Flooring group switches focus to healthcare markets

A Bury-based flooring company has switched the focus of its operations to the healthcare sector, during the current coronavirus pandemic.

Announcing its interim results for the six months to December 31, 2019, James Halstead said it is now using its expertise in healthcare as the immediate need in many of its markets for flooring is in this sector.

During the reporting period the company grew revenues by 3.7% to £130.4m, while pre-tax profits rose 2.8% to £25.2m.

It has proposed a first interim dividend of 2.125p per share, which is half of what would have been proposed, but the firm said, given the circumstances, it has decided to be prudent and take this necessary action.

It will review a payment of a second interim dividend in August when visibility of the global economy may be clearer.

The group said it had cash reserves of £64.3m.

Chief executive, Mark Halstead, said: “In the first half, we have supplied flooring to installations as diverse as the Folies Bergère in Paris and to the Pooch Perfect TV set for Network Seven in Australia and, with profits growth and robust cash balances, it was a satisfying performance.

“However, the world has changed since the turn of the year and we are focused on the security of our businesses and the immediate challenges of the Coronavirus (COVID- 19).

“The focus of our business has moved to our expertise in healthcare as the immediate need in many of our markets for flooring is in this sector.”

Chairman, Anthony Wild, said the group is closely monitoring developments in respect of the ongoing COVID-19 pandemic.

“Up until the 20th March we had not experienced any meaningful disruption to our operations, although regionally there were restrictions on travel.

“Since that time the UK, and other countries have instigated various restrictions on travel and the closure of many businesses.

“Inevitably office refurbishment, retailer business and leisure will slow drastically in the coming weeks. None of our markets are unaffected in terms of the general economic environment.

“However, a major part of our business is in healthcare and over 70% of our turnover is exported and we are receiving a large number of enquiries from many of our markets.

“In several markets we have ‘key supplier’ status and are a preferred supplier to the UK’s National Health Service.

“Our suppliers are in contact and raw material supplies continue, with 60% of raw materials sourced in Europe and, to date, supply and delivery are largely unaffected. The three week break will give us more clarity on supply chains as government policy evolves.”

He added: “I would like to thank those senior members of the various heath bodies that have written to us with thanks for our ability to supply rapidly for needed facilities, our local Members of Parliament for taking time to understand our concerns about the lack of clarity of going to work, to our workforce whose efforts are appreciated and to our senior management team who are having to react to unprecedented events.

“Our cash resources are robust and stock levels remain solid which should help to underpin the coming months and immediate demand.”

Looking ahead he said the second half of the financial year started well with full production in the UK, with sales and profit in the first three months of the second half in line with expectations.

He added: “Looking at the coming months, it can be envisaged that sales to retailer refurbishment will slow down, but our core business in healthcare and institutional refurbishment is more robust.

“Indeed, as I have noted, in the preceding section, there are increased enquiries for flooring for medical facilities in several parts of the globe and our stocks of sheet resilient flooring allow us to respond quickly.

“The balance of our business will likely continue to shift to healthcare and, given the fast pace of events, we cannot be sure how the market will react to the next few months.

“In the immediate two-six weeks the focus in many markets will be on healthcare and, with the extended Easter factory closure, we will focus on distribution.

“Transportation of goods remains relatively normal. In the UK even large distributors that have closed depots are making arrangements to continue the supply of commercial flooring to contractors, but there are localised issues of vehicles being stopped as part of government monitoring of essential travel.

“Overseas international freight rates are rising and the drastic changes to lock-down in the world means there may be challenges in delivery.

“The immediate few weeks would seem to be busy in terms of demand, but daily changes must be faced.

“Looking further ahead, our balance sheet strength, our depth of experience and focus on detail encourage me to have confidence that we are well placed to withstand prevailing pressures.”

Russ Mould, investmet director at Manchester investment platform AJ Bell, said: “Given how well the company is run and how solidly it is financed, it was always going to take something extraordinary to break James Halstead’s phenomenal run of increases in its dividend and the viral outbreak has just proved it.

“The floorings expert has trimmed back its interim payment to 2.125p a share from 4p. This does not mean the growth streak in the annual payment, which dates back to 1977, is over for certain.

“If circumstances permit, James Halstead will consider a second interim dividend in August and the final dividend could make up the slack, but for the moment the company is prudently hunkering down.

“This is not to say that Halstead could not afford to increase the interim dividend.

“The balance sheet shows £64m of cash and no debt, with lease obligations of £7.2m and a pension liability of £19.4m, for a net cash position of £37.4m.

“Meanwhile, the first-half was very profitable, with an operating return on sales of 20%, and cash conversion was excellent, as James Halstead turned an operating profit of £25m into post-tax free cash flow of £19m.

“That comfortably covers £1.3m in lease payments and a £1.1m contribution to the pension fund, while still leaving plenty of room for what would have been an interim dividend payment in excess of £8m.

“The reduced interim payment comes to around £4.4m as CEO Mark Halstead and the board sought to strike a balance between meeting the requirements of shareholders – which include 60% of the company’s workforce – and not showing a cloth ear to wider social concerns at a time when everyone’s health is the most important consideration.

“An extended three-week Easter break for staff at one production facility shows that management is aware of these concerns, but the flooring specialist will be able to help in another way, too.

“Although retail and hospitality are big markets for the AIM-quoted company, James Halstead is an official key supplier to the NHS, having supplied the organisation for over 70 years, and £67m of inventory help to meet the immediate requirements of the health services in the UK and beyond.”