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.
