TIDMHEAD
RNS Number : 0883U
Headlam Group PLC
27 July 2020
27 July 2020
Headlam Group plc
('Headlam' or the 'Company')
Pre-Close Trading Update and New Distribution Centre
Operational
Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings
distributor, today announces a trading update in respect of the six
months ended 30 June 2020 (the ' Period ' ) ahead of announcing its
interim results on Thursday, 3 September 2020 .
As previously announced, trading had been resilient and broadly
in-line with that of the prior year until 24 March 2020, when the
vast majority of the Company ' s UK operations were closed
following the UK Government guidance issued at that time in
response to the emerging COVID-19 pandemic.
Whilst the UK and French businesses were significantly affected,
the Company ' s other smaller operations in Switzerland and the
Netherlands continued to trade comparatively well due to less
restrictive governmental measures, with only a small minority of
the workforce subject to the equivalent of the UK Government's
Furlough Scheme.
Total revenue for the Period of GBP242.1 million was 30.6% below
the comparative period in 2019 (H1 2019: GBP348.7 million), being
34.4% and 9.6% below in the UK and Continental Europe respectively.
However, the UK revenue profile recovered strongly during June 2020
following the reopening of all of the Company ' s principal
distribution centres by late May 2020 and the reopening of retail
businesses in mid-June 2020.
The below table details the UK revenue performance during the
Period.
Q1 2020 April 2020 May 2020 June 2020 H1 2020 Total
H1 2020
revenue
shortfall
as a % of
that reported
in H1 2019 5.7% 95.7% 72.2% 14.0% 34.4%
-------- ----------- --------- ---------- --------------
Following the site closures in March 2020, the Company took a
demand-led and phased approach to the reopening of its UK
operations, adhering to all UK Government guidelines and
prioritising the safety and protection of its people, customers and
necessary visitors to site. Overheads were reduced and managed to
materially lower levels, with operating costs aligned with the
developing revenue profile; product purchasing limited to specific
projects or orders; and non-essential operational and capital spend
deferred.
Following on from the significantly weakened revenue profiles of
April and May, and strong revenue recovery in June, trading to-date
in July has seen a continuation in revenue growth back towards 2019
revenue levels. Currently, July 2020 UK revenue is running ahead of
July 2019' s UK revenue.
Given the Company's limited visibility on order book, it is not
possible to predict whether the current revenue recovery will be
sustained through the second half of the year. Historically, the
Company's trading activity is second-half weighted with the
important trading periods being the refurbishment of educational
institutions during summer holidays and redecoration in residential
accommodation in the run-up to the Christmas period.
Notwithstanding that overall demand is typically influenced by
economic conditions, should there be a re-emergence of COVID-19 and
associated lock-down measures this would suppress the Company' s
revenues.
The Company announced in May 2020 that it had agreed revised
covenant tests with its banks, Barclays Bank PLC and HSBC Bank Plc,
for 30 June 2020 on the existing facilities which run to 30 April
2023. The Company is currently in discussions with its banks
regarding the extension of these covenant amendments for 31
December 2020. As at 30 June 2020, net debt was GBP22.5 million,
with banking facilities available to the Company of GBP110.7
million and headroom of GBP88.2 million. The Company remains
confident it can manage the business and cash flows within these
facilities.
Given the uncertain trading environment in terms of COVID-19 and
any impact on future performance, and therefore the need to
prioritise cash management in order to preserve the financial
stability of the Company, the Board does not intend to declare an
interim dividend in respect of the six months ended 30 June 2020.
The Board remains committed to providing dividend income to its
shareholders once the environment and wider considerations enable
it to do so.
The Company has undertaken a business review of Domus and its
markets, and has commenced a restructuring which it is anticipated
will result in a cost base more aligned to the predicted revenue
profile going forward with an associated reduction in headcount.
The Company will also undertake an assessment of the carrying value
of its intangible assets when preparing its interim results, which
will reflect the adverse impact of COVID-19. As a consequence, the
Company expects to recognise a non-cash impairment in the carrying
value of its investment in Domus which will result in a full
write-down of the remaining GBP20.9 million residual goodwill. This
will contribute to the Company reporting a statutory loss before
tax for the Period of approximately GBP25 million against an
underlying loss before tax for the Period of approximately GBP2
million.
As part of its focus on the longer-term and growth, the Company
has continued with the planning or accelerated implementation of
some of the projects forming part of its Operational Improvement
Programme. Notably, the previously detailed project relating to
transport integration has been accelerated and expanded to a much
larger area. This project enables the Company to enhance its
customer service proposition, improve operating and financial
performance, and reduce its environmental impact. As the project
results in less vehicles needed to service areas due to delivery
routes no longer being duplicated, it will also likely result in a
reduction in driver numbers.
New Distribution Centre
Following a delay due to the impact of COVID-19, the Company ' s
new 190,000 square feet regional distribution centre, located in
Ipswich, became operational earlier this month. The facility, which
is a significant milestone in terms of improving the service to
customers throughout the South East of England, enables benefits to
accrue from improved operational efficiencies and enhanced capacity
to support growth. The centre was completed on budget at a total
cost of approximately GBP26.0 million, including land acquisition
and internal fit-out costs. Following the build-up of operations,
it is currently expected to be profit enhancing in 2022.
Outlook
The Company is now operating at largely normalised operations in
the UK, with COVID-19 Secure fully implemented throughout the
network, and a resumption of nation-wide next-day delivery
operations and elevated levels of product buying to satisfy
customer demand. The Company is highly appreciative of the support
and understanding its stakeholders have shown during this period,
which has enabled the most considered approach to reopening, the
wellbeing and safety of employees, and cash management which has
exceeded the Company ' s expectations.
Whilst the current revenue performance is pleasing, it is still
not possible given both COVID-19 and the economic backdrop to
provide guidance at this stage on the expected outturn for the
financial year ending 31 December 2020.
The Company will host virtual meetings for both analysts and
institutional investors following the announcement of the interim
results. For further information, or to register attendance, please
contact Alma PR on 020 3405 0205 or headlam@almapr.co.uk .
Key features, photos and build time-lapse videos of the new
Ipswich distribution centre can be found on the
Company's website at www.headlam.com/news-enquiries/ipswich-distribution-centre/ .
Enquiries:
Headlam Group plc Tel: 01675 433 000
Steve Wilson, Chief Executive Email: headlamgroup@headlam.com
Chris Payne, Chief Financial
Officer
Catherine Miles, Director of
Communications
Investec Bank plc (Corporate Tel: 020 7597 5970
Broker)
David Flin / Alex Wright
Panmure Gordon (UK) Limited Tel: 020 7886 2500
(Corporate Broker)
Erik Anderson / Dominic Morley
/ Ailsa Macmaster
Alma PR (Financial PR) Tel: 020 3405 0205
Rebecca Sanders-Hewett / Susie Headlam@almapr.co.uk
Hudson / Harriet Jackson
Notes for Editors:
Operating for 28 years, Headlam is Europe's leading
floorcoverings distributor.
Headlam provides the distribution channel between suppliers and
trade customers of floorcoverings. Working in partnership with
suppliers across the globe manufacturing a diverse range of
floorcovering products and ancillary accessories, Headlam provides
an unparalleled route to market for their products across the UK
and certain Continental European territories.
The utilisation of an outsourced distribution channel enables
manufacturers to focus on their core activities, incur reduced
costs associated with distribution, and benefit from localised
sales, marketing and distribution expertise that provides a more
effective and greater route to market for their products.
To maximize customer and market penetration, and reflecting the
regionalised nature of the marketplace, Headlam comprises 67
individual businesses in the UK and Continental Europe (France, the
Netherlands and Switzerland) each operating under their own unique
trade brand and utilising individual sales teams.
Headlam's extensive customer base, operating within both the
residential and commercial sectors and comprising principally
independent retailers and flooring contractors, receives the
broadest product offering supported by next day delivery as well as
additional marketing and other support.
Headlam's offering is enabled through its unrivalled operating
expertise, long-established supplier and customer relationships,
and comprehensive distribution network. Following years of
considerable investment, Headlam's distribution network currently
comprises four national distribution hubs, 19 regional distribution
centres and a supporting network of smaller warehouse premises,
trade counters, showrooms and specification centres.
In 2019, Headlam worked with 190 suppliers from 19 countries and
fulfilled 5.3 million customer orders.
www.headlam.com
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END
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