Europe's leading floorcovering distributor Headlam (HEAD) has shrugged off slower commercial flooring sales in the run-up to the EU referendum and weakness in Switzerland to deliver an interim taxable profits surge.
Boss Tony Brewer says Brexit has yet to affect second-half trading and that Headlam has successfully passed on price hikes to customers, news that helps the shares rebound 3.24% to 462p.
Click here to read half-time numbers from Headlam, which supplies and distributes carpets, residential vinyl, rugs and underlay to independent retailers and contractors.
Highlights include 22.4% growth in taxable profits to £15.1 million on group sales up 4.8% to £328.7 million, driven by a strong performance within residential markets. Even after paying out £5 million in special dividends in April, Headlam closed the half with almost £40 million in net funds and raises the half-time dividend 11.7% to 6.7p.
Headlam's shares have been hit by uncertainty surrounding the impact of Brexit on currency and UK consumer spending, so today's confident commentary from Brewer soothes investor sentiment.
Brewer, CEO, says the progress made in the half reflects 'the continued outperformance of our UK business, an improving trend in our Continental Europe businesses and the ongoing delivery of our strategy to increase market share.'
Furthermore, he explains that 'August is traditionally one of the group's peak trading months in the UK with the annual summer refurbishment of educational institutions. To date, this seasonal business seems to have been unaffected by the result of June's referendum on EU membership.'
'However, the referendum result gave rise to a weakening in sterling, and the group has sought to mitigate this adverse inflationary effect by implementing price increases earlier this month for residential floorcoverings imported from Continental Europe,' says Brewer.
The cost of product sourced predominantly from Holland and Belgium has gone up due to a plunging pound and Headlam has acted quickly with an average price rise of 6%. 'It is pleasing that these price increases appear to have had no adverse impact on the level of residential revenues to date,' adds Brewer.
Headlam's success is built on providing customers with a comprehensive, up-to-date range of competitively priced products supported by a next day delivery service, which gives its suppliers extensive market access backed by cost-effective distribution.
A key competitive advantage is its autonomous operating structure that includes 56 businesses across the UK and a further five in continental Europe, all trading under individual brands. Its management teams have an opportunity to develop the individual identity, market presence and profitability of the business for which they are responsible.
In the UK, far and away Headlam's biggest market, sales grew 4.3% to £286.3 million, well ahead of the market. Improvements in France and the Netherlands helped Continental European like-for-like sales rise 2.8% at constant currency, though weakness continues in Switzerland.