REG - Headlam Group PLC - Trading Update

HeadlamAnnouncement

05/12/2024 07:00

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RNS Number : 8771O  Headlam Group PLC  05 December 2024

5 December 2024

Headlam Group plc

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

Trading Update

 

Significant progress on transformation plan but market remains weak

Headlam (LSE: HEAD), the UK's leading floorcoverings distributor, announces an
update in respect of the early progress on its transformation plan announced
on 17(th) September 2024 and a trading update for the five months ended 30
November 2024 (the "Period").

Transformation plan update: significant early progress

In September the Group announced the acceleration of its existing strategy
through a two-year transformation plan. This plan aims to simplify the Group's
business and enhance our customer offer; with the objectives of improving
profitability, increasing market share and releasing capital from more
efficient working capital management and the disposal of surplus property.

 

The Group has made significant progress in the implementation of the
transformation plan since September, as summarised below:

 

Simplify Our Customer Offer

·      The consolidation of 32 trading businesses into one single,
national business trading as Mercado is well progressed.

·      Over 90% of customers (by revenue) have now commenced the process
to consolidate their trading accounts and approximately 50% of applicable
revenue is now trading through the new Mercado business.

·      These customers benefit from being able to order from a broader,
unified product list and from more time with our sales teams, who have smaller
geographic territories. The customer and colleague response to date has been
positive and there has been no discernible disruption to revenue.

 

Simplify Our Network

·      The fit-out of our new distribution centre in Rayleigh (Essex) is
almost complete and is expected to become operational in early 2025. As
previously announced, these changes mean that our Ipswich distribution centre
becomes surplus to requirements.

·      The optimisation of our warehouse operations in Scotland is now
complete, with the consolidation of two sites into one distribution centre
near Glasgow, resulting in our Uddingston site becoming surplus to
requirements.

·      The Group is in discussions to sell both the Ipswich and
Uddingston properties and will provide an update in due course.

 

Simplify How We Operate

·      We have now implemented a centralised buying and stock control
team, which enables us to maintain a unified, national product file and
unlocks benefits including a reduction in product duplication, simplification
of supplier interaction, and optimisation of stock ordering.

 

The transformation plan remains on track to deliver the financial benefits set
out in September, and in light of the continued market weakness has been
extended to deliver additional benefits:

·      The release of at least £70m cash from disposal of surplus
property and optimisation of net working capital (prior to one-off
transformation costs), which we explained in September was expected to be
achieved within two years, but management is now confident could be achieved
sooner; and

·      Ongoing profit improvements are now targeted to be at least
£20m; to start to be realised during 2025 and fully achieved as a run-rate by
the end of 2026.

 

 

 

Trading update

While the lead indicators for the flooring and home improvements markets
continue to point to improvement in the medium-term, these indicators remain
volatile. As has been widely reported, UK consumer confidence declined in the
run-up to the UK government's budget announcement, and this resulted in a
further deterioration in the rate of decline in consumer spending on home
improvements(1).  Consequently, there has been no sign of improvement in the
flooring market during the second half of the 2024 and we estimate that the
market continued to decline at 10-15% year-on-year, in line with H1.

 

The Group's revenue decline has slowed in the second half to date, despite the
lack of market improvement. Group revenue for the five months to the end of
November declined 7.3% compared to an 11.8% decline in H1. This lower level of
revenue decline in H2 has principally been driven by revenue from Larger
Customers, in particular resulting from Carpetright exiting the market. This
helped to reduce the decline in UK revenue from 11.3% in H1 to 6.6% in the 5
months to the end of November.

 

Despite this improved rate of revenue decline in recent months, the market
itself has been weaker than previously projected. Accordingly, the Group
expects the underlying loss before tax for the second half to be broadly in
line with the first half.

 

Cash and working capital continue to be well-controlled. The Group's strong
balance sheet position is further supported by a property portfolio valued(2)
at £142 million.

 

The Group has reviewed the implications of the recent budget announcement by
the UK Government.  Whilst the Board anticipated some of the changes that
were announced such as the increase in the national minimum wage, the
reduction in the national insurance threshold was not anticipated. When
combined with the rise in the employers' national insurance rate to 15% the
overall effect of these changes will be to add c.£2 million to the Group's
annual operating costs, effective from April 2025.

 

Commenting, Chris Payne, Chief Executive Officer, said:

"The challenges impacting the UK flooring market have continued to weigh on
our trading performance in the short term. However, the Board remains
encouraged by the significant progress we are making against our strategy and
transformation plan to simplify our operations and improve our customer
offering. In light of the additional market headwinds, we are extending this
programme to target greater benefits over the next two years. This progress
remains critical to ensuring the business is positioned for long-term success
given the wider current macroeconomic uncertainty and its impact on consumer
confidence and our markets in the near-term."

 

Footnotes

1.   According to Barclays data, consumer spending on home improvements
declined 7.7% in October 2024 compared to 5.0% in September and 5.7% in
August:
www.barclayscorporate.com/insights/industry-expertise/uk-consumer-spending-report
(http://www.barclayscorporate.com/insights/industry-expertise/uk-consumer-spending-report)

2.   The last valuation of the property portfolio was undertaken in January
2023; the most recent property sale (in June 2024) was at a premium to this
valuation

 

Enquiries

 Headlam Group plc                            Tel: 01675 433 000
 Chris Payne, Chief Executive                 Email: headlamgroup@headlam.com (mailto:headlamgroup@headlam.com)
 Adam Phillips, Chief Financial Officer

 Panmure Liberum Limited (Corporate Broker)   Tel: 020 3100 2000
 Tom Scrivens / Atholl Tweedie

 Peel Hunt LLP (Corporate Broker)             Tel: 020 7418 8900
 George Sellar / Finn Nugent

 Houston (Financial PR)                          Tel: 020 4529 0549
 Kate Hoare / Kelsey Traynor / Polly Clarke

 

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 businesses, trade brands and product brands across the UK and
Continental Europe (France and the Netherlands), which are supported by the
group's network, central resources and processes.

 

IMPORTANT NOTICE

This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No. 596/2014 on Market Abuse ("UK MAR"), as
it forms part of the UK domestic law by virtue of the European Union
(Withdrawal) Act 2018. 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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