C o v e R i n g t h e w o R l d Report and Accounts 2015 J a m e s h a l s t e a d p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 (cid:1) Contents Strategic Report Chairman’s Statement Chief Executive’s Review Financial Director’s Review Governance Report of the Directors Board Report on Remuneration Corporate Governance Financial Statements Independent Auditor’s Report to the Members of James Halstead plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Group Accounts Company Balance Sheet Notes to the Financial Statements of the Company Supplementary Information Ten Year Summary Shareholder Information Notice of Annual General Meeting 5 6 9 12 15 16 18 19 20 21 22 23 24 50 51 60 61 62 Raststätte Würzburg Germany, Expona Art and Design 1 of JAMES HALSTEAD PLC Registration Number: 00140269 Incorporated on: 10th May 1915 I hereby certify that the above company has today been registered at Companies House for 100 years. Tim Moss Chief Executive and Registrar of Companies for England and Wales Companies House is an Executive Agency of the Department for Business, Innovation and Skills (BIS) From humble beginnings with just three employees . . . . . . to a few of those covering the world today Nominated adviser Panmure Gordon & Co One New Change London EC4M 9AF Stockbrokers Arden Partners 125 Broad Street London EC2N 1AR Auditor BDO LLP 3 Hardman Street Spinningfields Manchester M3 3AT 4 Directors and Advisers Directors G Halstead M Halstead G R Oliver FCA MCT J A Wild FCA E K Lotz S D Hall Secretary D W Drillingcourt ACA Registered office Beechfield Hollinhurst Road Radcliffe Manchester M26 1JN Company registration No. 140269 Website www.jameshalstead.com Bankers The Royal Bank of Scotland plc 6th Floor 1 Spinningfields Square Manchester M3 3AP Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 5 Chairman’s Statement Results Acknowledgements In this, our hundredth year, it is gratifying to report growth in turnover of 1.7% to £227.3 million (2014: £223.5 million), a new record in our history as, indeed, is the profit before tax at £44.2 million (2014: £41.8 million), a growth of some 5.8%. As ever amongst the 20 million m² of flooring despatched this year there are contracts that were hard won and impressive. The Stade des Lumières, built in Lyon for Euro 2016, Matru retail stores in Chennai, and Queenstown International Airport in New Zealand are but a few. As we close this 100th year we should acknowledge our founder, James Halstead, who in the twenty years from founding the company until his death in 1935 built the foundations of our business. His obituary hailed him as having created a new industry in Manchester and it is with some pride that we continue to be a part of the “North West powerhouse”. I would also like to express the gratitude of the Board to our customers and employees for their part in our success. Strategy Outlook Looking back over the years it is clear that we are continually faced by great opportunities brilliantly disguised as difficult problems. Having traded through world wars, severe recession, the three-day week and financial crises our endurance is evident. The latest conundrum that we have faced in recent months is the relative strength of sterling, particularly against the euro, and this will continue into the forthcoming year. Much has been written about the strength of sterling and the obvious negative effect on exporters but there are large offsetting factors, not least the effect of cheaper input prices of raw materials and we remain positive. Our latest ranges, Expona Flow and Designatex, were launched late in the financial year and have received an exciting early response. Combining this with the strength of our distribution in the coming year I remain confident that it will be 100 not out! On behalf of the board Geoffrey Halstead Chairman 28 September 2015 Our businesses are totally flooring focused and our strategy is designed to enhance our brand identity and to generate goodwill and customer satisfaction with the aim of continued repeat business. This strategy is designed to increase revenue which then creates wealth for our shareholders in the form of dividend as reward for their investment in our company. It also underpins job security for our employees and benefits all stakeholders in the business. Our companies operate in different economic environments but our continued focus is to ensure our products, manufactured by us or sourced in bulk, are stocked by distributors and sold on to contractors for either refurbishment or new build. Our sales forces are multi- focused to not only ensure the sale in volume to stockists, but also to promote sales directly to end-users in conjunction with contractors, architects or specifiers. Hand in hand with the sales process, we advise on the suitability of product, glues and accessories, and offer technical back- up during and post installation as part of our customer service. The strategy evolves over time, but our focus on sustainable growth is undiminished. Dividend Profit and earnings per share have increased and our cash reserves remain, as usual solid. However, profit is an accounting term and, we believe, the true measure of a business is return as measured by dividends paid to shareholders. Consequently, it is pleasing to report that the Board proposes, once again, an increased final dividend. The final dividend will be 7.858p (2014: 7.0p) representing a 12.3% increase which combined with the interim dividend, paid in June 2015, of 3.142p (2014: 3.0p) makes a total of 11.0p (2014: 10.0p) for the year, an increase of 10.0%. This is the highest level of dividend in our long history. 6 Chief Executive’s Review Our progress in our centenary year has brought about record flooring turnover and record profit against a difficult market backdrop. Growth has been hard won and the final result is satisfying given the continued strength of sterling. We have consolidated our position as UK market leader and UK growth of 10% has been the bedrock of the year’s results. This has been a fine performance and our factory in Teesside continues to be crucial to UK growth. Europe continues to represent a sizeable portion of our business (some 40%) and it is pleasing to note that this has grown by 5% in local currency. Our Australian business has improved on the disappointing results of the last two years and in local currency increased turnover by 15%. Gross margins are slightly up on last year, which, given the pressure of competition and the strength of sterling is encouraging. Manufacturing efficiencies, stable raw material prices and economies of scale as Teesside output steadily grows have helped to protect margins, as indeed has our Recofloor recycling initiative. We have just published our 10th sustainability report and over the last decade our energy efficiency, reduced water usage, waste management and product stewardship results are industry leading. In term of investment and R & D the company continues to innovate. This year we have been involved in the study of contrasting flooring as an aid in the care of dementia sufferers; undertaking significant work on sustainability and environmental flooring which will underline Polyflor as the industry benchmark, whilst continuing to work on process development to enhance our productivity. Our in house team are widely respected and include the President of the European Resilient Flooring Manufacturer’s Institute and the Chair of the British Standards Institute Committee on resilient floor coverings. Reviewing the businesses in more detail: Polyflor Nordic comprising Polyflor Norway based in Oslo and Falck Design based in Sweden Turnover was broadly on a par with previous years. Our businesses in Scandinavia have had a stable year with sales at a similar level to that of the prior year. The businesses continue to operate a wide portfolio of products both manufactured by the group and sourced from outside. There has been good progress in the sale of manufactured product and, in particular, with the introduction of product manufactured at our Teesside facility. During the year we installed the most northerly Polyflor in the world in Longyearbyen (a city shared between Norway and Russia well including “Sjøskrenten studenthybler” (seaside students’ apartments). inside the Arctic Circle) Objectflor/Karndean and James Halstead France, our European operations Objectflor has shown positive growth with sales 3.9% ahead of the prior year, the highest level of sales in the 26 years since its formation. During the year, the company launched “Expona Flow” at the BAU exhibition in Munich, the world’s foremost trade fair for architecture, material and systems. Expona is Europe’s leading brand of luxury vinyl tile and Expona Flow takes this brand into luxury vinyl sheet and the market response was excellent. Gross margin was under pressure due to extensive competition in the luxury vinyl tile (“LVT”) sector and because of the weakness of the euro but that pressure was offset by favourable product mix and profit increased by 3.9%. As ever in this market, having a high level of customer service differentiates us from our competitors and third party surveys of customers continue to put our business in terms of product, customer consistently ahead satisfaction and reliability. 7 James Halstead France has continued to grow with a 5% sales increase this year. With a relatively low market share and a broader range we anticipate a continuation of our steady expansion. completed included the refurbishment of Astra Zeneca’s renowned Alderley Park R&D facility, the Rolls Royce Apprentice Academy in Derby and the National Space Centre in Leicester. Polyflor Pacific – encompassing Australia, New Zealand and Asia The three main businesses in this region are located in Hong Kong/China, Australia and New Zealand. Australian turnover was 15% ahead of last year and there has been an encouraging increase in the gross margin. The margin increase was expected, after we undertook a large stock cleansing exercise as reported in the prior year. There was some offset to this as a result of increased import costs due to the relative weakness of the Australian dollar. New Zealand turnover increased 1.1%. The company continues to win projects to augment the refurbishment market. The Housing New Zealand contract to supply social housing is adding to the solid position of the company. In Asia we faced a difficult year with sales dipping slightly below last year. However, the sales mix was towards our higher-end ranges and margin and profitability increased. China continues to be our lead market but was lower this year as a result of the widely reported slow down, nevertheless our LVT and Expona Flow are faring well in retail and healthcare. In the rest of the region, Singapore, Thailand, the Philippines and most particularly South Korea showed good growth. Attendance at our stand at Shanghai Domotex gives us a strong belief in sustained trade. Polyflor & Riverside Flooring, based in UK It has been a solid year for our UK manufacturing operations based in Greater Manchester and Teesside with turnover up by 4.1%. The launch of Secura in June 2014, Expona Flow in February 2015 and Designatex in June 2015 are adding volume to our plants. In the UK our turnover was 10% ahead reflecting market growth and increased market share. Given our competitors are largely European based and the strength of sterling, is commendable. I believe this performance Polyflor was recognised in several awards this year. At the Contract Flooring Journal Awards the company won three for the sixth consecutive year awards, “Manufacturer of the Year”. This is most gratifying at a time when the strength of sterling aids our competitors. including Polyflor Canada, based in Toronto In this our third year as a distributor in Canada our business continues to grow with turnover up 14% this year. Basing a warehouse in Ontario is proving to be a great success and the introduction of the Expona ranges of LVT are building on the long established Polyflor ranges. I remain positive about continued growth. Polyflor India, based in Mumbai Polyflor India was formed in the early part of the year and our initial focus has been on recruiting and training local sales representatives. Sales are encouraging, though this first year trading is at a small loss. We are working alongside our long standing distributor who is focused on the region around Delhi. However, our team is now winning sales in, Gurgaon, Bangalore, Goa, Guwahati as well as Mumbai. The pace of growth in this market is significant and our strategy is aimed at new build in the healthcare and educational sectors rather than the refurbishment market. The rest of the world We export to many more countries than we have a presence in and to date the company has shipped to 98% of the world. This year our sales in South America (principally Brazil, Argentina, Ecuador, Peru and Mexico) all show growth with a 42% increase over the prior year. The Middle East, despite turmoil in several areas has progressed some 9% with Kuwait, Oman, Qatar and the UAE showing year on year growth. One more region of note is Africa with sales to Kenya, Nigeria and South Africa all significantly increased. Gross margins were maintained, against the pressures of exchange rates, largely because of the increased volume through our UK plants, particularly Teesside. The projects The Russian market is depressed and given the state of the economy this is likely to remain so, but more positively Poland, Latvia, Lithuania and Romania continue to impress. 8 Chief Executive’s Review continued Outlook In many of our markets confidence in growth has taken root, although there is still some way to go in the global recovery, and this bodes well for increased new build projects. In addition, our established markets offer growth in refurbishment. I am encouraged that our launches of the ranges Designatex and Expona Flow, towards the end of the financial year, have been received well. Furthermore, there is an increasing amount of our safety flooring that is now manufactured in Teesside and that trend will continue giving us economies of scale. Our Chairman has commented on the effect of current exchange rates on global competiveness and on the significant offsetting effects. I am confident that our portfolio and our commercial reputation hold us in good stead and I am positive about the future. On behalf of the board Mark Halstead Chief Executive 28 September 2015 9 Financial Director’s Review As is usual, we have prepared these accounts by the consistent application of accounting standards, the matching of costs and revenues with due appraisal and accrual for subjective (but probable) liabilities at the year- end. Prudence is less regarded in the preparation of published accounts than it was even a decade ago but caution remains important. The group operates through separate legal entities in certain areas of the world and though these are discussed in the Chief Executive’s Review we, as a Board, have concluded that these operations are one segment for the purposes of IFRS 8. This year’s profit before tax is a record being 5.8% ahead of the profit in the year to 30 June 2014. Profit after tax is also at a record level being 7.9% ahead of the prior year to 30 June 2014. Our gross margins increased as a percentage and in absolute terms. The main reason was, broadly, a favourable sales mix biased to higher priced safety and design flooring combined with volume increases in the Teesside plant, offset to a large degree by exchange rates. There were monthly fluctuations in raw material prices but these were generally trending downward over the year as a whole. Some key statistics: Group turnover at £227.3 million (2014: £223.5 million) was 1.7% higher but would have been 6.4% higher had translation been at constant exchange rates. Net finance income (excluding the effects of IAS19 accounting for pensions) was £0.2 million (2014: £0.2 million) reflecting rates that remain very low. Selling and distribution costs were held to prior year levels notwithstanding the growth in turnover. Trade debtors decreased to £28.8 million (2014: £33.5 million) reflecting currency changes and that our trade was focused on refurbishment rather than key projects. Trade creditors were lower at £29.3 million (2014: £ 33.3 million). Stock levels have risen and stand at £58.7 million (2014: £57.4 million) and this 2.2% increase is largely related to the growth in turnover. With broader ranges than in previous years, this is probably a normal level. Cash stands at £47.4 million (2014: £38.7 million) even after the payment of £21.0 million in dividends, £8.4 million in tax and £3.9 million of capital expenditure. Key Performance Indicators The board considers growth in profit before tax and growth in dividend key targets in line with the task of delivering shareholder value. Control of working capital continues to be important and the level of cash is monitored. Rather than focus on individual working capital targets or ratios, the Board are informed of all significant issues directly by subsidiary management by means of monthly reports on the key decisions and influences on working capital. Our focus at subsidiary level is on stock availability and appropriate credit given to and received from customers and suppliers respectively. Obviously sales, margin and profitability are monitored as well as cash, which is the final result of our economic activities. Appropriate summaries of these statistics are collated into monthly Group reports. No individual key performance indicator, or group thereof, is regarded as more important than informed in-depth knowledge of the underlying businesses. Subsidiaries present key performance indicators on debtor days, stock turn and creditor days but the consolidation of these for the whole Group offers no extra benefit as the component of mix can mask underlying effects. Principal Business Risks and Uncertainties “Risk comes from not knowing what you are doing”. The Board constantly assesses risks and discusses business issues regularly. To the extent risk is insurable the Board is risk averse and the Group is widely insured. A comprehensive insurance appraisal takes place annually to mitigate exposure to risks, such as business interruption and fire but obviously key risks such as escalating raw material prices and energy costs fall outside any insurable event. Inevitably the unexpected cannot be anticipated but given the depth of understanding of our principal business by the senior management, and the Board, risk is ameliorated but not eliminated. Our goals are simple and we avoid over-stretching our capabilities. Our plans are not limited to a twelve month set of figures, though budgets are prepared and monitored, and we look to benefit from decisions over a longer time frame. A major mitigation of risk is a close understanding of our people, their motivations, experience and limitations. In general it is in the nature of the Board to talk about and focus on the problems of our business. This is the major way in which risk is not merely identified but mitigated. Excess capacity exists in our businesses and across Europe, but turnover and profit have advanced. 10 Financial Director’s Review continued The risks identified beyond insured events include foreign exchange risk, credit risk, liquidity risk and key management. There are, additionally, key customers and key suppliers which create dependencies. Sales and purchasing policies are under regular review to assess these dependencies. In the main risk and control are measured and assessed from a financial perspective, but this is not to the exclusion of non- financial risks and uncertainties. It is clear that scenarios can be envisaged where the Group’s activities may be disrupted and little could be done to mitigate the negative effects. In respect of exchange risk, the Group operates internationally and is exposed to foreign exchange risk on both sales and purchases that are dominated in currencies other than Sterling. Those giving rise to the most significant risk are US Dollar, Euro and Australian Dollar. To mitigate risk associated with exchange rate fluctuations the Group’s policy is to hedge known and forecast transactions. This hedging is at least 25% and on occasion, albeit rarely, more than 100% of the next year’s anticipated exposure. IFRS7 dictates several disclosures on risk and we have undertaken a market risk sensitivity analysis on fluctuations in our major currency exposure and the effects on the financial assets and liabilities in the balance sheet (which is included in the notes to the accounts). Several external factors can be envisaged that would affect operating activities. These include technical failures, labour disputes outside our businesses, availability of raw materials, and import or customs delays. Given the spread of our operating activities there is a reduced risk of any single event being catastrophic, but external factors are an area of risk that continues to be monitored. Certain suppliers would be difficult to replace or their products to substitute and delays could be of several weeks duration, which would be not be covered by our current levels of stock holding. Given the length of service of many senior managers succession planning becomes a risk and/or an uncertainty but again the open style of decision making and collaboration mitigate the risk. The activity and progress of our competitors is a significant risk. Whether there is a new innovation or a gain in competitive advantage by a new process, or the loss of market share by any means, any effect on our volume throughput will have an effect on profitability. The Board looks for market intelligence, and devotes significant time to understanding the strategy of our competitors. It is clear that the success this business has achieved over the last 20 years leads our competitors to scour all information we publish for data on our activities. I would note that we have overseas subsidiaries with significant profit and assets which are translated at average exchange rates (in the case of profit and loss items) and at year end rates (in the case of balance sheet items). The effect of this is shown annually in the Consolidated Statement of Comprehensive Income. Inevitably there is a translational exposure on these items and since they are not necessarily cash flows (excepting dividend payments) the consolidated net worth of the Group varies over time. We do not hedge this translational exposure though we have in the past hedged overseas assets with matching debt. At present the cost and complexity in terms of arranging facilities and complying with local taxation rules would seem to outweigh the benefits. The last five years of these exposures in terms of (decrease)/increase in the value of our overseas assets are as follows: 2015 2014 2013 2012 2011 £’000 (3,868) (2,260) 93 (1,851) 3,219 Aside from the strategic, operational and financial risks described there are also compliance risks relating to the legal and regulatory requirements of the various markets in which we operate. Directors and senior management are involved in health and safety, duty and customs clearance, waste management and other such issues. Defined Benefit Pension Scheme In common with other long established businesses we have the complications and uncertainty associated with having a “final salary” pension scheme. The scheme has been closed to new entrants since 2002 and was only offered to UK based employees; of our UK based work force around 30% of employees are members of this scheme. At this moment in time we are considering closure of the scheme to future accrual. Accounting for this defined benefit scheme is prescribed by IAS 19 and the quantum of the deficit is ever more volatile due to the nature of using current (low) gilt yields and worst case assumptions. Actuaries undertake a tri-annual valuation of the scheme. Our defined benefit scheme is “contracted-out” and with the cessation of contracted-out status in 2016 there is an added cost (increased employer national insurance contributions). We are assessing how to alter benefits to negate this increase. In addition, following the “Arcadia” case, there is a return of some sanity to the use of RPI as a 11 I pass no comment on the merits of these ratios but note that with the assumptions changing annually (despite the long term nature of the liability) there does not seem to be a consistent long term measure of the deficit. The dominant assumption that drives up the deficit is that the current very low gilt yields are used to determine liabilities. The above merely give some idea of the “affordability” of the deficit to the company. On behalf of the board Gordon Oliver Finance Director 28 September 2015 measure for automatic pension increases following the much reported non-revision of RPI. The implications are broadly beneficial to the group, but it is early days in the debate. The scheme comprises active members (existing employees), deferred members (past employees not yet in retirement) and pensioners. Under the current accounting standard for pensions the current service costs of active members are dealt with in the profit and loss account with the costs associated with deferred members and pensioners dealt with through the Consolidated Statement of Comprehensive Income. This year there is a net actuarial loss of £ 2.7 million against a net actuarial loss in 2014 of £2.5 million which is largely the effect of changing assumptions. It is of note that since the adoption of the pension scheme into the balance sheet (2006) the deficit has had the effect of improving the return on capital employed (since it is a deficit and a liability) and for this reason it is excluded from any performance measure (or related bonus remuneration) internally. The majority of UK employees are in one or other of our defined contribution schemes. In an effort to offer some perspective by which to view the pension scheme deficit the following statistics are used by some investors: The comparison of scheme deficit to market capitalisation as a percentage; The comparison of scheme liabilities to market capitalisation; and, The comparison of the deficit to operating profit. These ratios for this Group based on a share price of £4.02 (2014: £2.80) are: The net deficit to market capitalisation is 1.8 % (2014: 2.10%); The total liabilities to market capitalisation is 8.7% (2014: 11.6%); and, The deficit to operating profit is 41.4% (2014: 36.8%). 12 Report of the Directors The directors are pleased to present their report, together with the audited accounts for the year ended 30 June 2015. Share capital Results and dividends The group results for the year and the financial position at 30 June 2015 are shown in the consolidated income statement on page 19 and the consolidated balance sheet on page 21. The directors are recommending a final dividend of 7.858p per share on the ordinary share capital for payment on 4 December 2015 to those shareholders whose names appear on the register at 6 November 2015. This final dividend together with the interim dividend paid on 5 June 2015 makes a total of 11.00p per share (2014: 10.00p). Directors Mr G Halstead and Mr M Halstead, being the directors retiring by rotation, offer themselves for re-election at the annual general meeting. The interests of the directors and their families in the share capital of the company were as follows: 30 June 2015 30 June 2014 Beneficial As Trustee Beneficial As Trustee 8,321,937 207,550 Ordinary shares – G Halstead G R Oliver – M Halstead 13,241,468 11,109,506 13,240,501 11,109,506 – E K Lotz 183,300 12,512,032 J A Wild – S D Hall – 183,300 12,512,032 – 8,200,979 206,583 5,700 5,700 – – – – Preference shares G Halstead 86,405 – 86,405 – The directors consider that the board of directors include key management for all areas of the business and that there are no other key management which require disclosure. Details of the directors’ options under the terms of the executive share option scheme are set out in note 23. Substantial interests As at 10 September 2015 the company had been notified of the following interests which represent 3% or more of the existing issued share capital: John Halstead Settlement Rulegale Nominees Vidacos Nominees Limited Number 35,447,218 34,390,753 6,688,375 % 17.1 16.6 3.2 During the year new ordinary shares were issued and allotted as fully paid to enable share options to be exercised as follows: 17 July 2014 1 October 2014 6 October 2014 17 December 2014 10 February 2015 8 April 2015 120,000 25,000 30,000 27,000 12,500 5,000 219,500 Special business at the annual general meeting Resolution 6 renews the directors’ authority to offer ordinary shareholders the opportunity to take ordinary shares in lieu of any cash dividends which may be payable prior to the Annual General Meeting in 2016. Resolution 7 authorises the directors to allot relevant securities pursuant to section 551 of the Companies Act 2006 up to a maximum nominal amount of £3,455,846 representing approximately 33.33% of the total ordinary share capital. The authority will expire at the next Annual General Meeting of the company to be held in 2016 or six months after the next accounting reference date of the company (whichever is the earlier). Except for the issue of shares to satisfy the exercise of share options granted under the share schemes, the board has no present intention of issuing any ordinary share capital of the company. As at the date of this document, the company holds no treasury shares. Resolution 8 invites shareholders to renew the board’s authority to issue shares for cash without first being required to offer them pro rata to existing shareholders. The proposed authority will terminate at the next Annual General Meeting of the company to be held in 2016 or six months after the next accounting reference date of the company (whichever is earlier). The authority is limited to equity securities up to an aggregate nominal amount of 5.0% of the company’s issued ordinary share capital. The resolution also contains provisions to enable the directors to deal with fractional entitlements and other practical difficulties which could arise in the event of a rights issue or similar pre-emptive offer. Resolution 9 seeks to renew the authority of shareholders to allow the company to purchase its own shares in respect of up to 10.0% of the issued capital at prices not exceeding 5.0% above the average of the middle market quotations for the five business days preceding the purchase. The 13 directors undertake that the authority would only be exercised if the directors were satisfied that a purchase would result in an increase in expected earnings per share and was in the best interests of the company at that time. The directors may choose to hold shares purchased under such authority in the form of treasury shares (subject to a maximum of 10% of the issued ordinary share capital at any one time). Employment policies and involvement The group operates a totally non-discriminatory employment policy, an integral part of which is the proper consideration of all applications for employment from disabled persons who, after appointment, receive training for career development and promotion consistent with both the needs of the group and their own particular abilities. Employee involvement in the overall performance of the group continues to be encouraged through the employee profit sharing scheme and the share option plan. There are in existence various well established committees and discussion groups which range from formal structures to less formal gatherings and which deal with a whole range of issues from the group’s financial performance to health and safety issues. Copies of this annual report are available to all employees. Environmental policy A policy has been issued and implemented on safeguarding against air, water, noise and land pollution. The management implements at every team constantly reviews and opportunity the most effective use of materials and energy. A number of control measures have been introduced and these, combined with materials storage and handling methods, together with training, form the basis of the environmental programme. The policy is fully endorsed by the directors and is under constant review to ensure full compliance with the UK Environmental Protection Act 1990. All employees, suppliers and contractors are made aware of the environmental policy which is also freely available to the general public and regulatory authorities. Health and safety The health and safety of the group’s employees, customers and members of the general public who may be affected by the group’s activities continue to be matters of primary concern. It is therefore the group’s policy to manage its activities so far as to avoid causing any unnecessary or unacceptable risk to the health and safety of all those affected by its activities. In order to ensure that the group’s high standards in this area are maintained, a substantial programme of training and retraining of employees took place throughout the year. Research and development We remain totally committed to the continuing development of our processes and our products to both satisfy the needs of our customers and ensure that we remain at the forefront of our industry. Directors’ responsibilities statement The directors are responsible for preparing the report of the directors and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have, as required by the AIM Rules of the London Stock Exchange, elected to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether the group financial statements have been prepared in accordance with IFRSs as adopted by the European Union subject to any material departures disclosed and explained in the financial statements; state, with regard to the parent company financial statements, whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. Auditor A resolution to re-appoint BDO LLP as auditor will be proposed at the forthcoming annual general meeting. Directors’ statement as to the disclosure of information to the auditor All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the company’s auditor for the purposes of their audit and to establish that the auditor is aware of that information. The directors’ are not aware of any relevant audit information of which the auditor is unaware. Approved by the board of directors and signed on behalf of the board. D W Drillingcourt Secretary 28 September 2015 Beechfield, Hollinhurst Road, Radcliffe, Manchester, M26 1JN 14 Report of the Directors continued The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions, to disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring the annual report and financial statements are made available on a website. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements which may vary from legislation in other jurisdictions. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. The directors’ responsibilities also extend to the ongoing integrity of the financial statements contained therein. Going concern After making enquiries the directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts. Auditor’s remuneration – non-audit related fees Our auditor may undertake non-audit related work. This work would be tendered for separately from audit work. The board has always sought to ensure that the auditor does not automatically receive additional fees. This approach, the board believes, enables the company to ensure value for money on the company’s part, and maintains the independence of the auditor. 15 Board Report on Remuneration Remuneration committee Pensions The remuneration committee comprises the non-executive directors, with Mr J A Wild, as chairman. The committee meets at least once a year, although usually more frequently, to determine the remuneration packages of the executive directors of the group. The company operates Inland Revenue Approved defined benefit and defined contribution pension schemes. The group chief executive and group finance director are members of the defined benefit scheme. Pension entitlements are calculated on basic salary only. All members of the schemes are required to contribute a percentage of their pensionable earnings. Several years ago pensionable salary was restricted to the growth in the consumer price index. Other benefits within the schemes are death in service lump sums, spouse’s and dependants’ pensions following death in service of the member and ill health early retirement where the appropriate circumstances arise. Service agreements The chairman and the group chief executive do not have service agreements. The group finance director has a service agreement which terminates within or is terminable by the company and the executive on not more than one year’s notice. The remuneration committee has taken the view that notice periods of one year are reasonable and in the interests of both the company and its executive directors having regard to prevailing market conditions and current practice. Mr S D Hall has a service contract for an initial term of two years from the date of his appointment, which can be terminated by either party by one month’s written notice. Mr J A Wild does not have a service agreement. J A Wild Chairman of the Remuneration Committee The remuneration policy for the non-executive directors is determined by the board as a whole by reference to market rates. They do not participate in the group bonus scheme, pension scheme or share option scheme. No director can vote in regard to his own remuneration. Remuneration policy The remuneration policy is to provide terms of employment such that the recruitment, motivation and retention of high calibre personnel is achieved and maintained to the mutual benefit of shareholders and employees. The committee is assisted from time to time by data supplied by independent professional remuneration consultants as to comparable companies, although identical circumstances are rarely found. Basic salary and bonus payments is determined by Annual bonus schemes are in place which reward the executive directors on achieving performance objectives. Performance index-linked profit improvements through a trend of earnings per share growth. UK based executives are eligible members of the employee share scheme. Performance bonuses of £365,000 to each of the group chief executive and group finance director were paid during the year. Share option schemes The remuneration committee believes that share option plans are an important long term incentive to executive directors and other senior employees. They are intended to link the exercise of the option to a sustained and significant improvement in the underlying financial performance of the group. The share option plan is reviewed by the remuneration committee and is open to executive directors and selected employees of the group. The option price per ordinary share will not be less than the market value on the day of grant. A limit of four times earnings has been placed on the value of the aggregate price payable on the exercise of all options or rights to subscribe for ordinary shares granted to an individual employee under the share option plan and under all other discretionary schemes. 16 Corporate Governance As an AIM listed company, the company is not required to comply with the provision of the UK Corporate Governance Code. However, the board recognises the importance of, and is committed to, ensuring that effective corporate governance procedures relevant to smaller listed companies are in place. The board The Remuneration Committee – comprising Mr J A Wild as chairman, Mr G Halstead and Mr S D Hall decides on the remuneration of the executive directors. The Nomination Committee – comprising the whole board is chaired by Mr G Halstead and considers the appointment of directors. As a result, the committee consists of three executive directors and three non-executive directors. The membership of the board during the year comprised three executive directors and three non-executive directors. Internal control The board, which meets regularly (six times during the last financial year including the annual general meeting) determines the policies and objectives of the group and provides overall strategic direction to ensure that the policies and objectives are carried out. There is a list of matters which are specifically the responsibility of the board to resolve. Monthly management accounts are circulated to the directors. An agenda of matters to be discussed, including latest group management accounts, is circulated to board members in advance of each main board meeting and discussions and decisions taken at those meetings are minuted in full. The board believes Mr S D Hall and Mr J A Wild to be independent. Given the size of the group, the board does not consider it necessary to change the ratio of non-executives to executive directors, or to have formal procedures for the directors, in the furtherance of their duties, to take independent professional advice at the company’s expense. All directors have access to company secretarial services and advice. Attendance at the six board meetings was as follows: G Halstead – non-executive M Halstead G R Oliver E K Lotz J A Wild – non-executive S D Hall – non-executive Board committees Possible 6 6 6 6 6 6 Actual 6 5 6 4 6 6 The following board committees have been in operation throughout the year: The Audit Committee – comprising Mr J A Wild as chairman, Mr G Halstead and Mr S D Hall meets twice a year. The external auditor is present at the meetings and the executive directors may attend at the request of the committee. The board has ultimate responsibility for the system of internal control operating throughout the group and for reviewing its effectiveness. Internal control systems in any group are designed to meet the particular needs of that group and the risks to which it is exposed. No system of internal control can provide absolute assurance against material misstatement or loss. The group’s system is designed to manage rather than eliminate the risk of failure in order to achieve business objectives and to provide the board with reasonable assurance that potential problems will normally be prevented or will be detected in a manner which will enable appropriate action to be taken. The key procedures which the directors have established with a view to providing effective internal control are as follows: the group directors are responsible for establishing, maintaining and reviewing the group’s system of internal control and meet regularly to consider group financial performance, business development and management issues, and to review these against predetermined objectives; the group board establishes corporate strategy and business objectives. Management of subsidiary companies integrate these objectives into their business strategies for presentation to the group board with supporting financial objectives; subsidiary company budgets, containing financial and operating targets, capital expenditure proposals and performance/profitability indicators, are presented to and reviewed by the group executive directors. The consolidated group budget is approved by the group board; there is an ongoing process for identifying, evaluating and managing the significant risks faced by the group. These risks are appraised and evaluated by responsible executives and endorsed by subsidiary and group management. This process has been in place throughout the year and up to the date of approval of the annual accounts; 17 as part of the regular monitoring and review, the group executive directors hold regular meetings with the management of the subsidiary companies at which reports covering such areas as forecasts, business development, strategic planning, risk exposure and performance against budget, are presented and discussed. These are then reported to the group board, on a quarterly basis; the group board reviews and considers any major problem which may have occurred and assesses how the risks have changed in the period under review; there is a group-wide policy governing appraisal and approval of capital expenditure and asset disposals; to underpin the effectiveness of controls, it is the group’s policy to recruit management and staff of high calibre, integrity and appropriate disciplines. High standards of integrity, business ethics and compliance with laws, regulations and internal policies are demanded from staff at all levels; the audit committee keeps under review the effectiveness of the system of internal control and reports its conclusions to the full board; the board also conducts an assessment of the effectiveness of the internal control system. This assessment consists of a review of all the significant areas of internal control, including risk assessment, the control environment, control activities, information and communication, and monitoring. Relations with shareholders The executive directors are available to meet institutional shareholders and fund managers, given reasonable notice. The entire board is available to answer shareholders’ questions at the annual general meeting. 18 Independent Auditor’s Report to the Members of James Halstead plc We have audited the financial statements of James Halstead plc for the year ended 30 June 2015 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated and parent company balance sheets, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of the financial is provided on the FRC’s website at statements www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 June 2015 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Philip Storer (Senior statutory auditor) For and on behalf of BDO LLP, statutory auditor Manchester United Kingdom 28 September 2015 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127) Consolidated Income Statement for the year ended 30 June 2015 Note 5 9 9 7 10 11 11 2015 £’000 227,261 (132,453) 94,808 (40,664) (9,424) 44,720 198 (734) 44,184 (10,250) 33,934 16.4p 16.3p Revenue Cost of sales Gross profit Selling and distribution costs Administration expenses Operating profit Finance income Finance cost Profit before income tax Income tax expense Profit for the year attributable to equity shareholders Earnings per ordinary share of 5p – basic – diluted All amounts relate to continuing operations. Details of dividends paid and proposed are given in note 12. 19 2014 £’000 223,488 (131,765) 91,723 (40,559) (8,928) 42,236 203 (686) 41,753 (10,301) 31,452 15.2p 15.1p 20 Consolidated Statement of Comprehensive Income for the year ended 30 June 2015 Profit for the year Other comprehensive income net of tax: Items that will not be reclassified subsequently to the income statement: Actuarial loss on the defined benefit pension scheme Deferred taxation – change of rate Items that could be reclassified subsequently to the income statement if specific conditions are met: Foreign currency translation differences Fair value movements on hedging instruments 2015 £’000 33,934 (2,720) 35 (2,685) (3,868) 1,323 (2,545) 2014 £’000 31,452 (2,459) 71 (2,388) (2,260) (606) (2,866) Other comprehensive income for the year net of tax (5,230) (5,254) Total comprehensive income for the year Attributable to: Equity holders of the company 28,704 28,704 26,198 26,198 Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 10. Consolidated Balance Sheet as at 30 June 2015 Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents Current liabilities Trade and other payables Derivative financial instruments Current income tax liabilities Net current assets Non-current liabilities Retirement benefit obligations Deferred tax liabilities Borrowings Other payables Net assets Equity Equity share capital Equity share capital (B shares) Share premium account Capital redemption reserve Currency translation reserve Hedging reserve Retained earnings Total equity attributable to shareholders of the parent Note 14 15 16 17 18 26 19 20 26 22 16 21 20 23 23 2015 £’000 31,172 3,232 4,908 39,312 58,707 31,402 2,242 47,428 139,779 48,022 8 4,814 52,844 86,935 18,492 709 200 386 19,787 106,460 10,364 160 10,524 2,917 1,174 (782) 1,427 91,200 106,460 21 2014 £’000 31,358 3,232 4,755 39,345 57,423 36,621 342 38,677 133,063 53,334 211 3,350 56,895 76,168 15,554 744 200 428 16,926 98,587 10,353 160 10,513 2,740 1,174 3,086 104 80,970 98,587 The financial statements were approved and authorised for issue by the board and were signed on its behalf on 28 September 2015. M Halstead Director G R Oliver Director James Halstead plc Registration Number 140269 22 Consolidated Statement of Changes in Equity for the year ended 30 June 2015 Share capital £'000 Capital Share redemption reserve £'000 premium £'000 Currency translation reserve £'000 Hedging reserve £’000 Retained earnings £’000 Total equity £'000 Balance at 30 June 2013 10,495 2,101 1,167 5,346 710 70,977 90,796 Changes In equity Profit for the year Actuarial loss on the pension scheme Deferred taxation change of rate Foreign currency translation differences Fair value movements on hedging instruments Total comprehensive income for the year Dividends Issue of share capital Shares purchased for cancellation – – – – – – – 25 (7) – – – – – – – 639 – – – – – – – – – 7 – – – (2,260) – – – – – (606) 31,452 (2,459) 71 – – 31,452 (2,459) 71 (2,260) (606) (2,260) (606) 29,064 26,198 – – – – – – (18,638) – (433) (18,638) 664 (433) Balance at 30 June 2014 10,513 2,740 1,174 3,086 104 80,970 98,587 Changes In equity Profit for the year Actuarial loss on the pension scheme Deferred taxation change of rate Foreign currency translation differences Fair value movements on hedging instruments Total comprehensive income for the year Dividends Issue of share capital Share based payments – – – – – – – 11 – – – – – – – – 177 – – – – – – – – – – – – – (3,868) – – – – – 1,323 33,934 (2,720) 35 – – 33,934 (2,720) 35 (3,868) 1,323 (3,868) 1,323 31,249 28,704 – – – – – – (21,020) – 1 (21,020) 188 1 Balance at 30 June 2015 10,524 2,917 1,174 (782) 1,427 91,200 106,460 Consolidated Cash Flow Statement for the year ended 30 June 2015 Note 24 Cash inflow from operations Interest received Interest paid Taxation paid Cash inflow from operating activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Cash outflow from investing activities Equity dividends paid Shares issued Purchase of own shares Cash outflow from financing activities Net increase in cash and cash equivalents Effect of exchange differences Cash and cash equivalents at start of year Cash and cash equivalents at end of year 23 2014 £’000 35,034 203 (47) (11,500) 23,690 (2,941) 1,719 (1,222) (18,638) 664 (433) (18,407) 4,061 (250) 34,866 38,677 2015 £’000 42,015 198 (48) (8,416) 33,749 (3,855) 187 (3,668) (21,020) 188 – (20,832) 9,249 (498) 38,677 47,428 24 Notes to the Group Accounts 1. General information James Halstead plc (“the company” or “the parent company”) is a limited liability company, incorporated and domiciled in the United Kingdom. The address of its registered office is Beechfield, Hollinhurst Road, Radcliffe, Manchester, M26 1JN. The accounts of the company are presented on pages 50 to 59. The group financial statements presented by the company on pages 19 to 49 consolidate the accounts of the company and its subsidiaries (together referred to as “the group”). The group financial statements are presented in pounds sterling. 2. Accounting policies Basis of preparation The group financial statements have been prepared on the historical cost basis as modified by the valuation of financial assets and financial liabilities (including derivative instruments) at fair value through the profit and loss account, in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and the applicable provisions of the Companies Act 2006. Basis of consolidation The group financial statements consolidate the accounts of the parent company and all its subsidiaries, as if they formed a single entity. Subsidiaries are entities controlled by the group. Control exists if all three of the following elements are present: power over the entity, exposure to variable returns from the entity, and the ability to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Control is normally achieved by a majority shareholding.The company, directly or through an intermediate subsidiary owned 100% of the share capital of all of its subsidiaries. The results of subsidiaries acquired are consolidated from the date on which control passes to the group. The results of disposed subsidiaries are consolidated up to the date on which control passes from the group. All intra-group transactions and balances are eliminated on consolidation. Recent accounting developments The financial statements are prepared in accordance with International Financial Reporting Standards and interpretations in force at the reporting date. The group has not adopted any standards or interpretations in advance of the required implementation dates. The following new standards, interpretations and amendments, which are not yet effective and have not been adopted early in these financial statements, will or may have an effect on the Group’s future financial statements: IFRS 9 will bring new impairment requirements for all financial assets that are not measured at fair value through profit or loss with a new ‘expected loss’ impairment model replacing the ‘incurred loss’ model in IAS 39 and amendments to the previously finalised classification and measurement requirements. None of the other new standards, interpretations and amendments, which are effective for periods beginning after 1 July 2015 and which have not been adopted early, are expected to have a material effect on the Group’s future financial statements. 25 Accounting policies (continued) 2. Segment reporting Operating segments are those segments for which results are reviewed by the group’s chief operating decision maker (“CODM”) to assess performance and make decisions about resources to be allocated. The CODM is the group board which meets regularly throughout the year to discuss the performance and results of the group as a whole. The business of the group is the manufacture and distribution of flooring products. The group operates through separate legal entities in certain areas of the world and in order to provide information in a structured manner to readers of the accounts who are unfamiliar with the internal management reporting of the group, these operations are discussed by the chief executive in his report. However, having carefully considered the criteria in IFRS 8, the directors have concluded that the results of these operations be aggregated to create one reportable segment. This is consistent with the core principle of IFRS 8, which is to disclose information to enable users of the financial statements to evaluate the nature and financial effects of the business activities in which the group engages and the economic activities in which it operates. Foreign currencies Functional and presentation currency – the group’s consolidated financial statements are presented in pounds sterling, the functional currency of the parent company, being the currency of the primary economic environment in which the parent company operates. Transactions and balances – transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are reported at the rates of exchange prevailing at the balance sheet date. Exchange differences on retranslating monetary assets and liabilities are recognised in the income statement except where they relate to qualifying cash flow hedges, in which case the exchange differences are deferred in equity. Foreign subsidiaries – the results of foreign subsidiaries (none of which has the currency of a hyperinflationary economy), that have a functional currency different from the group’s presentation currency, are translated at the average rates of exchange for the year. Assets and liabilities of foreign subsidiaries, that have a functional currency different from the group’s presentation currency, are translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising from the translation of the results of foreign subsidiaries and their opening net assets are recognised as a separate component of equity. When a foreign subsidiary is sold the cumulative exchange differences relating to the retranslation of the net investment in that foreign subsidiary are recognised in the income statement as part of the gain or loss on disposal. This applies only to exchange differences recorded in equity after 1 July 2006. Exchange differences arising prior to 1 July 2006 remain in equity on disposal as permitted by IFRS 1. Intangible assets Goodwill – goodwill arising on the acquisition of a subsidiary undertaking is the excess of the aggregate of the fair value of the consideration transferred, the fair value of any previously held interests, and the recognised value of the non-controlling interest in the acquiree over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Goodwill is reviewed for impairment at least annually and when there are indications that the carrying amount may not be recoverable. For the purpose of impairment review, goodwill is allocated to the relevant cash generating unit (CGU) within the group. An impairment loss is recognised if the carrying value of the goodwill or its CGU exceeds its recoverable amount. Any impairment loss is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included in the calculation of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the UK GAAP value as at that date having been reviewed for impairment at that date and subsequently at least annually. 26 Notes to the Group Accounts continued Accounting policies (continued) 2. Taxation Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities based on tax rates and laws that are enacted at the balance sheet date. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their corresponding book values as recorded in the group’s financial statements with the following exceptions: where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised; deferred income tax is not provided on unremitted earnings of foreign subsidiaries where there is no commitment to remit the earnings. Deferred income tax assets and liabilities are based on tax rates and laws that are enacted at the balance sheet date. Share-based payments The group grants share options to certain of its employees. An expense in relation to such options based on their fair value at the date of grant, is recognised over the vesting period. The group uses the Black Scholes model for the purpose of computing fair value. Inventories Inventories are measured at the lower of cost and net realisable value on a weighted average cost basis. Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of finished and partly finished goods, cost represents the cost of raw materials, direct labour, other direct costs and related production overheads on bases consistently applied from year to year. In all cases provision is made for obsolete, slow-moving or defective items where appropriate. Trade and other receivables Trade and other receivables are non-interest bearing and are stated at their nominal amount less provisions made for estimated irrecoverable amounts. Estimated irrecoverable amounts are based on historical experience together with specific amounts that are not expected to be collectible. Individual amounts are written off when management deems them not to be collectible. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, short-term (with an original maturity of three months or less) deposits and bank overdrafts. Bank overdrafts are disclosed as current liabilities except where the group participates in offset arrangements with certain banks whereby cash and overdraft amounts are offset against each other. Pension scheme arrangements The group operates several defined contribution pension schemes and a defined benefit pension scheme for certain of its United Kingdom domiciled employees. A defined contribution scheme is a scheme in which the group pays contributions into publicly or privately administered schemes on a voluntary, statutory or contractual basis. The group has no further payment obligations once the contributions have been made. The amount charged to the income statement is the contribution payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as receivables or payables in the balance sheet. 27 Accounting policies (continued) 2. Pension scheme arrangements (continued) A defined benefit scheme is a scheme in which the amount of pension benefit that an employee will receive on retirement is defined. For the defined benefit scheme, pension costs and the costs of providing other post retirement benefits are charged to the income statement in accordance with the advice of qualified independent actuaries. Past service costs are recognised immediately in the income statement unless the changes are dependent on the employees remaining in service for a particular period in which case the costs are recognised on a straight line basis over that period. The service cost is charged against operating profit and the net interest cost is charged as a finance cost. The net interest cost is calculated using the discount rate at the beginning of the period. The retirement benefit obligations recognised on the balance sheet represent the difference between the fair value of the scheme’s assets and the present value of the scheme’s defined benefit obligations measured at the balance sheet date. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. Actuarial gains and losses are recognised in the period in which they arise in the consolidated statement of comprehensive income. Property, plant and equipment Property, plant and equipment is recorded at cost less subsequent depreciation and impairment except for land which is shown at cost less any impairment. Cost includes expenditure that is directly attributable to the acquisition of the asset. The group has taken advantage of the exemption under IFRS 1 not to restate property previously revalued under UK GAAP and to treat these earlier revaluations as deemed cost. Depreciation is calculated on the depreciable amount (being cost less the estimated residual value) on a straight line basis over the estimated useful lives of the assets as follows: Freehold buildings 10 to 50 years Plant and equipment 2 to 20 years Residual values and useful lives are reviewed at each group balance sheet date for continued appropriateness and indications of impairment and adjusted if appropriate. Trade and other payables Trade and other payables are non-interest bearing and are stated at their nominal value. Revenue recognition Revenue comprises the amounts received or receivable in respect of the sale of goods provided in the normal course of business, net of trade discounts, rebates, VAT and other sales related taxes. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Development expenditure not meeting all the criteria for capitalisation contained in IAS 38 – Intangible Assets, is recognised in the income statement as an expense as incurred. Dividends Interim dividends are recognised when they are paid. Final dividends are recognised when they are approved by the shareholders. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are accounted for as operating leases. Payments made under such leases are charged to the income statement on a straight line basis over the period of the lease. 28 Notes to the Group Accounts continued Accounting policies (continued) 2. Derivative financial instruments and hedging The group uses derivative financial instruments to hedge its exposure to foreign currency transactional risk. In accordance with its treasury policy the group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are recorded at fair value on the date the derivative contract is entered into and are subsequently remeasured at fair value at each group balance sheet date. The method by which any gain or loss arising from remeasurement is recognised depends on whether the instrument is designated as a hedging instrument and, if so, the nature of the item being hedged. The group recognises an instrument as a hedging instrument by documenting at the inception of the transaction the relationship between the instrument and the hedged items and the objectives and strategy for undertaking the hedging transaction. To be designated as a hedging instrument, an instrument must also be assessed, at inception and on an ongoing basis, to be highly effective in offsetting changes in cash flows of hedged items. For derivatives not used in hedging transactions, the gain or loss on remeasurement of fair value is recognised immediately in the income statement. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or of a highly probable forecast future transaction, the gain or loss on remeasurement which relates to the portion of the hedge which is deemed effective is recognised directly in equity, with the balance of the gain or loss, relating to the ineffective portion, being recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. Financial risk management 3. Financial risk and treasury policies The group’s activities expose it to a number of financial risks as detailed below. These risks are managed, with the objective of limiting adverse effects, from the group’s head office in accordance with policies determined by and decisions made by the group board. There have been no changes in financial risks from the previous year. Market risks Market risk is the risk that changes in market prices, such as currency exchange rates and interest rates will affect the group’s results. The objective of market risk management is to control it within suitable parameters. (a) Foreign exchange risk The group operates internationally and is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than sterling. There are a range of currencies giving rise to this risk, but most significant is the euro. To mitigate risks associated with future exchange rate fluctuations, the group’s policy is to use forward exchange contracts to hedge its known and certain forecast transaction exposures based on historical experience and projections. The group hedges at least 25% but rarely more than 100% of the next twelve months’ anticipated exposure. (b) Interest rate risk The group does not use derivative financial instruments to mitigate its exposure to interest rate risk. The main element of interest rate risk concerns sterling deposits which are made on floating market based rates and short-term overdrafts in foreign currencies which are also on floating rates. 29 Financial risk management (continued) 3. Credit risk Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the group’s trade receivables from customers and monies on deposit with financial institutions. With regard to trade receivables, the group is not subject to significant concentration of credit risk. Exposure is spread across a large number of companies and the underlying local economic and sovereign risks vary across the world. Trade receivable exposures are managed locally in the individual operating units where they arise and credit limits are set as deemed appropriate. Where practicable and deemed necessary the group endeavours to minimise credit risks by the use of trade finance instruments such as letters of credit and insurance. The group controls credit risk in relation to counterparties to other financial instruments by dealing only with highly rated financial institutions. The group’s maximum credit exposure on financial assets is represented by their book value. Liquidity risk Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Capital risk The group’s objectives in managing capital are to safeguard the ability of all entities within the group to continue as going concerns, whilst maximising the overall return to shareholders over time. The capital structure of the group consists of equity attributable to equity holders of the parent company less cash and cash equivalents. The group will only usually take on borrowings where those borrowings would be financed by the cash expected to be generated by the related investment opportunity and where the borrowing would not significantly increase the group’s exposure to risk. At the year end the group had preference shares classified as debt of £200,000 and no other debt. Critical accounting estimates and judgements 4. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of certain estimates and associated assumptions that affect the application of policies, the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best assessments of amounts, events or actions, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on a regular and ongoing basis. The estimates and judgements that have had the most significant effect on the amounts included in these consolidated financial statements are as follows: 30 Notes to the Group Accounts continued Critical accounting estimates and judgements (continued) 4. Allowance for doubtful debts Provision is made against accounts that in the estimation of management may be impaired. Within each of the operating units, assessment is made locally of the recoverability of trade receivables based on a range of factors including the age of the receivable and the creditworthiness of the customer. Determining the recoverability of an account involves estimation as to the likely financial condition of the customer and their ability to subsequently make payment. If the group is cautious as to the financial condition of the customer the group may provide for accounts that are subsequently recovered. Similarly, if the group is optimistic as to the financial condition of the customer, the group may not provide for an account that is subsequently determined to be irrecoverable. In recent years the group has not experienced significant variation in the amount charged to the income statement in respect of doubtful accounts, when compared to sales. Inventories For financial reporting purposes the group evaluates its inventory to ensure it is carried at the lower of cost or net realisable value. Provision is made against slow moving, obsolete and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted within each business. Provision for slow moving and obsolete inventories is assessed by each business as part of their ongoing financial reporting. Obsolescence is assessed based on comparison of the level of inventory holding to the projected likely future sales. Future sales are assessed based on historical experience, and adjusted where the market conditions are known to have changed. To the extent that future events impact the saleability of inventory these provisions could vary significantly. For example, changes in specifications or regulations may render inventory, previously considered to have a realisable value in excess of cost, obsolete and require such inventory to be fully written off. Income taxes In determining the group’s provisions for income tax and deferred tax it is necessary to consider transactions in a small number of key tax jurisdictions for which the ultimate tax determination is uncertain. To the extent that the final outcome differs from the tax that has been provided, adjustments will be made to income tax and deferred tax provisions held in the period the determination is made. Retirement benefit obligations The liability recognised in respect of retirement benefit obligations is dependent on a number of estimates including those relating to mortality, inflation, salary increases, and the rate at which liabilities are discounted. Any change in these assumptions would impact the retirement benefit obligations recognised. Further details on these estimates are provided in note 22. Goodwill Each year the group carries out impairment tests of its goodwill balances. This requires estimates to be made of the value in use of the relevant cash generating units (CGUs). These value in use calculations are dependent on estimates of the future cash flows and long-term growth rates of the relevant CGUs. 31 Segmental information 5. Operating segments are those segments for which results are reviewed by the group’s chief operating decision maker (“CODM”) to assess performance and make decisions about resources to be allocated. The CODM is the group board which meets regularly throughout the year to discuss the performance and results of the group as a whole. The business of the group is focussed almost entirely on the manufacture and distribution of flooring products. The directors consider that under the definitions contained within IFRS 8 there is, therefore, only one reportable segment, which is the group as a whole. This is consistent with the core principle of IFRS 8, which is to disclose information to enable users of the financial statements to evaluate the nature and financial effects of the business activities in which the group engages and the economic activities in which it operates. Therefore the majority of the disclosures required under IFRS 8 have already been given in these financial statements. Segment assets include property, plant and equipment, intangibles, inventories, receivables and derivative financial instruments. Cash and taxation are not included. Geographical disclosures in respect of revenues and total segment assets are provided below: Revenue United Kingdom Europe and Scandinavia Australasia and Asia Rest of the World Assets United Kingdom Europe and Scandinavia Australasia and Asia Rest of the World Total segment assets Deferred tax assets Cash and cash equivalents Total assets Revenue is by location of customer. Assets are by location of asset. 2015 £’000 85,194 91,914 34,430 15,723 2014 £’000 77,322 96,607 33,502 16,057 227,261 223,488 2015 £’000 71,958 38,594 14,831 1,372 126,755 4,908 47,428 2014 £’000 70,288 40,976 16,654 1,058 128,976 4,755 38,677 179,091 172,408 32 Notes to the Group Accounts continued Employee profit share 6. Profit for the year is after charging the cost of the James Halstead plc share ownership plan. Since 1980 the group has operated an employee share scheme, approved under the Finance Act 1978. In December 2001 the shareholders approved a new share ownership plan in line with the requirements of legislative changes. The aim of this scheme is to enable employees to build up a personal shareholding in James Halstead plc and to participate in its continued expansion and success as shareholders as well as employees. As members of the scheme the following directors received shares to the value of, Mr G Halstead £2,000, Mr M Halstead £3,000 and Mr G R Oliver £3,000. Under the rules of the schemes up to 5% of profit before taxation of the subsidiaries is paid out in profit share. In the case of UK employees this is paid to the trustees of the scheme who then acquire shares in the group. These shares are appropriated unconditionally to eligible employees by reference to their earnings and length of service. 5p ordinary shares held by the trustees as at 30 June on behalf of the employees As a percentage of shares in issue Profit before income tax 7. Profit before tax is stated after charging/(crediting) the following: Depreciation of property, plant and equipment Operating lease rentals – land and buildings Operating lease rentals – other Research and development Profit on disposal of property, plant and equipment Fees payable to the group’s auditor for the audit of the parent company and consolidated financial statements Fees payable to the group’s auditor and its associates for other services: the audit of the group’s subsidiaries pursuant to legislation taxation compliance taxation advisory other services 2015 2014 766,869 0.37% 1,026,614 0.50% 2015 £’000 2,726 1,944 1,150 2,440 (42) 38 85 25 9 9 2014 £’000 2,638 2,060 1,203 1,820 (120) 38 95 25 11 3 8. Staff costs and numbers Staff costs comprised: Wages and salaries Social security costs Pension costs – defined benefit scheme – defined contribution schemes Share based payments The average monthly number of employees during the year was: Manufacturing, selling and distribution Administration The directors’ remuneration was: Salary or fees Bonuses Benefits Employee profit share scheme shares Total remuneration excluding pension contributions Pension contributions 9. Finance income/(cost) Interest receivable and similar income: On bank deposits Other Finance income Preference share dividend Interest on short-term borrowing and other financing costs Net pension interest cost Finance cost Net finance cost 33 2014 £’000 28,647 3,305 506 611 – 33,069 2015 £’000 28,771 3,251 579 850 1 33,452 2015 Number 2014 Number 697 141 838 2015 £’000 895 730 11 8 1,644 52 1,696 2015 £’000 192 6 198 (11) (37) (48) (686) (734) (536) 695 133 828 2014 £’000 867 700 10 9 1,586 51 1,637 2014 £’000 199 4 203 (11) (36) (47) (639) (686) (483) 34 Notes to the Group Accounts continued 10. Income tax expense Current tax Current tax – current year Current tax – adjustments in respect of prior years Deferred tax Deferred tax – current year Deferred tax – adjustments in respect of prior years Total taxation 2015 £’000 10,505 (556) 9,949 122 179 301 10,250 2014 £’000 9,804 (557) 9,247 568 486 1,054 10,301 The effective rate for the year to 30 June 2015 is higher (2014: higher) than the standard rate of corporation tax in the UK. The differences are explained below: Profit before tax Profit before tax multiplied by the standard rate of corporation tax in the UK of 20.75% (2014: 22.5%) Effects of: Adjustments to tax in respect of prior periods Overseas tax rates Permanent differences Remeasurement of deferred tax due to change in UK tax rate Total taxation 2015 £’000 2014 £’000 44,184 41,753 9,168 9,394 (377) 1,196 217 46 (71) 713 164 101 10,250 10,301 In addition to the amounts above £485,000 has been credited (2014: £302,000 credited) as other comprehensive income in respect of the actuarial loss (2014: loss) on the pension scheme, and have been netted off the amounts shown in the Consolidated Statement of Comprehensive Income. 11. Earnings per share Profit for the year attributable to equity shareholders Weighted average number of shares in issue Dilution effect of outstanding share options Diluted weighted average number of shares Basic earnings per 5p ordinary share Diluted earnings per 5p ordinary share 12. Dividends Equity dividends Interim dividend for current year of 3.142p (2014: 3.00p) Final dividend for previous year of 7.00p (2014: 6.00p) Amounts recognised as distributions to equity shareholders in the year 35 2015 £’000 2014 £’000 33,934 31,452 207,238,042 206,955,099 562,584 669,102 207,800,626 207,624,201 16.4p 16.3p 15.2p 15.1p 2015 £’000 6,513 14,507 21,020 2014 £’000 6,210 12,428 18,638 A final dividend of 7.858p per share for the year ended 30 June 2015, amounting to £16,295,000, will be proposed at the Annual General Meeting. This dividend is not reflected in these financial statements as it is not approved at the balance sheet date. 13. Profit of parent company The profit attributable to the shareholders of James Halstead plc includes a profit, after dividends received, of £27,261,000 (2014: £24,755,000) which has been dealt with in the accounts of that company. James Halstead plc, which prepares its accounts in accordance with UK GAAP, has taken advantage of the legal dispensations contained in Section 408 of the Companies Act 2006 allowing it not to publish either a separate profit and loss account or a separate statement of total recognised gains and losses for the year ended 30 June 2015. The aggregate amount of directors’ emoluments excluding pension contributions was £1,644,000 (2014: £1,586,000) of which the highest paid director’s emoluments were £737,000 (2014: £707,000). The directors’ salaries or fees for the year ended 30 June 2015 were Mr G Halstead £90,000, Mr M Halstead £367,000, Mr G R Oliver £340,000, Mr J A Wild £32,000, Mr E K Lotz £46,000 and Mr S D Hall £20,000. 36 Notes to the Group Accounts continued 14. Property, plant and equipment Cost At 30 June 2013 Additions Disposals Exchange differences At 30 June 2014 Additions Disposals Exchange differences At 30 June 2015 Depreciation At 30 June 2013 Charge for the year Disposals Exchange differences At 30 June 2014 Charge for the year Disposals Exchange differences At 30 June 2015 Net book value At 30 June 2013 At 30 June 2014 At 30 June 2015 Freehold land and buildings £’000 Plant and equipment £’000 25,818 246 (1,456) (629) 23,979 983 (43) (1,031) 23,888 5,911 617 (99) (115) 6,314 602 (43) (212) 6,661 19,907 17,665 17,227 60,748 2,695 (1,041) (423) 61,979 2,872 (640) (761) 63,450 47,264 2,021 (799) (200) 48,286 2,124 (495) (410) 49,505 13,484 13,693 13,945 Total £’000 86,566 2,941 (2,497) (1,052) 85,958 3,855 (683) (1,792) 87,338 53,175 2,638 (898) (315) 54,600 2,726 (538) (622) 56,166 33,391 31,358 31,172 37 Intangible assets 15. Intangible assets consist entirely of goodwill. There were no additions to goodwill in the year. An impairment review was undertaken as at 30 June 2015 using cash flow projections, based on current levels of profitability and assumed growth of 0% to 5% and a discount rate of 4% to10%. The result of the review indicated that no impairment was required. 16. Deferred tax assets and liabilities At 30 June 2013 Charged to income statement Credited to equity Exchange differences At 30 June 2014 Charged to income statement Credited to equity Exchange differences At 30 June 2015 Pension scheme deficit £’000 Accelerated tax depreciation £’000 Property revaluation £’000 Other timing differences £’000 3,197 (233) 302 – 3,266 (53) 485 – 3,698 (257) (51) – – (308) (73) – – (381) (815) – 71 – (744) – 35 – (709) 2,605 (770) – (38) 1,797 (175) – (31) 1,591 Total £’000 4,730 (1,054) 373 (38) 4,011 (301) 520 (31) 4,199 Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred income taxes relate to the same tax authority. The balances after allowing for such offsets are as follows: At 30 June 2013 At 30 June 2014 At 30 June 2015 All deferred tax assets and liabilities are analysed as non-current. 17. Inventories Raw materials and consumables Work in progress Finished goods Asset £’000 5,545 4,755 4,908 Liability £’000 (815) (744) (709) 2015 £’000 3,071 1,281 54,355 58,707 Total £’000 4,730 4,011 4,199 2014 £’000 3,057 1,036 53,330 57,423 An amount of £3,808,000 has been charged (2014: £1,437,000 credited) to the income statement in respect of movements in inventory write-downs. 38 Notes to the Group Accounts continued 18. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income 2015 £’000 28,738 1,101 1,563 31,402 2014 £’000 33,526 850 2,245 36,621 All amounts within trade and other receivables are due within one year. The fair value of amounts included trade and other receivables approximates to book value. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable. The group does not hold any collateral as security. The group’s trade receivables are stated after a provision for impairment of £2,810,000 (2014: £2,340,000). Other balances within trade and other receivables do not contain impaired assets. The provision for impairment against trade receivables is based on specific risk assessments taking into account past default experience and is analysed as follows: At 1 July Exchange movements Charged to the income statement – selling and distribution costs At 30 June 2015 £’000 2,340 (42) 512 2,810 2014 £’000 2,246 (23) 117 2,340 As at 30 June 2015, trade receivables of £5,282,000 (2014: £9,774,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Up to three months Over three months Total The maximum exposure to credit risk for trade and other receivables by currency was: Sterling Euro Australian Dollars New Zealand Dollars Norwegian Krone US Dollars Hong Kong Dollars Other currencies Total 2015 £’000 4,116 1,166 5,282 2015 £’000 9,062 11,113 3,080 828 612 2,169 673 2,302 29,839 2014 £’000 8,922 852 9,774 2014 £’000 9,898 12,905 2,914 787 786 3,022 1,732 2,332 34,376 19. Cash and cash equivalents The fair values of cash and cash equivalents approximate to book value due to their short maturities. The currency analysis of cash and cash equivalents is as follows: Sterling Euro Australian Dollars New Zealand Dollars Norwegian Krone US Dollars Other currencies Total 20. Trade and other payables Amounts falling due within one year Trade payables Value added, payroll and other taxes Other payables Accruals Amounts falling due after more than one year Other payables The fair value of amounts included in trade and other payables approximates to book value. 21. Borrowings Non-current liabilities Preference shares 39 2014 £’000 30,669 2,586 2,287 344 610 1,631 550 38,677 2014 £’000 33,270 3,074 1,554 15,436 53,334 2015 £’000 39,488 2,069 1,466 156 643 3,101 505 47,428 2015 £’000 29,296 3,433 1,447 13,846 48,022 386 428 2015 £’000 2014 £’000 200 200 All items included within borrowings are denominated in pounds sterling. The cumulative preference shares have no fixed repayment date. They are not listed and therefore no market price is available. At 30 June 2015 and 30 June 2014 the fair value of the preference shares was not materially different from their book value. 40 Notes to the Group Accounts continued 22. Retirement benefit obligations In the UK the group operates a defined benefit pension scheme which was closed to new members in 2002. In addition some employees both in the UK and overseas are provided with retirement benefits through defined contribution arrangements. Executive directors Mr M Halstead and Mr G R Oliver are members of the defined benefit scheme and the employer pension contributions for the year were £27,000 and £25,000 respectively. At 30 June 2015 the accrued pension for the highest paid director was £99,000 and the transfer value of this accrued benefit was £2,034,000. Disclosures relating to the defined benefits pension scheme are as follows: The company sponsors the Halstead Group Pension Scheme, a funded defined benefit pension scheme in the UK. The scheme is administered within a trust which is legally separate from the company. Trustees are appointed by both the company and the scheme’s membership and act in the interest of the scheme and all relevant stakeholders, including the members and the company. The trustees are also responsible for the investment of the scheme’s assets. Existing members accrue an annual pension of 1/60th or 1/80th (depending on category) of final salary for each year of pensionable service, increasing in line with inflation whilst in payment. On the death of an active member the scheme provides the widow(er) a lump sum and a spouse’s pension. Members who leave service before retirement are entitled to a deferred pension. Active members of the scheme pay contributions at the rate of either 7.5% or 6% of salary depending on category and the company pays the balance of the cost as determined by regular actuarial valuations. The scheme poses a number of risks to the company, for example, longevity risk, investment risk, interest rate risk, inflation risk and salary risk. The trustees are aware of these risks and use various techniques to control them. The trustees have a number of internal control policies including a risk register, which are in place to manage and monitor the various risks they face. The scheme is subject to regular actuarial valuations, which are usually carried out every three years. These actuarial valuations are carried out in accordance with the requirements of the Pensions Act 2004 and so include margins for prudence. This contrasts with these accounting disclosures, which are determined using best estimate assumptions. The last formal actuarial valuation was carried out as at 5 April 2014. The results of that valuation have been projected forward to 30 June 2015 by a qualified independent actuary. The figures in the following disclosure were measured using the Projected Unit Method. Principal actuarial assumptions at the balance sheet date Discount rate at end of year Future salary increases Future pension increases Rate of inflation – RPI – CPI Future expected lifetime of current pensioner at age 65: Male born in 1950 Female born in 1950 Future expected lifetime of future pensioner at age 65: Male born in 1970 Female born in 1970 2015 2014 4.10% 2.50% 3.25% 3.25% 2.50% 4.55% 2.45% 3.20% 3.20% 2.45% 22.1 years 24.9 years 22.1 years 24.8 years 23.1 years 26.1 years 23.0 years 26.0 years 41 22. Retirement benefit obligations (continued) The sensitivities of the principal assumptions used to measure the scheme liabilities are as follows: Assumption Discount rate Rate of inflation Expected lifetime Change in assumption Decrease by 0.1% Increase by 0.1% Increase by 1 year Impact on scheme liabilities Increase by £1.1m Increase by £0.7m Increase by £2.8m The sensitivities may not be representative of the actual change in the present value of the scheme obligations, as it is unlikely that the change in assumptions would occur in isolation of each other, as the assumptions may be linked. Amounts recognised in the balance sheet Present value of funded obligations Fair value of scheme assets Net liability before deferred taxation Related deferred tax asset Net liability after deferred taxation Amounts recognised in the income statement Current service cost Net interest cost Amounts recognised in other comprehensive income Return on assets excluding amount included in net interest cost Loss arising from changes in financial assumptions Experience gain Deferred tax The actual return on the scheme assets in the year was a £3,162,000 gain (2014: £4,632,000 gain). 2015 £’000 (72,692) 54,200 (18,492) 3,698 2014 £’000 (67,399) 51,845 (15,554) 3,266 (14,794) (12,288) 2015 £’000 (579) (686) 2014 £’000 (506) (639) (1,265) (1,145) 2015 £’000 823 (5,194) 1,166 (3,205) 485 (2,720) 2014 £’000 2,311 (5,072) – (2,761) 302 (2,459) 42 Notes to the Group Accounts continued 22. Retirement benefit obligations (continued) Changes in the present value of the scheme assets Opening fair value of scheme assets Interest income Return on assets excluding interest income Employer contributions Employee contributions Benefits paid Changes in the present value of the scheme obligations Opening defined benefit obligations Service cost Interest cost Employee contributions Actuarial loss arising from changes in financial assumptions Experience gain Benefits paid Major categories of scheme assets Return seeking UK equities Overseas equities Diversified growth fund Debt instruments Corporates Gilts Index linked Other Property Cash 2015 £’000 51,845 2,339 823 1,532 270 (2,609) 54,200 2015 £’000 67,399 579 3,025 270 5,194 (1,166) (2,609) 72,692 2015 £’000 25,572 6,701 10,645 42,918 3,445 1,128 1,092 5,665 2,822 2,795 5,617 2014 £’000 47,538 2,321 2,311 2,254 269 (2,848) 51,845 2014 £’000 61,440 506 2,960 269 5,072 – (2,848) 67,399 2014 £’000 23,986 5,874 13,969 43,829 1,490 570 102 2,162 2,435 3,419 5,854 Total market value of assets 54,200 51,845 All of the scheme assets are held in pooled managed funds which can be classified as level 2 instruments based on the definition in IFRS 13. The scheme has no investments in the company or in property occupied by the company. 22. Retirement benefit obligations (continued) Scheme liabilities by category of membership Active members Deferred pensioners Pensions in payment Average duration of scheme liabilities Active members Deferred pensioners Pensions in payment All scheme liabilities 43 2014 £’000 28,874 11,061 27,464 67,399 2014 years 20 18 11 16 2015 £’000 27,029 11,919 33,744 72,692 2015 years 20 21 11 16 Normal company contributions of £1,354,000 are expected to be paid into the scheme during the year ended 30 June 2016. 23. Share capital Ordinary shares – allotted, issued and fully paid At 1 July ordinary shares of 5p each Other ordinary shares of 5p each issued Ordinary shares of 5p each purchased for cancellation 2015 Number 2014 Number 207,063,008 219,500 – 206,696,188 501,820 (135,000) At 30 June ordinary shares of 5p each 207,282,508 207,063,008 Ordinary B shares of 1p each at 1 July 2014 and 30 June 2015 16,042,530 16,042,530 2015 £’000 10,353 11 – 10,364 160 2014 £’000 10,335 25 (7) 10,353 160 Total allotted, issued and fully paid 10,524 10,513 The group also has preference shares in issue as detailed below which are required, under accounting rules, to be disclosed as financial instruments within creditors. Full details of these are given in note 8 of the financial statements of the company. Preference shares Authorised 9,265,580 C preference shares of 60p each 200,000 5.5% preference shares of £1 each Allotted, issued and fully paid 200,000 5.5% preference shares of £1 each 2015 £’000 5,559 200 2014 £’000 5,559 200 200 200 The respective rights of each class of shares are detailed in note 8 of the financial statements of the company. 44 Notes to the Group Accounts continued 23. Share capital (continued) Issue of ordinary shares and number of ordinary shares under option Under the terms of the executive share option scheme approved on 3 December 1998, options were exercised on 219,500 shares, and 131,500 options were granted during the year. Details of those options still outstanding are as follows: Director G Halstead M Halstead G R Oliver Date of grant Date exercisable Date of expiry 4 May 05 9 Jan 06 4 Jul 07 6 Oct 08 3 May 08 8 Jan 09 3 Jul 10 3 May 15 8 Jan 16 3 Jul 17 5 Oct 11 5 Oct 18 4 Jul 07 6 Oct 08 21 Jul 14 3 Jul 10 5 Oct 11 20 Jul 17 3 Jul 17 5 Oct 18 20 Jul 24 4 Jul 07 6 Oct 08 21 Jul 14 3 Jul 10 5 Oct 11 20 Jul 17 3 Jul 17 5 Oct 18 20 Jul 24 Exercise price (pence) 64.0625 88.5625 144.7125 105.2500 144.7125 105.2500 270.2900 144.7125 105.2500 270.2900 Number b/fwd at 01.07.14 120,000 80,000 160,000 60,000 10,000 80,000 – 10,000 80,000 – E K Lotz 6 Oct 08 5 Oct 11 5 Oct 18 105.2500 60,000 Exercised in the year Granted in the year – – – – – – 20,000 – – 20,000 (120,000) – – – – – – – – – – Number c/fwd at 30.06.15 – 80,000 160,000 60,000 10,000 80,000 20,000 10,000 80,000 20,000 – 60,000 Total – directors 660,000 (120,000) 40,000 580,000 Date of grant Date exercisable 9 Jan 06 4 Jul 07 6 Oct 08 9 Apr 14 21 Jul 14 8 Jan 09 3 Jul 10 5 Oct 11 8 Apr 17 20 Jul 17 Date of expiry 8 Jan 16 3 Jul 17 5 Oct 18 8 Apr 24 20 Jul 24 Exercise price (pence) 88.5625 144.7125 105.2500 290.2500 270.2900 Number b/fwd at 01.07.14 80,000 95,732 225,868 40,000 – Exercised in the year Granted in the year – (14,500) (85,000) – – – – – – 91,500 Number c/fwd at 30.06.15 80,000 81,232 140,868 40,000 91,500 441,600 (99,500) 91,500 433,600 1,101,600 (219,500) 131,500 1,013,600 Employees Total – employees Grand total The market price of the shares at 30 June 2015 was 402p (2014: 280p). The share price during the year ranged from 260p to 418p. 45 23. Share capital (continued) Issue of ordinary shares and number of ordinary shares under option (continued) The average share price when options were exercised in the year was £2.85. At 30 June 2015 there were 842,100 (2014: 1,061,600) share options exercisable at a weighted average exercise price of £1.14 (2014: £1.08). Aggregate gains on the exercising of share options by directors in the year amounted to £248,000 (2014: £452,000) of which £nil (2014: £226,000) related to the highest paid director. Options were exercised over 300,000 shares in the year to 30 June 2014. A summary of movements in numbers of share options is as follows: At 30 June 2013 Exercised in the year Granted in the year At 30 June 2014 Exercised in the year Granted in the year At 30 June 2015 Number of options 1,563,420 (501,820) 40,000 1,101,600 (219,500) 131,500 1,013,600 Average exercise price (£) 1.16 1.32 2.90 1.15 0.85 2.70 1.42 Share based payments The group’s equity settled share based payments comprise the grant of share options to certain employees under the group’s executive share option scheme. Details of such options are given above. The group calculated the fair value of the options at the date of grant using the Black Scholes model. The inputs into the model were as follows: Expected life of option Expected share price volatility Expected dividend yield Risk free interest rate Exercise price 2015 2014 3.5 years 10.0% 5.5% 2.0% £2.7029 3.5 years 10.0% 5.5% 2.0% £2.9025 An expense based on the fair value calculated at the date of grant was recognised in the profit and loss account over the vesting period of the options. The share based payment expense for the year ended 30 June 2015 was £1,000 (2014: £nil). 46 Notes to the Group Accounts continued 24. Cash inflow from operations Profit for the year attributable to equity shareholders Income tax expense Profit before income tax Finance cost Finance income Operating profit Depreciation Profit on sale of property, plant and equipment Increase in inventories Decrease/(increase) in trade and other receivables Decrease in trade and other payables Defined benefit pension scheme service cost Defined benefit pension scheme employer contributions paid Changes in fair value of financial instruments Share based payments 25. Commitments Capital commitments Contracted for but not incurred – property, plant and equipment 2015 £’000 33,934 10,250 44,184 734 (198) 44,720 2,726 (42) (5,075) 3,395 (2,834) 579 (1,532) 77 1 42,015 2014 £’000 31,452 10,301 41,753 686 (203) 42,236 2,638 (120) (2,603) (5,181) (78) 506 (2,254) (110) – 35,034 2015 £’000 2014 £’000 – – Operating lease commitments The group leases various warehouses and items of plant and equipment under non-cancellable leases over various periods. The future minimum aggregate lease payments under non-cancellable operating leases are as follows: Not later than one year Later than one year and not later than five years Later than five years 2015 Land and buildings £’000 1,908 3,812 241 5,961 2015 Other £’000 791 726 40 1,557 2014 Land and buildings £’000 2,102 6,180 496 8,778 2014 Other £’000 899 1,074 31 2,004 47 26. Derivative financial instruments The group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the functional currency of the entity concerned. The currencies giving rise to this risk are various, but the most significant are US Dollar and Euro. Forward exchange contracts are used to manage this exposure to fluctuations in foreign exchange rates. The group hedges, using forward exchange contracts, transactions denominated in a foreign currency which are not matched against other transactions in the same currency within the group. Most of the forward exchange contracts have maturities of less than one year after the balance sheet date. The group buys or sells foreign currency at spot where necessary to address any short- term imbalances. The group classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states them at fair value. The fair values have been calculated by applying (where relevant), for equivalent maturity profiles, the rate at which forward currency contracts with the same principal amounts could be acquired at the balance sheet date. Changes in the fair value of forward exchange contracts for which no hedge accounting is applied or where the hedge is considered ineffective are recognised in the income statement. Other than the use of forward exchange contracts as detailed above, the group does not make use of derivative financial instruments. 27. Financial instruments For cash and cash equivalents and trade and other payables and receivables the fair value approximates to their book value due to the short maturity profile of these financial instruments. On receivables, allowances are made within the book value for credit risk. The fair value of forward exchange contracts is determined by reference to spot rates adjusted for the forward points to the contract value date. The book values and fair values of financial instruments are set out below: Current: Trade and other receivables Forward exchange contracts Cash and cash equivalents Trade and other payables Forward exchange contracts Total Non-current: Borrowings 2015 Book value £’000 2015 Fair value £’000 2014 Book value £’000 2014 Fair value £’000 29,839 2,242 47,428 (44,589) (8) 29,839 2,242 47,428 (44,589) (8) 34,376 342 38,677 (50,260) (211) 34,376 342 38,677 (50,260) (211) 34,912 34,912 22,924 22,924 (200) (200) (200) (200) Other than forward exchange contracts which are categorised as derivative instruments, all financial assets are categorised as loans and receivables and all financial liabilities are categorised as financial liabilities measured at amortised cost. The nominal values of the forward exchange contracts outstanding at the year end are disclosed in note 13 of the financial statements of the company. 48 Notes to the Group Accounts continued 27. Financial instruments (continued) The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value. IFRS 7 requires that these be grouped into Levels 1 to 3 based on the degree to which the fair value is observable. All items in the table below are categorised as Level 2 which, as defined by IFRS 7, refers to those items whose fair value measurement is derived from inputs other than that are observable for the asset or liability either directly or indirectly. Forward exchange contracts at fair value through profit and loss account Forward exchange contracts at fair value through hedging reserve 2015 £’000 28 2,206 2,234 2014 £’000 50 81 131 Sensitivity analysis The group’s principal exposures in relation to market risks are to changes in the Euro exchange rate against sterling and to changes in UK interest rates. The group does not fix the interest rate receivable on its sterling balances, and based on balances held at the year end, a 1% increase or decrease in sterling interest rates would lead to an increase or decrease in post-tax earnings of £313,000 (2014: £238,000). The table below details the notional impact of changes in the Euro exchange rate against sterling on the group’s post-tax profit and equity. The gains and losses arise from the translation of receivables, payables, cash and forward exchange contracts which are denominated in currencies other than each subsidiary’s reporting currency. 2015 Post-tax profits £’000 (16) 14 2015 Equity £’000 (16) 14 2014 Post-tax profits £’000 (24) 22 2014 Equity £’000 (24) 22 Euro 5% stronger against sterling Euro 5% weaker against sterling 28. Group companies At 30 June 2015, the trading subsidiaries of the group were: Name of subsidiary Activity Polyflor Limited Riverside Flooring Limited Polyflor Australia Pty Limited James Halstead Flooring New Zealand Limited Polyflor Canada Inc. Polyflor India Pvt Limited Objectflor Art und Design Belags GmbH Karndean International GmbH James Halstead France SAS Falck Design AB Flooring manufacturing and distribution Flooring manufacturing Flooring distribution Flooring distribution Flooring distribution Flooring distribution Flooring distribution Flooring distribution Flooring distribution Flooring distribution Country of incorporation England England Australia New Zealand Canada India Germany Germany France Sweden Proportion owned (%) 100 100 100 100 100 100 100 100 100 100 A complete list of the group’s subsidiaries is provided in note 3 of the financial statements of the company. 49 29. Exchange rates The currency exchange rates used to translate the results, assets and liabilities of foreign subsidiaries were: Euro Australian dollar New Zealand dollar Canadian dollar Swedish krona Indian rupee 2015 Average 1.31 1.89 2.03 1.84 12.22 97.78 2015 Closing 1.41 2.05 2.33 1.96 13.05 100.15 2014 Average 1.20 1.77 1.96 1.74 10.63 – 2014 Closing 1.25 1.81 1.95 1.82 11.43 – 30. Related parties Transactions between the company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. The group’s contributions to the defined benefit pension scheme are disclosed in note 22. Details of other related party transactions for the group are shown in the directors' report, board report on remuneration and in the notes to the financial statements. 50 Company Balance Sheet as at 30 June 2015 Fixed assets Tangible fixed assets Investments Current assets Debtors Cash at bank, in hand and on short-term deposit Creditors – amounts falling due within one year Net current assets Total assets less current liabilities Creditors – amounts falling due after more than one year Capital and reserves Equity share capital Equity share capital (B shares) Called up share capital Share premium account Capital redemption reserve Profit and loss account Total shareholders’ funds Note 2 3 4 13 6 7 8 9 10 11 2015 £’000 4,054 18,900 22,954 34,952 31,572 66,524 (10,199) 56,325 79,279 (200) 79,079 10,364 160 10,524 2,917 1,174 64,464 79,079 2014 £’000 4,248 18,850 23,098 41,023 19,400 60,423 (10,672) 49,751 72,849 (200) 72,649 10,353 160 10,513 2,740 1,174 58,222 72,649 The financial statements were approved and authorised for issue by the board and were signed on its behalf on 28 September 2015. M Halstead Director G R Oliver Director James Halstead plc Registration Number 140269 51 Notes to the Financial Statements of the Company 1. Accounting policies Basis of preparation The financial statements for the company have been prepared under the historical cost convention and in accordance with the Companies Act 2006. The company continues to prepare its financial statements in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP). The directors consider that the accounting policies set out below are applicable, are supported by reasonable judgements and estimates and have been consistently applied. The financial statements have been prepared on the going concern basis. Profit and recognised gains and losses of the company The company has taken advantage of the legal dispensation contained in Section 408 of the Companies Act 2006 allowing it not to publish a separate profit and loss account and related notes. Dividends Interim dividends are recognised when they are paid. Final dividends are recognised when they are approved by the company’s shareholders. Share based payments The company grants share options to certain James Halstead group employees. An expense in relation to such options, based on their fair value at the date of grant, is recognised over the vesting period. The company uses the Black Scholes model for the purpose of computing fair value. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are accounted for as operating leases. Payments made under such leases are charged to the income statement on a straight line basis over the period of the lease. Tangible fixed assets Fixed assets are stated at cost, which includes the costs of transport, installation and commissioning. Interest is not capitalised. Depreciation of freehold buildings has been calculated at a rate of 2% of cost or valuation. No depreciation has been provided in respect of the company’s interests in land or for assets in the course of construction. Depreciation of plant, machinery and equipment is provided mainly on the straight line method and has been calculated at appropriate rates varying between 5% and 40% as determined by reference to the anticipated life of each asset. Investments Investments in subsidiaries are stated at cost less provision for impairment in value. 52 Notes to the Financial Statements of the Company continued 1. Accounting policies (continued) Deferred taxation In accordance with FRS 19, deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising on unremitted earnings of subsidiaries where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Pension scheme arrangements The company operates a defined benefit scheme, which was closed to new members in 2002. The company also operates a defined contribution scheme for those employees who prefer this option or who are unable to join the defined benefit scheme. As the company is unable to identify its share of the underlying assets and liabilities of the defined benefit scheme on a consistent and reasonable basis, the company accounts for the scheme as though it were a defined contribution scheme. Accordingly the amount charged to the profit and loss account is the contribution payable in the year to both the defined benefit and defined contribution schemes. Differences between contributions payable in the year and contributions actually paid are shown as accruals or prepayments in the balance sheet. 2. Tangible fixed assets Cost At 30 June 2014 Additions Disposals At 30 June 2015 Depreciation At 30 June 2014 Charge for the year Disposals At 30 June 2015 Net book value At 30 June 2015 At 30 June 2014 Freehold land and buildings £’000 Plant and equipment £’000 7,801 32 (43) 7,790 3,719 214 (43) 3,890 3,900 4,082 424 95 (70) 449 258 69 (32) 295 154 166 Total £’000 8,225 127 (113) 8,239 3,977 283 (75) 4,185 4,054 4,248 3. Investments Cost At 30 June 2014 Additions At 30 June 2015 Provision for impairment At 30 June 2014 At 30 June 2015 Net book value At 30 June 2015 At 30 June 2014 53 Shares in subsidiary undertakings £’000 28,250 50 28,300 9,400 9,400 18,900 18,850 At 30 June 2015, the company held directly and indirectly 100% of the equity and voting rights of the following undertakings: Activity Country of incorporation Proportion owned (%) Name of subsidiary Owned by the company Polyflor Limited Riverside Flooring Limited Titan Leisure Group Limited Halstead Flooring International Limited Expona Limited JHL Limited Arai (UK) Limited Halstead Floorings Limited Halstead Flooring Concepts Pty Limited Polyflor Canada Inc. Polyflor India Pvt Limited Objectflor Art und Design Belags GmbH James Halstead France SAS Falck Design AB Owned by subsidiaries Flooring manufacturing and distribution Flooring manufacturing Holding company Dormant company Dormant company Dormant company Dormant company Dormant company Holding company Flooring distribution Flooring distribution Flooring distribution Flooring distribution Flooring distribution England England England England England England England Ireland Australia Canada India Germany France Sweden Phoenix Distribution (NW) Limited Polyflor Australia Pty Limited Colonia Flooring Pty Limited James Halstead Flooring New Zealand Limited Karndean International GmbH Dormant company Flooring distribution Dormant company Flooring distribution Flooring distribution England Australia Australia New Zealand Germany 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 54 Notes to the Financial Statements of the Company continued 4. Debtors Trade debtors Amounts owed by group undertakings Deferred tax assets (note 5) Other debtors Prepayments and accrued income 5. Deferred taxation Accelerated capital allowances Short-term timing differences Opening balance Charge to profit and loss account Closing balance 6. Creditors – amounts falling due within one year Trade creditors Amounts due to group undertakings Corporation tax payable Other taxation and social security Other creditors Accruals and deferred income 7. Creditors – amounts falling due after more than one year Preference shares 2015 £’000 80 34,488 49 78 257 34,952 2015 £’000 (147) 196 49 205 (156) 49 2015 £’000 247 6,631 57 107 254 2,903 2014 £’000 117 40,437 205 76 188 41,023 2014 £’000 (153) 358 205 458 (253) 205 2014 £’000 185 6,631 52 109 237 3,458 10,199 10,672 2015 £’000 200 2014 £’000 200 Share capital 8. Ordinary shares – allotted, issued and fully paid At 1 July ordinary shares of 5p each Other ordinary shares of 5p each issued Ordinary shares of 5p each purchased for cancellation 2015 Number 2014 Number 207,063,008 219,500 – 206,696,188 501,820 (135,000) At 30 June ordinary shares of 5p each 207,282,508 207,063,008 Ordinary B shares of 1p each at 1 July 2014 and 30 June 2015 16,042,530 16,042,530 2015 £’000 10,353 11 – 10,364 160 55 2014 £’000 10,335 25 (7) 10,353 160 Total allotted, issued and fully paid 10,524 10,513 The group also has preference shares as detailed below which are required, under accounting rules to be disclosed as financial instruments within creditors. Preference shares Authorised 9,265,580 C preference shares of 60p each 200,000 5.5% preference shares of £1 each Allotted, issued and fully paid 200,000 5.5% preference shares of £1 each 2015 £’000 5,559 200 2014 £’000 5,559 200 200 200 Shareholders approved a proposal for the return of capital (“return of capital”) at an extraordinary general meeting on 6 December 2004. This resulted in the creation of the 1 pence B ordinary shares (“B shares”) and the 60 pence C preference shares (“C shares”) as described below. 56 Notes to the Financial Statements of the Company continued Share capital (continued) 8. The B shares were issued on 14 January 2005 on the basis of 1 B share for every ordinary share held on the record date by those shareholders who either (a) elected to receive B shares or (b) elected to receive C shares, but whose allocation was scaled back according to the restriction on the number of C shares available for issue. Following the issue of the B shares, holders received a single dividend of 60p for every B share held, after which all B shares were automatically converted into deferred shares. These shares are not listed, have extremely limited rights and are of negligible value. The 5.5% cumulative preference shares of £1 shall confer on the holders thereof the right to receive in priority to all other shares in the capital of the company out of the profits of the company which it shall be determined to distribute, a fixed cumulative preferential dividend at the rate of 5.5% per annum on the capital for the time being paid up thereon and the right in the event of a winding up, in priority to all other shares in the capital of the company, to repayment of the capital paid up thereon together with a premium of 5p per share and a sum equivalent to any arrears and accruals of the said fixed cumulative preferential dividend thereon (whether earned or declared or not) calculated up to the date of such repayment of capital but shall not confer any further right to participate in profits or assets of James Halstead plc. The company shall not be at liberty to create or issue any further share ranking in priority to or pari passu with the preference shares without the consent in writing of the holders of three-fourths of the issued preference shares or the sanction of an extraordinary resolution of the holders of such preference shares passed at a separate general meeting of such holders. The preference shares shall not confer upon the holders thereof the right to attend or vote at any general meeting of the company or to receive notice thereof, unless either: (i) At the date of the notice convening the meeting the fixed cumulative preferential dividend on the preference shares is six months in arrears and then so long only as such dividend shall remain unpaid, and so that for this purpose the dividend on the preference shares shall be deemed to accrue due and be payable by equal half-yearly instalments on 30 June and 31 December in every year, or (ii) The business of the meeting includes the consideration of a resolution for reducing the capital or winding up the company or for the sale of its undertaking or of any resolution directly abrogating or varying any of the special rights or privileges attached to the preference shares. The preference shares shall nevertheless entitle the holders thereof to receive notice of every general meeting. At a general meeting at which the holders of preference shares are entitled to attend and vote, the preference shares shall entitle a holder thereof, or his proxy, to vote only for every preference share held by him. 9. Share premium account At 1 July Shares issued At 30 June 10. Capital redemption reserve At 1 July Shares purchased for cancellation At 30 June 11. Profit and loss account At 1 July Profit for the year Equity dividends paid Share based payments Shares purchased for cancellation At 30 June Audit fees for the company are given in note 7 to the group accounts. 12. Reconciliation of movements in shareholders’ funds Profit for the year Equity dividends paid Issue of share capital Share based payments Shares purchased for cancellation Net increase in shareholders’ funds for the year Opening equity shareholders’ funds Closing equity shareholders’ funds 57 2014 £’000 2,101 639 2,740 2014 £’000 1,167 7 1,174 2014 £’000 52,538 24,755 (18,638) – (433) 58,222 2014 £’000 24,755 (18,638) 664 – (433) 6,348 66,301 72,649 2015 £’000 2,740 177 2,917 2015 £’000 1,174 – 1,174 2015 £’000 58,222 27,261 (21,020) 1 – 64,464 2015 £’000 27,261 (21,020) 188 1 – 6,430 72,649 79,079 58 Notes to the Financial Statements of the Company continued 13. Financial instruments A full description of the James Halstead plc group’s treasury policy is contained in the financial director’s review on page 9. FRS 13 “Derivatives and Other Financial Instruments: disclosures” requires certain disclosures in respect of financial assets and liabilities and these are set out below. The company has taken advantage of the exemption available under FRS 13 and accordingly details in respect of short-term debtors and creditors are excluded from all the following disclosures. (i) Preference shares The preference shares in issue are fully described in note 8. The preference shares have no fixed repayment date. The book value of the preference shares in issue at 30 June 2015 was £200,000 (2014: £200,000). The fair value of the preference shares was not materially different to their book value. Under the requirements of FRS 25 the preference shares are included in creditors. (ii) Currency and interest rate profile of financial assets Cash at bank, in hand and on short-term deposit Book and fair values 2014 2015 £’000 £’000 31,572 19,400 All balances are current accounts or overnight deposits and in all cases interest rates are floating and are based on relevant national bank base and deposit rates. For the purposes of managing the James Halstead group’s currency exposures, the company operates bank accounts in certain foreign currencies with its UK clearing banks some of which are generally operated as overdrafts. Cash at bank and in hand in the company balance sheet is shown net of overdrafts in line with the company’s arrangements with its bankers. (iii) The management of the currency risk for the James Halstead plc group as a whole is undertaken by the company. The group uses foreign currency bank accounts and fixed forward currency exchange contracts to manage its exposure to risk from fluctuations in forward exchange rates. The vast majority of the group’s forward contracts and all of its foreign currency bank accounts used for this purpose are managed by and are in the name of the holding company, James Halstead plc. The vast majority of the transactions the value of which are exposed to exchange rate fluctuations are not those of the company but of its subsidiaries. Hence the disclosures below relate almost entirely to bank accounts and fixed forward contracts as at the year end. Net foreign currency monetary financial assets/(liabilities) within the balance sheet were: Australian Dollars Canadian Dollars Euro Hong Kong Dollars New Zealand Dollars Norwegian Krone US Dollars Others 2015 £’000 (202) 52 1,373 (189) (209) (218) 2,851 (443) 3,015 2014 £’000 727 (3) 507 (136) (173) (324) 1,204 (326) 1,476 13. Financial instruments (continued) The nominal values of forward exchange contracts outstanding at the year end, were as follows: Contracts to sell: Australian Dollars Canadian Dollars Euro Hong Kong Dollars New Zealand Dollars Norwegian Krone Others Contracts to sell Euro/buy US Dollars The fair values of forward exchange contracts outstanding at the year end were as follows: 59 2014 £’000 6,244 1,487 3,321 1,848 1,341 1,375 2,872 2015 £’000 6,392 1,376 7,486 1,643 1,800 1,608 2,784 23,089 18,488 20,742 19,737 2015 2014 Asset/(liability) Asset/(liability) £’000 £’000 Contracts to sell: Australian Dollars Canadian Dollars Euro Hong Kong Dollars New Zealand Dollars Norwegian Krone Others Contracts to sell Euro/buy US Dollars 445 53 377 – 181 70 101 1,227 1,007 (49) 12 114 36 (26) 46 47 180 (49) 14. Related party transactions The company has taken advantage of the exemption conferred in FRS 8 “Related party disclosures” not to disclose transactions with wholly owned subsidiaries. 60 Ten Year Summary (Unaudited) 2006 £’000 UK GAAP 2007 £’000 IFRS 2008 £’000 IFRS 2009 £’000 IFRS 2010 £’000 IFRS 2011 £’000 IFRS 2012 £’000 IFRS 2013 £’000 IFRS 2014 £’000 IFRS 2015 £’000 IFRS Revenue 126,024 137,252 158,740 169,263 186,424 213,944 226,335 217,082 223,488 227,261 Profit before income tax 17,481 23,206 29,605 32,604 35,307 37,538 41,726 40,495 41,753 44,184 Income tax (5,647) (7,569) (9,431) (8,036) (9,948) (10,768) (11,941) (10,446) (10,301) (10,250) Profit after income tax 11,834 15,637 20,174 24,568 25,359 26,770 29,785 30,049 31,452 33,934 Basic earnings per 5p share Dividends paid per 5p share Dividend cover based on basic earnings and dividends paid per 5p share 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5.95p 2.66p 7.68p 3.31p 9.84p 4.38p 11.94p 5.64p 12.26p 6.25p 12.89p 6.94p 14.37p 7.40p 14.54p 8.25p 15.20p 9.00p 16.37p 10.14p 2.24 2.32 2.25 2.12 1.96 1.85 1.94 1.76 1.69 1.61 Figures for the year ended 30 June 2006 have not been restated to reflect the impact of IFRS. Had this exercise been undertaken the major changes would have been the re-allocation of settlement and volume discounts to revenue, with no impact on profit before income tax and the removal of the amortisation of goodwill. Figures for the years ended 30 June 2007 to 2013 have been restated to reflect the impact of the revision to IAS 19 which was implemented in the year ended 30 June 2014. Figures for previous years have been restated to take account of the one for one bonus share issues in the years ended 30 June 2011 and 2013. Special dividends are not included. 61 Shareholder Information Financial calendar Annual general meeting Announcement of results For the half year For the full year Dividend payments Ordinary shares – interim – final 27 November 2015 March September June December Preference shares June and December Share dealing information The ordinary shares of the company are traded on the Alternative Investment Market of the London Stock Exchange. Information concerning the day-to-day movement of the share price can be found on the London Stock Exchange website. Shareholder analysis as at 10 September 2015 By size of holding 1-10,000 10,001-50,000 50,001-100,000 100,001-500,000 500,001 and over By category Banks and nominee companies Other limited companies/corporate bodies Miscellaneous bodies/pension funds Private individuals Investment trusts and funds Number of holders Number of shares 2,268 690 97 107 50 7,411,575 15,283,323 6,790,854 23,533,691 154,352,065 % 3.6 7.4 3.3 11.3 74.4 3,212 207,371,508 100.0 Number of holders Number of shares 1,091 39 10 2,066 6 87,746,887 1,421,674 187,752 117,876,379 138,816 % 42.3 0.7 0.1 56.8 0.1 3,212 207,371,508 100.0 62 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the ONE HUNDREDTH ANNUAL GENERAL MEETING of the company will be held at the Manchester Town Hall, Albert Square, Manchester, M60 2LA on 27 November 2015 at 12 Noon for the following purposes: Ordinary Business 1 To receive and adopt the report of the directors and the statement of accounts for the year ended 30 June 2015 together with the report of the auditors. 2 3 4 5 To declare a final dividend on the ordinary shares in the capital of the company for the year ended 30 June 2015. To re-elect Mr G Halstead who is retiring by rotation under the articles of association as a director. To re-elect Mr M Halstead who is retiring by rotation under the articles of association as a director. To re-appoint BDO LLP as auditors of the company and authorise the directors to fix their remuneration for the ensuing year. Special Business To consider and, if thought fit, pass the following resolutions of which resolutions 6 and 7 shall be proposed as ordinary resolutions and resolutions 8 and 9 will be proposed as special resolutions: 6 That, subject to the passing of the ordinary and special resolutions numbered 7 and 8 below, the directors be and they are hereby authorised, pursuant to article 35.14 of the company’s articles of association: (i) (ii) to exercise the power contained in article 35.14 so that, to the extent determined by the directors, the holders of ordinary shares be permitted to elect to receive new ordinary shares of 5.0p each in the capital of the company, credited as fully paid, instead of all or part of any interim or final dividends which shall be declared before the conclusion of the next annual general meeting of the company after the passing of this resolution; and to capitalise the appropriate amount of new ordinary shares falling to be allotted pursuant to any elections made as aforesaid out of profits, or sums standing to the credit of any share premium account or capital reserves of the company, to apply such sums in paying up such new ordinary shares and to allot such new ordinary shares to the members of the company making such elections in accordance with their respective entitlements. 7 That in substitution for all existing and unexercised authorities and powers, the directors of the company be and they are hereby generally and unconditionally authorised for the purpose of section 551 Companies Act 2006 (the “Act”) to exercise all or any of the powers of the company to allot shares of the company or to grant rights to subscribe for, or to convert any security into, shares of the company (such shares and rights being together referred to as “Relevant Securities”) up to an aggregate nominal value of £3,455,846 to such persons at such times and generally on such terms and conditions as the directors may determine (subject always to the articles of association of the company) PROVIDED THAT this authority shall, unless previously renewed, varied or revoked by the company in general meeting, expire at the conclusion of the next annual general meeting or on the date which is six months after the next accounting reference date of the company (if earlier) save that the directors of the company may, before the expiry of such period, make an offer or agreement which would or might require relevant securities or equity securities (as the case may be) to be allotted after the expiry of such period and the directors of the company may allot relevant securities or equity securities (as the case may be) in pursuance of such offer or agreement as if the authority conferred hereby had not expired. 63 8 That subject to the passing of the ordinary resolution numbered 7 above the directors be and they are hereby empowered pursuant to Section 570 of the Companies Act 2006 to allot equity securities (within the meaning of Section 560 subsection (1) of the said Act) for cash pursuant to the authority conferred by resolution numbered 7 above as if Section 561 of the said Act did not apply to any such allotment provided that this power shall be limited to: (i) (ii) the allotment of equity securities in connection with an offer of such securities by way of rights to holders of ordinary shares in proportion (as nearly as may be practical) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities up to an aggregate nominal amount of 5 per cent. of the ordinary share capital of the company in issue at the date of the passing of this resolution; and shall expire at the conclusion of the next annual general meeting or on the date which is six months after the next accounting reference date of the company (if earlier) save that the company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. 9 That the company is hereby generally and unconditionally authorised for the purposes of section 693 and 701 of the Companies Act 2006 to make one or more market purchases (within the meaning of section 693(4) of the said Act) of fully paid ordinary shares of 5 pence each in the capital of the company (“ordinary shares”) provided that: (i) (ii) (iii) (iv) (v) the maximum aggregate number of ordinary shares hereby authorised to be purchased is 10% of the ordinary shares in issue at the date of passing of this resolution; the maximum price (exclusive of any expenses) which may be paid for an ordinary share shall not be more than 5% above the average of the middle market quotations for an ordinary share as derived from the Daily Official List of The London Stock Exchange plc for the five business days immediately preceding the day on which the ordinary share is purchased; the minimum price which may be paid for each ordinary share is 5 pence (exclusive of any expenses); unless previously revoked or varied, the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the company or twelve months from the date, if earlier, of passing this resolution; the company may make a contract or contracts to purchase its ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and the company may make a purchase of its ordinary shares in pursuance of such contract as if the authority hereby conferred had not expired; and (vi) the directors may elect to hold shares purchased under this authority in the form of treasury shares (subject to a maximum of 10% of the issued ordinary share capital of the company at any one time). By order of the board D W Drillingcourt Secretary 9 October 2015 Beechfield, Hollinhurst Road, Radcliffe, Manchester, M26 1JN 64 Notice of Annual General Meeting continued Notes 1 2 3 4 5 6 7 Preference shareholders are advised that they are not entitled to attend or vote at the annual general meeting. Members entitled to attend and to speak and vote at the AGM are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you require additional forms, please contact the company’s registrars at, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand by the company’s registrars at, PXS, 34 Beckenham Road, Beckenham BR3 4TU, in each case no later than 12 noon on 25 November 2015. Any power of attorney or other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be enclosed with the proxy form. If you wish to attend the meeting in person, please attend at the address set out at the beginning of this notice on 27 November 2015 bringing either your attendance card or other appropriate identification so that you can be identified by the company’s registrars. It is recommended that you arrive at least 15 minutes before the time appointed for the meeting to begin. To be entitled to attend and vote at the meeting (and for the purpose of the determination by the company of the votes they may cast), shareholders must be registered in the register of members of the company at 6 pm on 25 November 2015. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. The following documents will be available for inspection at the company’s registered office during normal business hours from the date of this notice until the time of the meeting and at the address set out at the beginning of this notice from 15 minutes before the meeting until it ends: (i) the register of interests of the directors in the share capital of the company; and (ii) copy of the service contract of Mr G R Oliver. 8 Warrants for the final dividend, if approved, will be posted on 4 December 2015 to shareholders on the register as at 6 November 2015. J a m e s H a l s t e a d p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 Beechfield Hollinhurst Road Radcliffe Manchester M26 1JN Tel: +44 (0)161 767 2500 Fax: +44 (0)161 766 7499 www.jameshalstead.com (cid:1)