Slide 1: Half Year Results & Strategic Update
The leading, HALF YEAR RESULTS & most trusted experts in flooring STRATEGIC UPDATE September 2024 1
Slide 2: Chris Payne, Chief Executive; Adam Phillips, Chief Financial Officer
Chris Payne Adam Phillips Chief Executive Chief Financial Officer 2
Slide 3: Introduction
INTRODUCTION Acceleration of Challenging Strategic Cash and strategy with market initiatives working capital a 2-year conditions weigh continue to well controlled transformation on performance deliver plan 3
Slide 4: H1 2024 Financial Performance
H1 2024 FINANCIAL PERFORMANCE 4
Slide 5: Flooring Market Remains Challenging
FLOORING MARKET REMAINS CHALLENGING 2024 has been the third consecutive year of volume decline in the flooring market Market indicators Consumer confidence in major purchases has Housing transactions declined 20% in 2023 and a Consumer spending on home improvements has lagged the recovery in overall
Slide 6: Flooring Market Lead Indicators Are More Positive
FLOORING MARKET LEAD INDICATORS ARE MORE POSITIVE Housing transactions in growth; consumer confidence and spending power improving UK real pay in growth and household disposable incomes increasing Flooring market expected to return to Consumer confidence improving in growth at some point during 2025
Slide 7: Revenue
REVENUE Continued growth in strategic initiatives offset by weak market in Regional Distribution H1 2024 H1 2023 Year-on-year ● Continued growth in strategic initiatives of Larger £m £m % Customers and Trade Counters, despite weak end- Larger Customers 39.9 39.0 2.3% consumer demand in multiple reta
Slide 8: Operational Update
OPERATIONAL UPDATE Continued growth in Trade Counters & Larger Customers offset by Regional Distribution Regional Distribution Trade Counters Larger Customers ● Launch of Flexipod, enabling our customers to ● Now annualising over £100m revenue ● A tough period for multiple retailer customers due tra
Slide 9: Income Statement
INCOME STATEMENT 12% revenue decline driven by weak residential market, resulting in a loss for H1 H1 2024 % of H1 2023 % of £m revenue £m revenue ● Group revenue -11.8%; UK revenue -11.3% and Revenue 292.5 100.0% 331.8 100.0% Continental; Europe -15.9% Cost of sales (202.9) (69.4)% (227.3) (68.5)%
Slide 10: Underlying Operating Profit
UNDERLYING OPERATING PROFIT Volume and cost inflation, combined with a lack of price inflation, were the key factors affecting profit ● UK volume decline, reflecting weak residential market, contributed to £10m reduction in profit ● Gross margin movement had a £3m profit impact, principally due to i
Slide 11: Non-Underlying Items
NON-UNDERLYING ITEMS A net P&L expense of £4.2m, but a net cash inflow due to property sale proceeds H1 2024 H1 2024 H1 2024 H1 2023 ● £0.7m of amortisation of acquired intangibles and Cash Non-cash Total Total other acquisition-related costs; lower due to £m £m £m £m acquisitions in prior year Amor
Slide 12: Cash Flow
CASH FLOW Good operating cash generation and Net Debt lowered H1 H1 2024 2023 ● Good operating cash generation with Underlying Operating Cash £m £m Flow of £18.0m, broadly flat year-on-year Underlying EBITDA (2.2) 18.0 ● Inventories lower by £6.5m compared to December 2023 and Change in inventories
Slide 13: Movement in Net Debt
MOVEMENT IN NET DEBT Net Debt lowered, reflecting working capital management and property disposal proceeds Reduction in Net Debt: cash inflow Increase in Net Debt 13
Slide 14: Balance Sheet
BALANCE SHEET Strong balance sheet underpinned by property portfolio and boosted by pension buy-in June June December 2024 2023 2023 ● Strong balance sheet position underpinned by property £m £m £m portfolio (valued at £142.1m in January 2023) and inventory Property, plant and equipment 125.3 126.7
Slide 15: Summary of Financial Performance
SUMMARY OF FINANCIAL PERFORMANCE Challenging market weighs on performance but working capital well controlled and debt lowered Challenging …have weighed Strategic Cash and Strong balance market on performance growth areas working capital sheet conditions… performed well well controlled 10-15% declin
Slide 16: Strategy Update
STRATEGY UPDATE 16
Slide 17: Significant Long-Term Market Opportunity
SIGNIFICANT LONG-TERM MARKET OPPORTUNITY Headlam operates in a market worth c.£3bn in the UK and there are large sections of the market in which Headlam is underweight, providing opportunity for significant growth c.£3bn UK market Two-thirds residential, one-third commercial Online Tradespeople Tier
Slide 18: Headlam's Strategy
HEADLAM’S STRATEGY Our strategy to drive long-term shareholder value creation Purpose How we make a Creating great places for our communities to live, work and play positive difference Vision How we want to be The leading, most trusted experts in flooring seen Areas of focus How we will achieve our
Slide 19: Good Progress Made
GOOD PROGRESS MADE Over the last two years we have made good progress on each of the 5 pillars of our strategy, a few examples of which are set out below Maximising sales through Developing new Improving our operational Leading on sustainability Making Headlam a great great service, solutions, oppor
Slide 20: Headlam's Strategy: Integration and Simplification Track Record
HEADLAM’S STRATEGY We have a track record of successful implementation of integration and simplification projects Transport integration Stockport consolidation ● Successfully implemented in 2021/22 ● In early 2024 we consolidated the stock and operations in our Stockport distribution centre into our
Slide 21: Strategy Acceleration
STRATEGY ACCELERATION We will accelerate and complement our existing strategy with a transformation plan to simplify the business Existing strategy + 2-year transformation plan 1 Simplify our customer offer 2 Simplify our network 3 Simplify how we operate 21
Slide 22: Transformation Plan: Simplify Our Customer Offer
TRANSFORMATION PLAN 4) Simplify our customer offer BAILEYS @BBAIEYS Comm orm centraligering Cheshires cud 20 colic Yl} sointan Hoses. ‘Diane wemee HALL'S HED (thc — BRIDGEND ae PS gue *wMCD McD BArercao =m Mercado PART OF THE HEADLAM GROUP
Slide 23: Transformation Plan
TRANSFORMATION PLAN Sales teams have more time to spend with customers Access to broadest range of flooring through a unified product list Order anywhere, collect anywhere Significant customer benefits Dedicated residential and commercial sector expertise Investment in point-of-sale materials Unifie
Slide 24: Transformation Plan
TRANSFORMATION PLAN Initial focus completed / Further improvements Ongoing in progress ● Launch and embed the national ● Investment in display stands and ● We will continue to review and invest Mercado business, consolidating 32 other point-of-sale materials in our customer proposition for all tra
Slide 25: Transformation Plan
TRANSFORMATION PLAN Residential Commercial Managing Director Managing Director Residential Commercial 32 years flooring experience 10 years flooring experience RSD RSD RSD RSD RSD RSD RSD South Midlands North Scotland South North JHS 24 years 1 year 9 years 33 years 39 years 13 years 30 years Suppor
Slide 26: Transformation Plan
TRANSFORMATION PLAN ● Our current UK network (set out on the left-hand side) comprises 13 distribution centres and 6 cross-dock facilities ● Network structure inherited through acquisitions in the 1990s and 2000s ● Gradual optimisation over recent years, ensuring the network best serves the customer
Slide 27: Transformation Plan
TRANSFORMATION PLAN Phase 1 completed Phase 2 Ongoing ● Earlier this year we opened a brand ● New distribution centre to be opened ● We will continue to review our new cross-dock facility in Irlam in Q1 2025 in Rayleigh (Essex) and network as we continually look to (Manchester) and consolidated ou
Slide 28: Transformation Plan
TRANSFORMATION PLAN ● Simplification of sales structure and network significantly reduces complexity in supporting processes and functions, reducing cost as Simpler well as improving quality and control Simpler customer network ● Also benefits the ongoing ERP replacement programme, by offer simplify
Slide 29: Transformation Plan Objectives
TRANSFORMATION PLAN OBJECTIVES The plan has three overall objectives, and we have set out the key actions over the next 12 months Objectives Actions over the next 12 months Benefits Consolidate and embed the consolidation of 32 Easier to do business with; ASMs have more time trading businesses into
Slide 30: Transformation Plan Benefits
TRANSFORMATION PLAN BENEFITS We are targeting £15m+ of profit improvement and £70m+ of one-off cash benefits £15m+ annual profit £70m+ one-off cash inflow £25m one-off cash costs improvement ● Disposal of surplus property ● Net of reinvestment in enhancing our ● Restructuring and relocation costs cu
Slide 31: Outlook & Summary
OUTLOOK & SUMMARY 31
Slide 32: Short-Term Outlook
SHORT-TERM OUTLOOK Headlam trading improved, but little improvement expected in the weak market until 2025 ● Group revenue for July and August was 8.4% below last year, compared to 11.8% in the first six months of the year Current trading slightly improved ● Improving trend in Regional Distribution
Slide 33: Long-Term Outlook
LONG-TERM OUTLOOK There is a material profit opportunity from the combination of the existing strategy, the transformation plan and market recovery + + Existing strategic Transformation initiatives to Market recovery plan broaden the base 33
Slide 34: Summary
SUMMARY Acceleration of Challenging Strategic Cash and strategy with market initiatives working capital a 2-year conditions weigh continue to well controlled transformation on performance deliver plan 34
Slide 35: Q&A
Q&A Chris Payne Chief Executive Adam Phillips Chief Financial Officer 35
Slide 36: Appendix
APPENDIX 36
Slide 37: About Us
ABOUT US Long heritage; strong and broadening foundations Over 30 years of operating excellence Nationwide network and operations • Knowledgeable and long • Next day delivery from extensive serving colleagues distribution network • Servicing a large and diverse • Growing number of trade counter trad
Slide 38: Investment Case
INVESTMENT CASE Long heritage; strong and broadening foundations Next day delivery from extensive distribution network 1 • Market leader with unrivalled • Growing number of trade counter collection sites Ability to service all sizes of customers scale and convenience • • Broadest and largest product
Slide 39: Illustrative Long-Term Revenue
ILLUSTRATIVE LONG-TERM REVENUE There is no change to the illustrative long-term revenue framework we set out in March 2024 2023 Illustrative long-term view Larger Customers £83m Larger Customers £200m Trade Counters £97m Trade Counters £200m Regional Distribution £371m Regional Distribution £500m to
Slide 40: Revenue
REVENUE £m % £m % H1 2023 Revenue: UK 288.9 87.1 Continental Europe 42.9 12.9 331.8 100.0 UK incremental items: Like-for-like (34.8) (12.0) Change in working days 2.3 0.8 (32.5) (11.3) Continental Europe incremental items: Like-for-like (5.8) (13.5) Change in working days (0.2) (0.5) Translation eff
Slide 41: Trade Counters
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