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RNS For Headlam Group (HEAD)

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Interim Results

28/08/2019
RNS Number : 3293K
Headlam Group PLC
28 August 2019
 

28 August 2019

 

 

Headlam Group plc

('Headlam' or the 'Company')

Interim Results

Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor, is pleased to announce its interim results for the six months ended 30 June 2019 (the 'Period').

Highlights:

Financial¹

·    Total revenue increased 3.3% to £348.7 million (H1 2018: £337.5 million), with both the residential and commercial sectors in the UK and Continental Europe all contributing positively

·    Like-for-like² revenue increased 1.8% and 3.2% in the UK and Continental Europe respectively, resulting in an overall like-for-like² revenue increase of 2.0%

·    Gross margin maintained at 32.5% (H1 2018: 32.5%) despite a shift in business mix towards the commercial sector

·    Underlying³ operating profit impacted by a £0.4 million increase due to IFRS 16 adoption and flat year-on-year at £18.1 million (H1 2018: £18.1 million, not restated), with early contributors to the operational efficiency programme able to offset general non-employee related year-on-year inflationary pressures

·    Statutory operating profit of £17.1 million (H1 2018: £16.8 million, not restated) and statutory basic earnings per share of 15.7 pence (H1 2018: 15.9 pence, not restated)

·    Strong cash generation, with cash generated from operations after allowing for lease principal repayments at 94% of statutory operating profit (H1 2018: 27%, not restated)

·    Net funds increased by 103.1% to £32.5 million as at 30 June 2019 (£16.0 million as at 30 June 2018)

·    Interim dividend maintained at 7.55 pence (H1 2018: 7.55 pence), in-line with intention to maintain full year dividend with that of 2018 despite guidance at the beginning of the year that underlying³ profit before tax is anticipated to be lower than 2018, and the dilutive earnings impact of IFRS 16

Operational

·    Resource focused on evaluating and implementing various constituents of the operational efficiency programme to improve operating performance, the customer service proposition and margin

·    Early contributors to performance include the roll-out of a group procurement approach to Goods Not For Resale ('GNFR') and extended vehicle leasing contracts upon renewal or replacement

·    Roll-out of inventory management and automated stock re-ordering system to all UK sites to be completed by year-end, with the accruing benefits of improved product availability for customers, improved stock-turn and warehouse capacity

·    Trial targeting more effective delivery fleet utilisation successfully completed in South Wales resulting in an increased number of order drops per commercial vehicle, with roll-out to next geographic area

·    Construction commenced at new 190,000 square feet regional distribution centre in Ipswich, with anticipated timetable (operational for Easter 2020) and capital investment of £26 million unchanged

Current Trading and Outlook:

·    Continued growth post the Period-end, with a small overall like-for-like² revenue increase to-date in the second half

·    Ahead of proceeding further into the traditionally stronger second half of the year, and mindful of a backdrop of political uncertainty, the Board currently maintains its expectations for the full year

Steve Wilson, Chief Executive, said: 

"The Company delivered a reassuring performance during the Period in what remained relatively restrained markets, with growth on an absolute and like-for-like basis in both the UK and Continental Europe. Growth has continued into the second half of the year to-date, and we currently maintain our overall expectations for the full year."

A meeting for analysts will be held at 10.00am this morning (28 August 2019) at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.For further details, please contact Buchanan on 020 7466 5000 or email headlam@buchanan.uk.com.

¹The interim results have been prepared in accordance with the new IFRS 16 'Leases' accounting standard ('IFRS 16') effective for financial periods beginning on or after 1 January 2019. As the Company has adopted the modified retrospective approach, there has been no restatement of the comparatives for the 2018 reporting period. The impact on the Company's financial statements is fully detailed in the accompanying Notes to the Condensed Consolidated Interim Financial Statements, with adjustments recognised in the Income Statement, Cash Flow Statement and Statement of Financial Position (Balance Sheet). There is no overall impact on the Company's cash and cash equivalents.

²Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2019 and 2018 periods and is adjusted for any variances in working days.

³Underlying is before non-underlying items which includes amortisation of acquired intangibles, acquisition related fees, contingent consideration movements, non-recurring pension costs in relation to guaranteed minimum pension ('GMP') equalisation and non-recurring costs relating to senior personnel changes.

Enquiries:

Headlam Group plc

 Tel: 01675 433 000

Steve Wilson, Chief Executive

Chris Payne, Chief Financial Officer

Catherine Miles, Director of Communications

 Email: headlamgroup@headlam.com

Investec Bank plc (Corporate Broker)

Tel: 020 7597 5970

David Flin / Alex Wright

 

Panmure Gordon (UK) Limited (Corporate Broker)

Tel: 020 7886 2500

Erik Anderson / Dominic Morley / Ailsa Macmaster

 

Buchanan (Financial PR and IR)

Tel: 020 7466 5000

Mark Court / Sophie Wills

 

Notes for Editors:

Operating for 27 years and employing over 2,600 people, Headlam is Europe's leading floorcoverings distributor.

 

Headlam provides the distribution channel between suppliers and trade customers of floorcoverings. Working in partnership with suppliers from 22 countries manufacturing a diverse range of floorcovering products and ancillary accessories, Headlam provides an unparalleled route to market for their products across the UK and certain Continental European territories.

The utilisation of an outsourced distribution channel enables manufacturers to focus on their core activities, incur reduced costs associated with distribution, and benefit from localised sales, marketing and distribution expertise that provides a more effective and greater route to market for their products.

 

To maximize customer and market penetration, Headlam comprises 65 individual businesses in the UK and Continental Europe (France, the Netherlands and Switzerland) each operating under their own unique trade brand and utilising individual sales teams.

 

Headlam's extensive customer base, operating within both the residential and commercial sectors and comprising principally independent retailers and flooring contractors, receives the broadest product offering supported by next day delivery as well as additional marketing and other support.

 

Headlam's offering is enabled through its unrivalled operating expertise, long-established supplier and customer relationships, and comprehensive distribution network. Following years of considerable investment, Headlam's distribution network currently comprises four national distribution hubs, 19 regional distribution centres and a supporting network of smaller warehouse premises, trade counters, showrooms and specification centres.

 

In 2018, Headlam worked with 199 suppliers and fulfilled over 5.3 million customer orders.

 

www.headlam.com

 

 

 

 

 

Chief Executive's and Financial Review

IFRS 16 'Leases' Accounting Standard

These interim results have been prepared in accordance with the new IFRS 16 'Leases' accounting standard ('IFRS 16') effective for financial periods beginning on or after 1 January 2019. As the Company has adopted the modified retrospective approach, there has been no restatement of the comparatives for the 2018 reporting period. The impact on the Company's financial statements is fully detailed in the accompanying Notes to the Condensed Consolidated Interim Financial Statements, with adjustments recognised in the Income Statement, Cash Flow Statement and Statement of Financial Position (Balance Sheet). There is no overall impact on the Company's cash and cash equivalents.

Financial Performance¹

The Company delivered a reassuring performance during the Period in what remained relatively restrained markets, particularly in the UK residential sector and following on from the general UK market weakness that characterised 2018.

Total revenue increased by 3.3% in the Period to £348.7 million (H1 2018: £337.5 million), with both the residential and commercial sectors in the UK and Continental Europe all contributing positively to this performance. There was a continuing gradual shift in the business mix towards the commercial sector, highlighting its overall stronger performance relative to that of the residential sector, with the residential and commercial sectors up 2.0% and 5.7% respectively.  In the Period, the residential sector accounted for a reduced 63.9% of total revenue (H1 2018: 64.7%), the commercial sector 36.1% (H1 2018: 35.3%), evidencing the more muted conditions in the UK residential market segment.

The growth rate of the combined Continental European businesses outperformed that of the collective UK businesses, a continuation of that seen in 2018, with the UK and Continental Europe growing by 2.8% and 6.4% respectively.  The Continental European businesses accounted for 15.5% of total revenue in the Period (H1 2018: 15.1%). 

On a like-for-like² basis, revenue increased by 1.8% and 3.2% in the UK and Continental Europe respectively against the same period in the prior year, resulting in an overall like-for-like² revenue increase of 2.0% in the Period. The UK's positive like-for-like² performance was principally driven by a stronger Q1 compared with the weaker prior year comparatives, with Q2 being marginally positive. Q1 was also the main contributor to performance in Continental Europe during the Period, with the residential sector notably strong even against firmer prior year comparatives.

Gross margin was maintained at 32.5% (H1 2018: 32.5%) despite the shift in business mix towards the commercial sector, partially as a result of larger inventory positions and contributions from higher margin market segments.

The drop-through profit from the additional £11.2 million of revenue in the Period was offset by the 3.7% increase in underlying³ distribution costs and administrative expenses which totalled £95.1 million (H1 2018: £91.7 million, not restated), however, almost half of the cost increase arose from the full period effect of acquisitions.  Although the operational efficiency programme detailed below remains in its early stages, it was able to offset general non-employee related year-on-year inflationary pressures.  As a result, underlying³ operating profit which was impacted by a £0.4 million increase due to IFRS 16 adoption was flat year-on-year at £18.1 million (H1 2018: £18.1 million, not restated) with an underlying³ operating margin of 5.2% (H1 2018: 5.4%, not restated).  

Movement in underlying³ operating profit

 

£000

Underlying operating profit 2018

18,142

Gross margin improvement:

 

    Volume benefit

1,674

    Pricing benefit

(388)

    Effect of acquisitions

2,132

Total change in gross profit

3,418

 

 

Costs and expenses:

 

    Distribution

(1,214)

    Administrative

(599)

    Effect of acquisitions

(1,610)

Total change in costs and expenses

(3,423)

Underlying operating profit 2019

18,137

Underlying³ profit before tax and statutory basic earnings per share were impacted by a reduction of £0.4 million and 0.4 pence respectively by the adoption of IFRS 16, and stood at £17.0 million (H1 2018: £17.7 million, not restated) and 15.7 pence (H1 2018: 15.9 pence, not restated).

Cash flows and net funds

Net cash from operating activities increased by £19.7 million from £(2.3) million to £17.4 million, with the key drivers shown in the table below:

 

Six months ended 30 June

 

2019

£000

2018

£000

2017

£000

Profit before taxation

15,968

16,418

16,767

Depreciation, amortisation and impairment

3,385

3,229

3,203

Depreciation of right of use assets

7,603

-

-

Profit on the sale of property, plant and equipment

(13)

(24)

(44)

Net finance cost (including leases)

1,160

410

351

Share-based payments

838

658

517

Working capital changes

(4,776)

(16,102)

(181)

 

 

 

 

Cash generated from operations

24,165

4,589

20,613

Interest paid

(1,532)

(670)

(545)

Tax paid

(5,259)

(5,287)

(5,077)

Pension contributions

-

(930)

(1,079)

Net cash from operating activities

17,374

(2,298)

13,912

The main contributor to the positive cash generation was the drop-through of operating profit. This was partially offset by the working capital changes which typically result in net outflows during the first half of the year, which were increased in the Period by temporary inventory holding as a consequence of seeking improved product profile and availability together with a modest level of Brexit contingency stock. 

Net cash flow from investing and financing activities

 

Six months ended 30 June

 

2019

£000

2018

£000

2017

£000

Acquisition of subsidiaries net of cash acquired

-

(5,478)

(1,942)

Acquisition of property, plant and equipment

(7,757)

(2,522)

(2,069)

Share movements

19

(2,891)

(579)

Net movement on borrowings

19,886

29,885

14,887

Principal elements of lease payments

(8,028)

-

-

Dividends paid

(6,322)

(6,372)

(12,369)

Other

454

218

304

Net cash flow from investing and financing activities

(1,748)

12,840

(1,768)

The key drivers behind the net cash flow from investing and financing activities was a net £19.9 million drawdown from the term facility as typically occurs during the first half of the year offset by capital expenditure (including investment on the new distribution centre in Ipswich) and the interim dividend declared in 2018. Following the adoption of IFRS 16, the Company now has £8.0 million of lease payments relating to the principal elements.

Cash and cash equivalents at the Period end was up 12.9% at £59.4 million (H1 2018: £52.6 million). Net funds (excluding lease liabilities*) were £32.5 million as at 30 June 2019, compared with £36.7 million and £16.0 million as at 1 January 2019 and 30 June 2018 respectively. The decrease in net funds from the year-end is due to the normal timing of working capital movements and the expected increase in capital expenditure related to the new Ipswich distribution centre.

Net funds movement during the period*

 

At

1 January

2019

£000

 

Cash flows

£000

 

Translation differences

£000

At

30 June

2019

£000

Cash at bank and in hand

44,005

16,739

(23)

60,721

Bank overdraft

(221)

(1,113)

(29)

(1,363)

Debt due within one year

(236)

-

1

(235)

Debt due after one year

(6,805)

(19,886)

25

(26,666)

 

36,743

(4,260)

(26)

32,457

*Excluding lease liabilities of £46.7 million as at 30 June 2019

Total bank facilities at 30 June 2019 amounted to £112.6 million, of which £32.6 million is uncommitted and repayable on demand with a further £80.0 million committed facilities which were due to expire on 14 December 2021. On 5 August 2019 post the Period end, the Company completed a refinancing of its existing banking facilities to extend their term from 14 December 2021 to 30 April 2023.  The Company has maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc, but decreased the level of Sterling committed facilities from £72.5 million to £68.5 million and increased its Euro committed facilities from €8.6 million to €9.6 million. The Company has not changed its short-term uncommitted facilities.

Dividend

As previously stated, the Company intends to maintain its full year 2019 dividend in-line with that of 2018 despite guidance at the beginning of the year that 2019 underlying³ profit before tax is anticipated to be lower than 2018, and the diluting earnings impact caused by IFRS 16 adoption.

The Company is maintaining the 2019 interim dividend at 7.55 pence (2018: 7.55 pence) which will be payable on 2 January 2020 to shareholders on the register as at 29 November 2019 (record date).

Operations and Operational Efficiency Programme

Resource has been focused on evaluating and implementing various constituents of the Company's operational efficiency programme in order to improve operating performance, the customer service proposition and margin. Some of the individual efficiency initiatives introduced in the 2018 Annual Report and Accounts continue to evolve as part of a more holistic approach and will also be supplemented by additional operational focuses including broadening existing customer channels.

With the operational efficiency programme still largely at the evaluation and trialling phase there was a limited contribution to financial performance during the Period.  However, early contributors such as the continued roll-out of a group procurement approach to Goods Not For Resale ('GNFR') and extended vehicle leasing contracts upon renewal or replacement provided sufficient benefit to offset non-employee related cost inflation during the Period. 

For some of the other operational efficiency projects at an earlier stage of implementation, their benefits continue to be evaluated and confirmed, and, as previously stated, their contributions are expected to increase and have a more meaningful impact in 2020 and beyond. For example, the roll-out of the inventory management and automated stock re-ordering system to all UK sites will be completed by the year-end.  The roll-out initially leads to a rise in absolute inventory levels as availability of customers' most requested products is improved. With maturing use of the stock re-ordering algorithm, and as the product life cycle progresses, the benefits of an improvement to product availability, stock-turn, warehouse capacity and improved supplier production scheduling will become increasing evident group-wide.

Similarly, the trial in South Wales, targeting more effective delivery fleet utilisation, has been successfully completed resulting in an increased number of order drops per commercial vehicle combined with a reduction in the number of vehicles needing to service the local area. This has demonstrated the more effective use of vehicles, with less miles being travelled per delivery.  The trial will be rolled-out in additional geographic areas, and as it is the overall reduction in the cost to serve will become more quantifiable across the group.

Construction has commenced, on schedule, for delivery of the new 190,000 square feet regional distribution centre in Ipswich which will support customers throughout the South East of England and enable greater network optimisation and operational efficiency. The anticipated construction timetable and capital investment remains unchanged, with an operational centre expected for Easter 2020 at a total cost of approximately £26 million.

Current Trading and Outlook

The Company has made preparations around the potential impact of Brexit, and is maintaining a modest level of contingency stock which sits across its fastest-moving products in order to preserve levels of customer service during such an event. The inventory management project outlined above will provide additional support due to its existing focus on improved product availability and the higher inventory position in the current roll-out phase. The Company carried an inventory position of £141.4 million at the Period-end.

Growth has continued post the Period-end, with a small overall like-for-like² revenue increase to-date in the second half. Ahead of proceeding further into the traditionally stronger second half of the year with Q4 historically being the main contributor to full year performance, and mindful of a backdrop of political uncertainty, the Board currently maintains its overall expectations for the full year.

 

Steve Wilson

Chief Executive

 

Chris Payne

Chief Financial Officer

28 August 2019

¹The interim results have been prepared in accordance with the new IFRS 16 'Leases' accounting standard ('IFRS 16') effective for financial periods beginning on or after 1 January 2019. As the Company has adopted the modified retrospective approach, there has been no restatement of the comparatives for the 2018 reporting period. The impact on the Company's financial statements is fully detailed in the accompanying Notes to the Condensed Consolidated Interim Financial Statements, with adjustments recognised in the Income Statement, Cash Flow Statement and Statement of Financial Position (Balance Sheet). There is no overall impact on the Company's cash and cash equivalents.

²Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2019 and 2018 periods and is adjusted for any variances in working days.

³Underlying is before non-underlying items which includes amortisation of acquired intangibles, acquisition related fees, contingent consideration movements, non-recurring pension costs in relation to guaranteed minimum pension ('GMP') equalisation and non-recurring costs relating to senior personnel changes.

 

 

 

Statement of Directors' Responsibilities

 

The Directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

·    an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

·    material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The Directors of Headlam Group plc are listed in the Headlam Group plc Annual Report and Accounts for the year ended 31 December 2018, and a list of Directors is maintained on the Headlam Group plc website, www.headlam.com.

 

By order of the Board,

 

Philip Lawrence

Chairman

 

28 August 2019

 

 

Condensed Consolidated Interim Income Statement

 

 

 

 

 

Underlying

Non-underlying

Six months ended

30 June

Underlying

Non-underlying

 

Six months ended

 30 June

Underlying

Non-underlying

Year ended

31 December

 

Note

2019

2019

2019

2018

2018

2018

2018

2018

2018

 

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

 

Unaudited

Unaudited

Audited

Revenue

2

348,660

-

348,660

337,489

-

337,489

708,423

-

708,423

Cost of sales

 

(235,448)

-

(235,448)

(227,695)

-

(227,695)

(479,349)

-

(479,349)

Gross profit

 

113,212

-

113,212

109,794

-

109,794

229,074

-

229,074

Distribution costs

 

(68,376)

-

(68,376)

(66,090)

-

(66,090)

(134,316)

-

(134,316)

Administrative expenses

3

(26,699)

(1,009)

(27,708)

(25,562)

(1,314)

(26,876)

(50,485)

(2,942)

(53,427)

Operating profit

2

18,137

(1,009)

17,128

18,142

(1,314)

16,828

44,273

(2,942)

41,331

Finance income

4

389

-

389

216

-

216

709

-

709

Finance expenses

4

(1,549)

-

(1,549)

(626)

-

(626)

(1,593)

-

(1,593)

Net finance costs

 

(1,160)

-

(1,160)

(410)

-

(410)

(884)

-

(884)

Profit before tax

 

16,977

(1,009)

15,968

17,732

(1,314)

16,418

43,389

(2,942)

40,447

Taxation

5

(2,972)

134

(2,838)

(3,236)

135

(3,101)

(7,750)

807

(6,943)

Profit for the period attributable to the equity shareholders

2

14,005

(875)

13,130

14,496

(1,179)

13,317

35,639

(2,135)

33,504

Earnings per share

 

 

 

 

 

 

 

 

 

 

Basic

6

16.7p

 

15.7p

17.3p

 

15.9p

42.5p

 

40.0p

Diluted

6

16.6p

 

15.6p

17.1p

 

15.7p

42.2p

 

39.6p

Ordinary dividend per share

 

 

 

 

 

 

 

 

 

 

Interim dividend proposed for the financial period

7

 

 

7.55p

 

 

7.55p

 

 

7.55p

Final dividend proposed for the financial period

7

 

 

-

 

 

-

 

 

17.45p

 

All group operations during the financial periods were continuing operations.

 

 

Condensed Consolidated Interim Statement of Comprehensive Income

 

 

 

Six months

 ended

30 June

 2019

£000

Six months

 ended

30 June

 2018

£000

 

Year ended

31 December

 2018

£000

 

Unaudited

Unaudited

Audited

Profit for the period attributable to the equity

  shareholders

 

13,130

 

13,317

 

33,504

 

 

 

 

Other comprehensive income:

 

 

 

Items that will never be reclassified to profit or loss

 

 

 

Re-measurement of defined benefit plans

(979)

3,736

8,562

Related tax

166

(635)

(1,628)

 

(813)

3,101

6,934

Items that are or may be reclassified to profit or loss

 

 

 

Foreign exchange translation differences arising on

  translation of overseas operations

 

393

 

(76)

 

540

 

393

(76)

540

 

 

 

 

Other comprehensive (expense)/income for the period

(420)

3,025

7,474

 

 

 

 

Total comprehensive income attributable to the equity shareholders for the period

 

12,710

 

16,342

 

40,978

 

 

 

Condensed Consolidated Interim Statement of Financial Position

 

 

 

At

30 June

2019

£000

At

30 June

2018

£000

At

31 December 2018

£000

 

 

Unaudited

Unaudited

Audited

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

107,363

101,836

102,048

Right-of-use assets

 

46,116

-

-

Intangible assets

 

50,218

50,085

50,924

Deferred tax assets

 

572

460

516

 

 

204,269

152,381

153,488

Current assets

 

 

 

 

Inventories

 

142,463

136,743

132,704

Trade and other receivables

 

125,928

129,560

119,007

Cash and cash equivalents

 

60,721

52,560

44,005

 

 

329,112

318,863

295,716

Total assets

 

533,381

471,244

449,204

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Bank overdrafts

 

(1,363)

-

(221)

Other interest-bearing loans and borrowings

 

(235)

(232)

(236)

Lease liabilities

 

(14,047)

-

-

Trade and other payables

 

(192,114)

(179,654)

(181,300)

Dividends payable

 

(14,617)

(14,596)

-

Income tax payable

 

(4,495)

(4,175)

(6,730)

 

 

(226,871)

(198,657)

(188,487)

Non-current liabilities

 

 

 

 

Other interest-bearing loans and borrowings

 

(26,666)

(36,378)

(6,805)

Lease liabilities

 

(32,696)

-

-

Trade and other payables

 

(2,592)

(5,905)

(2,592)

Provisions

 

(2,249)

(2,048)

(2,249)

Deferred tax liabilities

 

(8,063)

(7,274)

(8,063)

Employee benefits

 

(6,853)

(8,641)

(5,888)

 

 

(79,119)

(60,246)

(25,597)

Total liabilities

 

(305,990)

(258,903)

(214,084)

Net assets

 

212,341

 

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

 

Share capital

 

4,268

4,268

4,268

Share premium

 

53,512

53,512

53,512

Other reserves

 

868

952

185

Retained earnings

 

168,743

153,609

177,155

Total equity

 

227,391

212,341

235,120

 

 

 

Condensed Consolidated Interim Statement of Changes in Equity

Unaudited

 

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

 

 

 

 

 

 

 

 

Balance at

  1 January 2019

 

4,268

 

53,512

 

88

 

7,399

 

(7,302)

 

177,155

 

235,120

Change in accounting policy (note 8)

-

-

-

-

-

(216)

(216)

Restated total equity at 1 January 2019

 

4,268

 

53,512

 

88

 

7,399

 

(7,302)

 

176,939

 

234,904

 

 

 

 

 

 

 

 

Profit for the period attributable to the equity shareholders

 

-

 

-

 

-

 

-

 

-

 

13,130

 

13,130

Other comprehensive income

-

-

-

393

-

(813)

(420)

Total comprehensive income for the period

 

-

 

-

 

-

 

393

 

-

 

12,317

 

12,710

 

 

 

 

 

 

 

 

Transactions with equity shareholders, recorded directly in equity

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

838

838

Share options exercised by employees

-

-

-

-

290

(271)

19

Current tax on share options

-

-

-

-

-

1

1

Deferred tax on share options

-

-

-

-

-

(142)

(142)

Dividends to equity holders

-

-

-

-

-

(20,939)

(20,939)

Total contributions by and distributions to equity shareholders

 

-

 

-

 

-

 

-

 

290

 

(20,513)

 

(20,223)

Balance at

  30 June 2019

 

4,268

 

53,512

 

88

 

7,792

 

(7,012)

 

168,743

 

227,391

 

 

 

Condensed Consolidated Interim Statement of Changes in Equity continued

Unaudited

 

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

 

 

 

 

 

 

 

 

Balance at

  1 January 2018

 

4,268

 

53,512

 

88

 

6,859

 

(4,056)

 

157,903

 

218,574

Profit for the period attributable to the equity shareholders

 

-

 

-

 

-

 

-

 

-

 

13,317

 

13,317

Other comprehensive income

-

-

-

(76)

-

3,101

3,025

Total comprehensive income for the period

 

-

 

-

 

-

 

(76)

 

-

 

16,418

 

16,342

 

 

 

 

 

 

 

 

Transactions with equity shareholders, recorded directly in equity

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

658

658

Share options exercised by employees

-

-

-

-

1,058

(1,028)

30

Consideration for purchase of own shares

 

-

 

-

 

-

 

-

 

(2,921)

 

-

 

(2,921)

Current tax on share options

-

-

-

-

-

154

154

Deferred tax on share options

-

-

-

-

-

473

473

Dividends to equity holders

-

-

-

-

-

(20,969)

(20,969)

Total contributions by and distributions to equity shareholders

 

-

 

-

 

-

 

-

 

(1,863)

 

(20,712)

 

(22,575)

Balance at

  30 June 2018

 

4,268

 

53,512

 

88

 

6,783

 

(5,919)

 

153,609

 

212,341

 

 

 

 

Condensed Consolidated Interim Statement of Changes in Equity continued

Audited

 

 

 

Share

capital

£000

 

Share

premium

£000

Capital

redemption

reserve

£000

 

Translation

reserve

£000

 

Treasury

reserve

£000

 

Retained

earnings

£000

 

Total

equity

£000

 

 

 

 

 

 

 

 

Balance at

  1 January 2018

 

4,268

 

53,512

 

88

 

6,859

 

(4,056)

 

157,903

 

218,574

Profit for the period attributable to the equity shareholders

 

-

 

-

 

-

 

-

 

-

 

33,504

 

33,504

Other comprehensive income

-

-

-

540

-

6,934

7,474

Total comprehensive income for the period

 

-

 

-

 

-

 

540

 

-

 

40,438

 

40,978

 

 

 

 

 

 

 

 

Transactions with equity shareholders, recorded directly in equity

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

1,478

1,478

Share options exercised by employees

-

-

-

-

2,579

(1,518)

1,061

Consideration for purchase of own shares

 

-

 

-

 

-

 

-

 

(5,825)

 

-

 

(5,825)

Current tax on share options

-

-

-

-

-

38

38

Deferred tax on share options

-

-

-

-

-

(169)

(169)

Deferred tax on income and expenses recognised directly in equity

 

-

 

-

 

-

 

-

 

-

 

(46)

 

(46)

Dividends to equity holders

-

-

-

-

-

(20,969)

(20,969)

Total contributions by and distributions to equity shareholders

 

-

 

-

 

-

 

-

 

(3,246)

 

(21,186)

 

(24,432)

Balance at

  31 December 2018

 

4,268

 

53,512

 

88

 

7,399

 

(7,302)

 

177,155

 

235,120

 

 

 

 

 

 

 

 

Condensed Consolidated Interim Cash Flow Statements

 

 

 

 

Six months ended

30 June

2019

£000

Six months ended

30 June

2018

£000

 

Year ended

31 December

 2018

£000

 

 

Unaudited

Unaudited

Audited

Cash flows from operating activities

 

 

 

 

Profit before tax for the period

 

15,968

16,418

40,447

Adjustments for:

 

 

 

 

Depreciation, amortisation and impairment

 

3,385

3,229

7,038

Depreciation of right of use assets

 

7,603

-

-

Profit on sale of property, plant and equipment

 

(13)

(24)

(50)

Finance income

 

(389)

(216)

(709)

Finance expense

 

1,549

626

1,593

Share-based payments

 

838

658

1,478

Operating cash flows before changes in working capital and other payables

 

 

28,941

 

20,691

 

49,797

Change in inventories

 

(9,683)

(4,011)

1,563

Change in trade and other receivables

 

(6,881)

(1,899)

12,524

Change in trade and other payables

 

11,788

(10,192)

(13,878)

Cash generated from the operations

 

24,165

4,589

50,006

Interest paid (including leases)

 

(1,532)

(670)

(1,426)

Tax paid

 

(5,259)

(5,287)

(7,789)

Additional contributions to defined benefit plan

 

-

(930)

(747)

Net cash flow from operating activities

 

17,374

(2,298)

40,044

Cash flows from investing activities

 

 

 

 

Acquisition of property, plant and equipment

 

(7,757)

(2,522)

(4,384)

Proceeds from sale of property, plant and equipment

 

28

52

403

Interest received

 

426

166

601

Acquisition of subsidiaries, net of cash acquired

 

-

(5,478)

(9,141)

Repayment of acquired borrowings on acquisition

 

-

-

(435)

Net cash flow from investing activities

 

(7,303)

(7,782)

(12,956)

Cash flows from financing activities

 

 

 

 

Proceeds from the issue of treasury shares

 

19

30

1,061

Payment to acquire own shares

 

-

(2,921)

(5,825)

Drawdown of borrowings

 

45,000

30,000

45,443

Repayment of borrowings

 

(25,114)

(115)

(45,232)

Principal elements of lease payments

 

(8,028)

-

-

Dividends paid

 

(6,322)

(6,372)

(20,969)

Net cash flow from financing activities

 

5,555

20,622

(25,522)

 

Net increase in cash and cash equivalents

 

 

 

15,626

 

10,542

 

1,566

Cash and cash equivalents at 1 January

 

43,784

42,030

42,030

Effect of exchange rate fluctuations on cash held

 

(52)

(12)

188

Cash and cash equivalents at end of period

 

59,358

52,560

43,784

 

 

Notes to the Condensed Consolidated Interim Financial Statements

Unaudited

 

1 BASIS OF REPORTING

 

Reporting entity

Headlam Group plc, the 'company', is a company incorporated in the UK.  The Condensed Consolidated Interim Financial Statements consolidate those of the company and its subsidiaries which together are referred to as the 'Group' as at and for the six months ended 30 June 2019. 

 

The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2018 are available upon request from the company's registered office or the website.

 

The comparative figures for the financial year ended 31 December 2018 are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by the auditor pursuant to the Auditing Practices Board's Guidance on Financial Information.

 

Statement of compliance

These Condensed Consolidated Interim Financial Statements have been prepared and approved by the directors in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the EU.  They do not include all of the information required for full annual financial statements and should be read in conjunction with the Consolidated Financial Statements of the Group as at and for the year ended 31 December 2018.

 

These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 28 August 2019.

 

Significant accounting policies

As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published Consolidated Financial Statements for the year ended 31 December 2018, except as explained below.

 

New standards adopted by the Group

The Group and Company has adopted a new accounting standard in 2019 and this is detailed below:

International Financial Reporting Standard (IFRS) 16 'Leases' (replacing IAS 17).

This new standard eliminates the classification of leases over 12 months in length as either operating or finance leases and introduces a single lessee accounting model whereby all leases are accounted for on balance sheet, unless of low-value. The standard therefore requires that the Group's leased assets are recorded within non-current assets on the balance sheet as 'right of use assets' with a corresponding lease liability which is based on the discounted value of the cash payments required under each lease. The income statement is affected by the replacement of the operating lease expense with a depreciation charge and a finance expense.

The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition.  All right-of-use assets have been measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).  Transition recognition exemptions relating to short-term and low value leases have been applied, to simplify the transition process.

The group has applied the standard from its mandatory adoption date of 1 January 2019 using the modified retrospective approach. Under this approach, the cumulative effect of adopting IFRS 16 is recognised as an adjustment to the opening balance of retained earnings on 1 January 2019, with no restatement of comparative information.  The impact this change in the Group's accounting policy has had on the financial statements is detailed further in note 8.

 

Impacts of standards and interpretations in issue but not yet effective

There are no other new standards, amendments to existing standards, or interpretations that are not yet effective that would be expected to have a material impact on the Group.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are described in the Chief Executive's and Financial Review.

 

The Directors have reviewed current performance and forecasts, combined with borrowing facilities and expenditure commitments, including capital expenditure, pensions and proposed dividends. After making enquiries, the Directors have a reasonable expectation that the Group has adequate financial resources to continue its current operations, including contractual and commercial commitments for the foreseeable future.  For these reasons, the going concern basis has been adopted in preparing the financial statements.

 

Bank facilities at 30 June 2019

 

 

Committed credit facilities

Uncommitted credit facilities

 

Total facilities

 

£ million

£ million

£ million

Drawn funds

26.9

1.4

28.3

Undrawn funds

53.1

31.2

84.3

 

80.0

32.6

112.6

 

Judgements and estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2018, except for those critical judgements made in determining the lease term when applying IFRS 16 and the use of an internal borrowing rate ("IBR").

 

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

 

The IBR is estimated and used for the purpose of discounting cashflows to their present value when the interest rate implicit within a lease cannot be determined. It compromises the risk free rate attributed to government bonds relevant to the economic environment in which the asset is being used, a credit worthiness adjustment based on a synthetic Headlam credit rating and our incremental cost of borrowing, the latter being the rate of interest that we would have to pay on borrowings to obtain an asset of similar value to that of the right of use asset.

 

Risks and uncertainties

The risk factors which could cause the Group's results to differ materially from expected results and the result of the Board's review of those risks are set out in the Annual Report and Accounts for the year ended 31 December 2018.

 

2 SEGMENT REPORTING

 

At 30 June 2019, the Group had 61 operating segments in the UK and four operating segments in Continental Europe.  Each segment represents an individual trading operation and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products.  The operating results of each operation are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Chief Executive.  Discrete financial information is available for each segment and used by the Chief Executive to assess performance and decide on resource allocation. 

 

The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate.  The Group's internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments.  This distinction is embedded in the construction of operating reports reviewed by the Chief Executive, the Board and the senior executive management team and forms the basis for the presentation of operating segment information given below.

 

 

 

UK

Continental Europe

Total

 

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

 

30 June

2019

£000

 

30 June

2018

£000

31

December

2018

£000

Revenue

 

 

 

 

 

 

 

 

 

External revenues

294,506

286,600

604,150

54,154

50,889

104,273

348,660

337,489

708,423

 

 

 

 

 

 

 

 

 

 

Reportable segment operating profit

 

19,317

 

18,944

 

45,163

 

976

 

551

 

488

 

20,293

 

19,496

 

45,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable segment assets

 

355,058

 

303,089

 

304,645

 

62,336

 

54,862

 

42,591

 

417,393

 

357,951

 

347,236

 

 

 

 

 

 

 

 

 

 

Reportable segment liabilities

 

(217,697)

 

(167,038)

 

(168,184)

 

(34,265)

 

(28,445)

 

(25,219)

 

(251,962)

 

(195,483)

 

(193,403)

 

During the periods shown above there have been no inter-segment revenues for the reportable segments (2018: £nil). 

 

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

 

 

 

 

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

Profit for the period

 

 

 

 

 

 

Total profit for reportable segments

 

 

20,293

19,496

45,651

Non-underlying items

 

 

(1,009)

(1,314)

(2,942)

Unallocated expense

 

 

 

(2,156)

(1,354)

(1,378)

 

 

 

 

 

 

 

Operating profit

 

 

 

17,128

16,828

41,331

 

 

 

 

 

 

 

Finance income

 

 

 

389

216

709

Finance expense

 

 

 

(1,549)

(626)

(1,593)

 

 

 

 

 

 

 

Profit before taxation

 

 

 

15,968

16,418

40,447

Taxation

 

 

 

(2,838)

(3,101)

(6,943)

 

 

 

 

 

 

 

Profit for the period

 

 

 

13,130

13,317

33,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

Assets

 

 

 

 

 

Total assets for reportable segments

 

417,393

357,951

347,236

Unallocated assets:

 

 

 

 

 

Properties, plant and equipment

 

 

89,980

83,353

88,879

Deferred tax assets

 

 

572

460

516

Cash and cash equivalents

 

 

25,436

29,480

12,573

 

 

 

 

 

 

Total assets

 

 

533,381

471,244

449,204

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Total liabilities for reportable segments

 

(251,962)

(195,483)

(193,403)

Unallocated liabilities:

 

 

 

 

 

Employee benefits

 

 

(6,853)

(8,641)

(5,888)

Other interest-bearing loans and borrowings

 

 

(20,000)

(30,000)

-

Income tax payable

 

 

(4,495)

(4,175)

(6,730)

Proposed dividend

 

 

(14,617)

(14,596)

-

Deferred tax liabilities

 

 

(8,063)

(6,008)

(8,063)

 

 

 

 

 

 

Total liabilities

 

 

(305,990)

(258,903)

(214,084)

  

 

 

 

UK

 

Continental Europe

Reportable segment

total

 

 

Unallocated

 

Consolidated total

 

£000

£000

£000

£000

£000

Other material items 30 June 2019

 

 

 

 

 

Capital expenditure

748

291

1,039

6,718

7,757

Depreciation

969

559

1,528

1,151

2,679

Depreciation of right of use assets

6,574

1,021

7,595

8

7,603

Non-underlying items

951

58

1,009

-

1,009

Other material items 30 June 2018

 

 

 

 

 

Capital expenditure

1,236

902

2,138

384

2,522

Depreciation

1,016

345

1,361

1,168

2,529

Non-underlying items

906

408

1,314

-

1,314

Other material items 31 December 2018

 

 

 

 

 

Capital expenditure

2,579

1,139

3,718

666

4,384

Depreciation

2,058

751

2,809

2,466

5,275

Non-underlying items

1,262

466

1,728

1,214

2,942

 

In the UK the Group's freehold properties are held within Headlam Group plc and a rent is charged to the operating segments for the period of use.  Therefore, the operating reports reviewed by the Chief Executive show all the UK properties as unallocated and the operating segments report a segment result that includes a property rent.  This is reflected in the above disclosure.

 

Each segment is a continuing operation.

 

The Chief Executive, the Board and the senior executive management team have access to information that provides details on revenue by principal product group for the two reportable segments, as set out in the following table:

 

 

 

UK

Continental Europe

Total

 

 

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

 

30 June

2019

£000

 

30 June

2018

£000

31 December

2018

£000

Revenue

 

 

 

 

 

 

 

 

 

Residential

192,050

190,576

400,710

30,804

27,897

57,046

222,854

218,473

457,756

Commercial

102,456

96,024

203,440

23,350

22,992

47,227

125,806

119,016

250,667

 

 

 

 

 

 

 

 

 

 

 

294,506

286,600

604,150

54,154

50,889

104,273

348,660

337,489

708,423

           

 

 

 

 

3 NON-UNDERLYING ITEMS

 

Non-underlying items of £1,009,000 relate to amortisation of acquired intangibles, acquisition related fees, and the related tax of £134,000 on these costs, see table below.

 

Six months

 ended

30 June

2019

£000

Six months

 ended

30 June

2018

£000

 

Year ended

31 December 2018

£000

 

 

 

 

Amortisation of acquired intangibles

706

708

1,763

Acquisitions related fees

303

290

513

Non-recurring people costs

-

316

836

GMP equalisation

-

-

1,214

Release of accrual for contingent consideration

-

-

(1,384)

 

1,009

1,314

2,942

 

4 FINANCE INCOME AND EXPENSE

 

 

Six months

 ended

30 June

2019

£000

Six months

 ended

30 June

2018

£000

 

Year ended

31 December 2018

£000

Interest income:

 

 

 

Bank interest

346

216

709

Other

43

-

-

Finance income

389

216

709

 

 

 

 

Interest expense:

 

 

 

Bank loans, overdrafts and other financial expenses

(683)

(515)

(1,331)

Interest on lease liability

(836)

-

-

Net interest on defined benefit plan obligation

(30)

(110)

(232)

Other

-

(1)

(30)

Finance expenses

(1,549)

(626)

(1,593)

 

5 TAXATION

 

The Group's consolidated effective tax rate for the six months ended 30 June 2019 was 17.5% (for the six months ended 30 June 2018: 18.25%; for the year ended 31 December 2018: 17.2%).

The UK headline corporation tax rate for the six months ended 30 June 2019 was 19% (for the six months ended 30 June 2018: was 19% (2018: 19%). The UK tax rate will be further reduced to 17% with effect from 1 April 2020 which was enacted during 2016. The majority of the deferred tax balance in respect of UK entities has therefore been calculated at 17% (2018: 17%) on the basis that most of the balances will materially reverse after 1 April 2020.

In addition, a reduction in the French corporation tax rate to 25% by 2022 was enacted in December 2017 which has also been taken into account in the calculation of the related deferred tax balance.

 

 

6 EARNINGS PER SHARE

 

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

 

 

Six months

 ended

30 June

2019

£000

Six months

 ended

30 June

2018

£000

 

Year ended

31 December 2018

£000

Earnings

 

 

 

Earnings for underlying basic and underlying diluted earnings per share

 

14,005

 

14,496

 

35,639

Earnings for basic and diluted earnings per share

13,130

13,317

33,504

 

 

 

 

 

 

 

Six months

 ended

30 June

2019

Six months

 ended

30 June

2018

 

Year ended

31 December

2018

Number of shares

 

 

 

Issued ordinary shares at end of period

85,363,743

85,363,743

85,363,743

Effect of weighted average shares held in treasury

(1,495,739)

(1,360,725)

(1,501,085)

 

 

 

 

Weighted average number of ordinary shares for the purposes of basic earnings per share

 

83,877,536

 

84,003,018

 

83,862,658

 

 

 

 

Effect of diluted potential ordinary shares:

 

 

 

Weighted average number of ordinary shares at period end

83,877,536

84,003,018

83,862,658

Dilutive effect of share options

389,138

579,681

674,621

 

 

 

 

Weighted average number of ordinary shares for the purposes of diluted earnings per share

 

84,266,674

 

84,582,699

 

84,537,279

 

 

 

 

Earnings per share

 

 

 

Basic

15.7p

15.9p

40.0p

Diluted

15.6p

15.7p

39.6p

 

 

 

 

Underlying earnings per share

 

 

 

Basic

16.7p

17.3p

42.5p

Diluted

16.6p

17.1p

42.2p

 

 

 

7 DIVIDENDS

 

Six months ended

30 June

2019

£000

Six months ended

30 June

2018

£000

 

Year ended

31 December 2018

£000

 

 

 

 

Interim dividend for 2018 of 7.55p paid 2 January 2019

6,322

-

-

Final dividend for 2018 of 17.45p paid 1 July 2019

14,617

-

-

Interim dividend for 2017 of 7.55p paid 2 January 2018

-

6,372

6,372

Final dividend for 2017 of 17.25p paid 6 July 2018

-

14,597

14,597

 

20,939

20,969

20,969

 

The final proposed dividend for 2018 of 17.45p per share was authorised by shareholders at the Annual General Meeting on 24 May 2019 and paid on 1 July 2019.  The final proposed dividend for 2017 of 17.25p per share was authorised by shareholders at the Annual General Meeting on 24 May 2018 and paid on 6 July 2018.

 

The Board of Directors has declared an interim dividend for 2019 of 7.55p to be paid on 2 January 2020. Interim dividends are provided for when the dividend is paid.

 

8 CHANGES IN ACCOUNTING POLICIES

 

Leases

The Company has adopted the modified retrospective approach, and as such there has been no restatement of the comparatives for the 2018 reporting period as permitted under the specific transitional provisions in the standard.  The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.

 

Adjustments recognised on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 leases.  These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019.  The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 ranged from 2.70% to 3.77% depending on the leased asset.

 

2019

£000

 

 

Operating lease commitments as disclosed as at 31 December 2018

50,436

Additional operating lease liabilities on implementation of IFRS 16*

2,219

 

Discounting effect using the lessee's incremental borrowing rates of between 2.7% and 3.77%

 

(3,673)

Lease liability recognised as at 1 January 2019

48,982

 

Of which are:

 

Current lease liabilities

13,819

Non-current lease liabilities

35,163

 

48,982

*As part of the transition to IFRS 16, the value of the operating lease commitments included in the 2018 Annual Report operating lease commitments disclosure was updated.

 

Right of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. The adjustment for accrued lease payments relating to the leases recognised on this date was a decrease of £216,000.

 

Adjustments recognised on adoption of IFRS 16

 

(i) Amounts recognised in the statement of financial position

 

The balance sheet shows the following amounts relating to leases:

 

 

30 June

2019

£000

1 January

2019

£000

Right-of-use assets

 

 

Properties

16,728

17,846

Non-property

29,388

30,920

 

46,116

48,766

 

The right-of-use assets are shown as non-current assets in the balance sheet. The non-property right-of-use assets relate mainly to commercial and motor vehicles.

 

 

30 June

2019

£000

1 January

2019

£000

Lease liabilities

 

 

Current

14,047

13,819

Non-current

32,696

35,163

 

46,743

48,982

 

The lease liabilities are split on the balance sheet between current and non-current. In the previous year, the Group only recognised lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17. At 31 December 2018 the Group had operating leases amounting to £50.4 million and no finance leases. The Group is adopting the modified retrospective approach and therefore is not restating the comparative information.  The cumulative effect of adopting IFRS 16 is recognised as an adjustment to the opening balance of retained earnings on 1 January 2019. The net impact on retained earnings on 1 January 2019 was a decrease of £216,000.

 

(ii) Amounts recognised in the income statement

 

The statement of profit or loss shows the following amounts relating to leases:

 

Six months ended

30 June

2019

£000

Depreciation charge of right-of-use assets

 

Properties

2,244

Non-property

5,359

 

7,603

 

 

Interest expense

836

 

 

 

 

Net impact on the income statement:

 

 

Six months ended

30 June

2019

£000

 

 

Expense relating to IFRS 16 cost

8,439

Expense relating to IAS 17 cost previously included in administrative expenses

(8,028)

 

411

   

 

(iii) Impact on segment disclosures and earnings per share

 

The segment assets and liabilities for June 2019 all increased as a result of the change in accounting policy.  Lease liabilities are now included in segment liabilities, whereas the Group did not have any finance lease liabilities.  The following segments were affected by the change in policy:

 

 

 

UK

£000

Continental Europe

£000

 

Total

£000

 

 

 

 

Reportable segment assets

40,210

5,906

46,116

Reportable segment liabilities

(40,683)

(6,060)

(46,743)

 

Earnings per share decreased by 0.4p per share, from 16.1p to 15.7p, for the six months to 30 June 2019 as a result of the adoption of IFRS 16.

 

(iv) The group's leasing activities and how these are accounted for

 

The group leases various properties and commercial vehicles and cars. Rental contracts are typically made for fixed periods of 5 to 10 years and 3 to 7 years respectively, but might have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets cannot be used as security for borrowing purposes.

 

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period, this being the amortised cost method. The right-of-use asset is depreciated over the lease term on a straight-line basis.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees;

• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;

and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising

that option.

 

The lease payments are discounted using the Group's incremental borrowing rate as it has been difficult to determine the interest rate implicit in the lease for existing leases.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs; and

• restoration costs.

 

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

 

(v) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held, are exercisable only by the group and not by the respective lessor.

 

 

9 FINANCIAL INSTRUMENTS

 

The fair value of the Group's financial assets and liabilities as detailed below at 30 June 2019 were not materially different to the carrying value.

 

The table below sets out the Group's accounting classification of each class of financial assets and liabilities at 30 June 2019.

 

 

 

 

 

 

Fair value

through profit

Or loss (FVPL)

£000

 

Amortised cost

£000

 

Total

carrying value

£000

 

 

 

 

 

Cash and cash equivalents

 

-

60,721

60,721

Bank overdraft

 

-

(1,363)

(1,363)

Borrowings due within one year

 

-

(235)

(235)

Borrowings due after one year

 

-

(26,666)

(26,666)

Trade payables

 

-

(149,392)

(149,392)

Non-trade payables

 

(416)

(27,049)

(27,465)

Leasing liability

 

-

(46,743)

(46,743)

Trade receivables

 

-

98,731

98,731

Other receivables

 

-

8,107

8,107

Provisions

 

-

(2,249)

(2,249)

Derivative assets

 

18

-

18

 

 

 

 

 

 

 

(398)

(86,138)

(86,536)

 

Financial instruments carried at fair value are categorised according to their valuation method. The different levels have been defined below:

 

·    Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

·    Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly, as prices or indirectly, derived from prices.

·    Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The Group has forward currency contracts which were fair valued in accordance with level 2 (30 June and 31 December 2018: level 2).

 

Fair values

The carrying amounts shown in the Statement of Financial Position for financial instruments are a reasonable approximation of fair value.

 

Trade receivables, trade payables and cash and cash equivalents

Fair values are assumed to approximate to cost due to the short-term maturity of the instrument.

 

Borrowings, other financial assets and other financial liabilities

Where available, market values have been used to determine fair values. Where market values are not available, fair values have been estimated by discounting expected future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the Statement of Financial Position date.

 

10 CAPITAL COMMITMENTS

 

As at 30 June 2019, the Group had contractual commitments relating to the purchase of property, plant and equipment of £22,556,000 (30 June 2018: £572,000, 31 December 2018: £743,000).  This was an increase on the prior year mainly due to commitments for the Ipswich regional distribution centre building project.

 

11 RELATED PARTIES

 

The Group has a related party relationship with its subsidiaries and with its key management.  There have been no changes to the nature of related party transactions entered into since the last annual report.

 

12 SUBSEQUENT EVENTS

 

Management have given due consideration to any events occurring in the period from the reporting date to the date these Interim Financial Statements were authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these Interim Financial Statements, with the exception of an amendment and extension of the borrowing facilities for the Group.

 

On 5 August 2019, the Group completed a refinancing of its existing banking facilities to extend their term from 14 December 2021 to 30 April 2023.  The Group has maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc, but decreased the level of Sterling committed facilities from £72.5 million to £68.5 million and increased its euro committed facilities from €8.6 million to €9.6 million. The Group has not changed its short-term uncommitted facilities.

 

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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