James Halstead makes margin progress amid tough conditions

(Sharecast News) - Flooring manufacturer and distributor James Halstead reported its strong profit margins in nine years despite a weaker top line over the year to 30 June, with the AIM-listed company pointing to "further progress" this year. The company saw annual revenues fall to £262m from £275m the year before, as weakness in Europe and Australasia outweighed a strong performance in the US market.

James Halstead said headwinds in Europe are continuing to affect repair, renewal and roll-out budgets, which have been constrained by additional employment costs in the education, healthcare and hospitality sectors.

Pre-tax profit slipped to £55.1m from £56.2m, however the gross margin improved to 44.5% from 44.1% as £3.9m of capital deployed during the year and cost control improved output efficiency.

Operating profit margins, which rose to 20.2% from 19.6%, topped the 20% mark for the first time since 2016, as pointed out by AJ Bell's investment director Russ Mould.

"James Halstead is having to work hard as it copes with input cost inflation, economic uncertainties and more besides. But profit margins rose even as sales fell, to top 20% for the first time since 2016 as ongoing investment in its manufacturing facilities and its product range, where Polyflor, Camaro, Palettone and Polysafe are among the flag-bearers, continues to pay off, as shown by contract wins in countries ranging from Italy to Dubai and France to Poland," Bell said.

Operational improvements are also helping the company to remain highly cash generative - ending the year with a cash position of £68.4m, down slightly from £74.3m the year before - with the company raising its final dividend to 6.05p from 6.0p, taking the full-year dividend to 8.8p from 8.5p.

Commenting on the results, executive chair Mark Halstead said: "Despite headwinds in the commercial flooring sector it was a solid performance with a cash conversion rate of 1.23. Looking ahead, we have continuing product and process improvements and I, and the Board, remain confident that the future offers many opportunities and on-going profitable growth".

Shares were up 1.2% at 1515.3p by 1226 BST.