Headlam has seen the decline in UK sales slow in the second half of the year but expects to repeat its first half underlying pre-tax loss.
‘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 five months to the end of November,’ says the group.
‘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 [£16m].’
Chris Payne, Headlam ceo had better news for shareholders, expecting the plan to raise £70m through property disposals and boosting profits by £20m through the uniting of its distribution network under the Mercado banner to come to fruition sooner than expected.
‘Management is now confident 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, 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.’
The consolidation of the distribution network has seen more than 90% of customers (by revenue) begun the process to consolidate their trading accounts and about 50% of applicable sales 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. 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 fit-out of the new distribution centre in Rayleigh, Essex is almost complete and is expected to become operational in early 2025. This will see the Ipswich sold, along with its Uddingston site after the consolidation of two sites into one distribution centre near Glasgow.
‘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.’
