Slide 1: Half Year Results
The leading, most trusted HALF YEAR RESULTS experts in flooring 6 months ended 30 June 2023 1
Slide 2: Agenda
AGENDA Introduction Chris Payne Chief Executive H1 2023 Financial Performance Adam Phillips Chief Financial Officer Strategic Progress Update • Strategic Initiatives • Sustainability and ESG Strategy Outlook • Current Trading • Capital Allocation • Summary 2
Slide 3: Introduction
INTRODUCTION 3
Slide 4: About Us
ABOUT US Long heritage, and strong foundations 30 years operating excellence Nationwide network and operations • Knowledgeable and long • 68 national and regional serving colleagues (+2,000) businesses / brands to maximise reach and sales opportunity • Servicing a large and diverse trade customer ba
Slide 5: H1 2023 Overview
H1 2023 OVERVIEW • Revenue +2.5% at £331.8m despite challenging market backdrop with UK volumes 5% lower Good revenue growth • Strategic initiatives offsetting regional distribution decline: Larger Customers +26.5%; Trade Counters +8.5%; Regional Distribution -2.6% Profits lower due to • Underlying
Slide 6: H1 2023 Financial Performance
H1 2023 FINANCIAL PERFORMANCE 6
Slide 7: Financial Summary
FINANCIAL SUMMARY H1 H1 % Financial Results 2023 2022 change ● Revenue growth of 2.5%; strategic growth initiatives Revenue £331.8m £323.8m +2.5% offsetting the market impact on regional distribution Gross margin 31.5% 33.7% -217bps Underlying Operating Profit £8.2m £17.9m -54.2% ● 2023 margin has r
Slide 8: Revenue
REVENUE H1 2023 H1 2022 Year-on-year £m % £m % £m £m % H1 2022 Revenue: Larger Customers 39.0 30.9 26.5% UK 279.6 86.3 Trade Counters 45.9 42.3 8.5% Continental Europe 44.2 13.7 Regional Distribution 190.6 196.2 (2.6)% 323.8 100.0 Other 13.4 10.2 31.4% UK incremental items: UK 288.9 279.6 3.3% Like-
Slide 9: UK Distribution Volumes
UK DISTRIBUTION VOLUMES This chart shows the year-on-year volume growth/decline in the UK distribution business. It is on a like-for-like basis and therefore excludes Melrose Interiors Feb-22 Feb-23 May-22 May-23 Jul-22 Jul-23 Jun-22 Oct-22 Sep-22 Jun-23 Oct-23 Aug-23 Sep-23 Jan-22 Jan-23 Nov-23 Mar
Slide 10: Income Statement
INCOME STATEMENT H1 H1 Income Statement 2023 % of 2022 % of £m revenue £m revenue ● Revenue growth of 2.5%; strategic growth initiatives Revenue 331.8 100.0% 323.8 100.0% offsetting the market impact on regional distribution Cost of sales (227.3) (68.5)% (214.8) (66.3)% Gross profit 104.5 31.5% 109.
Slide 11: Operating Costs
OPERATING COSTS ● Like-for-like* operating costs increased by 4.1% (£3.7m) ● Total operating cost inflation of £5.8m, with average pay increase of 6.7% ● Strategic investments increased costs by £1.8m ● Efficiencies and cost savings providing an offset of £3.9m: ● Lower operational headcount ● Trans
Slide 12: Underlying Operating Profit
UNDERLYING OPERATING PROFIT ● UK volumes 5% lower than previous year (net of growth from larger customers and trade counters) ● Unwind of prior year manufacturer price increases has a £3.1m adverse impact ● £1.8m profit impact from strategic investments to support future revenue growth ● Cost inflat
Slide 13: Mitigating Actions
MITIGATING ACTIONS Mitigating actions implemented in H1 2023, building on previous efficiency initiatives These included: ● Reducing operational headcount to reflect lower volumes ● Transport centralisation ● Renegotiation of fuel contracts ● Targeted price rises ● Other cost savings, including lowe
Slide 14: Non-Underlying Items
NON-UNDERLYING ITEMS H1 H1 Non-underlying items 2023 2022 £m £m ● Higher amortisation of acquired intangibles and Amortisation of acquired intangibles and other other acquisition-related costs due to Melrose 1.3 0.7 acquisition-related costs Interiors acquisition in January 2023 Non-underlying non-c
Slide 15: Cash Flow
CASH FLOW H1 H1 Cash Flow Movement 2023 2022 £m £m Underlying EBITDA 18.0 26.6 ● Strong operating cash generation with Underlying Operating Cash Flow of £19.8m, a year-on-year increase Change in inventories (6.9) (16.9) of £35.2m Change in receivables 4.0 (4.4) Change in payables 4.0 (21.3) ● Workin
Slide 16: Balance Sheet
BALANCE SHEET June June Balance Sheet 2023 2022 £m £m Property, plant and equipment 126.7 112.9 ● Strong balance sheet position underpinned by freehold Intangibles 21.3 17.9 property portfolio (valued at £148.8m in January 2023) and inventory (£147.5m at June 2023) Inventories 147.5 148.1 Trade and
Slide 17: Daily Net Debt
£ Thousands 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar DAILY NET DEBT 01-Apr 08-Apr 15-Apr 22-Apr UK Sterling 2023 29-Apr 06-May 13-May 20-May 27-May 03-Jun UK sterling 2022 10-Jun 17-Jun 24-Jun 01-Jul Date 08-Jul 15-Jul 22-Jul UK sterling 2020 29-Jul
Slide 18: Strategic Progress Update
STRATEGIC PROGRESS UPDATE 18
Slide 19: Strategic Pillars
STRATEGIC PILLARS Maximising sales through Developing new opportunities Improving our operational Leading on sustainability and Making Headlam a great place great service, solutions, pricing for future growth capabilities and effectiveness environmental responsibility to work, for everyone and range
Slide 20: Strategic Growth
STRATEGIC GROWTH Multiple Retailers and Other Larger Customers Actively targeting this segment where Headlam is significantly underweight Estimated £11 billion market opportunity, Headlam had c £60m in 2021 Grow business with broad spectrum of new and existing customers Trade Counters Accelerating r
Slide 21: Strategic Growth: Larger Customers
STRATEGIC GROWTH LARGER CUSTOMERS • Continue to enhance the bespoke and value add service • Revenue +26% to £39.0m • Relationships including Tapi and Homebase • Recent new relationships including Screwfix • Several other new customers planned from Q4 2023 • Expanded DSV capability to include palleti
Slide 22: Strategic Growth: Trade Counters
STRATEGIC GROWTH TRADE COUNTERS • Revenue +8.5% to £45.9m • 12 further invested* sites in H1 2023 • 59 sites at 30 June 2023, of which 36 invested • Invested sites collectively performing inline with business case • 1,000+ customer accounts opened in H1 2023 New trade counter in Exeter opened in 202
Slide 23: Strategic Growth: Own Product Brands
STRATEGIC GROWTH OWN PRODUCT BRANDS • Revenue +7.4% to £72.5m • Performance comes despite brands being mainly residential focused • £11.1m new revenue contribution from newest brand Everyroom launched in H2 last year • Further new launches in pipeline, including fully recyclable ranges • Investing i
Slide 24: Sustainability and ESG
SUSTAINABILITY AND ESG ● Ongoing progression and development of ESG Strategy, closely aligned with overall strategy ● ESG rating agencies assigning good and ‘low risk’ scores ● Recent formal notification to SBTi of intention to submit Net Zero and interim targets for Scope 1, 2 and 3 emissions for v
Slide 25: Outlook
OUTLOOK 25
Slide 26: Current Trading
CURRENT TRADING • UK volumes in July and August 2023 broadly in line with expectations Full year 2023 expectations • Full year 2023 expectations unchanged unchanged • However, macro and industry headwinds expected to persist into 2024 • With rolling annual volumes currently 20% lower than 2019, volu
Slide 27: Capital Allocation
CAPITAL ALLOCATION • A revised and refreshed Capital Allocation framework • More effectively utilising the strong balance sheet whilst maintaining its strength Framework Rationale New target average leverage* range of 0.5-1.0x Considered prudent given substantial freehold property portfolio plus inv
Slide 28: Summary
SUMMARY Well positioned, with strong foundations and good cash generation Clear market leader; ongoing market share gains Increased revenue streams and ongoing efficiencies Delivering on strategic initiatives; broadening the base Meaningful revenue and profit growth expected in medium term 28
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