contingent deferred
consideration. The acquired group trades as Melrose Interiors
('Melrose'), which is the largest independent supplier to the UK
online rug industry, and has operations in third-party logistics,
recycling and an in-house rug, sampling and pattern book
department. Melrose brings a number of new larger customers to the
Group, including major high street and online retailers, a customer
segment where the Group is targeting growth and will work with
Melrose to scale up opportunities.
The operating results and assets and liabilities of the acquired
group were consolidated from 4 January 2023.
The acquired business contributed revenues of GBP4.2 million and
an operating profit of GBP0.3 million to the group for the six
months ended 30 June 2023.
Professional fees of GBP0.2 million were incurred in relation to
acquisition activity and have been expensed to the income statement
within administration expenses.
Details of the consideration transferred are:
Purchase consideration GBPM
----------------------------- ----
Cash paid 4.1
Contingent consideration 0.6
----------------------------- ----
Total purchase consideration 4.7
----------------------------- ----
The fair values of the assets and liabilities of Birch Close
Trading Limited group as at the date of acquisition are as
follows:
Fair Value GBPM
--------------------------------- -----
Property, plant and equipment 0.5
Right of use assets 2.7
Intangible assets 1.7
Inventories 1.8
Trade and other receivables 1.5
Cash and cash equivalents 0.4
Lease liabilities (2.7)
Trade and other payables (2.8)
Deferred tax liabilities (0.4)
--------------------------------- -----
Net identifiable assets acquired 2.7
--------------------------------- -----
Goodwill 2.0
--------------------------------- -----
Net assets acquired 4.7
--------------------------------- -----
The goodwill is attributable to the access to new larger
customers to the Group and the ability to produce sampling and
pattern books in house. None of the goodwill is expected to be
deductible for tax purposes.
The fair value of the acquired brand names and customer
relationships of GBP1.7 million has been recognised as intangible
assets on acquisition. Deferred tax of GBP0.4 million has been
provided in relation to these fair value adjustments.
The contingent consideration arrangement requires the Group to
pay the former owners of the Birch Close Trading Limited group an
amount of GBP0.8 million plus GBP2 for every GBP1 of EBITDA
exceeding GBP1.0 million or minus GBP1 for every GBP1 miss of
EBITDA of GBP1.0 million for the years ended 31 December 2023 and
31 December 2024 up to a maximum undiscounted amount of GBP3.0
million. EBITDA for the calculation of the contingent consideration
is earnings before interest, tax, depreciation and amortisation.
The potential undiscounted amount of all future payments that the
Group could be required to make under this arrangement is between
GBPnil and GBP3.0 million. The fair value of the contingent
consideration of GBP0.6m has been estimated by calculating the
present value of the future expected cash flows. The estimates are
based on a discount rate of 4.6%.
The fair value of acquired trade receivables is GBP1.4 million.
The gross contractual amount for trade receivables due is GBP1.4
million, with a loss allowance of GBPnil recognised on
acquisition.
9 FINANCIAL INSTRUMENTS
The fair value of the Group's financial assets and liabilities
as detailed below at 30 June 2023 were not materially different to
the carrying value.
The table below sets out the Group's accounting classification
of each class of financial assets and liabilities at 30 June
2023.
Fair value
through Amortised Total
profit cost carrying
or loss GBPM value
(FVPL) GBPM
GBPM
--------------------------- ----------- ------------ -----------
Cash and cash equivalents - 18.0 18.0
Bank overdraft - (0.5) (0.5)
Borrowings due within one
year - (37.1) (37.1)
Trade payables - (123.3) (123.3)
Non-trade payables - (20.8) (20.8)
Leasing liability - (38.3) (38.3)
Trade receivables - 85.1 85.1
Other receivables - 20.7 20.7
Provisions - (1.7) (1.7)
Derivative liability (0.1) - (0.1)
(0.1) (97.9) (98.0)
--------------------------- ----------- ------------ -----------
Financial instruments carried at fair value are categorised
according to their valuation method. The different levels have been
defined below:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly, as prices or indirectly, derived from prices.
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The Group has forward currency contracts which were fair valued
in accordance with level 2 (30 June and 31 December 2022: level
2).
Fair values
The carrying amounts shown in the Statement of Financial
Position for financial instruments are a reasonable approximation
of fair value.
Trade receivables, trade payables and cash and cash
equivalents
Fair values are assumed to approximate to cost due to the
short-term maturity of the instrument.
Borrowings, other financial assets and other financial
liabilities
Where available, market values have been used to determine fair
values. Where market values are not available, fair values have
been estimated by discounting expected future cash flows using
prevailing interest rate curves. Amounts denominated in foreign
currencies are valued at the exchange rate prevailing at the
Statement of Financial Position date.
10 RELATED PARTIES
The Group has a related party relationship with its subsidiaries
and with its key management. There have been no changes to the
nature of related party transactions entered into since the last
annual report.
11 CONTINGENT ASSET
At June 2023, the Group identified a contingent asset relating
to parts of an insurance claim for losses arising from damage to
the Group's property and contents, as a result of the Kidderminster
fire in December 2021. The insurers have accepted liability in
respect of the Kidderminster fire claim. However, consistent with
the position at December 2022, the refund relating to the property
and contents damage could not be reliably measured at 30 June
2023.
In the prior year, amounts of GBP0.6 million and GBP1.7 million
were recognised at June 2022 and December 2022, respectively,
relating to refunds for property and contents damage, following
interim payments. There were no further interim payments in H1
2023.
12 SUBSEQUENT EVENTS
Management have given due consideration to any events occurring
in the period from the reporting date to the date these Interim
Financial Statements were authorised for issue and have concluded
that there are no material adjusting or non-adjusting events to be
disclosed in these Interim Financial Statements other than the
following:
On 11 July 2023, with an effective date of 1 July 2023, the
Group completed the acquisition of 100% of the issued share capital
of Het Stoffen Gilde B.V. for cash consideration of GBP0.8 million,
including GBP0.2 million in respect of cash acquired. Het Stoffen
Gilde B.V., a company registered in the Netherlands, is involved in
the supply of fabrics and curtains. The financial effects of this
transaction have not been recognised at 30 June 2023. The operating
results and assets and liabilities of the acquired company will be
consolidated from 1 July 2023.
On 30 August 2023 the Group exchanged contracts to acquire the
trade and assets of PD Pattern Books Limited for cash consideration
of GBP1.7 million. The business is involved in the manufacture of
floorcovering pattern books and will be operated by Melrose
Interiors, which was acquired by the Group in January 2023 and is
located close by.
Adjusted Results Reconciliation
30 June 2023
Amortisation of acquired
intangibles and other acquisition
Total Results related costs Adjusted Results (underlying)
GBPM GBPM GBPM
------------------------------------ ------------- ---------------------------------- -----------------------------
Revenue 331.8 - 331.8
Cost of sales (227.3) - (227.3)
------------------------------------ ------------- ---------------------------------- -----------------------------
Gross profit 104.5 - 104.5
Distribution costs (67.1) - (67.1)
Administrative expenses (31.1) 1.5 (29.6)
Other operating income 0.4 - 0.4
------------------------------------ ------------- ---------------------------------- -----------------------------
Operating profit/(loss) 6.7 1.5 8.2
Finance income - - -
Finance expenses (2.2) - (2.2)
------------------------------------ ------------- ---------------------------------- -----------------------------
Net finance costs (2.2) - (2.2)
------------------------------------ ------------- ---------------------------------- -----------------------------
Profit/(loss) before tax 4.5 1.5 6.0
Taxation (0.8) (0.3) (1.1)
------------------------------------ ------------- ---------------------------------- -----------------------------
Profit/(loss) for the year
attributable to the equity
shareholders 3.7 1.2 4.9
------------------------------------ ------------- ---------------------------------- -----------------------------
Earnings/(loss) per share for profit
Basic 4.6p 1.5p 6.1p
Diluted 4.6p 1.5p 6.1p
------------------------------------ ------------- ---------------------------------- -----------------------------
Adjusted Results Reconciliation
30 June 2022
Insurance proceeds Amortisation of acquired Adjusted Results
Total Results (following fire) intangibles (underlying)
Continuing operations GBPM GBPM GBPM GBPM
------------------------- ------------- ------------------------ ------------------------ ------------------------
Revenue 323.8 - - 323.8
Cost of sales (214.8) - - (214.8)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Gross profit 109.0 - - 109.0
Distribution costs (64.6) - - (64.6)
Administrative expenses (27.2) - 0.7 (26.5)
Other operating income 5.0 (5.0) - -
------------------------- ------------- ------------------------ ------------------------ ------------------------
Operating profit/(loss) 22.2 (5.0) 0.7 17.9
Finance income 0.4 - - 0.4
Finance expenses (1.0) - - (1.0)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Net finance costs (0.6) - - (0.6)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Profit/(loss) before tax 21.6 (5.0) 0.7 17.3
Taxation (4.3) 1.0 (0.2) (3.5)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Profit/(loss) for the
year attributable to the
equity shareholders 17.3 (4.0) 0.5 13.8
------------------------- ------------- ------------------------ ------------------------ ------------------------
Earnings/(loss) per share
for profit
Basic 20.6p (4.8)p 0.7p 16.5p
Diluted 20.4p (4.8)p 0.7p 16.3p
------------------------- ------------- ------------------------ ------------------------ ------------------------
Adjusted Results Reconciliation
31 December 2022
Insurance proceeds Amortisation of acquired Adjusted Results
Total Results (following fire) intangibles (underlying)
Continuing operations GBPM GBPM GBPM GBPM
------------------------- ------------- ------------------------ ------------------------ ------------------------
Revenue 663.6 - - 663.6
Cost of sales (444.1) - - (444.1)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Gross profit 219.5 - - 219.5
Distribution costs (129.5) - - (129.5)
Administrative expenses (52.8) - 1.5 (51.3)
Other operating income 6.7 (6.2) - 0.5
------------------------- ------------- ------------------------ ------------------------
Operating profit/(loss) 43.9 (6.2) 1.5 39.2
Finance income 0.7 - - 0.7
Finance expenses (2.8) - - (2.8)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Net finance costs (2.1) - - (2.1)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Profit/(loss) before tax 41.8 (6.2) 1.5 37.1
Taxation (8.2) 1.1 (0.3) (7.4)
------------------------- ------------- ------------------------ ------------------------ ------------------------
Profit/(loss) for the
year attributable to the
equity shareholders 33.6 (5.1) 1.2 29.7
------------------------- ------------- ------------------------ ------------------------ ------------------------
Earnings/(loss) per share
for profit
Basic 40.1p (6.0)p 1.4p 35.5p
Diluted 39.8p (6.0)p 1.4p 35.2p
------------------------- ------------- ------------------------ ------------------------ ------------------------
-Ends-
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