Release Date: September 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Headlam Group PLC (LSE:HEAD, Financial) has continued to grow revenue in strategic areas, with larger customers and trade counters seeing increases of 2.3% and 7.4%, respectively.
- The company has launched new value ranges and increased the proportion of revenue from its own product brands, reflecting strong performance from the 'every room' brand.
- Headlam Group PLC has successfully optimized its logistical footprint, including the conversion of operations in Manchester into a cross-dock facility and the sale of the Stockport distribution center.
- The company has opened nine new trade counter sites and refurbished 11, expanding its network to 76 locations and opening 1,600 new customer accounts.
- Headlam Group PLC has a strong balance sheet with significant liquidity headroom, including cash and undrawn facilities of GBP72 million and a property portfolio valued at GBP142 million.
Negative Points
- The flooring market has been in decline for three consecutive years, with a 10% to 15% decrease in the first half of 2024, contributing to a cumulative decline of at least 25% since 2019.
- UK revenue declined by 11.3% and Continental Europe saw a 15.9% decline, reflecting weak market conditions.
- The company reported an underlying loss before tax of GBP16.4 million, a reduction of GBP22.4 million year-on-year.
- Gross margin decreased by 86 basis points to 30.6%, primarily due to heightened clearance activity.
- Operating costs increased by 6.2%, driven by cost inflation and strategic investments, including a 10% increase in the national minimum wage in the UK.
Q & A Highlights
Q: Can you provide more details on the expected timeline for the market recovery and how it might impact Headlam's performance?
A: Chris Payne, CEO: We anticipate the flooring market to return to growth at some point during 2025, although the timing and pace of recovery remain uncertain. We are positioning ourselves to benefit from this recovery through strategic initiatives and our transformation plan, which should enhance our market share and profitability in the medium to long term.
Q: What are the main components of the GBP15 million annual profit improvement target from the transformation plan?
A: Adam Phillips, CFO: The profit improvement will come from revenue increases due to market share gains, margin improvements from centralized buying and stock control, and cost efficiencies. We aim to achieve this GBP15 million run rate by the end of the two-year transformation plan.
Q: How is Headlam addressing the current weak consumer confidence and market conditions?
A: Chris Payne, CEO: Despite weak consumer confidence, we are focusing on strategic growth areas such as trade counters and larger customers, which have shown resilience. We are also implementing a transformation plan to streamline operations and enhance customer service, positioning us for future growth.
Q: Could you elaborate on the strategic importance of the new distribution center in Rayleigh, Essex?
A: Chris Payne, CEO: The new distribution center in Rayleigh is part of our network optimization strategy. It aims to enhance customer service in the Southeast and is expected to improve operational efficiency by consolidating our distribution network, which will also free up surplus properties for disposal.
Q: What are the expected one-off cash costs associated with the transformation plan, and how will they be funded?
A: Adam Phillips, CFO: We anticipate around GBP25 million of one-off cash costs for the transformation plan, covering restructuring, relocation, site fit-outs, and advisory costs. These will be funded through a combination of property disposals and working capital optimization, targeting at least GBP70 million of one-off cash inflow.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
