Headlam Group Chief Executive Chris Payne, and Chief Financial Officer, Adam Phillips present full year results for the year ended 31 December 2023, followed by Q&A.
00:00 – Opener
Chris Payne, Chief Executive
00:16 – Introduction
01:47 – FY 2023 Overview
03:47 – Flooring market backdrop
Adam Phillips, Chief Financial Officer
05:17 – FY 2023 Financial summary
07:38 – Revenue
08:21 – UK Distribution volumes
09:01 – Income statement
10:37 – Underlying operating profit
12:11 – Mitigating actions
13:24 – Non-underlying items
15:01 – Cashflow
16:42 – Capital expenditure
17:19 – Balance sheet
17:46 – Daily net debt
Chris Payne, Chief Executive
18:04 – Market opportunity
18:45 – Strategy summary
20:01 – Broadening business base
21:02 – Regional distribution
22:35 – Trade counters
23:59 – Larger customers
Adam Phillips, Chief Financial Officer
25:25 – Digital and IT
26:14 – Sustainability and ESG
27:48 – Continental Europe
Chris Payne, Chief Executive
29:22 – Summary and outlook
32:05 – Q&A
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.
Hello and welcome to Ham’s 2023 year end results presentation uh I’m Chris Payne the chief executive um and I’m joined in our lovely Tamworth showroom which is uh for our branded business unit by Adam Phillips our CFO So today we’re going to cover an introduction and an overview of
The 2023 year uh and a market update Adam’s going to cover 2023 financial performance in more detail then I’ll pick up a strategic and operational update before finishing with an Outlook to the years ahead and a summary of the performance so uh headlam on a page
About us um been around for 30 plus years now um we’ve got a market leading position in UK distribution we’re also based in territories in France and the Netherlands and we’ve got this deep knowledge and experience of working with customers across a number of channels and I’ve referred to a sort of
Broadening business base on this slide this year so um we’ve been developing our business into trade counters and larger customers as well as the traditional uh independent retailers and Fitters that we’ve serviced for for many many years um we have a market leading stockholding and range of product that
We offer to our customers um and as I said we’ve been developing our trade counter and uh larger customer business over the last couple of years and I’ll provide a bit more of an update on how we’re progressing uh with that area very shortly so just turning to 2023 and
Overview before Adam provides a bit more detail on the year we’ve just finished there really sort of four areas that I want to cover firstly that the Strategic area of growth into our trade counters and the larger customers as really delivered in 23 we saw significant Revenue increase in our larger customers
At over 26% year on year and we saw trade counters also delivering at over 8% growth year on year within the regional distribution business I think that was a little bit more challenged as the cost of living crisis that we’ve seen in the UK and also the reduction in
Consumer spending in the UK Market took its toll on the regional distribution business and we saw that decline during 2023 but a strong performance in our own branded business the second area is is just to reflect on the uh reduction in profits that were driven by that uh macro
Constraint that we saw in the UK and indeed overseas as well so we saw a reduction in our underlying profit performance driven by these sort of headwinds and Adam will describe a little bit more detail about the reasons for those shortly I think the third element though is a real strong
Operating cach performance we saw operating cach of 26 million in the year which is much higher than we’ve seen in the last couple of years and that was complemented also by the sale of uh Freehold property at kinster where we received the proceeds from the insurance
Claim last year and that that sort of strong cash performance enabled us to do a couple of things really one was invest in the business uh invest for the future by continuing this roll out of trade counters uh and indeed in improvements in the regional distribution business
Which will come on to but secondly also to underpin some shareholder returns that we’re able to offer this year and indeed offer as we did at the half year a stronger dividend cover which we’ just announced at six P for the final dividend for 2023 additional slide this year I just
Wanted to provide a bit more flavor about what’s happening in the market and the macro for the floring market for the UK in 2023 so this sort of backdrop of macro challenges that I refer to just now there are three data points that we tend to try and follow firstly consumer
Confidence and we can see that that’s had quite a negative effect on the UK Market in 2023 in fact UK consumer confidence would is at its lowest de since the financial crisis of ’08 housing transactions typically there is quite a close Affinity between the number of housing transactions that are
Happening in the UK um and uh the demand for flooring and our performance and again we’ve seen the housing transactions at a relatively historic low for 2023 and when I look forward I think that’s also going to remain subdued for 24 and then lastly it’s the spending on Home Improvements and RMI
And again we follow people like Barkley card data which is shown for the final quarter of 23 and continuing into 24 you know minus 8 – 9% year- on-year reduction in spend on Home Improvements and the the RMI spend also down 11% in 2023 so it gives you a feel of the
Market constraints that we’ve seen uh impacting flooring demand in the UK I’m now going to hand over to Adam who’s going to cover our 2023 performance in a little bit more detail thanks Chris I’ll talk through a few slides on the p&l cash flow and balance sheet for the year starting with
An overview of the key numbers Revenue declined very slightly at minus 1.1% this comprise flat year-on-year Revenue in the UK and a 7.7% decline in Continental Europe and on the next slide I’ll take you through a more detailed breakdown of those Revenue movements gross margin was 31.7% a
Return back to the pre 2021 average of 31 to 32% and that reflected the unwind of the temporary margin benefit in 2022 from the significant manufacturer Le price increases in that year underlying operating profit of 16 .1 million compared to 39.2 million in the previous year and I’ll walk through
The key movements on a later slide but in summary that reduction reflects lower volumes the unwind of the temporary margin benefit in 2022 and high operating cost inflation partially offset by mitigating actions cash generation was good 26 million of positive underlying operating cash flow roughly double the amount
Generated in the previous year and higher than either of the previous two years net debt pre-lease liabilities of 29.6 million increased by 31.4 million from the end of the previous year reflecting a combination of Investments for the future with 18 million of capex and 6 million of Acquisitions and 17 million
Of sharehold returns comprising ordinary dividends and the completion of the share buyback program in March leverage at the end of 2023 was 1.3 times and finally as Chris mentioned the board has recommended a final dividend of six P taking the full year dividend to 10 p and this represents cover of 1.1 times
Which is lower than our long-term average cover policy of around two times and in arriving at that decision to lower that cover the board has considered the medium-term Outlook which is positive given the expected Improvement in the market combined with the maturity of recent strategic Investments and the board has also
Considered the strong operating cash generated from the business and the cash proceeds from insurance settlement to property sales both in the year just gone and the respective property sales uh opportunities planned in the year ahead so turning to revenue in a bit more detail then and on this slide we’ve
Broken down the UK Revenue into the different channels and Chris will talk more about the performance of each of these in a few minutes but the key headlines being that the Strategic growth initiatives of larger customers and trade counters performed very well with Revenue up 26% and 8.5%
Respectively and as Chris mentioned this offset the 7% decline in Revenue in Regional distribution which was impacted by the weak residential Market with consumer spending on home improvements in high single digigit decline through the year particularly at the latter end of the year and Continental Europe is also impacted by weak residential volume
Particularly in the Netherlands so on this next slide here the chart shows the monthly year-on-year volume movement in our UK distribution business from the start of 201 22 through to the end of 2023 and as you can see there had been an improving trend from Q2 2022 all the way through
Until about the Autumn of 2023 and it had looked as though our volumes could return to growth in Q4 however we saw a marked deterioration from September which was mirrored in the floring market in consumer spending data on Home Improvements and across other related sectors this weakness persisted
For the rest of the year and Chris will talk later about what we’ve seen so far in 2024 so moving on to the income statement and I’ve covered the revenue and margin movements already so moving on to costs and the total operating costs which is the combination of the
Distribution and administration lines in this table grew by 6.3% in total and 3.8% on a like for- like basis when you strip out the costs inherited from the three businesses we acquired in the year this increase reflects the combination of cost inflation and strategic Investments offset by cost savings and efficiencies and cost
Inflation was a 10 million pound headwind in the year which is more than double what we would typically expect to see in a normal year and reflected elevated pay inflation of an average 7% and electricity pricing more than doubling year on year operating profit declined by 23.1 million to 16.1 million
Reflecting lower volume the unwind of the temporary margin benefit in 2022 and also strategic investments in cost inflation and all of that was partially offset by mitigating actions and I’ll show this on a year-on-year bridge in a moment so moving down to p&l interest costs increased 3 million to
5.1 million reflecting higher average borrowings and increases in the base rate non- underlying items were a 3.9 million expense although were a significant cash inflow and I’ve got a breakdown of those non- underlying items which I’ll take you through shortly finally at the bottom of the table as I mentioned earlier the board
Has recommended a final dividend of six P taking the full year to 10 P turning to a bridge of the year- on-year operating profit volume in the UK business drove an 11 million adverse impact in the year and this is the net of volume growth from large customers
And trade counters offset by decline in the regional distribution business so the unwind of the temporary margin benefit last year for manufacturer price Rises had a 5 million impact in 2020 23 and this had been fully Unwound by the end of Q3 and is no longer a headwind going forward strategic Investments introduced
An incremental 3.9 million of profit dilution as expected driven principally by the trade counter investment program and whilst the trade counters are performing in line with their business case as planned any newly invested site is loss making initially and breaks even during year two as such the trade
Counter roll out is diluted to profit during the investment phase and becomes profit acreative thereafter the next bar on this chart is cost inflation which was a 10.2 million headwind as I mentioned earlier and this is double what we’d expect as I said in a normal year and as we look into the
Year ahead uh pay inflation in 2024 while still above the long-term average uh is lower than what we’ve seen in 2023 so we should see a lower kind of cost inflation headwind going into the next year Continental Europe saw significant volume decline which drove a 3.1 million reduction in profit generated by those
Businesses and then finally cost mitigations then so all of these headwinds were partially offset by 10.3 million benefit from mitigating actions so just moving on to those mitigating actions in a bit more detailed and these build on previous efficiency initiatives and were supplemented in the year by specific and
Decisive actions we took in response to the market conditions these included volume and margin related actions including some targeted activity particularly during the peak November period negotiations with the suppliers and also some targeted price increases earlier in the year cost actions included flexing operational headcount to reflect lower volumes and this was
Achieved by the non-replacement of vacancies rather than through redundancies and we completed the transport centralization and dynamic route planning projects during the year which reduces transport costs and has an environmental benefit from lower emissions we renegotiated fuel contracts covering petrol Diesel and electricity uh and we also had a benefit from our
Reduction in the bad debt provision partially reflecting the improvements made in the profile of receivables through good cash collection in the year and all of these actions are supplemented by general cost control actions throughout the year and as mentioned before in total these mitigating actions provided 10.3 million of benefit in
20123 moving on to non- underlying items these totaled an expense in the p&l of 3. 9 million in 2023 but generated 6.5 million of cash inflow the first row in the table is the amotization of acquired intangibles and other acquisition related costs which we consistently reflect in non underlying
Items and these were slightly higher year on-year reflecting the three Acquisitions so insurance proceeds were an 8.6 million credit all received in cash in the year this related to the final settlement on the kidster insurance claim and we subsequently sold the land for a profit of 1.1
Million the final Row in the table relates to business restructuring and change related costs most of this was non-cash but if I take the cash element first of all which total 3.4 million this comprised Severance payments as part of some targeted cost savings vehicle lease termination costs
Where we’ve been able to reduce vehicle requirements through transport efficiencies and consultancy costs incurred as part of work performed on the long-term growth initiative the non-cash costs of 7.9 million include 5 million in respect of writing down the value of catalized software following the decision to replace the
Erp and we’ll talk more about that later the rest relates to Provisions in respect of network optimization and we’re currently in the process of consolidating our Stockport Distribution Center into one of our other sites in the north of England and replacing the Stockport site with a small cross talk
Facility and we own the Stockport property and we expect to sell that during the second half of 2024 so turning to the cash flow underlying operating cash flow was strong at 26 million and as mentioned before that was significantly ahead of both the previous two years looking at working Capital stock
And receivables were both well controlled and were down year onye payables decreased by 24 million partially reflecting that lower stock but also reflecting timing of Supply payments of which an element will reverse in 2024 just moving down the cash flow moving below operating cash flow Acquisitions total the cash outflow of
6.1 million in the year comprising the acquisition of Melrose in January for 3.7 million followed by two small Acquisitions in H2 capital investment was 18.2 million and I’ll cover that separately on the next slide lease payments of 15.1 million was slightly up year on-year reflecting new leases for
Trade counters there were 17.4 million of shareholder returns in the period comprising 12.2 million of ordinary dividends and 5.2 million in respect of the share buyback program that completed in March 2023 and finally at the bottom of the cash flow are the non- underlying items we had a net 6.5 million inflow on
Non underlying items which comprised a 10.4 million of cash inflow from the kidderminster insurance settlement and that subsequent sale of the land offset by 3.9 million of non- underlying cash costs as set out on that previous slide so the net cash flow for movement in borrowing was a 31.3 million outflow and
That represented the combination of the strong underlying operating cash flow principally offset by investments in capex Acquisitions and shareholder returns taking a look at capex uh in a bit more detail then so 2023 was a busy year for investment in uh in growth areas in efficiencies and in replenishment and improvement in our
Regional distribution business in total we invested 18.2 million and we we expect 2023 to be a peak year for capex dropping to around 12 million in 2024 and then to drop further over the medium term we’ve been investing 5 to six million a year in trade counters from
2022 and we expect this to be completed in 2025 culminating in a network of around a 100 sites Ham’s balance sheet strength is underpinned by a freehold property portfolio valued in early 2023 at 149 million and net positive working capital of over 100 million and there’s significant liquidity Headroom with over
70 million of cash and undrawn Facilities available at the end of December 2023 net debt excluding leases was 29.6 Million at the end of December and that represented 1.3 times ebit Dar and on this chart here this is something we’ve presented before and it shows the Daily net debt balances and this
Illustrates the relatively small Peak to trough swing in the net debt balance within each month or full year period period I’ll now hand you back to Chris who’ll talk you through the Strategic and operational updates thanks Adam so a couple of slides which are really reminders so firstly to look at
The market opportunity which we see this as around3 billion pound worth of distributed priced opportunity in the UK market and we’ve shown up here the different types of customers that we service so on the left hand side of the slide is our traditional retailers and independent Fitters where we’ve
Typically had a high level of Market penetration and then going across to the right through the contractors the multiple retailers the larger house builders and ultimately the online customers where we’ve got a lower relative share SO3 billion P worth of UK Market opportunity this slide effectively
Strategy on a page for head Li and I’ve talked about this before and again as a reminder there were five areas of our strategy the first one on the left hand side of the page talks to service and product this is about offering great service to our customers the right
Products at the right time the second element of our strategy is around opportunity for growth and this is where we’ve seen the broadening of our business into trade counters and the key accounts and the other areas that I’ll cover shortly third area of our strategy really talks to Effectiveness and
Efficiency and also the utilization of digital capability to improve our offering to our customers and then finally the fourth and fifth areas of our strategy talk to sustainability and our ESG strategy which I’ve spoken at length about previously and add them will cover shortly and indeed investment
In people are making headlam a great place for our colleagues to work so those are our five areas of strategy and I’m going to provide some updates uh on the customer facing elements and then hand over to Adam who’s going to talk about um some of the digital
Developments we’ve been making uh and our ESG and sustainability areas as well so I mentioned this s broadening the business base and that’s a theme that I’ve mentioned before and it will be continue to be so so in the past as I mentioned we typically were focused very heavily on the regional distribution
Businesses and the independent retailers and we’ve been looking at broadening our business to offer services to other parts of the market and indeed at the bottom of this slide I’ve expressed the sort of digital and e-commerce development that we’ve been going through in the last year and we continue
Contin to be a feature going forward as we offer new channels for our customers to engage with us so this is really a reminder slide that there are three main parts of our business the regional distribution business which is utilizing the hubs and centers around the country the trade counters which Adam mentioned
Earlier remain an investment Focus for us going forward and I’ll cover uh the progress on that in a moment and then larger customers where we’ve seen the fastest growth in our business as we offer uh service uh and bepoke service to larger customers who need a different solution so focusing on Regional
Distribution first this is the area of the business where we’ve seen probably the most constraints driven by the market tightening and the consumer sentiment weakening that we refer to earlier so we saw a 7% decline in Revenue in 2023 and I mentioned that’s really driven by the market weakness but
Within that period we also did see the focus on our own branded business and I mentioned and we’re currently in our Tamworth customer site aimed at branded businesses and in this area we did see some growth and this was our investment that we’ve made in our every room business in particular lifestyle is
Another one of our key brands that we’ve invested in this year and you can see the benefits of that so we were able to actually generate some growth in our own brand business amongst the backdrop of a weak residential demand at the same time we were able to invest in this side of
The business so we’ve continued the investment in new equipment and I’ve mentioned this before but new cutting equipment new sortation this is all aimed at improving customer service which is critical to success uh in this space and indeed uh reflecting some of the investments in um solar panels and
The telematics refers to uh the investment in the vehicles and the transport Network which resulted in both cost reductions and a carbon reduction through the use of smart technology on our vehicles so some Investments made in Regional distribution despite the tough Market that we’ve seen during 23 so just turning to trade counters
We’ve put a chart on here which shows you what the projected number of trade counters are likely to look like from the end of 23 through 24 and 25 Adam mentioned we’re targeting around about 100 at some point during 25 and this is where we’ve seen a real solid level of
Growth as we put down more space and now now they are an investment we have to fit them out before we take revenues but remember these trade counters also will incorporate the refurbishment or relocation of existing sites so this isn’t simply about putting new space down is also about investing in the
People the sites the products the look and feel of the trade counters uh for the existing estate as well we have seen these cohort of sites perform in line with the business case that we set out a little while ago and that’s despite the market weakness so that’s really
Encouraging that these new locations are performing uh in line with expectation and as we indicated it will take a number of years for these to reach maturity and as we’ve rolled out these sites across 23 we’ve learned as we’ve gone so we’ve been able to reduce the
Capital spend at each of the locations uh and also we’ve um learned how to make quick impact on driving customers and get that Revenue moving uh more quickly where we open up in New Towns and and cities across the country so larger customers as a reminder we categorize
Sort of three main types of larger customer we’ve got the multiple retailers we’ve got the building merchants and then the third area is the house builders and we’ve talked about these before and we’ve been developing our business in each of those three types of larger customer and this is
Really about defining and describing a service that makes sense for each customer on a customer by customer basis now that could be as simple as offering a logistic service for some customers that need support uh around the type of flooring product that we um distribute on their behalf and other customers it
Might actually be selecting products and ranges from multiple manufacturers and packaging them up um for a uk-wide uh logistic service so again it can be different depending on the needs uh of each of the customers so we’ve had success in all three of those areas in the year we’ve developed new customer
Customers in all three areas the multiple retailers the building merchants and indeed in house building and we’ve increased our share of spend with each of those areas hence the strong performance in year and again we set ourselves some challenging targets for growth in 24 I’m going to hand over to Adam who’s
Going to cover an update on digital and e-commerce development uh and also the changes we’re making in it thanks Chris and as Chris has outlined ongoing digital and it investment are key to our overall strategy during 2023 we made a number of digital and it improvements including launching the first headlam brand
Website to better showcase headlam Services knowledge and products we also relaunched two B2B Toc websites now these are websites for our own product Brands where an end consumer can go and take a look at our products order samples and then find a retailer near to
To them during the year we also made the decision to replace the group’s core it system to a more agile and flexible platform to support future growth this will be a three-year program using a modular approach to enable smooth transition and minimize disruption moving on to ESG where we’ve
Made good progress in the year and taking each of the ESG in turn from an environmental perspective we’ve made significant investments in technology to reduce our carbon footprint through the installation of solar panels and the introduction of dynamic route planning for deliveries which combined with the transport consolidation project
Has reduced mileage by around 20% a year and saving around 1,300 tons of carbon emissions we continue to transition our non-commercial Fleet away from Diesel and petrol and over 85% of that Fleet is now hybrid or full electric we launched four sustainable product ranges during the year and we conducted green energy
And recycling workshops with our colleagues from a social perspective we made progress in embedding a safety culture and introduced a new group health and safety director role during the year and there’s also been considerable steps taken to develop training inductions uh creating an inclusion and well-being strategy and
During the year we conducted the first colleague engagement survey and finally onto the G we have further strengthened the supplier review and onboarding process and this has been supplemented by the addition of an ethical sourcing specialist we actively engage with a wide variety of stakeholders taking a
Leadership role in our market and across all areas of the business we’ve continued to test and improve our processes against external standards including ISO sedex fors Etc moving on to an update on our Continental European businesses these contributed about 80 million of Revenue in 2023 and about 2third of that is in
France and about onethird from our two businesses in the Netherlands the revenue decline across these businesses was 7.7% in 2023 particularly driven by the uh the Netherlands where the market is being very weak our French business has a network of sites across the country that act like trade counters and
Showrooms and the business has returned to profitability and has a strong managing director who joined during 2023 and has settled in well and the performance of own brand ranges has been a highlight and these now constitute to over 40% of Revenue in our French business we have two businesses in the
Netherlands and Headland BV on the middle of the slide here is based in the east of the country and has a residential focus it has an established curtain and blinds offer to complement flooring and looking ahead a key development in this business is the transition to a new it platform which
Will be shared with our other Dutch business derso to facilitate closer working between those two businesses and finally on the right hand side is derso and this is located in the west of the country and has a commercial focus and this business has traditionally had only a flooring Focus but has been
Supplemented more recently with curtains and blinds through agency agreements and also through a small acquisition in 2023 and there’s a good opportunity in DMO to expand own brand ranges which will be a key Focus for the year ahead I’ll now hand you back to Chris for the summary and Outlook thanks Adam so
Outlook there are three components really the Outlook the first one is very short term and the trading that we’ve seen since the end of 23 and I think not surprisingly many businesses who are facing into the UK consumer are seeing this effect of a continued weakness which has affected trading in the early
Weeks of 20124 uh and we’ve seen negative volumes continue from the end of 2023 I think the second element of the Outlook is really the effect on 2024 and we’ve seen a number of the macro factors that I described earlier continue to show weakness now forecast for the rest
Of 2024 and it sort of feels like a delayed recovery that had been expected during 2024 feels now as if it’s moving to the right and a bit later in 2024 but I think the third element of our Outlook Remains the medium-term positivity of this business you know where we can see
Some of the volume recovery that we anticipate happening in RMI spend and also the maturity of our strategic investments in both try counters and Kia and our own branded business unit all supported by that digital channel development that Adam described I think that’s where the real value and growth
Is going to come from in this business over the medium term so lots of reasons why that medium-term recovery remains positive in the past we’ve talked about and indeed in these slides we’ve talked about the ambition to drive the larger customers and the trade counters to 200
Million pounds worth of Revenue and what would the recovery of the regional business look like and we’ve showed us slide here which shows what that model might look like with some recovery not full recovery but some recovery in RMI spend in the UK across the regional distribution business and US achieving
The target Revenue that we set out for large customers and trade counters so you can see us approaching the billion pounds worth of sales um which we think Helm can achieve so just in summary then I think you know the business remains incredibly resilient in a very challenging market and that challenging
Market has continued into 25 for and we expect that to remain subdued for a period as many businesses have been reporting in recent times but I think it is important for us to reflect that the business remains well positioned we’ve got this strong balance sheet behind us
The broadening of the business that I described earlier will serve us well for the future and when the recovery happens the recovery will happen across not just the traditional areas that headlam has been strong in but also the new areas of the business that we’ve been developing
So it will show some meaningful revenue and profit profit growth uh over the medium term so thanks for joining the uh presentation today um and I’ll will now take some questions and the first question is can you describe the components of the distribution segment and the degree to which they have
Leverage to higher volumes yeah I suppose the distribution segment is is relatively simple I mean we it’s it’s take an order cut it process it ship it and then and then collect the cash um as we’ve described over the last few years um we’ve done a
Couple of things one is to flex our ability and cost base to meet that sort of drop in demand level so we’ve been able to flex out cost base down but also we’ve applied a degree of efficiency metrics in particular around the transport Network so becoming a nationwide network uh nationwide
Delivery network was an important step and to use technology in order to do that has meant that we’ve retained the ability to flex up when demand does recover so so taking that answer in the stages you know we’ve got now two or three methods of taking the order um we
Can now take orders digitally in a way that we couldn’t before so we’ve got capacity to take and expand our order taking requirement we’ve retained our sales offices the a traditional way of receiving orders so that’s flexible um processing the the orders so cutting and um uh and wrapping the product for
Distribution now we’ve Consolidated the ad network but we’ve invested in capacity and I think that’s important point to know that we’ve got capacity in the network to flex up for scale we’ve invested in new sortation uh and cutting equipment so that we can scale as
Required and then as I said the the the transportation element uh I’ve covered through the use of technology and dynamic routing it means that we can scale um when the demand requires it effectively we got a more efficient Network than we had before now clearly that that that comes with its challenges
You still need to where you’ve reached capacity constraints you need to be able to flex up uh variable labor and and potentially take on additional vehicle assets but but for the most part we’re able to flex the capacity as demand recovers and moving on to net debt what
Was the true average net debt in half two so our average net debt uh last year was 34 million so um you know and as as we outlined on that chart that shows the movements during the year we have a relatively small uh Peak to trough uh
Movement so the average pretty close to our year end there were a couple of movement Parts as we approached the year end obviously had about 11 million of cash inflow on the kidin to insurance and then the sale of the land which was an inflow um and then on the other side
We had some timing Supply and payments which moved the other way but all in all uh very close yearend net debt to our average net debt position and do you ensure your debt do we do we ensure it no we don’t know and regarding the interest charge how much of the 3.8
Million half to cash interest charge was interest on borrowings and does the 3.8 million include a fee for waving the interest cover Covenant so so on our interest cash cost just don’t about half of that is around interest on leases um so we’ve got leased equipment and sites
And then the other roughly a half is then interest on borrowings um in terms of covenants we we haven’t waved any any any covenants in years there’s no there’s no cost associated with that and looking at working capital it’s indicated that about 10 million of the cash outflow into creditors were revers in
2024 should we assume that about 10 million of total net working capital inflow in 2024 so that’s about right on payables therefore we’d expect probably somewhere around the 10 million inflow uh the question is then what happens on stock and and receivables uh you know and that
Partly depends on where the market is and this and the shape of the market recovery uh but but overall uh I would expect that to be broadly about right there’ be I could expect a small working capital inflow for the year and looking at the Erp system what’s the level of er
Investment the questioner says that there was an exceptional 3 million in 20124 what do you expect in 25 and 26 yeah pretty much the same so I’d expect somewhere it might be slightly higher 25 and 26 but around that sort of Mark so three four you know maybe five depending
On timing of the investment um but that’s it’s there’s no change to our expected it cash kind of cost over the next few years from what we’re previously expecting so we’re previously expect ing some level of capex and it’s broadly in line with that it’ll show up it’ll show up as a
Non- underlying expense in the p&l rather than uh capitalized cost just to the way the accounting works as it’s a cloud-based software as a solution but as a service but um but yeah similar to very similar to what we were previously expecting around it spend great and that includes all it
Spend there’s no other it spend yeah so we we’ve got development costs so that 3 million in 2024 is specifically around development of the new platform we’ve obviously got ongoing it uh running costs as well uh but that three million particular around developing the new platform uh but we already had in our
Plans some assumed spend on uh ongoing kind of development of existing and any new platform so um it’s all broadly in line with what we previously expected and the liquidity in headlam shares is is limited and your Brokers don’t distribute via research tree so retail investors were in the dark when your
Brokers changed the profit and earnings per share forecasts would you consider a broker with their notes available to private investors VI research tree which might help liquidity and if not why not yeah it’s a good question obviously coverage coverage has has undergone changes over the last few years as The
Wider kind of equity research Market has changed you know and we’ve sought to address that through uh retail webinars we do a number of those year we try and make ourselves accessible and available um we know we’ve got a contact email address people do contact us and email
In and we do take the time to reply um so uh but you know we we’ll keep that we’ll keep that under review and we we do Endeavor to update the consensus on our website if there are any changes to to broker forecast so that you know
Everyone can have site to those uh but you know we we’ll keep it under review but um uh we’ll keep we’ll keep doing these the retail webinars and making ourselves available and Opex to sales is today above 29% versus the historical levels of 25 to 26% what long-term Opex to sales do you
Expect in different scenarios yeah that we we’ve mentioned this a couple of times in the past there has been one or two shifts I suppose in the shape the overall shape of the business as demand moves and changes so going back to the last financial crisis I think the um operational cost base
Versus Revenue was at a different level again um and I think there is a an inbuilt level of um whether it’s compliance or wage inflation that has resulted in a larger level of opics and indeed as volumes have declined of course with uh being an operationally leveraged business it’s despite all of
The things I’ve said around uh capacity clearly you are slightly less efficient as demand Falls away so um the the guidance we’ve given in the past has been that as a volume comes back we would expect our operational leverage to give us the benefit and therefore operational costs of percentage of sales
Would drop now I question whether it would get back to that longer term uh historical past just because the structure of the market and the way that wage inflation has worked through the system and and indeed the the cost of compliance in in um modern day living
Whether that’s will mean that we do see a a permanent reduction in that leverage uh ability but we should see an improvement nonetheless as demand comes back and was the capex in for example cutting tables for the regional trade a routine replacement of end of life equipment or does it offer a genuinely
Enhanced service in some way a bit of both uh I’ve again mentioned this before I think in the past the business has not necessarily kept pace with replacement cycle or much of its equipment um whether it’s um sort of forlift trucks and operational equipment or whether it’s rotation and cutting tables so
There is a degree of the need for us to replace existing equipment in the estate now of course when you make those Replacements you can also look to the Future um and some of the sortation developments that we’ve put in place or aimed around efficiency and capacity so
I think there’s a bit of an opportunity therefore for us to not replace light for like and to expand uh the opportunity to offer a more efficient and indeed accommodate more capacity so it’s some and some is the answer on that um and indeed of course when you replace
Equipment you also put in new safety features and guarding and various other things so yeah a bit of both and in the last five years capex has averaged 13.5 million a year a very substantial increase from less than 4 million in the last 5 years so what’s the reasonable
Run rate expectation for capex over the next 3 to 5 years you might have referred to this but has something structurally changed to make the business more Capital intensive maybe Adam can cover the the kind of guidance on the future but there there have been two or three specific changes uh and
Comments that I’ve provided in the past going back a few years we had the oneoff investment in the ipswitch development which total 26 million um and Adams covered that in his capex slide but that was a significant investment that was sort of out of the ordinary if you like
Uh in terms of run rate so that’s one item to note the second item is comes back to that point I mentioned which is I think in the past the business did not replace its equipment uh in a kind of timely way so we’ve ended up with a um
The need to replace a significant a level of equipment over a relatively short period so there’s a sort of slightly heightened level of replacement SP and again I’ve talked about that in the past and I think the third element then is the investment uh in the expanded business base and as we deploy
The trade counter rollout program we’ve again previously quoted a number of around 25 million pounds worth of investment in trade counters over a multiple number of years so those are the reasons why our run rate on Capital spend has increased um and also why ad published that slide on capex because it
Talks to a in profile which will Decline and then there is a long-term kind of uh replacement cycle if you like of equipment perhaps that that Adam can give some guidance yeah sure so so I mean the 18 million in 2023 was was very much a peak year and you’ll see on that
Slide that that we presented we expect that to come down to 12 in 2024 but that 12 as as Chris explained it still includes the investment phase on trade counters and that’s about 5 million a year 5 to six million a year here so uh and that will at the moment the expect
Expectation is that will conclude in 2025 when we get to around about 100 sites and then that five six million or so of CAPIC will then drop out of that number so you can kind of get a sense then that the ongoing run weight after we’re out of that investment phase is in
The single digits um on capex and you report that competition in your core Regional distribution business has heightened is this going to get worse and should we be concerned about the growth of competitors there’s no doubt that the market is competitive I mean the all the data points that I’ve
Refer to and generally available in the marketplace and I I’ve used Barkley card as a as a good kind of proxy for people’s attitude to di DIY uh Home Improvement spend and RMI you know that has remained in in negative territory uh and it’s opened this year in negative
Territory so the market as a whole and Flor and spend as one of those categories has has declined in the year um now we commissioned some market share analysis to to complement that and we can see that our market share has broadly remained flat it’s slightly positive actually for 23 but it’s
Broadly flat and as you know that that probably highlights that you know we’ve grown a bit because of our expansion into larger customers and deployment of of trade counters which suggests that we may have shrunk a little bit in the reg of distribution business partly by the
Market and partly due to competition I’m sure um and that area has always been competitive will remain competitive um and yeah I don’t see that changing as the market remains constrained you know people will be continuing to chase down those sales but as I said our overall
Market share has increased uh and that’s part of the reason why the strategy is important because as the spend returns to the market you know we’re growing into new areas and therefore we’ll get the benefit of not only the recovering the regional distribution business but
Also in the uh expanded areas of our of our contact as well and I think you know some of our competitors also have been putting down space um they’ve been opening in new sites new territories opening new trade counters as well so of course when a a competitor opens in a
New territory new area they start with zero and if they get some sales then that’s that’s share growth so I’m not surprised uh and it’s just a Testament of the the shape of the market at the moment thank you very much because likewise in the last two updates have
Been very positive saying High sales volumes in November and early December excellent organic growth that’s different to the macro that you’re seeing is it down to the fact that they’ve got a smaller base to grow from yeah look as as I said I think the all
We can do is point to the macro and what spend is happening in the marketplace and and as I said you know other public listed business businesses whether in floring or outside of outside of flooring that a consumer facing have reported similar sort of weakness in demand particularly on the residential
Space as I said our commission research shows that our market share is flat or growing slightly um people like likewise and I’m sure some of the others will give have a different field based on their own uh market dynamics as I said um they’ll be putting down new space new
Territory which means they can get some growth uh not just those guys others as well um and and other people that public announcements have shown that their markets are are shrinking so from our perspective we can see that our market share is is holding up and and moderately positive um and we’ll be
Taking some share in certain areas like the larger customers and we’ll be taking some of that share from Distributors including likewise and others I’m sure um and we’ll be probably losing a bit around the regions where competitors open up so for us as an established
Player you know we win some we lose some and as I said as a whole we’re moderately growing um and other uh businesses in different phases of the cycle and different geographies will will um we be seeing a different impact what’s the correct figure for sales via digital both 38% and 34% are
Cited in the statement yeah 34% is the is the number we we’ve um seen that significantly increase I think it was something like 11% in 2019 uh and uh yeah we’re maybe getting ahead of ourselves 38 will be a nice Target for this year but it’s yeah 34%
Is what we’ve seen it’s as a result of a bit of a focus on um highlighting the opportunity for customers to use digital engagement the growth in larger customers who um typically would always Place their orders um electronically uh and then thirdly I think there is a bit
Of a shift customers are recognizing the opportunity to engage with us digitally as we put down um more digital capability it gives customers more choice on which channel they wish to use to to place order so yeah it’s encouraging to see that growth um it will be nice to see that continue
To to grow further I think and how are the recent acquisitions performing yeah there were three relatively small uh Acquisitions I think the largest of which is the rug specialist um in uh Melrose and and in fact one of the slides that we presented uh which talks to larger customers and
One of the pictures in there is actually got some of the melrose’s rugs uh pictur in it so they’ve had some really good um engagement with access to our customers selling a rug product into our customers larger customers for example uh so that’s been good um and that business uh
Has performed uh pretty well under the uh circumstances of the market demand the other the other acquisitions really small and quite early stages of their acquisition so uh a bit early for those but I said the biggest the biggest one is Melrose going through that changes we’re investing in the business model uh
And giving them access to a larger portfolio of customers so hopeful for for some good growth in there in years to come you explained well that headlam depends on the market environment so what self-help measures do you have to improve profitability and cash flow in the meantime yeah sure I’ll take that so
Obviously we covered a load of those in uh what when I talked about the 10 million mitigation actions that we took in 20123 I me the key one obviously is just flexing as much as we can the the other variable costs in our business to to suit uh to suit the volume
Profile um on top of that then and building on those actions in 2023 and 2024 uh we are doing a little bit of network optimization work and as I outlined uh in in the presentation we are in the process of closing down our Stockport Distribution Center we we’ve
Replaced that with a small cross stock facility and we’ve moved everything out of Stockport and into the cross stock and into one of our other sites and we’ll sell that uh that that uh property in the second half of this year and combined with uh potentially another
Property we’ll have about five to 10 million of property disposal proceeds in the the second half of of this year um so really it’s about uh flexing cost where we can looking for opportunities around Network um whilst being cognizant of capacity we’re going to need as the
Market comes back uh so that we can we can service that growth um and then it’s around ongoing efficiencies like the transport consolidation and the dynamic rout planning that we’ve done you know just to complement that I think the other thing that selfhelp really is around demand so you know Adams covered
Efficiency and cost control but I think the other thing that we can do and should do and are doing is is around implementing the strategy and taking some tactical growth opportunities where we can so you know pushing the own brand product I mentioned earlier I think is is a good self-held measure it’s
Something that we’ve got exclusivity to in the UK and something that we should be pushing uh in the marketplace so I think that it covers a number of barrias and with um Enterprise Value to sales of less than three times x leases would you consider prioritizing share
BuyBacks over other use of surplus cash yeah I mean this is something that we’ve spent a lot of time talking about with with shareholders and indeed in some of our presentations in the past um you know Capital allocation policy and how we see capital and what the definition
Of surplus cach is is something we’ve covered at length uh in previous presentations and indeed in our uh reports and accounts that we’ve published and I think given as as the questioner rightly says you know given your view of the future value of the business and indeed where we sit
Historically BuyBacks have got perhaps more of a attraction than than other means of distribution of of surplus funds I think at the moment we’ve got as we’ve outlined um the capitals of the business uh are significant we’re in that point of the cycle um and indeed ordinary dividends as a sort of first
Line of of of is is in the sort of normal everyday needs of the business if you like um and different different sholds got different views on that of course but I think beyond that as as the questioner says you know BuyBacks are attractive uh on the longer term
Acreative nature of their uh of of of their function so something we’ve used in the past uh and it’s something I think we would use again and the capital ucation policy that we stated gives us that flexibility to make that decision at the time of of surplus funds so yeah
Thank you very much to both of you that’s the end of questions Chris do you have any closing remarks well i’ I’ve sort of said it in the summary you know I’m pleased with with uh the development of the Imp the strategy and the way that
That’s had Traction in the market um and we had a good debate there with some good questions around market share and things so it’s good to be able to talk about our market share holding up so as I said I’m pleased about the way that strategies rolled out Market’s tough I
Think it’s going to remain tough for this year um but a really strong uh business model that we’ve got we’ve got a broadening base of customer service that does Point well for the sort of medium-term recovery and revenue and profitability so yeah there’s there’s lots to look forward to but uh I think
It’s going to be you know that market demand is going to take a little while to come back unfortunately but but thank you for taking the time to join the session today