James Halstead : JH plc Interim Report December 2022

C o v e R I n g t h e w o R l d

Interim Report 2023

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Key Figures

Revenue at £149.6 million (2021: £136.7 million)

Operating profit at £23.1 million (2021: £25.5 million)

Pre-tax profit at £23.2 million (2021: £25.4 million)

Basic earnings per ordinary share 4.3p (2021: 4.7p)

Interim dividend declared of 2.25p (2021: 2.25p)

Cash of £44.3 million (2021: £69.4 million)

The Chief Executive, Mr Mark Halstead, commented:

"These last three years have seen our businesses challenged by numerous unexpected factors that have added to costs significantly and to the complexity of the simple business of designing, manufacturing and selling commercial flooring. The bottom line results show a small dip in profits at the half year but this, in the view of the board, is a creditable performance."

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Chairman's Statement

Trading for the six months ended 31 December 2022

Sales revenue of £149.6 million (2021: £136.7 million) is a record level of turnover which, considering the economic backdrop in the many markets, is a satisfactory achievement. However, the effects of transportation costs, energy price increases and raw materials costs have meant that profit is lower than last year. The profit before tax is £23.2 million (2021: £25.4 million), a drop of 8.6%.

Turnover for the first half is 9.5% ahead of the comparative with UK sales 10% ahead of 2021, Europe 4% up, Australasia 16% ahead and the rest of the world up by 26%. The rest of the world turnover was driven mainly by further increases in sales across the Middle East and North America. Certain markets, most notably South America, were affected by delayed shipments due to reduced shipping route availability and consequent significant delays. There is a plethora of projects that illustrate the breadth and depth of our flooring sales: Churchill Downs Racecourse in Kentucky, the Toulouse Rugby Stadium in France, the FIFA Museum in Qatar and the Palace Hotel in Konary (Poland). Most of our export markets experienced shipping delays as global shipping routes continued to be in turmoil following the significant changes to demand patterns resulting from events of the last two years.

Distribution costs, in terms of export shipping, remained at very high levels throughout the period. Given our shipments of flooring were as diverse as the St Helene hospital in Mauritius, the student accommodation at Iceland University, the WKI Lab in East Java, the Biscotti Headquarters in Lviv or the Penfolds Wine Exhibition at Raffles City in Singapore we thank our logistics teams.

Within the Australasian markets both Australia and New Zealand reported double digit sales increases. Our business in Malaysia is growing steadily with increases in sales volumes over each quarter since its inception in 2020. As we add more sales staff to the surrounding South Asia countries, we expect further growth. However, Asia sales as a whole have been impacted by the Chinese market where the continued Covid restrictions throughout the period has seen demand and projects at very low levels.

Margins have remained under pressure throughout the period, even though in many markets we have undertaken price increases, with energy costs increasing steadily in our manufacturing sites in the UK. To an extent the growth in stock earlier in the year had a degree of hedge against energy price increases - but not significantly so. As I noted in the final results for the year ended 30 June 2022 we have, in our manufacturing businesses, adopted a lag between absorbing costs and increases in sales prices. The lag is partly the holding of prices quoted on projects in advance, partly to allow stockists to look at their price lists and in part our reticence to risk the unknown consequences of price increases on future demand. Given that many industries have passed on costs with little or no notice to the customer we have, to a degree, taken a more protective stance towards long term relationships.

Our German and Central European businesses have seen flat growth and margin erosion and have been the least effective of our businesses in achieving price increases. Overall, the adverse effects noted had an average 3% impact on margins in the period, and a price increase in most regions and all our major markets was implemented from the start of January 2023.

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Overhead costs in the six months to 31 December 2022 were 4.9% higher than the prior year with the most significant increase being export shipping costs.

We noted in our full year results for the year to 30 June 2022 that at the year end our stock holding had significantly increased, partly through higher costs, but in general as a result of a key decision to hold higher volumes to defend against the uncertainties in the market (notably the risk of restrictions in energy and raw material availability). In the main, this was achieved, and as some of those uncertainties and pressures have eased, we have looked to reduce our stock levels. At the end of December, although £10 million higher than at the same time last year, stock levels had fallen just over 16% since June 2022 and have continued to fall after the half year end. It was obviously helpful to raw material supplies that the European winter was relatively mild.

Though profit for the first half of our year is lower we, as a board, are satisfied overall with the outcome relative to the challenges. Most of our businesses are progressing, though in Germany where we are more exposed to the retail and domestic markets we saw both lower volumes and lower margins. Cost control continues to be the focus of our attention.

The UK group has a final salary pension scheme (also known as a defined benefit scheme) and though this scheme was closed to new entrants in 2002 it has now been closed to future accrual. Since the number of employees in the scheme was less than 70 it was inevitable that this would happen at some point.

Earnings per Share and Dividend

Our cash, which stands at £44.3 million as of 31 December 2022 compared with £69.4 million at 31 December 2021, continues to be a

key strength. Since 31 December 2021 we have distributed £32.3 million in dividends and increased our stock levels in the six months to 30 June 2022 as a defensive precaution against energy and raw material shortages.

With regard to our cash and profitability, we have decided to declare an unchanged interim dividend of 2.25p per share, payable on 9 June 2023 to those shareholders on the register at 12 May 2023.

Environmental, sustainability, social responsibility and governance

The detailed Sustainability Report that we issue annually is now in its 18th edition and continues to underline the Group's commitment to ESG and sustainability. Our commitment as a business to these matters is not new. In addition, we have identified the members of our committee in respect of addressing the TCFD (Taskforce on Climate- related Financial Disclosures) and whilst these disclosures seem in some ways to be a degree pretensive, we will continue our many sustainability and environmental initiatives undertaken not only at the company level but also at our industry level alongside our competitors. In addition, we are participants within European and international

organisations regarding recycling, environmental, sustainability and product

standards. Examples include EPDs (environmental product declarations which document environmental impact from life cycle analysis) and ESOS (the energy savings opportunity scheme) which differentiate UK and European manufacturers from suppliers importing products from often less environmentally-conscious regions.