REG - Headlam Group PLC - Trading and ESG Update

HeadlamAnnouncement

24/11/2022 07:00

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RNS Number : 4170H  Headlam Group PLC  24 November 2022

24 November 2022

 

Headlam Group plc

('Headlam' or the 'Company')

 

Trading and ESG Update

 

Headlam (LSE: HEAD), the leading floorcoverings distributor, today provides an
update on trading, and Environmental, Social and Governance ('ESG') strategy
and progress.

 

Trading Update

 

Trading since the interim results announcement on 6 September 2022 has
continued the themes reported at that time. Most notably, the impact of the
cost of living crisis suppressing market volumes in the UK residential sector,
with growth in the commercial sector helping to partially offset. Continental
Europe continued its positive performance across both sectors.

 

As a result of progress made under the Company's growth strategy, including
new larger customer wins and the trade counter roll out, and support from
price inflation, the Company's revenue was only marginally below the prior
year period for the 10 months to 31 October 2022. To date in November 2022, a
month heavily reliant on residential orders, the Company has seen a seasonal
uplift but this is below historic levels and this trend is expected to
continue until year end.

 

The Company, therefore, now expects underlying profitability for the year to
remain ahead of 2021 and to be marginally below the low end of the range of
market expectations¹. The Company's strategy of driving new revenue to gain
market share from a more efficient operating base has helped provide a
countermeasure against the market weakness, and will continue to do so during
2023.

 

The Company will announce its Pre-Close Trading Update on 19 January 2023,
ahead of announcing final results for the year ended 31 December 2022 in early
March 2023.

 

ESG Update

 

The Company continues to meaningfully develop and progress its overall ESG
Strategy and associated actions. Below is an update on the areas considered
most salient under the 'E', 'S' and 'G' pillars. Importantly, the Company's
sustainability agenda and ESG Strategy is focused not just on mitigating risk,
addressing regulatory matters and efficiency measures, but also on capturing
strategic opportunity and gaining competitive advantage.

 

Environmental

 

The Company has previously committed to a Net Zero emissions target (Scope 1
and 2) by 2035 and is actively engaged in transition planning. To strengthen
and ensure progress towards this commitment, the Company is now introducing an
interim target aligned with the Science Based Targets initiative ('SBTi') of a
46% reduction by 2030 against a baseline year set at 2019. The Company will
follow a 'true' Net Zero strategy aligned with best practice, whereby it will
focus on actual decarbonisation in achieving these targets and only consider
offsetting actions for the residual 10%. Decarbonisation actions currently
being pursued by the Company include:

 

·    Moving the whole non-commercial fleet to electric or low emission
vehicles, with excellent progress made and already well above the Company's
initial 50% target by year end 2022;

·    Trialling and roll-out of electric commercial vehicles where feasible
(with limited feasibility currently due to technology and cost constraints);

·    Ongoing transport integration (i.e. more efficient deliveries
profile), further FORS accreditations, and focus on driving behaviours;

·    Energy saving opportunity surveys being completed at key sites across
the network, and the energy saving and efficiency recommendations identified
being rolled out across all sites;

·    Promotion of 'Good Energy and Recycling Behaviours' across the group,
with associated workshops; and

·    Installation of solar panels across all the Company's larger sites
during 2023.

 

The investment in, and installation of, solar panels is important to achieve
both a near-term reduction in emissions as well as helping offset higher
energy costs as described in the interim results. A total upfront capital
investment of £3.2 million will be made in solar panels in 2023 helping to
offset energy costs that will be approximately £2.4 million higher in 2023
against 2022 due to the previously highlighted expiry of a fixed price energy
contract in October 2022.

 

Although the near-term focus is on reducing the Company's own operational
emissions, the Company is currently undergoing its second exercise in
measuring its value chain (Scope 3) emissions which will be reported within
the 2022 Annual Report published in March 2023. This will assist in increasing
the sustainability of the industry as a whole, and the future transition to a
circular economy.

 

Although the marketplace is still on the whole relatively undeveloped in terms
of demanding sustainable products, with sustainable products making up a low
proportion of the overall offering, the marketplace will increasingly signal a
preference for sustainable products and focus on closed-loop recycling. The
Company aims to take a lead in launching and marketing sustainable products,
capturing competitive advantage, with a particular focus on fully recyclable
ranges. Working closely with certain suppliers, the Company is currently at
the trialling and proof of concept stage of new technology with a view to
launching own branded sustainable ranges during 2023. Launches will initially
be into the residential sector, with opportunities in the commercial sector
also being investigated for future launches.

 

Social

 

Of most pressing importance 'socially' is the current inflationary impact on
cost of living. To help address this, and support the most vulnerable to a
decline in their circumstances, the Company is taking a tiered approach to its
annual pay award. For 2023, lower salaried employees will receive a higher
percentage increase to their salaries, with this percentage decreasing higher
up the scale. The Company will continue to ensure that everyone receives the
equivalent of the National Real Living Wage. The Company's people costs are
anticipated to be 6.9% higher in 2023 than 2022, mainly due to wage inflation
through the cost of living pay award.

The Company is focused on both financial and non-financial support to its
people and the communities in which it operates. The Company's locally focused
Community Programme launched in 2022 continues to be rolled out, and allows
for funded donations to local causes, as well as paid volunteering time and
flooring product donations.  Additionally, the Company has recently formally
launched its Apprenticeship Programme, and will promote apprenticeships across
the business and enrol new colleagues who wish to obtain qualifications.
Through all the actions the Company is pursuing, it is improving Headlam as a
place to work, helping to attract, retain and support great people.

Governance

 

Focus on corporate governance, and the assessment / mitigation of risks,
continues to be a priority for the Company. Supply Risk Chain is identified as
being one of the key material issues in the last published Materiality
Assessment, and to help mitigate against this there has been increased
engagement with suppliers including on: Sustainability Charter; Ethical Code
of Conduct; and Self-Assessment Questionnaire (delivered by a third-party
leading social audit business).

 

The Company's current Remuneration Policy expires next year, and the new
Policy to be put to shareholder approval at the 2023 Annual General Meeting
will include an ESG related element connected to performance related variable
remuneration. Detail on targets will be provided in the 2022 Annual Report.

 

Pleasingly, the Company continues to have 'low risk' independently evaluated
ESG rating scores, and was recently judged to have the best sustainability
credentials amongst its direct peer group by a leading sustainability adviser.

 

Footnote

 

¹Company-compiled consensus market expectations for revenue and underlying
profit before tax, on a mean basis, are available on the Company's website at
www.headlam.com (http://www.headlam.com)

 

 Headlam Group plc                                Tel: 01675 433 000
 Chris Payne, Chief Executive                     Email: headlamgroup@headlam.com (mailto:headlamgroup@headlam.com)
 Catherine Miles, Director of IR and ESG
 Panmure Gordon (UK) Limited (Corporate Broker)   Tel: 020 7886 2500
 Erik Anderson / Atholl Tweedie
 Peel Hunt LLP (Corporate Broker)                 Tel: 020 7418 8900
 George Sellar / John Welch
 Alma PR (Financial PR)                           Tel: 020 3405 0205
 David Ison / Lily Soares Smith                   Email: headlam@almapr.co.uk

This announcement contains information which, prior to its disclosure, was
inside information as stipulated under Regulation 11 of the Market Abuse
(Amendment) (EU Exit) Regulations 2019/310 (as amended).

 

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