TIDMHEAD
RNS Number : 2179S
Headlam Group PLC
08 March 2023
8 March 2023
Headlam Group plc
('Headlam' or the 'Company')
Final Results
Many achievements despite very challenging industry headwinds in
the year
Headlam (LSE: HEAD), the UK's leading floorcoverings
distributor, today announces its Final Results for the year ended
31 December 2022 (the 'Period'), and an update on current
trading.
Financial Results 2022 2021 % change
---------- ---------- ---------
Revenue GBP663.6m GBP667.2m -0.5%
Gross margin 33.1% 33.0% +10bps
Underlying(1) expenses GBP180.8m GBP183.2m -1.3%
Underlying(1) operating profit GBP39.2m GBP37.3m +5.1%
Underlying(1) operating
margin 5.9% 5.6% +30bps
Underlying(1) profit before
tax GBP37.1m GBP35.8m +3.6%
Underlying(1) basic earnings
per share 35.5p 31.5p +12.7%
Ordinary dividend per share 17.4p 16.4p +6.1%
Statutory Results
Operating profit GBP43.9m GBP29.1m +50.9%
Operating margin 6.6% 4.4% +220bps
Profit before tax GBP41.8m GBP27.6m +51.4%
Financial Highlights
-- Revenue maintained despite very challenging industry
headwinds, reflecting revenue development actions and support from
product price increases
-- Gross margin steady, with benefit of price increases offset
by reduced proportion of revenue from higher margin residential
sector due to impacts of UK cost of living crisis
-- Underlying (1) expenses effectively controlled despite
significant widespread operational cost inflation
-- Statutory results higher than underlying (1) due to insurance
claim proceeds following a fire creating a net credit on
non-underlying items
-- GBP 37.1 million of returns to shareholders via ordinary and
special dividends, and Share Buyback Programme
-- Average net funds excluding lease liabilities of GBP3.1 million (2021: GBP38.3 million)
Operational Highlights
-- Pleasing progress in delivering on strategy of driving new
revenue growth and capturing greater market share from a more
efficient operating base
-- Several new larger customers won, with considerable potential for scalability
-- Roll-out of trade counter sites to create nationwide
footprint progressing to plan, with strong KPIs from new sites
-- Several own product brands successfully relaunched, and new
Everyroom brand having very positive sales since launch in H2
2022
-- 26% of sales now coming from digital channels (2019: 11%),
and further digital enhancements made to the service
proposition
-- Ongoing investment in the business to improve the service
proposition, with modest overall investment required to deliver on
the growth strategy
Post Year End and Current Trading
-- Acquired Melrose Interiors, largest independent supplier to
the online rug industry and highly complementary to the
strategy
-- UK freehold properties revalued at an increased GBP138.5
million (January 2020: GBP101.4 million)
-- GBP15.0 million Share Buyback Programme completed on 2 March
2023, considered one of the most effective mechanisms to enact a
shareholder return due to level of the Company's ordinary
shares
-- Relatively robust revenue performance to date despite continued weak UK residential sector
-- Larger customer contributions and steady commercial sector helping to offset weakness
-- Trading in line with market expectations (2) for the year
Commenting, Chris Payne, Chief Executive, said:
"Despite very challenging industry headwinds in the year, most
notably the UK cost of living crisis and significant operational
cost inflation, revenue was maintained and profit improved against
2021. So far in 2023, revenue performance is slightly ahead of last
year despite a continuing weak residential sector."
Presentations
The Company's Final Results Presentation accompanying this
announcement is available on its website at Reports &
presentations | Headlam .
The Company is hosting an in-person presentation and Q&A for
analysts in London today at 09:00am GMT. To
register interest in attending, please email headlam@almapr.co.uk
The Company is also hosting an online presentation and Q&A
for investors today at 11:00am GMT. The presentation is open to all
existing and potential shareholders. Investors can register to
attend via the following link:
https://bit.ly/Headlam_FY22_webinar
A video of the presentation by the Chief Executive will be made
available on the Company's website following the conclusion of the
investor presentation, with the Q&A from the online
presentation also made available.
Footnotes
(1)Underlying is before non-underlying items, which includes i)
impairment of intangibles, fixed assets and right of use assets,
ii) amortisation of acquired intangibles, iii) property disposal
profits, iv) impairment of property, plant and equipment and
inventory (following a fire), v) insurance proceeds (following
fire) and vi) business restructuring costs in 2021.
(2) Company-compiled consensus market expectations for revenue
and underlying profit before tax, on a mean basis, are available on
the Company's website at www.headlam.com .
Enquiries:
Headlam Group plc Tel: 01675 433 000
Chris Payne, Chief Executive Email: headlamgroup@headlam.com
Catherine Miles, Director of IR
and ESG
Panmure Gordon (UK) Limited (Corporate Tel: 020 7886 2500
Broker)
Tom Scrivens / Atholl Tweedie Tel: 020 7418 8900
Peel Hunt LLP (Corporate Broker)
George Sellar / John Welch
Alma PR (Financial PR) Tel: 020 3405 0205
David Ison / Matthew Young Email: headlam@almapr.co.uk
Notes to Editors:
Operating for over 30 years, Headlam is the UK's leading
floorcoverings distributor. The Company 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 Company 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 67
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.
Chairman's Statement
2022 was a busy year, with many achievements including pleasing
progress in early stage delivery on the strategy. However, the year
also presented very challenging headwinds, not least significant
operational cost increases and an inflationary environment which
resulted in a cost of living crisis, materially impacting a large
proportion of the Company's domestic marketplace. This served to
subdue overall financial performance and mask early contributions
from the strategy, although they served as an important
counterbalance to the weak UK residential sector so that group
revenue was broadly maintained year on year.
The strategy of driving revenue growth and capturing increased
market share from a more efficient and modernised operating base is
being delivered through various discrete projects. Each has an
accelerating contribution profile which will support value creation
for all stakeholders. Successes in the year included new larger
customer wins with potential to scale up, effective execution of
the early stage roll-out of improved trade counters nationwide, and
launches / relaunches of own product brands to appeal to a wider
customer base.
In support of delivery and oversight of the strategy, the Board
was refreshed and enhanced during the year, bringing further
relevant expertise and skills. Additionally, significant
operational capability has been added throughout the business,
mostly notably in customer and digital strategies, IT, trade
counter management, and HR support.
Due to the economic backdrop, support for the Company's people
of both a financial and non-financial nature was a particular
focus. A tiered annual pay award and commitment to the National
Real Living Wage has sought to provide additional support for more
junior colleagues, and investment in the HR team will allow
enhancements in the areas of wellbeing and colleague development
opportunities.
Despite the inflationary cost pressures in the year, the Company
continued to invest across the business to strengthen its position,
support revenue growth, and build foundations for future
opportunities. Alongside investment in people, the Company invested
in sites, systems and customer service propositions, all of which
support the strategy. As the investment required to deliver on the
strategy is relatively modest, the Board can fulfil this priority
and maintain a strong balance sheet while continuing its focus on
shareholder returns.
The Company's well developed ESG strategy is an important
framework to ensure the sustainability and long-term success of
Headlam, and is closely aligned with the overall strategy.
Importantly, it will allow the Company to capture commercial
opportunities, advance efficiency and modernisation measures, as
well as support colleagues and local communities. Of note, the
Company is actively engaged in many decarbonisation actions in
support of its Net Zero emissions target (Scope 1 and 2) by 2035,
including investing in solar panels to both reduce emissions and
defray future energy costs. Furthermore, the Company anticipates
launching sustainable products during 2023 to capture growing
customer demand.
Headlam is a long-established market leading business with solid
foundations that have been strengthened through the development and
increasing implementation of the strategy. The Company is now
engaging with a far larger proportion of the overall market and has
significant growth ambitions. Whilst there will be a lag to this
translating into overall financial performance given the economic
backdrop and upfront investment required for some projects, the
Board is highly confident in the strategy and its future success.
The Board wishes to thank all its stakeholders, especially its
people, and looks forward to updating on demonstrable progress
under both the overall and ESG strategies as 2023 progresses.
Keith Edelman
Non-Executive Chairman
8 March 2023
Chief Executive Review
Introduction
The Company has a long heritage, although many of the market
leading businesses and brands within the group have even longer,
having been established well before becoming part of Headlam. The
Company is proud to be a clear market leader, and seeks to build on
its heritage and strength through delivering on the strategy,
supporting all its stakeholders, and having a shared vision across
the group of being the leading, most trusted experts in flooring.
Despite a difficult UK market backdrop, the Company is pleased with
many of the outcomes during 2022, and looks to build upon them
during 2023.
Financial Performance and Marketplace
The Company's financial performance is given in detail in the
Financial Review, but despite the adverse external factors in the
year, revenue was broadly similar to 2021 at GBP663.6 million
(2021: GBP667.2 million), costs were effectively controlled and
lower than 2021, and underlying(1) profit before tax improved to
GBP37.1 million (2021: GBP35.8 million). This reflected the revenue
development and efficiency actions undertaken in the year.
The external factors affecting the marketplace evolved as the
year progressed. Industry wide supply issues evident in the second
half of 2021 continued into the first half of 2022. These in large
part stemmed from the consequences of COVID-19, with upstream raw
material shortages and cost inflation leading to product
availability issues. This in turn led to manufacturers implementing
significant price increases across many product categories, peaking
in the first half and then beginning to moderate in the second.
The inflationary environment in the UK that had been evident at
the beginning of the year continued to worsen ultimately leading to
the cost of living crisis. This backdrop particularly impacted
consumer spending on discretionary items. As a consequence, the
residential sector of the marketplace, which accounts for
approximately two-thirds of the Company's revenue, was notably weak
in the year with underlying volumes significantly down. However,
product price increases provided support to the Company's revenue
performance, as did a recovery in the commercial sector, pleasing
performances by the Continental European businesses, and early
contributions from the strategy, as described below. The Company's
businesses in France and the Netherlands are now all benefiting
from strong leadership coupled with more positive market backdrops
than that of the UK, and have been positive contributors to overall
performance.
Strategy and Operations
As summarised in the Chairman's Statement, the Company's
strategy is driving revenue growth from a more efficient and
modernised operating base. It is about targeting, appealing to, and
supporting a wider base of customers beyond traditional flooring
specialists to capture an increased share of the overall GBP3
billion(2) UK marketplace. It is about modernising and being more
efficient to both improve the customer service proposition and
increase shareholder returns. It is about being front footed and
capturing more commercial opportunities, particularly as the market
and customer base evolves. This includes in the area of
sustainability where companies increasingly need to demonstrate
their credentials.
The key projects to drive revenue growth are detailed below.
Each of the projects began to contribute to performance in 2022,
both financially and operationally, with full period effects and
accelerating contributions from this year onwards.
The Company has not lost sight of its 7.5% operating margin
ambition. However, it does require a base of more normalised volume
without the material weakness seen in a large proportion of the
market, with the Company benefitting from operational gearing on a
partially fixed cost base. Underlying(1) operating margin was 5.9%
in 2022 (2021: 5.6%), and therefore the margin ambition shows the
scope for meaningful uplift to financial performance.
A continued focus on cost control, and ongoing consolidation and
integration actions, present the most meaningful efficiency
measures. Transport integration, for example, has been very
successful in reducing the Company's commercial fleet and
associated costs, with the project completing across the country
next month and moving to a continuous improvement phase. Similarly,
consolidation of certain functions including in the area of sales
have continued, with a more unified approach to better leverage
central resources. The Company has many regional and national
businesses and brands, and while it may seem unwieldy to have a
large number, they are all long-established customer facing
businesses that enable maximisation of reach and sales opportunity
at both a regional and national level. Therefore, the focus is on
greater collaboration to minimise potential overlaps and generating
increased sales to increase productivity of the existing assets.
The shift to a collaborative approach has taken time to achieve as
it has been imperative that all colleagues are invested in the
strategy, and also ensuring the foundations of the business are not
disrupted. During 2023, the Company will continue to improve
efficiencies and the service offering, including through central
transport planning and vehicle telematics, centralisation of slower
moving stockholding, and more efficient order taking.
Key Revenue Drivers
The key revenue growth drivers are as follows, with their
purpose and progress to date:
Multiple Retailers and Other Larger Customers
Targeting the multiple retailer and other larger customer
segments where the Company is significantly underweight to
materially grow revenue
The Company had not previously actively targeted this estimated
GBP1 billion market despite having a good track record in servicing
a number of customers in this segment, and had approximately GBP60
million of revenue in 2021. Following the assembly of a dedicated
team and investment in the service proposition including digital
enabling work, the Company has successfully added a number of new
customers. These include Homebase, a builders merchant, a furniture
retailer with a new flooring offering, and a top 10 UK
housebuilder. Each offers considerable potential for scalability
through adding further lines and product categories to the initial
number of SKUs. The Company has also successfully grown its
business with some existing customers, including Tapi, the fastest
growing carpet retailer in the UK with over 170 stores. The aim is
to grow overall revenue in this area by GBP100 million within five
years.
Headlam is able to offer larger customers a compelling and
comprehensive service proposition tailored to their specific needs
through: product insight and exclusive products; competitive
purchase rates; supply chain management; stockholding and storage
solutions; processing and national distribution to any number of
locations and frequency. All this serves to reduce complexity and
cost for customers, and also suppliers.
The Company is targeting contributions from new business of in
excess of GBP12 million in 2023, albeit likely to go towards
offsetting declines in existing revenue due to the market backdrop.
While gross margins are typically below the Company average,
operating margins from this area remain strong due to scale
benefits, with modest incremental infrastructure and investment
required to support the targeted revenue growth.
Trade Counters
Accelerating roll-out of new and improved trade counter sites
across the UK, creating a truly nationwide footprint that appeals
to a wider range of customers, thereby capturing greater market
share
The improved trade counters offer a convenient, one-stop shop
for all trade customers who may supply and fit flooring as part of
their overall offering, enlarging the Company's customer base from
traditional flooring specialists and fitters. The network offers a
collection service (from any site), walk-in service, exclusive
products, accessories and workwear, all with knowledgeable advice.
The Company has a target of 90 invested sites (new, relocated or
refitted) by the end of 2025 from the 53 uninvested sites in 2021.
As at 31 December 2022, the Company had 58 sites of which 24 were
invested.
Headlam will be the only flooring distributor to have a national
standalone trade counter network, with potential to increase the
geographic coverage and density after the initial 90, continuing to
fill in areas where there is no physical presence and making the
sites more accessible and convenient for customers by lowering
travel time.
This fast growing business unit is targeted to add approximately
GBP120 million of revenue upon maturity to the approximate GBP80
million reported for 2021 through a relatively modest total capital
investment of around GBP25 million (GBP6 million incurred so far by
31 December 2022).
The first wave of invested sites are already demonstrating
strong KPIs against the uninvested sites in terms of revenue, new
account openings, and margin. The five new sites in 2022, which are
modelled to breakeven end of year 2 with sales maturity in year 5,
are cumulatively ahead of budget. Collectively, revenue from
invested sites was up 10% against uninvested sites in 2022. Due to
the upfront investment required, the project is expected to be
profit diluting in 2023 and 2024, then profit enhancing from 2025
onwards.
Products and Brands
Leveraging the group's established own product brands,
maximising their sales potential, and launching and marketing new
brands to capture further market share and increase sales
The Company has a large portfolio of well recognised and
regarded own product brands, many of which have been in the
marketplace for a number of years. Product brands are an important
point of differentiation in the marketplace as the majority of
flooring product is relatively unbranded. Recognisable brands,
particularly those at middle / upper price points, can attract
higher margins and be more immune to the inflationary impact on
consumer spend.
In recent years many of the Company's brands have been
unleveraged and not sufficiently invested in terms of digital
presence, marketing spend, and new product development. During
2022, several brands were refreshed and relaunched, including
investment in social media awareness and improved websites. For
example, following its relaunch, Kingsmead Carpets, one of the
Company's high quality carpet brands, has already doubled its
weekly social media users and quadrupled organic traffic via Google
searches.
During the second half of 2022, the Company also launched a new
and exclusive affordable brand, Everyroom , which holds good appeal
when consumers are more cost conscious due to the inflationary
environment. Feedback and sales since the launch have been very
positive, with the brand being a 2023 finalist for a leading trade
award and generating over GBP8 million of sales since its launch.
During 2023, the Company expects to launch over 40 new products,
including existing range refreshes and new own branded sustainable
and recyclable ranges.
Digital Strategy
Comprehensive strategy to build enhanced digital and ecommerce
capabilities and applications to appeal to a wider customer base,
support revenue opportunities, and help lower the cost to serve
Through a combination of improved B2B websites and the launch of
its industry-leading app, myheadlam, the Company achieved 26% of
its sales coming from digital channels by the end of 2022 from a
base of 11% in 2019.
The digital strategy is an important foundation for all the
revenue growth opportunities, including improving supplier and
customer engagement, and product and brand awareness. A key
deliverable in 2022 was introducing a product information
management system ('PIM') to enable centralised control and
distribution of product data to all business channels, including
suppliers and customers, through quick and effective automated
flows. It allows the acceleration of product to market, and richer
more detailed information and imagery for use internally and
externally by customers. The Company will seek to leverage the PIM
further in 2023 and drive sales through better showcasing of
product specifications, upselling and cross selling, and collecting
product data from suppliers at source.
Other focus areas in 2023 include embedding a new Order
Management System ('OMS') that will provide better aggregated stock
visibility across the network, allowing the Company to improve the
service to customers through near real time inventory feeds. The
OMS will also enable improvements to the Company's Drop Ship Vendor
('DSV') capabilities. The Company introduced this service
proposition in 2022, whereby the Company can provide a full end to
end fulfilment service for customers, delivering orders direct to
their customers' homes on their behalf (using carrier partners).
The digital strategy is closely aligned with the product brands
strategy, and the new websites being launched in 2023 will have
direct-to-consumer sampling fulfilment, creating further brand
awareness.
Summary
The ambition for the trade counter, larger customers and product
brands projects is collectively well in excess of GBP200 million of
new revenue within the next five years, with additional revenue
coming through from the digital strategy, including new social
media audiences and greater awareness. However, if the overall
market backdrop continues to be weaker, some new revenue may go
towards offsetting declines in existing markets.
The question typically arises on whether there is
cannibalisation of existing revenue from any of the revenue growth
projects, and thus far the Company's trading information suggests
this is limited. Trade counters are opening in areas where the
Company has no physical presence. The Company is significantly
underweight in multiple retailers and larger customers and can
concurrently service many different customers in a wide spectrum of
areas. New product launches are targeted at areas of the market
where the Company is under represented, whether that be identified
price points such as the Everyroom value proposition or product
categories like Luxury Vinyl Tiles ('LVT').
Melrose Interiors and Acquisitions
As previously announced, in January 2023 the Company acquired
Melrose Interiors, the largest independent supplier to the UK
online rug industry, which also has operations in third-party
logistics , recycling , and an in-house rug and sampling / pattern
book department.
Melrose Interiors is a great illustration of an acquisition that
is highly complementary to the Company and its strategy. It
introduces a number of new larger customers to the group, including
major high street and online retailers, it operates in a product
category where the Company is underweight, it helps build upon DSV
and digital capabilities with its proven B2B and B2C fulfilment.
Melrose Interiors also has market leading environmental credentials
through its award winning [Re]lay brand of recycled rugs and value
creating upcycling of surplus carpet from across the industry into
samples and pattern books.
Whilst the Company's main focus currently is organic growth and
leveraging existing opportunities, it will continue to review any
acquisitions complementary to the strategy and which may expedite
progress.
People
Colleagues are at the heart of the business, and the Company
continues to focus on improving the support to its people, of both
a financial and non-financial nature. Developments during 2022
included increased colleague engagement, ongoing community support,
new colleague recognition schemes, and enhanced benefits. An area
of pressing importance was the inflationary impact on cost of
living, and to help address this the Company undertook targeted pay
reviews and also ensured that everyone received the equivalent of
the National Real Living Wage. To further support more junior
colleagues, the Company has taken a tiered approach to its annual
pay award for 2023, with lower salaried employees receiving a
higher percentage increase to their salaries, with this percentage
decreasing higher up the scale.
As outlined in the Chairman's Statement, the Board was refreshed
in the year and significant operational capability added to support
delivery of the strategy. The new Non-Executive Directors, Karen
Hubbard, Robin Williams, and Jemima Bird, have all made important
contributions since their joining. Additionally, Adam Phillips who
was announced as the Company's new Chief Financial Officer in late
2022 will be joining on 20 March 2023.
New senior management appointments during 2022 included a
Managing Director of Trade Counters to head-up the business unit,
and a Chief Information Officer to oversee the resilience and
scalability of IT systems and infrastructure including in support
of the strategy. Additionally, in early 2023 a Chief Customer
Officer joined to lead customer and digital strategy, encompassing
customer communications, brand development, marketing, and
ecommerce.
It is with great sadness that during the year there was an
accident at one of the group's sites during which a much-valued and
long serving colleague died. Headlam's priority has been support
for the family and colleagues, as well as to continue to strive to
provide the safest working environment possible. As of the date of
this announcement, the local authority's investigation is ongoing.
Safety is the Board's highest priority. The Executive and site
leadership teams widely and regularly communicate this as the
Company's first behavioural value to embed a strong health and
safety culture across the business.
Sustainability and ESG Strategy
A comprehensive Sustainability Report is being published later
this month alongside the Company's 2022 Annual Report and Accounts.
It contains full details on the Company's ESG (Environmental,
Social and Governance) Strategy which supports the long-term
sustainability and success of Headlam for the benefit of all
stakeholders and which, therefore, is closely aligned with the
strategy detailed above. The Board's priorities are to reduce the
Company's environmental impact, make Headlam a great place to work
by supporting its people and communities, and being a business of
integrity with robust controls. The Board also sees real
opportunity from continuing to develop and progress the associated
actions as while they mitigate risk and address regulation, they
also confer greater efficiency, help capture commercial
opportunities, and provide competitive advantage with both people
and customer attraction. As referred to above, customers,
particularly larger ones, are increasingly requiring sustainability
credentials in order to undertake business with companies, and the
Company is judged to have the best credentials amongst its direct
peer group(3) .
Notable undertakings in 2022, and targets for this year, include
the below which are fully expanded upon in the Sustainability
Report.
Environmental
Key achievements in 2022:
-- Exceeded initial 50% target of UK non-commercial fleet being
electric / low emission vehicles (31 Dec 22: 69%).
-- Initial trialling of electric commercial vehicles (albeit
with limited feasible options currently).
-- Set Net Zero and SBTi aligned interim(4) targets for Scope 1 and 2 emissions.
-- 44% reduction achieved for UK emissions against 2019 baseline (Scope 1 and 2).
-- Good Energy and Recycling Behaviours workshops commenced across the group.
Targets for 2023:
-- Installation of owned solar panels across all larger UK sites.
-- Achievement of ISO 14001 environmental certification at key sites.
-- Over 80% of UK non-commercial fleet being electric / low emission.
-- Launch own branded sustainable and recyclable ranges.
Social
Key achievements in 2022:
-- Moving to one pension for all colleagues, providing a more
generous and flexible contribution structure, and consistency and
fairness across the group.
-- Enhancing and harmonising holiday entitlement, and putting in place equal sick pay.
-- Targeted pay increases, and ensuring everyone receives at
least the equivalent of National Real Living Wage.
-- Local Communities Programme launched, allowing for funded
donations to local causes, as well as paid volunteering time and
flooring product donations.
Targets for 2023:
-- Group wide diversity strategy established and rolled-out.
-- Long Service Awards Scheme introduced to recognise and
applaud the long heritage of businesses and colleagues across the
group.
-- New 'Headlam Way' launched to bring the Company's Values to
life and immerse them across the group.
-- Roll-out of mental health support and training.
Governance
Key achievements in 2022:
-- Executive ESG Committee established assisting the Board on
the progression and development of the ESG Strategy.
-- Reformatted Risk Committee and Employee Forum making them more effective.
-- Independently managed whistleblowing platform put in place,
with new 'Speak Up' policy and embedding of behaviours.
-- Investment in IT (resilience, systems, and people), with
monthly cyber security training for all colleagues.
Targets for 2023:
-- Sedex accreditations for all main sites and businesses (focus
on ethical and responsible practices).
-- Building on disclosures, including SBTi validation of emission targets.
-- Ongoing supplier engagement, covering areas including Ethical
Code of Conduct, Sustainability Charter, and Modern Slavery.
-- Positive stakeholder feedback, and maintenance of 'low risk' ESG scores.
Investments and Shareholder Returns
As explained in the Chairman's Statement, investment in the
business to support growth has been a priority while maintaining a
strong balance sheet to ensure the financial stability of the
Company. The balance sheet, with almost wholly undrawn banking
facilities at year end, is underpinned by the Company's inventory
position and freehold UK distribution sites. The valuation of these
sites was updated in January 2023 using external valuers, and now
stands at an increased GBP138.5 million as detailed in the
Financial Review, though the Company has chosen to hold its
property at cost in the balance sheet.
The main investment areas, which are expanded upon in the
Financial Review, are the trade counter roll-out, improvements to
systems and equipment to optimise performance and support revenue
growth, and in support of the ESG Strategy. The upfront nature of
some of the investment means there is a lag on return, for example
expected payback on total capital employed for each of the trade
counter project and solar panels investment is from year 3.
In line with the commitment to providing dividend income for
shareholders, the Board is proposing a 2022 final ordinary dividend
of 11.2 pence per share (2021: 8.6 pence per share), subject to
shareholder approval at the forthcoming AGM in May 2023 with the
timetable given in the Financial Review. The final dividend
combined with the 2022 interim ordinary dividend of 6.2 pence per
share gives a total pay out of 17.4 pence per share in respect of
the 2022 financial year, which is in line with the Company's
targeted cover ratio of around 2x earnings.
In March 2022 at the time of its final results announcement, the
Company announced a total GBP30.0 million return of surplus capital
to shareholders via a special dividend plus a GBP15.0 million Share
Buyback Programme to repurchase its ordinary shares. A Share
Buyback Programme was considered one of the most effective
mechanisms to enact the return due to the level of the ordinary
shares, and therefore earnings per share enhancing and one of the
best uses of the Company's surplus capital. The Share Buyback
Programme completed on 2 March 2023.
Post Period-End and Current Trading
In general, the residential sector has continued to be weak
since the beginning of the year. However, growing revenue
contributions from larger customers since the start of the year,
combined with a steady commercial sector performance, has led to
modest positive overall sales metrics and a relatively robust
revenue performance at this early stage in the year.
Thanks to Colleagues
Lastly, almost exactly a year on from being formally appointed
Chief Executive, I would like to give my personal thanks to all my
colleagues at Headlam following a year of challenges from many
directions. Having visited every one of our main sites in the past
12 months and endeavoured to meet as many of my colleagues as
possible, I truly believe we are galvanized around our collective
purpose and refreshed values. We have improved Headlam as great
place to work, and will continue to do so.
Chris Payne
Chief Executive
8 March 2023
(1) Underlying is before non-underlying items, which includes i)
impairment of intangibles, fixed assets and right of use assets,
ii) amortisation of acquired intangibles, iii) property disposal
profits, iv) impairment of property, plant and equipment and
inventory (following a fire), v) insurance proceeds (following
fire) and vi) business restructuring costs in 2021.
(2)Source: LEK Consulting, 2020
(3) Source: Inspired Energy, 2022
(4) Interim target of a 46% emissions reduction by 2030 against
baseline year set at 2019 (Scope 1 and 2)
Financial Review
The following financial results represent continuing operations
only, and exclude the contribution from the Swiss business Belcolor
AG ('Belcolor') within the 2021 financial results following its
disposal in May 2021.
Revenue
Total revenue in the year was GBP663.6 million (2021: GBP667.2
million), with a 5.4% uplift in Continental Europe (France and t he
Netherlands) helping to offset a 1.4% decline in the UK related to
market weakness in the residential sector. Revenue was supported in
the year by manufacturer led product price increases due to raw
material and operational cost inflation. The UK and Continental
Europe accounted for 87.1% and 12.9% of total revenue respectively
in the year (2021: UK 87.8%; Continental Europe 12.2%).
Within the UK, the commercial sector was a positive contributor,
up 9.2%, as it recover ed from COVID-19 related impacts in the
prior two years. Conversely , the residential sector declined 6.0%
, being particularly affected by the impact of the inflationary
environment on consumer spending . Continental Europe was a
positive contributor across both the residential and commercial
sectors, being up 5.6% and 5.0% respectively in the year.
For the group as a whole, residential sector revenue declined
4.7% in the year and accounted for 65.6% of total revenue (2021:
68.5%), with commercial sector revenue increasing 8.6% and
accounting for 34.4% of total revenue (2021: 31.5%).
GBPM % GBPM %
----------------------------------------------------------------- ----- ----- ----- -----
Revenue for the year ended 31 December 2021
UK 585.8 87.8
Continental Europe 81.4 12.2
----------------------------------------------------------------- ----- ----- ----- -----
667.2 100.0
----------------------------------------------------------------- ----- ----- ----- -----
Incremental items during the 12-month period to 31 December 2022
UK:
Like-for-like* (0.9) (0.2)
Changes in working days (7.1) (1.2)
(8.0) (1.4)
----------------------------------------------------------------- ----- ----- ----- -----
Continental Europe:
Like-for-like* 4.5 5.5
Changes in working days 0.2 0.2
Translation effect (0.3) (0.3)
----------------------------------------------------------------- ----- ----- ----- -----
4.4 5.4
----------------------------------------------------------------- ----- ----- ----- -----
Total movement (3.6) (0.5)
Revenue for the year ended 31 December 2022
UK 577.8 87.1
Continental Europe 85.8 12.9
----------------------------------------------------------------- ----- ----- ----- -----
663.6 100.0
----------------------------------------------------------------- ----- ----- ----- -----
*Like-for-like revenue is calculated based on constant currency
from activities and businesses that made a full contribution in
both the 2022 and 2021 periods, and is adjusted for any variances
in working days.
No acquisitions were made in 2022 or 2021. After the year end,
the Company acquired Melrose Interiors Ltd and its parent company
Birch Close Trading Ltd. Further detail is given later in this
Financial Review, and in Note 7 to the Financial Statements.
Gross Margin
Gross margin for the year was similar to the prior year at 33.1%
(2021: 33.0%), with the benefit of product price inflation being
offset by a reduced proportion of revenue coming from the higher
margin residential sector. Within the residential sector, there was
also a more marked reduction in the proportion of revenue from cut
length carpet which typically offers the highest margin. In the
first half of the year, gross margin was temporarily lifted to a
high of 33.7% due to the unprecedented inflationary environment,
with the manufacturer-led price increases being passed directly
through to customers and the Company benefiting from pricing
uplifts on its existing inventory position. As anticipated, t h e
position normalised in the second half of the year with price
increases moderating.
Expenses
Underlying (1) distribution costs and administrative expenses in
the year decreased by GBP2.4 million to GBP180.8 million (2021:
GBP183.2 million), with widespread operational cost inflation being
offset by efficiency measures, including ongoing transport
integration and cost control in areas such as headcount.
Performance-related bonus costs were also lower in the year, and
there was a reduction in the amounts provided for bad and doubtful
debts having previously been increased as a precaution against any
consequences of COVID-19, with ongoing good cash collection.
Underlying (1) distribution costs accounted for 71.6% (2021:
68.7%), and underlying (1) administrative expenses for 28.4% (2021:
31.3%), of total underlying (1) operating expenses, with much of
the Company's cost base fixed.
As previously indicated, the Company's costs will be adversely
impacted in the 2023 financial year, with a significant rise in the
Company's energy costs of approximately GBP2.4 million compared
with 2022 due to the increase in energy prices and expiry of a
fixed price energy contract . The installation of solar panels
across the Company's main UK sites during 2023 will help offset
energy costs in the near-term. Additionally, people costs are also
anticipated to be over 6% higher year on year due to wage inflation
through the cost of living pay award at the beginning of the
year.
Statutory distribution costs and administrative expenses in the
year were GBP182.3 million (2021: GBP191.4 million), higher than
underlying (1) due to non-cash amortisation of acquired
intangibles, all detailed below.
Profit, Margin and Non-Underlying Items
The reduction in expenses led to an improved underlying (1)
operating profit and underlying (1) profit before tax of GBP39.2
million and GBP37.1 million respectively (2021: underlying (1)
operating profit GBP37.3 million; underlying (1) profit before tax
GBP35.8 million) , and the underlying (1) operating margin was 5.9%
(2021: 5.6%).
Underlying Non-underlying Total
GBPM GBPM GBPM
----------------------------------------------------------------------------------- ---------- -------------- -----
Operating profit/(loss) 2021 37.3 (8.2) 29.1
Gross margin movement (1.0) - (1.0)
Other operating income changes 0.5 6.2 6.7
Expense changes:
People costs (includes wage inflation offset by lower performance-related bonus
payments) 4.9 - 4.9
Operational cost inflation (3.5) - (3.5)
Bad debt provision 1.3 - 1.3
Other (0.3) 6.7 6.4
----------------------------------------------------------------------------------- ---------- -------------- -----
Total increase 1.9 12.9 14.8
----------------------------------------------------------------------------------- ---------- -------------- -----
Operating profit 2022 39.2 4.7 43.9
----------------------------------------------------------------------------------- ---------- -------------- -----
The statutory profit before tax for the year was GBP41. 8
million (2021: GBP27.6 million), an uplift on underlying (1) due to
a net credit on non-underlying items.
Total non-underlying items before tax reflected a net credit of
GBP4.7 million in the year, comprising GBP6.2 million of proceeds
from an insurance claim offset by a GBP1.5 million non-cash
amortisation of acquired intangibles. As previously detailed, in
the 2021 financial results the Company recognised a non-underlying
impairment of GBP7.3 million (pre-tax) following a fire that
completely destroyed its Kidderminster distribution centre in
December 2021. The insurance claim item above includes the full
settlement of the inventory losses as a result of the fire along
with interim payments for the losses relating to the building and
contents.
The below table details the individual non-underlying items:
2022 2021
GBPM GBPM
----------------------------------------------------------------------------- ----- -----
Non-underlying items
Impairment of goodwill and intangibles - 2.1
Amortisation of intangibles 1.5 1.6
Impairment of property, plant and equipment and inventory (following a fire) - 7.3
Non-underlying non-cash items 1.5 11.0
----------------------------------------------------------------------------- ----- -----
Insurance proceeds (following fire) (6.2) -
Property disposal profit - (5.1)
Business restructuring costs - 2.3
Non-underlying cash items (6.2) (2.8)
----------------------------------------------------------------------------- ----- -----
Non-underlying items before tax ((credit) / cost) (4.7) 8.2
----------------------------------------------------------------------------- ----- -----
In addition to the non-underlying insurance item, GBP0.5 million
has been recognised as part of the insurance claim as underlying
other operating income, relating to compensation for business
interruption, which offsets lost revenue and related costs
recognised through underlying profit.
Tax
The Company's consolidated underlying effective tax rate for the
year was 20.1% (2021: 25.8%). This is higher than the standard rate
of corporation tax in the UK of 19.0% primarily due to expenses not
deductible for tax purposes, albeit lower than 2021 which included
restatement of deferred tax balances. The planned increase in the
UK headline tax rate to 25% in April 2023 will increase the
Company's underlying effective tax rate in 2023 to approximately
24%.
The Company is committed to being fully compliant with the
relevant tax laws and compliance obligations regarding the filing
of tax returns, payment and collection of tax. The Company
maintains an open relationship with HM Revenue & Customs and
currently operates within a level of tax compliance risk that is
rated as 'low' (2021: 'low').
Earnings per share ('EPS')
Basic earnings per share on an underlying (1) basis increased
from 31.5 pence per share in the prior year to 35.5 pence per
share. 3.7 pence of this improvement reflected the increased
underlying profit performance and 0.3 pence was as a result of the
impact of the Share Buyback Programme which reduced the weighted
average number of shares (excluding treasury shares) (as detailed
in Note 4 to the Financial Statements). Statutory basic earnings
per share was 40.1 pence (2021: 23.5 pence).
Investments
During the year key capital investments were made in support of
the strategy, although overall spend was relatively modest in line
with the capital light nature of the strategy. The tangible c
apital expenditure of GBP12.6 million (2021: GBP6.1 million) was
primarily focused on the trade counter project, and investment in
warehouse equipment .
Capital expenditure for 2023 is anticipated to be around GBP20
million, and will continue to be mainly focused on trade counters
and the ongoing programme to modernise the operating base and
network. It also includes a GBP3.7 million investment in solar
panels, plus a further investment in the associated battery
storage.
Cash Flow
2022 2021
GBPM GBPM
---------------------------------------------------------------------- ------ ------
Cash flows from operating activities
Profit before tax 41.8 33.4
Adjustments for:
Depreciation, amortisation and impairment 20.2 30.0
Finance income and expense 2.1 1.5
Profit on sale of property, plant and equipment - (11.1)
Insurance proceeds for property, plant and equipment following fire (1.7) -
Loss on sale of subsidiary - 0.1
Share-based payments 0.9 1.2
Change in inventories (8.3) (26.6)
Change in receivables (3.5) (16.6)
Change in payables (34.2) 5.4
Cash generated from the operations 17.3 17.3
Interest and Tax (6.4) (3.5)
Disposal proceeds - 16.2
Capital investment (including intangibles) (13.8) (6.9)
Insurance proceeds from property, plant and equipment following fire 1.7 -
Payments to acquire own shares (Share Buyback Programme) (9.8) -
Net repayment of borrowings (7.3) (1.2)
Lease payments (14.0) (15.0)
Dividends (27.3) (6.6)
Other 0.2 0.7
---------------------------------------------------------------------- ------ ------
Net cash flows (59.4) 1.0
---------------------------------------------------------------------- ------ ------
There was a net cash outflow of GBP59.4 million in the year .
This included GBP37.1 million of returns to shareholders,
comprising a GBP27.3 million dividend outflow (via both ordinary
and special dividend payments) and GBP9.8 million outflow in
relation to the GBP15.0 million S hare B uyback P rogramme.
There was also a working capital outflow relating to investment
in inventory of GBP8.3 million in the year and a decrease in
payables of GBP34.2 million. The Company had built its inventory
position towards the end of 2021 to protect against product supply
issues at the time, and maintained its investment in inventory
during 2022 in support of new product launches during 2022.
Inventory at the year end was GBP139.8 million (31 December 2021:
GBP130.9 million), with the uplift from 2021 also partly due to
price inflation. In line with its market leading position and
customer service proposition, the Company typically carries a large
inventory position, with a relatively low risk of obsolescence.
The decrease in payables followed the in-year settlement of
amounts owed to suppliers resulting from the inventory build at the
end of 2021. The decrease in payables also included
performance-related bonus accruals reduced by GBP6.0 million
against 2021. The increase in receivables included a reduction of
GBP2.5 million in the amounts provided for bad and doubtful debts,
with a GBP4.2 million provision still remaining as at 31 December
2022. Following from the working capital outflow described above,
cash conversion for the year was 39% (2021: 59%).
Banking Facilities
The Company had a net funds position excluding lease liabilities
of GBP1.8 million at 31 December 2022 (31 December 2021: GBP53.7
million) and a net debt position including lease liabilities of
GBP35.9 million at 31 December 2022 (31 December 2021: GBP17.7
million net funds including lease liabilities), with the main
reason for the year-on-year movement being the large level of
returns to shareholders and working capital movements described
above.
At Foreign At
1 January Non-cash Cash exchange 31 December
2022 items flows movements 2022
GBPM GBPM GBPM GBPM GBPM
-------------------------------------- ---------- -------- ------ ---------- ------------
Cash at bank and in hand 61.2 - (59.4) 0.3 2.1
Debt due within one year (0.6) - 0.3 - (0.3)
Debt due after one year (6.9) - 7.0 (0.1) -
Lease liabilities (36.0) (15.5) 14.0 (0.2) (37.7)
-------------------------------------- ---------- -------- ------ ---------- ------------
Liabilities from financing activities (43.5) (15.5) 21.3 (0.3) (38.0)
-------------------------------------- ---------- -------- ------ ---------- ------------
Net funds excluding lease liabilities 53.7 - (52.1) 0.2 1.8
-------------------------------------- ---------- -------- ------ ---------- ------------
Net funds/(debt) 17.7 (15.5) (38.1) - (35.9)
-------------------------------------- ---------- -------- ------ ---------- ------------
Average net funds excluding lease liabilities for the year was
GBP3.1 million (2021: GBP38.3 million).
Cash outflows in the first half of 2023 will include the
completion of the Share Buyback Programme (GBP5.2 million), the
initial consideration in relation to Melrose Interiors (GBP4.1
million as detailed below), and the final ordinary dividend
payment, if approved by shareholders at the forthcoming AGM (GBP
9.0 million).
At the year end the Company had total committed banking
facilities available of GBP81.5 million (31 December 2021: GBP76.6
million), all of which were undrawn as at 31 December 2022 (31
December 2021: GBP69.8 million undrawn). The Company also had
uncommitted banking facilities available at the year end of GBP18.8
million (31 December 2021: GBP28.2 million) of which GBP18.5
million was undrawn as at 31 December 2022 (31 December 2021: GBP
27.5 million undrawn).
In November 2022, the Company requested that its banks grant the
one year extension option to the GBP81.5 million revolving credit
facility to maximise the period of liquidity available to the
Company. In February 2023 the banks approved this extension such
that the Company's revolving credit facility will now expire in
October 2027.
Dividends and Share Buyback Programme
As detailed in the Chief Executive Review, the Board have
proposed a final ordinary dividend of 11.2 pence per share (2021:
final ordinary dividend 8.6 pence per share). If approved by
shareholders at the 2023 AGM to be held on 25 May 2023, it will be
payable on 2 June 2023 to shareholders on the register as at 12 May
2023 and as above equates to a cash outflow of GBP9.0 million.
Below is a table showing the dividend returns to shareholders in
respect of the 2021 and 2022 financial years. It includes the
special dividend declared in 2022 as part of a total GBP30.0
million return of surplus capital to shareholders announced in
March 2022 which included the Share Buyback Programme.
Payment Year / Total Payment Year / Total Payment Year / Total
2023 2022 2021
GBPM GBPM GBPM
---------------------------------------------------- -------------------- -------------------- --------------------
Dividend of a nominal amount of 2.00p, paid 28 May
2021 - - 1.7
Interim dividend in respect of 2021 financial year
of 5.80p, paid 29 November 2021 - - 4.9
Final dividend in respect of 2021 financial year of
8.60p, paid 27 May 2022 - 7.2 -
Special dividend of 17.70p, paid 27 May 2022 - 14.9 -
Interim dividend in respect of 2022 financial year
of 6.20p, paid 28 November 2022 - 5.2 -
---------------------------------------------------- -------------------- -------------------- --------------------
Final dividend (proposed) in respect of 2022
financial year of 11.2p, paid 2 June 2023 9.0 - -
---------------------------------------------------- -------------------- -------------------- --------------------
9.0 27.3 6.6
---------------------------------------------------- -------------------- -------------------- --------------------
It is anticipated that an interim ordinary dividend, in line
with the Company's capital allocation priorities as detailed below,
will be declared in September 2023 and paid in November 2023.
The outflow in the year related to the total GBP15.0 million
Share Buyback Pr ogramme was GBP 9.8 million . The Programme
completed on 2 March 2023, with a total of 4,689,343 ordinary
shares purchased through the Programme and all held in treasury. At
31 December 2022, the full GBP15.0 million was recognised in the
treasury reserve, with a GBP5.2 million liability recorded for
share buyback amounts committed, but not yet purchased.
Capital Allocation Priorities
The Board regularly reviews and follows a clear capital
allocation framework and set of priorities which is given below.
This set of priorities ensures a necessary balance of firstly
ensuring the financial stability of the Company, followed by
investment in the business to support revenue growth and ESG
strategies, followed by shareholder returns.
Priority Allocation Rationale
1 Maintain a Ensures the financial stability and long
strong balance term sustainability of the Company. Targeted
sheet average net debt during a financial year
of not more than 0.75x EBITDA (unless exceptional
or unforeseen circumstances prevail). On
an ongoing basis, is considered against
the prevailing economic environment and
market backdrop, and could be adjusted
accordingly.
------------------- ---------------------------------------------------
2 Investment Investment to optimise performance and
in the business support growth, in turn leading to improved
(including financial performance. Key areas would
in relation be in support of delivering on the strategy
to the revenue to drive new revenue, and ESG actions to
growth and enhance the sustainability of the Company.
ESG strategies) 2022 and 2023 investments include trade
counters, network (sites and equipment),
systems (IT and digital) and solar panels.
------------------- ---------------------------------------------------
3 Ordinary dividend Recognising shareholders' expectation of
income for dividend income due to the cash generative
shareholders nature of the Company, market leading position,
and relatively modest investment required
to deliver on the strategy. A targeted
bi-annual distribution (paid out of cash)
and cover ratio of around 2x earnings for
the total annual pay out (higher weighting
to final dividend). On an ongoing basis,
is considered against the prevailing economic
environment and market backdrop, and could
be adjusted accordingly.
------------------- ---------------------------------------------------
4 Funding of M&A supporting the strategic intent of
potential mergers driving and adding new revenue and revenue
and acquisitions streams. Potential investment in acquisition
(M&A) opportunities would be aimed at growing
the Company's position and market share,
including in new / underweight product
categories and customer segments. An example
would be the acquisition of Melrose Interiors
which adds new larger customers to the
Company's customer base, and meaningful
entry into the rugs and sampling market.
------------------- ---------------------------------------------------
5 Potential return After applying all the priorities above,
of surplus return surplus capital to shareholders.
capital Surplus cash would be considered after
considering all anticipated cash requirements
as well as the prevailing factors at the
time, including the economic environment
and market backdrop. The Board would consider
the most effective mechanism to do so at
that time, including consideration of special
dividends and share buyback programmes.
For example, if the Company's share price
was considered low, the Board may consider
that purchasing the Company's ordinary
shares through a share buyback programme
to be one of the best uses of the Company's
surplus capital. This was the case during
2022 when the Company commenced its GBP15.0
million Share Buyback Programme.
------------------- ---------------------------------------------------
Property Valuation
The Company completed its triennial property valuation in
January 2023, using external valuers. The latest valuation of the
predominately freehold UK distribution sites amounted to GBP138.5
million (January 2020: GBP101.4 million), and includes the new
Ipswich site completed in July 2020 which is not within the
previous 2020 valuation and a reduction in the Kidderminster site
valuation as a result of the fire. External valuers were also used
to provide a valuation of the main sites in France and the
Netherlands for the first time, which amounted to an additional
GBP10.3 million. The Company has chosen to hold its property at
cost in the balance sheet.
Pensions
The accounting valuation for the legacy defined benefit pension
scheme showed a surplus of GBP2.1 million as at 31 December 2022.
However, as the Company does not have an unconditional right to a
surplus refund, the pension scheme is recorded as a deficit of
GBP3.2 million as at 31 December 2022 reflecting the level of
deficit recovery plan payments that the Company committed to
following the last actuarial valuation as at 31 March 2020. The
next actuarial valuation will be performed as at 31 March 2023.
Post Year End Events - Melrose Interiors Acquisition
On 4 January 2023, the Company completed the acquisition of
Melrose Interiors in line with its strategy and capital allocation
priorities of making complementary acquisitions which drive certain
revenue streams. The Company recorded a consideration of GBP4.7
million, and goodwill arising on the acquisition of GBP2.0 million
(see Note 7 to the Financial Statements). The consideration
consists of GBP4.1 million of cash paid on completion and
contingent financial performance related consideration which is
expected to be GBP0.6 million over the next two years. The
potential amount of contingent financial performance related
consideration, whilst forecast to be GBP0.6 million, could be
between GBPnil and GBP3.0 million depending on performance for the
two years to 31 December 2024.
Alternative Performance Measures
The Company 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 Company's opinion more
normalised performance measures, and the Company 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 included in the 2022 Annual Report
and Accounts to be published later this month, along with a
reconciliation of the adjustments made to the Income Statement to
derive underlying (1) profit measures. Underlying (1) 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 (1) measures are relevant to
investors and other stakeholders, as supplementary information, to
fully understand the underlying performance of the business. A
limitation of underlying (1) profit measures is that they exclude
the recurring amortisation of intangible assets acquired in
business combinations but do not similarly exclude the related
revenue.
Viability and Going Concern
Updates to principal risks and uncertainties against those
contained in the 2021 Annual Report and Accounts are summarised
below, and included in the 2022 Annual Report and Accounts. During
the course of the year, the risks have been reviewed and some
reframed to increase the focus on certain specific areas in
alignment with the Group's internal risk register and strategy. As
part of the reframing, the previous 'Market' and 'IT' risks have
each been split into two parts, and the previous 'Competition' risk
incorporated into one of the 'Market' risks.
The Board reviewed the Company's resilience to the principal
risks and uncertainties by considering stress testing forecasts
through adverse scenarios, which involve a reduction in market
demand: (A) a sustained recessionary environment characterised by a
long period of underperformance throughout the assessment period,
and (B) an economic crisis with a sharp decline in demand in the
first year before a recovery. The impact of inflation on the
results for the year and the inflationary impact on consumer
spending which could contribute to the occurrence of these
scenarios has been considered as part of the assessment.
The testing indicated that the Company would be able to operate
within its current facilities and meet its financial covenants in
both scenarios. A less likely, more severe scenario (reverse stress
test) was also considered, where the Company experiences a revenue
year on year decline of 20% in 2023. In this scenario, the Company
would be able to operate within its current facilities and meet its
financial covenants. However, should the reduction in revenue be
greater than this, 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 reduction in the cost base to better align it
with market demand and revenue performance, suspension of ordinary
dividend(s), and a freeze on non-critical capital spend. These
actions are not included in any of the scenarios modelled, but were
effectively implemented during 2020 following the initial impact of
COVID-19.
As above, as at 31 December 2022 the Company had a net funds
position excluding lease liabilities of GBP1.8 million and had
total banking facilities available of GBP 100.3 million, including
GBP81.5 million of committed facilities which was undrawn. The
Board was, therefore, comfortable that the Company would maintain
resilience in the event such scenarios occurred and concluded that
there was a reasonable expectation that the Company would continue
to operate and meet its liabilities over a three year period. Based
on the results from these scenarios, and having considered the
available mitigating actions, the Board can have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three year
period of this assessment. In particular, the Board believes there
are reasonable grounds for stating that the Company has adequate
resources to continue in operational existence for a period no
shorter than twelve months from the date of this Financial Review,
and it is appropriate to adopt the going concern basis in preparing
the Company's Financial Statements.
Principal Risks and Uncertainties
The Company is exposed to a number of principal risks which may
affect its business model, future performance, 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. However, no system of control or series of mitigations can
completely eliminate all risks. The principal risks and
uncertainties that may affect the group were last reported on
within the 2021 Annual Report and Accounts and have been considered
and updated for the 2022 Annual Report and Accounts.
No new principal risks have been identified, and the scope of
the principal risks remain broadly unchanged since last reported.
Although the level of risk of two principal risks have considered
to have lessened slightly compared with the 2021 Annual Report and
Accounts, including due to enhanced mitigating actions: IT (systems
and infrastructure) principal risk; and Supply chain principal
risk. The only emerging risk assessed as being of any significance
continues to be Impact of digitalisation, albeit not currently
material and not judged in any way a principal risk.
8 March 2023
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
Non- Non-
underlying underlying
Underlying (Note 2) Total Underlying (Note 2) Total
2022 2022 2022 2021 2021 2021
Continuing operations Note GBPM GBPM GBPM GBPM GBPM GBPM
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Revenue 1 663.6 - 663.6 667.2 - 667.2
Cost of sales (444.1) - (444.1) (446.7) - (446.7)
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Gross profit 219.5 - 219.5 220.5 - 220.5
Distribution costs (129.5) - (129.5) (125.9) - (125.9)
Administrative expenses (51.3) (1.5) (52.8) (57.3) (8.2) (65.5)
Other operating income 0.5 6.2 6.7 - - -
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Operating profit/(loss) 1 39.2 4.7 43.9 37.3 (8.2) 29.1
Finance income 0.7 - 0.7 0.4 - 0.4
Finance expenses (2.8) - (2.8) (1.9) - (1.9)
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Net finance costs (2.1) - (2.1) (1.5) - (1.5)
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit/(loss) before tax 37.1 4.7 41.8 35.8 (8.2) 27.6
Taxation 3 (7.4) (0.8) (8.2) (9.2) 1.5 (7.7)
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit/(loss) from continuing operations 29.7 3.9 33.6 26.6 (6.7) 19.9
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit from discontinued operation - - - 0.1 4.4 4.5
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Profit/(loss) for the year attributable to the
equity shareholders 29.7 3.9 33.6 26.7 (2.3) 24.4
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Earnings per share for profit from continuing
operations
Basic 4 35.5p 40.1p 31.5p 23.5p
Diluted 4 35.2p 39.8p 31.1p 23.2p
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Earnings per share for profit from
discontinued operations
Basic 4 - - 0.2p 5.3p
Diluted 4 - - 0.2p 5.2p
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
Ordinary dividend per share
Interim dividend for the financial year 5 6.20p 5.80p
Final dividend declared 5 11.20p 8.60p
Declared special dividend 5 - 17.70p
---------------------------------------------- ---- ---------- ---------- ------- ---------- ---------- -------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
GBPM GBPM
------------------------------------------------------------------------------------- ---- -----
Profit for the year attributable to the equity shareholders 33.6 24.4
Other comprehensive income/(expense)
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans 0.1 (2.6)
Related tax - 0.8
-------------------------------------------------------------------------------------- ---- -----
0.1 (1.8)
Items that are or may be reclassified to profit or loss
Exchange differences arising on translation of overseas operations 0.4 (1.2)
Reclassification of foreign currency translation reserve on disposal of subsidiary - (4.8)
-------------------------------------------------------------------------------------- ---- -----
0.4 (6.0)
------------------------------------------------------------------------------------- ---- -----
Other comprehensive income/(expense) for the year 0.5 (7.8)
-------------------------------------------------------------------------------------- ---- -----
Total comprehensive income attributable to the equity shareholders for the year 34.1 16.6
-------------------------------------------------------------------------------------- ---- -----
Total comprehensive income/(expense) attributable to the equity
shareholders for the year arising from:
Continuing operations 34.1 16.9
------------------------- ---- -----
Discontinued operations - (0.3)
------------------------- ---- -----
34.1 16.6
------------------------ ---- -----
STATEMENTS OF FINANCIAL POSITION
At 31 December 2022
2022 2021
Note GBPM GBPM
---------------------------------------------------- ---- ------- -------
Assets
Non-current assets
Property, plant and equipment 119.9 113.3
Right of use assets 36.7 35.0
Intangible assets 17.8 18.1
174.4 166.4
---------------------------------------------------- ---- ------- -------
Current assets
Inventories 139.8 130.9
Trade and other receivables 119.1 114.0
Cash and cash equivalents 2.1 61.2
---------------------------------------------------- ---- ------- -------
261.0 306.1
---------------------------------------------------- ---- ------- -------
Total assets 1 435.4 472.5
---------------------------------------------------- ---- ------- -------
Liabilities
Current liabilities
Other interest-bearing loans and borrowings (0.3) (0.6)
Lease liabilities (11.4) (10.5)
Trade and other payables (153.2) (178.0)
Employee benefits (1.0) (1.0)
Income tax payable (1.9) (1.0)
---------------------------------------------------- ---- ------- -------
(167.8) (191.1)
---------------------------------------------------- ---- ------- -------
Non-current liabilities
Other interest-bearing loans and borrowings - (6.9)
Lease liabilities (26.3) (25.5)
Provisions (1.7) (2.7)
Deferred tax liabilities (12.1) (10.3)
Employee benefits (2.7) (3.9)
---------------------------------------------------- ---- ------- -------
(42.8) (49.3)
---------------------------------------------------- ---- ------- -------
Total liabilities 1 (210.6) (240.4)
---------------------------------------------------- ---- ------- -------
Net assets 224.8 232.1
---------------------------------------------------- ---- ------- -------
Equity attributable to equity holders of the parent
Share capital 4.3 4.3
Share premium 53.5 53.5
Other reserves (15.8) (1.6)
Retained earnings 182.8 175.9
---------------------------------------------------- ---- ------- -------
Total equity 224.8 232.1
---------------------------------------------------- ---- ------- -------
STATEMENT OF CHANGES IN EQUITY - GROUP
For the year ended 31 December 2022
Capital
Share Share redemption Special Translation Treasury Retained Total
capital premium reserve reserve reserve reserve earnings equity
Note GBPM GBPM GBPM GBPM GBPM GBPM GBPM GBPM
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Balance at 1 January 2021 4.3 53.5 0.1 1.5 7.7 (5.9) 158.8 220.0
Profit for the year attributable
to the equity shareholders - - - - - - 24.4 24.4
Other comprehensive expense - - - - (6.0) - (1.8) (7.8)
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Total comprehensive
(expense)/income
for the year - - - - (6.0) - 22.6 16.6
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Transactions with equity
shareholders, recorded
directly in equity
Share-based payments - - - - - - 1.2 1.2
Share options exercised
by employees - - - - - 1.0 (0.3) 0.7
Deferred tax on share options - - - - - - 0.2 0.2
Dividends to equity holders 5 - - - - - - (6.6) (6.6)
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Total contributions by
and distributions to equity
shareholders - - - - - 1.0 (5.5) (4.5)
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Balance at 31 December
2021 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
Balance at 1 January 2022 4.3 53.5 0.1 1.5 1.7 (4.9) 175.9 232.1
Profit for the year 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 5 - - - - - - (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
-------------------------------- ---- ------- ------- ---------- ------- ----------- -------- -------- ------
CASH FLOW STATEMENTS
For the year ended 31 December 2022
2022 2021
GBPM GBPM
------------------------------------------------------------------------------------------------- ------ ------
Cash flows from operating activities
Profit before tax for the year:
Continuing operations 41.8 27.6
Discontinued operations - 5.8
-------------------------------------------------------------------------------------------------- ------ ------
41.8 33.4
------------------------------------------------------------------------------------------------- ------ ------
Adjustments for:
Depreciation of property, plant and equipment, amortisation and impairment of intangible assets 7.7 9.2
Depreciation of right-of-use assets 12.5 13.5
Finance income (0.7) (0.4)
Finance expense 2.8 1.9
Profit on sale of property, plant and equipment - (11.1)
Insurance proceeds for property, plant and equipment following fire (1.7) -
Impairment of property, plant and equipment and inventory, following fire - 7.3
Loss on sale of subsidiary - 0.1
Share-based payments 0.9 1.2
-------------------------------------------------------------------------------------------------- ------ ------
Operating cash flows before changes in working capital and other payables 63.3 55.1
Change in inventories (8.3) (26.6)
Change in trade and other receivables (3.5) (16.6)
Change in trade and other payables (34.2) 5.4
-------------------------------------------------------------------------------------------------- ------ ------
Cash generated from the operations 17.3 17.3
Interest paid (1.2) (0.5)
Interest received 0.6 0.5
Tax paid (5.8) (3.5)
-------------------------------------------------------------------------------------------------- ------ ------
Net cash flow from operating activities 10.9 13.8
-------------------------------------------------------------------------------------------------- ------ ------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 19.7
Disposal of discontinued operation, net of cash disposed of - (3.5)
Acquisition of property, plant and equipment (12.6) (6.1)
Insurance proceeds for property, plant and equipment following fire 1.7 -
Acquisition of intangible assets (1.2) (0.8)
-------------------------------------------------------------------------------------------------- ------ ------
Net cash flow from investing activities (12.1) 9.3
-------------------------------------------------------------------------------------------------- ------ ------
Cash flows from financing activities
Proceeds from the issue of treasury shares 0.2 0.7
Payment to acquire own shares* (9.8) -
Proceeds from borrowings 25.0 -
Repayment of borrowings (32.3) (1.2)
Principal elements of lease payments (14.0) (15.0)
Dividends paid (27.3) (6.6)
-------------------------------------------------------------------------------------------------- ------ ------
Net cash flow from financing activities (58.2) (22.1)
-------------------------------------------------------------------------------------------------- ------ ------
Net (decrease)/increase in cash and cash equivalents (59.4) 1.0
Cash and cash equivalents at 1 January 61.2 60.8
Effect of exchange rate fluctuations on cash held 0.3 (0.6)
-------------------------------------------------------------------------------------------------- ------ ------
Cash and cash equivalents at 31 December 2.1 61.2
-------------------------------------------------------------------------------------------------- ------ ------
* During the period 3,122,721 shares were acquired for GBP9.8
million under the Group's Share Buyback Programme
NOTES TO THE FINANCIAL STATEMENTS
1 Segment reporting
As at 31 December 2022, the Group had 16 operating segments in
the UK and three operating segments in Continental Europe. Each
segment represents an individual distribution centre operation, and
each operation is wholly aligned to the sales, marketing, supply
and distribution of floorcovering products. The operating results
of each operation are regularly reviewed by the Chief Operating
Decision Maker, which is deemed to be the Chief Executive. Discrete
financial information is available for each segment and used by the
Chief Executive to assess performance and decide on resource
allocation. In the prior year each individual trading operation
within each site was classified as a segment. With the development
of the business strategy, performance is now assessed at a higher
level, with each distribution centre (including satellite trade
counters) reviewed.
The operating segments have been aggregated to the extent that
they have similar economic characteristics. The key economic
indicators considered by management in assessing whether operating
segments have similar economic characteristics are the products
supplied, the type and class of customer, method of sale and
distribution and the regulatory environment in which they
operate.
As each operating segment is a trading operation wholly aligned
to the sales, marketing, supply and distribution of floorcovering
products, management considers all segments have similar economic
characteristics except for the regulatory environment in which they
operate, which is determined by the country in which the operating
segment resides.
The Group's internal management structure and financial
reporting systems differentiate the operating segments on the basis
of the differing economic characteristics in the UK and Continental
Europe and accordingly present these as two separate reportable
segments. This distinction is embedded in the construction of
operating reports reviewed by the Chief Executive, the Board and
the executive management team and forms the basis for the
presentation of operating segment information given below.
The assets and liabilities in the prior year have been
re-presented to better reflect their segmental allocation.
Continuing operations
UK Continental Europe Total
----------------- -------------------- -----------------
Restated Restated Restated
2022 2021 2022 2021 2022 2021
GBPM GBPM GBPM GBPM GBPM GBPM
----------------------------------------------- ------- -------- -------- ---------- ------- --------
Revenue
External revenues 577.8 585.8 85.8 81.4 663.6 667.2
----------------------------------------------- ------- -------- -------- ---------- ------- --------
Reportable segment underlying operating profit 36.8 37.0 3.4 3.1 40.2 40.1
Reportable segment assets 371.0 378.8 40.7 30.3 411.7 409.1
Reportable segment liabilities (173.8) (201.4) (22.8) (27.7) (196.6) (229.1)
----------------------------------------------- ------- -------- -------- ---------- ------- --------
During the year there were no inter-segment revenues for the
reportable segments (2021: GBPnil).
Reconciliations of reportable segment profit, assets and
liabilities and other material items:
2022 2021
GBPM GBPM
---------------------------------------------------------- ----- -----
Profit for the year
Total underlying operating profit for reportable segments 40.2 40.1
Non-underlying items 4.7 (8.2)
Unallocated expense (1.0) (2.8)
---------------------------------------------------------- ----- -----
Operating profit 43.9 29.1
Finance income 0.7 0.4
Finance expense (2.8) (1.9)
---------------------------------------------------------- ----- -----
Profit before taxation 41.8 27.6
Taxation (8.2) (7.7)
---------------------------------------------------------- ----- -----
Profit from continuing operations 33.6 19.9
---------------------------------------------------------- ----- -----
Profit from discontinued operations - 4.5
---------------------------------------------------------- ----- -----
Profit for the year 33.6 24.4
---------------------------------------------------------- ----- -----
Restated
2022 2021
GBPM GBPM
------------------------------------------ ------- --------
Assets
Total assets for reportable segments 411.7 409.1
Unallocated assets:
Intangible assets 3.0 -
Cash and cash equivalents 20.7 63.4
------------------------------------------ ------- --------
Total assets 435.4 472.5
------------------------------------------ ------- --------
Liabilities
Total liabilities for reportable segments (196.6) (229.1)
Unallocated liabilities:
Income tax payable (1.9) (1.0)
Deferred tax liabilities (12.1) (10.3)
------------------------------------------ ------- --------
Total liabilities (210.6) (240.4)
------------------------------------------ ------- --------
Reportable
Continental segment Consolidated
UK Europe total Unallocated total
Continuing Operations GBPM GBPM GBPM GBPM GBPM
----------------------------------------------------------- ----- ----------- ---------- ----------- ------------
Other material items 2022
Capital expenditure 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)
----------------------------------------------------------- ----- ----------- ---------- ----------- ------------
Other material items 2021 (Restated)
Capital expenditure 5.7 0.4 6.1 - 6.1
Impairment of goodwill 1.2 - 1.2 - 1.2
Impairment of intangible assets 0.9 - 0.9 - 0.9
Impairment of property, plant and equipment and inventory
(following fire) 7.3 - 7.3 - 7.3
Depreciation 4.8 0.4 5.2 - 5.2
Depreciation of right of use assets 11.6 1.9 13.5 - 13.5
Non-underlying items (excluding impairments) (1.1) (0.1) (1.2) - (1.2)
----------------------------------------------------------- ----- ----------- ---------- ----------- ------------
The Chief Executive, the Board and the senior executive
management team have access to information that provides details on
revenue by principal product group for the two reportable segments,
as set out in the following table:
Revenue by principal product group and geographic origin is
summarised below:
UK Continental Europe Total
------------ -------------------- ------------
2022 2021 2022 2021 2022 2021
GBPM GBPM GBPM GBPM GBPM GBPM
------------ ----- ----- --------- --------- ----- -----
Revenue
Residential 382.8 407.2 52.5 49.7 435.3 456.9
Commercial 195.0 178.6 33.3 31.7 228.3 210.3
------------ ----- ----- --------- --------- ----- -----
577.8 585.8 85.8 81.4 663.6 667.2
------------ ----- ----- --------- --------- ----- -----
2 Non-underlying items
In order to illustrate the underlying trading performance of the
Group, presentation has been made of performance measures excluding
those items which it is considered would distort the comparability
of the Group's results. These non-underlying items are defined as
those items that are associated with the acquisition of businesses
or other items which by virtue of their nature, size and expected
frequency require adjustment to show the performance of the Group
in a consistent manner which is comparable year-on-year.
The following are the principal items classed as
non-underlying:
-- Impairment of intangibles, fixed assets and right of use
assets as they are significant, non-recurring items;
-- Amortisation of acquired intangibles as they relate to the acquisition of businesses;
-- Property disposal profits as they are not generated from the normal course of business;
-- Impairment of property, plant and equipment (following a
fire) as it is a significant, non-recurring item;
-- Insurance proceeds (following fire) as it is a significant, non-recurring item;
-- Business restructuring cost which is a significant cash item
that falls in 2021, and for which no further costs are
expected.
See the Financial Review for details on alternative performance
measures.
Non-underlying income for continuing and discontinued operations
after tax of GBP3.9 million (expense 2021: GBP2.3 million) relate
to the following:
2022 2021
GBPM GBPM
----------------------------------------------------------------------------- ----- -----
Continuing operations:
Impairment of intangibles, fixed assets and right of use assets - 2.1
Amortisation of acquired intangibles 1.5 1.6
Property disposal - (5.1)
Impairment of property, plant and equipment and inventory (following a fire) - 7.3
Insurance proceeds (following fire) (6.2) -
Business restructuring cost - 2.3
(4.7) 8.2
Taxation on non-underlying items 0.8 (1.5)
----------------------------------------------------------------------------- ----- -----
(3.9) 6.7
----------------------------------------------------------------------------- ----- -----
Discontinued operation:
----------------------------------------------------------------------------- ----- -----
Disposal of subsidiary (including Swiss property disposal) - (4.4)
----------------------------------------------------------------------------- ----- -----
(3.9) 2.3
----------------------------------------------------------------------------- ----- -----
The business restructuring related to aligning overall headcount
with trading patterns and evolving customer servicing, along with
executive settlement agreements and were all cash in nature.
Cumulative non-underlying business restructuring costs since their
initiation as part of the business change strategy amounted to
GBP4.7 million and covered the period July 2020 to December
2021.
3 Taxation
Recognised in the income statement
2022 2021
GBPM GBPM
Current tax expense:
Current year 7.2 6.4
Adjustments for prior years (0.6) (0.3)
------------------------------------------------------ ----- -----
6.6 6.1
------------------------------------------------------ ----- -----
Deferred tax expense:
Origination and reversal of temporary differences 0.8 -
Effect of change in UK tax rates 0.3 2.7
Adjustments for prior years 0.5 0.2
------------------------------------------------------ ----- -----
1.6 2.9
------------------------------------------------------ ----- -----
Total tax 8.2 9.0
------------------------------------------------------ ----- -----
Total tax continuing operations in income statement 8.2 7.7
------------------------------------------------------ ----- -----
Total tax discontinued operations in income statement - 1.3
------------------------------------------------------ ----- -----
2022 2021
GBPM GBPM
--------------------------------------------------- ---- -----
Tax relating to items charged/(credited) to equity
Deferred tax on:
Share options 0.2 (0.2)
Deferred tax on other comprehensive expense:
Defined benefit plans - (0.8)
--------------------------------------------------- ---- -----
0.2 (1.0)
--------------------------------------------------- ---- -----
Total tax reported directly in reserves 0.2 (1.0)
--------------------------------------------------- ---- -----
Factors that may affect future current and total tax charges
The UK headline corporation tax rate for the year was 19.0%
(2021: 19.0%). In the Spring Budget of 2021, the UK Government
announced that from 1 April 2023 the rate of UK corporation tax
will increase from 19% to 25%. This new law was substantively
enacted on 24 May 2021. UK deferred tax assets and liabilities have
been calculated at a rate of 25% (2021: 25%).
Reconciliation of effective tax rate
2022 2021
------------ ------------
% GBPM % GBPM
----------------------------------------------------------- ----- ----- ----- -----
Profit before tax on continuing operations 41.8 27.6
----------------------------------------------------------- ----- ----- ----- -----
Profit before tax on discontinued operations - 5.8
----------------------------------------------------------- ----- ----- ----- -----
Total profit before tax 41.8 33.4
----------------------------------------------------------- ----- ----- ----- -----
Tax using the UK corporation tax rate 19.0 7.9 19.0 6.3
Effect of change in UK tax rate 0.7 0.3 8.1 2.7
Local tax incentives (0.7) (0.3) (0.5) (0.2)
Non-deductible expenses/non-taxable income 1.2 0.5 1.0 0.4
Impact of losses not recognised (0.3) (0.1) (0.3) (0.1)
Adjustments in respect of prior years (0.2) (0.1) (0.1) (0.1)
----------------------------------------------------------- ----- ----- ----- -----
Total tax in income statement 19.7 8.2 27.2 9.0
----------------------------------------------------------- ----- ----- ----- -----
Add back tax on non-underlying items - continuing (0.8) 1.5
----------------------------------------------------------- ----- ----- ----- -----
Add back tax on non-underlying items - discontinued - (1.3)
----------------------------------------------------------- ----- ----- ----- -----
Total tax charge excluding non-underlying items 7.4 9.2
----------------------------------------------------------- ----- ----- ----- -----
Profit before non-underlying items 37.1 35.9
----------------------------------------------------------- ----- ----- ----- -----
Adjusted effective tax rate excluding non-underlying items 20.1% 25.8%
----------------------------------------------------------- ----- ----- ----- -----
4 Earnings per share
2022 2021
GBPM GBPM
------------------------------------------------------------------------ ---- ----
Continuing operations earnings
Earnings for basic and diluted earnings per share 33.6 19.9
Earnings for underlying basic and underlying diluted earnings per share 29.7 26.6
------------------------------------------------------------------------ ---- ----
Discontinued operations earnings
Earnings for basic and diluted earnings per share - 4.5
Earnings for underlying basic and underlying diluted earnings per share - 0.1
------------------------------------------------------------------------ ---- ----
2022 2021
------------------------------------------------------------------------------------------ ---------- ----------
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share 83,626,126 84,484,084
------------------------------------------------------------------------------------------ ---------- ----------
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December 83,626,126 84,484,084
Dilutive effect of share options 615,584 1,070,830
------------------------------------------------------------------------------------------ ---------- ----------
Weighted average number of ordinary shares for the purposes of diluted earnings per share 84,241,710 85,554,914
------------------------------------------------------------------------------------------ ---------- ----------
Continuing operations earnings per share
Basic 40.1p 23.5p
Diluted 39.8p 23.2p
Underlying basic 35.5p 31.5p
Underlying diluted 35.2p 31.1p
------------------------------------------------------------------------------------------ ---------- ----------
Discontinued operations earnings per share
Basic - 5.3p
Diluted - 5.2p
Underlying basic - 0.2p
Underlying diluted - 0.2p
------------------------------------------------------------------------------------------ ---------- ----------
At 31 December 2022, the Company held 4,046,617 shares (2021:
1,013,991) in relation to treasury stock and shares held in trust
for satisfying options and awards under employee share schemes.
These shares have been disclosed in the treasury reserve and are
excluded from the calculation of earnings per share.
5 Dividends
2022 2021
GBPM GBPM
--------------------------------------------------------- ----- -----
Dividend of a nominal amount of 2.00p paid 28 May 2021 - 1.7
Interim dividend for 2021 of 5.80p paid 29 November 2021 - 4.9
Final dividend for 2021 of 8.60p paid 27 May 2022 7.2 -
Special dividend of 17.70p paid 27 May 2022 14.9 -
Interim dividend for 2022 of 6.20p paid 28 November 2022 5.2 -
--------------------------------------------------------- ----- -----
27.3 6.6
--------------------------------------------------------- ----- -----
The Board of Directors have declared a final dividend of 11.2p
per share which if approved by shareholders at the forthcoming AGM,
will be payable on 2 June 2023.
The total value of dividends proposed or declared but not
recognised at 31 December 2022 is GBP9.0 million (2021: GBP22.1
million).
6 Contingent asset
At 31 December 2022, the Group and Company 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, whilst the asset
relating to the inventory losses has been recognised in the
financial statements.
The insurers have accepted liability in respect of the
Kidderminster fire claim. However, the refund relating to the
property and contents damage could not be reliably measured at 31
December 2022 because the decision to progress with the
reinstatement was not final and a change to that decision would
cause the insurance refund to be based on a negotiated settlement
(dependent on negotiations with insurers) rather than the
like-for-like reinstatement costs and the resulting values could be
materially different. In addition, the competitive tendering
process for the construction had not concluded and so the
construction costs were not known.
An amount of GBP1.7 million was recognised in the Group
financial statements at 31 December 2022 (2021: GBPnil) relating to
refunds for property and contents damage, having been received in
cash.
The GBP4.5 million insurance claim refund relating to inventory
losses as a result of the Kidderminster fire was recognised in the
Group financial statements at 31 December 2022 (2021: GBPnil) and
was received in cash during the year.
7 Subsequent events
Management have given due consideration to any events occurring
in the period from the reporting date to the date these Financial
Statements were authorised for issue and have concluded that there
are no material adjusting or non-adjusting events to be disclosed
in these Financial Statements with the exception of the
following:
In the period from 1 January 2023 to 2 March 2023 1,566,622
shares were purchased by the Company.
The Group requested a one-year extension to existing banking
facilities which was granted by the banks in February 2023 and will
now expire in October 2027.
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. 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 financial effects of this transaction have not been
recognised at 31 December 2022. The operating results and assets
and liabilities of the acquired group will be consolidated from 4
January 2023.
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 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.
8 Additional information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2022
or 2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the registrar of companies, and those
for 2022 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.
The Company anticipates that the Company's statutory accounts
will be posted to shareholders during March 2023 and will be
displayed on the Company's website at www.headlam.com during March
2023. Copies of the statutory accounts will also be available from
the Company's registered office at Headlam Group plc, PO Box 1,
Gorsey Lane, Coleshill, Birmingham, B46 1LW.
This Final Results announcement for the year ended 31 December
2022 was approved by the Board on 8 March 2023.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
FR JRMMTMTIMTIJ
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March 08, 2023 02:00 ET (07:00 GMT)
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