James Halstead (AIM:JHD), the AIM-listed manufacturer and international distributor of commercial flooring, reported pre-tax profit of £48.2 million for the year ended 30 June, down 12.7% from £55.1 million the prior year.
Revenue slipped 0.8% to £259.9 million, from £262.0 million, which the company attributed largely to headwinds in Europe. Profit after tax fell to £35.4 million from £40.6 million, with earnings per share down to 8.5p from 9.7p.
Despite the weaker profit, the board proposed a final dividend of 6.10p per share, up from 6.05p, taking the total dividend for the year to 8.95p against 8.80p previously, a rise of 1.7% and, as it highlighed, the company's 50th consecutive year of dividend growth.
The company's previous trading update, in July, already flagged that annual profit would come in roughly 10 to 15% below the prior year, citing surcharges imposed by suppliers after the Iran conflict pushed up energy and material costs, which James Halstead chose to absorb rather than pass fully to contractors.
Gross margins held broadly steady at 44.6%, up from 44.5%, with the company crediting manufacturing efficiencies and volume output for offsetting energy costs that averaged double the per-square-metre level of five years ago.
Selling, distribution and administration costs rose 9% to £69.5 million, driven by higher distribution costs, increased overseas warehouse lease costs in Germany and Canada, higher UK business rates, and a full-year effect of higher employer national insurance contributions of approximately £0.6 million.
Cash generated from operating activities rose to £49.1 million from £35.7 million, with cash balances climbing to £75.7 million from £68.4 million. Inventories fell 5.6% to £75.9 million from £80.4 million.
The UK, the company's largest market at 43.1% of group turnover, saw sales rise just under 1%, with core UK-manufactured product volumes up 8% offsetting weaker luxury vinyl tile sales; Polyflor turnover rose 1.3%, and Riverside Flooring rose 7.2%.
Executive Chairman Mark Halstead said the Gulf situation "created clear pressure on material and energy costs while weaker demand and structural changes in the UK distribution market also affected sales and profit in the short term", adding that cash inflows from operations were 37.4% ahead of the comparative period.
Central Europe remained weak, with sales in Germany and France, the group's two principal markets, down 5% amid soft economic sentiment, high inflation and a downturn in new-build construction. In Australia, sales fell 6.8% in local currency after leadership turnover and a prolonged gap in senior management, with the region now restructured and a new director for Australia and New Zealand in place since March.
As the payout notched up, dividend cover fell below 1, though the company said the dividend payout remains well within its cash resources, with the final dividend due for payment on 11 December.