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Headlam expects profits to return after sales boost

HeadlamIpswichHeadlam has seen a double-digit rise in residential sales in the past four months and it expects to see underlying profits of about £15m for the year.

‘Trading to-date in the second half has seen a strong and sustained recovery to 2019 levels. Revenue for the four months to 31 October 2020 was down only 1.2% on the same period in the prior year, with November 2020 currently ahead of last year despite the lockdown in England and other restrictions in the rest of the UK. An exceptional UK residential sector performance has compensated for a significantly weaker commercial sector across both the UK and Continental Europe, albeit there has been an improving trend across the commercial sector. On a like-for-like basis, UK residential sector revenue was up 10.5% in the four months to 31 October,’ it says.

It says it expects underlying pre-tax profits to be between £14m-£16m, in contrast to analysists’ predictions of the group breaking even. 

‘Unaudited underlying profit before tax for the four months to 31 October was £13.3m, a strong reversal from the £1.2m underlying loss before tax reported in the first half. Subject to trading for the remainder of the year, where there is a possibility that fitting capacity may constrain sales during December 2020, it is the company's current expectation that underlying profit before tax for the year will be in the range of £14m to £16m.

‘With cash collections continuing to exceed expectations and reflecting the strong cash flow from operations, average net debt for the year-to-date, excluding IFRS 16, is approximately £13.6m, a material reduction on the first half [when average net debt was £35.3 million]. As at 31 October 2020, banking facilities available to the company were £110.6m with headroom of £102.1m.

‘The company has increased its product purchasing in the last few months to support customer demand, and, to further support customers through the initial weeks of Brexit and minimise any potential delays in receipt of product, the company is currently elevating its inventory position across its fastest-moving products.’

The group says it has continued with its Operational Improvement Programme, with several projects in the planning stage. ‘The two most significant currently underway are the network consolidation in the South East and transport integration. Following the consolidation of businesses into the new Ipswich regional distribution centre to be undertaken in the first half of 2021 and closure of sites no longer required, it is now also proposed that the main warehousing and distribution operations of Domus will move to the Rochester site where capacity will be created following the consolidation. This will allow for the termination of existing leases in West Molesey upon their expiry in July 2021 and further network simplification.’

The group accelerated the roll-out of the transport integration project focused around more effective delivery fleet utilisation and completed this in the north in October, accounting for about a quarter of deliveries. Full national roll-out is scheduled to be completed by early in the fourth quarter of next year.

‘The current expectation is that the network consolidation and transport integration will generate cost savings in excess of £4m per annum from 2022, following a modest net benefit in 2021 after all restructuring and delivery costs and applying prudent revenue expectations given the COVID-19 backdrop.’