Slide 1: Full Year Results
The leading, most trusted FULL YEAR RESULTS experts in flooring March 2024 1
Slide 2: Agenda
AGENDA Chris Payne Chief Executive ● Introduction & Market Update Adam Phillips Chief Financial Officer ● FY 2023 Financial Performance ● Strategic & Operational Update ● Outlook & Summary 2
Slide 3: Introduction & Market Update
INTRODUCTION & MARKET UPDATE 3
Slide 4: About Us
ABOUT US Long heritage; strong and broadening foundations 30 years of operating excellence Nationwide network and operations • Knowledgeable and long • 68 national and regional serving colleagues (2,300+) businesses / brands to maximise reach and sales opportunity • Servicing a large and diverse tra
Slide 5: FY 2023 Overview
FY 2023 OVERVIEW • Strong revenue growth from Larger Customers (+25.6%) and Trade Counters (+8.5%); Own Product Strategic initiatives Brand revenue up 2.7% delivering • The cost-of-living crisis and reduction in residential property transactions combined to materially reduce consumer spending on hom
Slide 6: Flooring Market Backdrop
FLOORING MARKET BACKDROP Impact on Market drivers market in 2023 commentary 2023 • Consumer confidence in early 2023 was the lowest it has been since records began and ended the year firmly in negative territory Consumer confidence • Real pay growth was negative all through 2022 and H1 2023 2016 201
Slide 7: FY 2023 Financial Performance
FY 2023 FINANCIAL PERFORMANCE 7
Slide 8: Financial Summary
FINANCIAL SUMMARY 2023 2022 % change ● Group revenue -1.1%; UK revenue flat, with strategic growth Revenue £656.5m £663.6m -1.1% initiatives offsetting the market impact on Regional Distribution Gross margin 31.7% 33.1% -140bps Underlying Operating Profit £16.1m £39.2m -58.9% ● 2023 margin returned
Slide 9: Revenue
REVENUE 12% 35% 2023 2022 Year-on-year £m £m % 65% Larger Customers 83.3 66.3 25.6% 88% Trade Counters 97.1 89.5 8.5% UK Continental Europe Residential Commercial Regional Distribution 370.8 398.9 (7.0)% Other 26.1 23.1 13.0% ● Strong growth in strategic initiatives of Larger Customers and UK 577.3
Slide 10: 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 ● Negative volumes throughout the year, in line with the market ● Improvement through H1 and into the summer ● Dete
Slide 11: Income Statement
INCOME STATEMENT 2023 % of 2022 % of £m revenue £m revenue ● Group revenue -1.1%; UK revenue flat, with strategic Revenue 656.5 100.0% 663.6 100.0% growth initiatives offsetting the market impact on Regional Cost of sales (448.7) (68.3)% (444.1) (66.9)% Distribution Gross profit 207.8 31.7% 219.5 33
Slide 12: Underlying Operating Profit
UNDERLYING OPERATING PROFIT ● UK volumes 5% lower than previous year (net of growth from Larger Customers and Trade Counters), driving £11.1m profit impact ● Unwind of prior year manufacturer price increases had a £5.1m adverse impact ● £3.9m profit impact from strategic investments to support futur
Slide 13: Mitigating Actions
MITIGATING ACTIONS ● Ongoing efficiency initiatives supplemented by mitigating actions in response to market conditions provided £10.3m of benefit in the year ● Volume / margin actions included: ● Volume-driving promotional activity ● Targeted price increases ● COGS reductions from suppliers ● Cost
Slide 14: Non-Underlying Items
NON-UNDERLYING ITEMS ● Higher amortisation of acquired intangibles and 2023 2023 2023 2022 Cash Non-cash Total Total other acquisition-related costs due to acquisition of £m £m £m £m three businesses in the year Amortisation of acquired intangibles (0.5) (1.8) (2.3) (1.5) ● £8.6m income, all receive
Slide 15: Cash Flow
CASH FLOW 2023 2022 ● Strong operating cash generation with Underlying Operating £m £m Cash Flow of £26.0m, a year-on-year increase of £13.2m Underlying EBITDA 36.7 57.9 ● Inventories and receivables lower year-on-year, generating Change in inventories 10.0 (8.3) cash inflow Change in receivables 2.
Slide 16: Capital Expenditure
CAPITAL EXPENDITURE £18.2m capital expenditure in 2023 included: 20 £6.3m in cutting tables, sortation units and other 18.2 warehouse and transport equipment 18 15.8 16 15.4 13.8 14 12.0 12 Capex £m 10 £5.7m in new and refurbished trade counters 8 6.9 6 4.4 4 £2.5m in solar panels 2 0 2018 2019 2020
Slide 17: Balance Sheet
BALANCE SHEET December December 2023 2022 £m £m Property, plant and equipment 127.6 119.9 ● Strong balance sheet position underpinned by Intangibles 19.4 17.8 freehold property portfolio (valued at £148.8m in January 2023) and inventory (£131.5m at December Inventories 131.5 139.8 2023) Trade and ot
Slide 18: 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 DAILY NET DEBT 25-Mar 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 19: Strategic & Operational Update
STRATEGIC & OPERATIONAL UPDATE 19
Slide 20: Market Opportunity
MARKET OPPORTUNITY c.£3bn UK market Two-thirds residential, one-third commercial Traditional Tradespeople Progressive Multiple Larger Online Contractors (pure online Retailers & Fitters Retailers Retailers Housebuilders retailers) HIGH Headlam weighting LOW The c.£3bn UK market size is an estimate f
Slide 21: Our Strategy on a Page
OUR STRATEGY ON A PAGE Maximising sales through Developing new Improving our operational Leading on sustainability Making Headlam a great great service, solutions, opportunities for future capabilities and and environmental place to work pricing and range growth effectiveness responsibility Excel wi
Slide 22: Broadening Business Base
BROADENING BUSINESS BASE Regional Trade Larger Distribution Counters Customers ● Nationwide coverage ● Convenient, one-stop shop for all ● Estimated £1bn market; Headlam revenue customers who supply / fit flooring as part was c.£60m in 2021, increased to £83m in ● Next-day delivery of offering 2023
Slide 23: Regional Distribution
REGIONAL DISTRIBUTION • 2023 revenue -7.0% to £371m • Impacted by weakness in residential market; commercial revenue more robust • Aggressive pricing in market but gross margin well- controlled • Revenue from Own Product Brands up 2.7% • Over £9m capital investment in upgrading the network to increa
Slide 24: Trade Counters
TRADE COUNTERS • 2023 revenue +8.5% to £97m • Targeting £200m revenue over the medium-term • 67 sites at end 2023; targeting 100 by end 2025 • 23 additional invested* sites in 2023, including 12 new • Invested sites collectively performing in line with business case New trade counter in Exeter opene
Slide 25: Larger Customers
LARGER CUSTOMERS • 2023 revenue +25.6% to £83m • Targeting £200m revenue over the medium-term • Growth achieved through increasing share of existing customers and winning new customers • Continue to enhance the bespoke and value-add service • Enhancements to dedicated team • Pilots with builders’ me
Slide 26: Digital & IT
DIGITAL & IT • 34% of revenue through digital channels • Headlam brand website (www.headlamgroup.com) launched • New B2B2C websites launched for two brands • Decision taken to replace ERP • Supports digital improvements and provides a more agile and flexible IT platform to support future growth • Th
Slide 27: Sustainability and ESG
SUSTAINABILITY AND ESG Efficient & effective Environment Social organisation • Completion of dynamic planning and • Embedding a safety culture • Supplier assessment and auditing roll out of telematics • Developed training; leadership, • Stakeholder engagement; industry • Solar panel roll out inducti
Slide 28: Continental Europe
CONTINENTAL EUROPE LMS (France) Headlam BV (Netherlands) Dersimo (Netherlands) • 19 trade counter sites and 3 distribution • Located in east of the country; residential • Located in west of the country; centres focus commercial focus • New Managing Director • Established curtains and blinds offer, t
Slide 29: Outlook & Summary
OUTLOOK & SUMMARY 29
Slide 30: Outlook – Three Components
OUTLOOK – THREE COMPONENTS NOW • Residential market weakness has continued into 2024 with negative volumes in the first Short-term market few weeks, despite continued growth in Larger Customers and Trade Counters weakness; recovery • Group revenue in February 2024 was 6% lower than 2023, albeit ahea
Slide 31: Illustrative Long-Term Revenue
ILLUSTRATIVE LONG-TERM REVENUE 2023 Illustrative long-term view Larger Customers £83m Larger Customers £200m Trade Counters £97m Trade Counters £200m Regional Distribution £371m Regional Distribution £500m to £600m Europe & Other £105m Europe & Other £900m Group revenue £656m Group revenue to £1bn 3
Slide 32: Summary
SUMMARY Resilient performance in very challenging market conditions Delivering on strategic initiatives; broadening the base Continued short-term market weakness Well positioned, with strong foundations and good cash generation Meaningful revenue and profit growth expected in medium term 32
Slide 33: Q&A and FY 2024 Financial Calendar
Q&A FY 2024 FINANCIAL CALENDAR 23rd May 2024 Trading update and AGM 23rd July 2024 Pre-close trading update 3rd September 2024 Half year results Mid January 2025 Pre-close trading update Early March 2025 Full year results 33
Slide 34: Appendix
APPENDIX 34
Slide 35: Revenue
REVENUE £m % £m % 2022 Revenue: UK 577.8 87.1 ● 88% of revenue from UK in 2023 Continental Europe 85.8 12.9 ● UK revenue flat year-on-year, including £8.4m of 663.6 100.0 revenue from acquisitions UK incremental items: Like-for-like (11.2) (1.9) ● Continental Europe revenue declined 7.7%; Change in
Slide 36: Movement in Net Debt
MOVEMENT IN NET DEBT The chart below shows the movement from the net funds of £1.8m at the end of 2022 to the net debt of £29.6m at the end of 2023 Inventories +£10.0m Receivables +£2.7m Payables -£24.0m Insurance settlement and land disposal, less other non-underlying costs Capex £18.2m Acquisition
Slide 37: Trade Counters
TRADE COUNTERS Typical new trade counter site: • Town / urban conurbation with no existing physical presence • Area with existing trade footfall, located alongside complementary trade businesses • c.5,000 sq ft property (leased) • Total capital investment of c.£250k • Breakeven by end of year 2 • Sa
Slide 38: Capital Allocation
CAPITAL ALLOCATION 1 Maintain a strong balance sheet Long-term average Leverage target of 0.5 to 1.0x underpinned by freehold properties and net positive working capital 2 Investment in To support sustainable long-term growth and to harness the opportunities to access a greater part of the flooring
Slide 39: FY 2024 Technical Guidance
FY 2024 TECHNICAL GUIDANCE ● Underlying profit before tax to be significantly H2-weighted, reflecting the delayed market recovery as set out in the outlook summary ● Capital expenditure c.£12 million ● Underlying effective tax rate of c.26% ● Software development costs (in respect of new ERP) of c.£
Slide 40: Residential Flooring Market Outlook
RESIDENTIAL FLOORING MARKET OUTLOOK Short-term Medium-term Market drivers Commentary impact impact Short-term Discretionary income and consumer confidence • Consumer confidence remains negative; major purchase Households need available discretionary index worsened in February 2024 income and need to