Trading Update

Headlam Group PLC
14 May 2024
 

14 May 2024

Headlam Group plc

('Headlam', the 'Company', the 'Group')

Trading Update

Acceleration of strategy in a weakening market

Headlam (LSE: HEAD), the UK's leading floorcoverings distributor, announces the following update in respect of trading in the 4 months to the end of April (the 'Period) and also announcing the acceleration of the Group's strategy.

 

Current Trading

Revenue in the Period was down 12.3% year on year, with the UK down 11.6% and Continental Europe down 16.9%1. Revenue in April did not show the expected seasonal uplift usually seen in the Spring period. The strategic growth initiatives have continued to perform well, with revenue from Larger Customers and Trade Counters continuing to grow but this has been offset by ongoing decline in the overall floor coverings market, driven by continued weakness in the housing market and a deterioration in consumer spending. This has resulted in revenue decline in the Regional Distribution business in the UK and in our Continental European business.  Despite tight cost management and other mitigating actions, the lower revenue has impacted our profitability with a pre-tax loss for the Period of £10.6 million.

Cash and working capital remain well controlled. At the end of April, net debt was £43 million and the Group had nearly £60 million of cash and undrawn facilities available. This strong liquidity position is expected to be further boosted in the coming weeks with the cash receipts from the disposal of a surplus property in Stockport for around £7.5 million, which is significantly above book value. Following this disposal, the Group will own property valued at £142.1 million2.  

Acceleration of strategy

Over recent years the Group has been implementing its strategy of broadening its customer base and implementing a transformation programme of simplifying and consolidating sales teams and operations.

We have now seen a third consecutive year of monthly decline4 in volumes and recent macro data has indicated continued weakness in RMI3, consumer spending on home improvements, and housing transactions, all of which indicate a further delay until 2025 for a recovery in the floor coverings market.  Accordingly, the Group is accelerating its strategy which will see further integration and simplification across the business.

We expect these initiatives to deliver a material reduction in operating costs along with significant one-off cash benefits from disposal of surplus property and working capital reduction over the next 18 months. The Group will provide a further update on our plans in July.

Our independent retailer customers in Regional Distribution remain our biggest customer group and we will continue to invest in that part of our business, building on the significant investments made in 2023, to maintain and grow our market presence. The changes we'll be making, along with the ongoing ERP replacement project, will make Headlam a more effective organisation and simplify our offer to customers.

With the implementation of these initiatives and a recovery in the market, supported by the Group's market leading position, the Group remains confident about the medium-term growth prospects.

Outlook

We expect to report a significant pre-tax loss in the first half based on a double digit decline in revenue. In the second half we expect an improvement based on our mitigating actions, as well as gradually improving market conditions, albeit we do not anticipate the market returning to growth until 2025. For the full year we expect profit to be significantly below current market expectations.

Longer term, we expect our market to recover and there is no change to the indicative long-term revenue potential of the Group of £900m to £1bn as set out in March 2024, which together with our transformation programme, is expected to see the Group return to, and beyond, historical levels of profitability.

Commenting, Chris Payne, Chief Executive Officer, said:

"Whilst the medium-term outlook for the business remains strong, the current trading conditions across the sector have been challenging and we have seen a further deterioration in consumer spending in our markets, which has weighed on profitability. Despite these headwinds, the balance sheet remains strong, it is pleasing to see the strategic growth areas continuing to perform well and, with the acceleration of our strategy, we have a great opportunity to simplify our customer offer to significantly improve the Group's profitability and further improve our cash position."

 

Footnotes

1.   All year-on-year revenue percentages quoted in this update are on a same-working-days basis; there are more working days in the Period than in 2023

2.   Based on the market valuation undertaken in January 2023

3.   Repair, maintenance and improvement

4.   Measured on a year-on-year same working day basis

 

Enquiries

Headlam Group plc  Tel: 01675 433 000     Email: headlamgroup@headlam.com

Chris Payne, Chief Executive           

Adam Phillips, Chief Financial Officer

 

Panmure Gordon (UK) Limited (Corporate Broker)         Tel: 020 7886 2500

Tom Scrivens / Atholl Tweedie

Peel Hunt LLP (Corporate Broker) Tel: 020 7418 8900

George Sellar / Finn Nugent

Notes to Editors

Operating for over 30 years, Headlam is the UK's leading floorcoverings distributor. The Group works with suppliers across the globe manufacturing the broadest range of products, and gives them a highly effective route to market, selling their products into the large and diverse trade customer base. The Group has an extensive customer base spanning independent and multiple retailers, small and large contractors, and housebuilders. It provides its customers with a market leading service through the largest product range, in-depth knowledge, ecommerce and marketing support, and nationwide next day delivery service. To maximise customer reach and sales opportunity, Headlam operates 68 businesses and trade brands across the UK and Continental Europe (France and the Netherlands), which are supported by the group's network, central resources and processes.

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

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