Headlam Group (LSE:HEAD) — AGM Trading Update

0:01 Good afternoon, ladies and gentlemen, and welcome to the HEADLAM GROUP PLC AGM Trading Update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab. It's just situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions submitted today and publish responses where it is appropriate to do so. These will be available via your investor meet company dashboard, and we will notify you by email

0:33 when these are ready for your review. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to chief executive, Chris Payne. Good afternoon, sir. Afternoon, everybody. Thanks for joining the presentation. So I'm I'm Chris Payne. I'm gonna take twenty minutes or so, maybe half an hour, just turn in some slides, to give you an update since the last time that we had the opportunity to to present on this format. So if just turning over the page, a brief agenda. So a little bit about us. As I said, I'll try and canter through some of these things for for many of you may have may have seen us before. I'll do a quick summary of the results of 2021, which may seem a little bit little bit old news now. But, as I said, we haven't had the opportunity to present on this format since, we closed out the year end. A reminder about how we, look to allocate our capital, and then perhaps a little bit more detail around the strategy as we see it and and the status of how we're implementing that.

1:34 And one perhaps towards the end then, we'll just summarize, with the trading update for this year. Some of you may have seen the RNS that we put out this morning, just outlining the trading update ahead of the AGM today. So we'll just summarize on that, and then we'll perhaps take questions at the end. So just, about HEADLAM. This is just a a one page that we typically put together just summarizing some of the key attributes of the business. We've been operating in in our current format for for over thirty years. We've got a large number of relatively small customers, predominantly in the independent retail sector on the high street and and those businesses that that operate without premises. We have a very wide comprehensive offering, probably the largest in the industry of of stockholding across The UK predominantly, which we serve both the residential market through, as I said, the high street retailer and local fitters, but also the commercial sector, which typically would be whether it's schools or offices or doctor surgeries and the like.

2:40 And we have a very deep stock holdings I mentioned earlier, so 39,000 SKUs, which is stored in a number of warehouses across The UK. So we are pretty much across the whole country. We've got 66 businesses. And when we say businesses, what we mean is independent, largely b to b distribution businesses with their own sales teams selling into the the local markets. We do that through 21 distribution centers, and we've got a hub hub and spoke type model. And also through trade counters, we'll come back to trade counters a bit later, but those are trade only, trade counters where customers can click and collect orders and buy some incidentals like underlay or screens and and the like to go with their floor coverings.

3:30 The the business has got a strong foundation, so it's got a a a good balance sheet. We typically do turn our profit into cash, and we've got a very strong, well run team balance sheet. And we have got we're building an increasingly strong track record of of delivering positive change that has good results on on the bottom line and indeed on on balance sheet improvements. Just a a very a couple of points at the bottom of this slide when we talk about growth opportunities. And I think this is a slight change in emphasis in the last year or two where we've moved away from predominantly talking about sort of self help measures, if you like, on cost reductions and efficiencies and moving slightly into more expansive part of our strategic growth story, which turns our business into more of an expansive proposition to take more market share.

4:21 And I'll come on to that and explain what that means in a bit more detail when I get to the strategy slides later in the deck. So just before we we get into the financials, just just a brief update here on the board and the shape of the board, and this has changed in recent times, and indeed, it's changed since I last spoke on this platform. So my role has now been made permanent. So when I spoke to you previously, I was the interim chief executive whilst combining that with my CFO role. So that's now being confirmed as put as a as a permanent appointment, which I'm, of course, I'm delighted about. So validation of what I was doing and what I was delivering into the market. So that's great. I'm I'm I'm now busy building a team around me, so I've appointed an interim CFO, Patrick Butcher, who's joined on a temporary basis until I've found a permanent replacement, and he's got a wealth of experience from a number of PLCs.

5:11 That's a a great addition to to provide me with some support in the short term. Around me now, I've got a new chairman to work with. So Keith Hagelman, who was previously a nonexecutive, has now taken over from Philip Lawrence who stood down today. Keith has now taken up the the role of chair following the AGM earlier today. He's, again, a wealth of experience in a number of PLCs and and currently sits on a number of boards. And then the the the my fellow non execs sitting around the board table. We've got Steve and Simon and Amanda have been with us for a range of a range of periods, but Simon and Steven relatively new to the business and bring with them a good deal of sort of commercial insight, which has been extremely helpful to me as I've built the growth strategy that I referred to earlier. So very relevant experience, in particular, assignments that we've experienced at TP and also at Wix have been really helpful as we've started to roll out the tray counter footprint that we'll we'll come on to talk about later.

6:16 So I think we'll also look to perhaps add another nonexec later in the year, and there'll be more information on that in due course. So as promised, I'm just gonna give a quick summary of the financials for for 2021. Obviously, I won't spend too long on this given this a number of months ago, but I'll just pick out some of the highlights and some of the key slides from the presentation that's been available on our website for some time. So just just sort of focusing, I suppose, on the recovery we saw in 2021. And I mentioned earlier that our business serves both the residential market and also the commercial sector. So the market is predominantly broadly two thirds, one third, two thirds residential products, one third commercial products, and that's reflected in our split of our revenue, which you can see in the chart on the right hand side. And that's been moving a little bit in the in the last couple of years and and perhaps coming back the other way at the moment. But over the last couple of years, certainly through the COVID affected periods of 2020 and 2021, we saw residential strengthen, and many businesses facing into the domestic market would have seen something similar. So people, homeowners, investing in their homes, replacing flooring.

7:30 Certainly, we were the beneficiaries of that, and it meant that the business shape moved slightly towards residential. And certainly in the commercial sector then, there was a period where some of the spend in the commercial sector perhaps wasn't spent on refurbishing the floors of pubs, hospitality, and the education sector was spending their budgets on COVID protection rather than replacing flooring in those spaces. So a slight shift in the softening in the marketplace, the commercial sector, a strengthening in the residential sector. So what did that mean for our numbers? So on the left hand side, we could see a strong rebound in total revenue in 2021 from 2020. And, obviously, we had quite a significant decrease in revenue during 2020, which we'll come on to show you what that means on the next slide. But that did come back quite strongly in '21.

8:25 And, also, it had an impact on margins. And, typically, our margins in the residential space are slightly higher than they would be in the commercial sector simply because these size of each transaction is relatively small. They typically would be a single room in a home, for example. And because of the size of that particular transaction, it's quite a small transaction that's delivered individually. The margins in that area are slightly richer than they are in the commercial space, which might be a much larger five, six, 10 times the the scale of order size with one delivery. So slightly different dynamics, but it could lead to a slightly better gross margin performance in in 2021 than we've seen in recent years. Underlying operating margins are improving, and and we're well on the way to achieving our target seven and a half percent operating margin that we stated in the past and and we've stuck to. So there's some great benefits coming through from the cost saving initiatives that I referred to earlier.

9:22 And now we're moving into more of a market share and targeted growth aspiration for our for our strategy, which will deliver the the the the lion's share of the balance of the operating margin improvement. So we saw that bounce back in underlying underlying PBT from a relatively modest position in 2020 back to a sort of more normalized level in '21. And I mentioned the strong balance sheet, and I think that's something that we've continued to deliver on in in recent times. And we were able to close the year out in a in a strong net funds position and in in particular, very strong average position. And, again, in our normal slides at the year end, we publish our net fund sheet, which shows the monthly profile of how we see our funds moving throughout the year. And that's a really useful slide to show how, I suppose, cash generative we've been over recent time. So we were able then, as a result of that strong cash performance, to announce a final ordinary dividend and indeed following the confirmation of our capital allocation, a a strong special dividend and in combination with the buyback program. So a a strong kind of message around a capital return to shareholders, which look to serve both an income through the normal dividend, the special dividend, and indeed a a buyback program. So a little bit for everybody, I suppose, but

10:52 just to demonstrate the strength of the of the balance sheet. So the next slide, this is this this is really demonstrating that kind of big dip, the v shape revenue profile that we saw during 2020, and then that recovery back in 2021, which is a pretty strong bounce back. We'll be not alone in that space where lots of residential facing businesses did see a similar sort of pattern. And it I suppose one of the remarkable things about this slide that we do tend to publish this on an annual basis is relatively close proximity of each of the lives to show that typically the business performs in a similar sort of shape year on year. '21 slightly different because we had a soft start, which then caught up in q two because of the COVID affected early period. But as a whole, 2021 was a relatively sort of normalized level of trading, if you like, albeit affected by by other things in the marketplace. So this is a slide that we like to repeat. It's a it's a good consistent slide for us to show where the various points of activity are in the year. And in particular, I might draw your attention to the August July, August time where the orange line that you see for '21 and indeed the gray line for '20 were suppressed, which reflects the fact that the commercial spend has been subdued in in the last couple of years, and I'll come on to that in the outlook when I cover the 2022 trading. So this is a slide that we will refer to in future presentations as well.

12:25 So just a a handful of sort of track record points here, which demonstrates that that that move back towards a stronger revenue return and just compares across a couple of years rather than just a reference against prior year. So you can see 2019 is a reference on this slide, which has been a useful benchmark for us. So because it it does normalize a little bit out of the the effect of COVID in 2020. So we can see a more consistent look through against performance from the the sort of pre COVID event. So we're we're looking for the business to move back to the levels that we saw in 2019 and certainly profit moving back in levels that we saw prior to the pandemic. So just moving on to the capital allocation priorities. As a reminder, I mentioned during the review of the financials for 2021 that we saw a strong end to the year, strong cash performance, and we had sort of signaled early on that we will look at how we could return surplus capital and surplus cash to shareholders.

13:30 And that was based around these capital allocation priorities that we published for the first time in 2020. So this is effectively a step a step through, and it works from the top and moves down the page on the left hand side. So on the left hand side are the priorities we've published. On the right hand side is what we've seen in recent times, and therefore, our ability to announce a capital return. So maintaining strong balance sheet, that's a given for us. That's something that we focused on and remains true today. So that's certainly in place, and we're not looking to change that. Investment in the business, we are looking to invest further funds and capital in things like the trade counter rollout. And, again, I said I'll come back to that, and I and I will. But we're looking to increase those 54 trade counters that I referenced at the start up to 90 and above in the next couple of years.

14:21 And we've indicated that that may take something like 80 to £20,000,000 worth of capital to do, And therefore, we are investing in that now. We're starting we're seeing a material impact on those sites that have been improved, and and therefore, it's given us the confidence to try and accelerate that. We've also looked to invest in upgrading some of our material handling equipment. I think that's been an area we've underinvested in in the past. So, you know, having aged forklift trucks, having old equipment that that's as part and parcel of your infrastructure doesn't make sense. So we are looking to accelerate some of the replacement cycles of that equipment. And then, of course, once we've done that investment and and it's a relatively light amount of capital that we need to do that, then we can start to look at making distributions, looking at acquisitions.

15:11 So we've we've announced our sort of twice covered dividend, ordinary dividend, so we're able to to to to get back on the shareholder register and distribute for that. M and A, nothing in the first half. Nothing. We looked at towards the end of last year either, but there may well be things that we wish to do later this year or beyond. So it doesn't make sense to necessarily completely disperse all of the capital that we see in the business right now, and it's good to have a bit of flexibility for the future. But despite all of those things, we were left with an amount of surplus capital that we were able to return. We did have a in the past, a discussion with certain about preferences on buybacks and specials and various other things. So it it made sense to me, and it made sense to the board that we should do a bit of both, offer a special dividend for those who express a preference in in dividend income and also then go through a structured buyback program where we could buy a certain amount of liquidity that we have in the marketplace, which we we indicated may take, say, twelve months to to do. So that was announced in March, and we're well on the way with doing that.

16:26 So just turning to the strategy that we've that we've talked to in the past and really just to provide a bit of a roll forward on where we've got to and how we've been structuring the operations accordingly. This slide is really the sort of main slide, I would say, which summarizes my thoughts on how the strategy looks and where we're pressing ahead with trying to grow market share. So we took a bit of time to understand the scale and size of the marketplace in The UK and look at where money is spent across the market and also where we participate as a business And what we're able to do, and, again, I've talked about this a couple of times, is segment the market into different customer types. And, of course, there are micro versions of this that would break down these sections into even finer detail. But these sort of main seven customer types, and we were able to red, amber, green our presence in those markets. So on the left hand side, traditional retailers that I mentioned at the start of the high street independent fitters, we have a relatively high share, and we've been operating in that market for some time.

17:30 But as you move to the right on this slide, there are other types of customer, other segments where perhaps we've got less share, less investment, less history, and therefore, there are parts of the market where we're underweight. And therefore, that presents an opportunity for us to develop propositions, start to engage the marketplace in a different way, and really go after some growth to counterweight really the the the kind of lack of growth that you might feel in sort of GDP and and some of the challenges we're seeing in the residential sector that I referred to earlier. So it it's a it's a clear and obvious strategy for us to move into those areas. We've got credibility. We've got scale, and we've been building those propositions to to take advantage of those other customer types.

18:17 This is the next slide is really a conversion of that logic and thought process into the building blocks of what we've been doing. So the four blocks at the top are really kind of the internal measures, things that we've been doing internally, if you like, around operating efficiency, developing our products, building our brands, building our relationships with suppliers, looking at our ESG strategy, which I'll come on to in a bit more detail in a moment. But those are sort of internal measures. And then the bottom three boxes is how we're presenting ourselves to the marketplace. So I mentioned the trade counter rollout. We've accelerated that rollout. We're moving from 53 up to towards a 100 in the next couple of years. And only today, I signed three more leases for for for for new sites. So we are well on the way and looking to build that with a real pace in the next couple of years. Multiple retailers, I've talked about in the past, and we've shared some slides in the past about some of the penetration we've had in that in that space of developing new relationships, leveraging off some of the case studies that we have in the marketplace. So we think that's quite a big chunk of the market.

19:27 We think that's a billion pounds worth of sales for us to go out there, and we've got relatively low share and therefore presents a great opportunity for growth. And that can only really be done with a real an improvement in our digital offer. So the multiple retailers and the other types of customers in that space and on the right hand side of that chart, I've got a different level of expectation and service requirement about the digital and ecommerce connection. So developing online ordering techniques for those large customers rather than on the telephone, which our traditional customers might choose to use. It's fundamental to us being successful in that space, and we targeted 30% of our sales through the digital channel, which is quite ambitious, and it certainly seemed ambitious when we said it.

20:14 But we're up to 25% now already off a relatively low base in 2019. So more than doubled our online orders in the last couple of years, and and there's more to go. So it's been a pleasing kind of to see that level of growth in the online ordering, but I think that's as I said, there's still more to come there as we develop that capability further. So just a little bit more detail on trade counters and and some of you may have seen this before, but there's a picture of this to the new format on that slide there. So as I said, we're we're accelerating this. We've got a blueprint. We've nowhere to be going. We've got the list of the the the locations that we'd like to target and move into, and we've been busy securing sites and carrying out building works on those sites to to get us ready.

21:02 I I think it's also important to say this isn't just about new sites. We're gonna completely refurbish all of our existing facilities and existing sites, and that's all part of that 18 to £20,000,000 worth of capital spend that I mentioned. And where we have refurbished sites, we have seen a significant uplift in performance. That's And something that we mentioned in the r and s, so we're seeing good double digit growth insights that have been redeveloped and re reimaged with the blueprint. So we got that confidence that the benefits we had predicted would be there are coming through now in the numbers. So it gives us that confidence to go harder and faster, and we've been investing in the capability that we need to develop that rollout and to manage the sites once they're up and running. So I think that's an important growth.

21:48 It's something tangible. It's something that we can see, and we've got pockets of the country where we're under underrepresented. So by simply growing new sites in new locations, we will grow share, grow revenue. And by investing in the existing sites, we should improve the quality of the service and improve the quality of the revenue in those sites as well. I mentioned the multiple retailers earlier, and this is a slide that we shared at the year end. So one of our new customers, Oak Furnitureland, this is about us kind of just helping their customer experience in their stores. Clearly, they sell oak furniture as their predominant category. They've moved into soft furnishings. They've now moved into flooring with us, and we provide all of their oak flooring for them, fitting out the the the sort of flagship stores in their state and aspirations of of rolling that out across the rest of their rest of their UK footprint. So, you know, we're we're gonna have to help them with that. We're gonna have to help them with the skills they need to sell flooring. They look great. They look amazing. And I think they're this is a halo effect that they get on the rest of their product sales has been really great for them. And they're you know, when their product is set on a good quality wooden floor, they've ended up selling more of those sofas and the like and and the cabinetry.

23:00 So, you know, a a good effect on the halo, and we're working with them to look at how we can get those into the rest of the estate. My HEADLAM app, this is something that we talked about in the past. It's now up and running, fully rolled out to all of our customers. It gives our customers a real sense of an enhanced experience. They know they can place their orders. They can search a start. They can compare pricing and availability across all of their HEADLAM accounts that they may have. Of course, they may have several different accounts with different parts of our business across The UK, and it gives them real time availability and ordering and placing making payments. So a bit of a step change for for us and a bit of a step change for for the customers. It's something that we're looking to roll out and improve, and we've got the sort of version ones now live, and we're looking at enhancements.

23:50 Customer feedback's been really positive. Sales, couple of million relatively modest, but it's early days, and it's something that we're just gonna build on. So it's all part of that, I suppose, transformation of the digital and ecommerce route, you know, part of that growth from eleven, twelve, 13% of our sales coming through that channel a couple of years ago up to 25% and now beyond right now. So it it's an important step, and we'll continue this development as we go forward. You know, the next things that will come out on this is an enhanced visualizer so customers can see their rooms with their flooring in. And so this is just part and parcel of developing the ecommerce offer for customers as we go forward. I think brands are important in today's market.

24:37 You know, consumers really do associate with brands, and and we've been spending a bit of time thinking about our product brands. This isn't a distribution brand. These are around product brands and how they're recognized by customers and how they and what do the brands stand for? What are the product qualities that are associated with with these brands? And how can we push the recognition, Strongbridge to the marketplace so that, our customers, customers, consumers, if you like, are almost specifying these brands. I want, you know, I want that particular product in my flooring, and and they look for stockists to to to carry out the transaction. Something that we think is important typically is a a secure sale, higher margin, higher price points, and we're able to develop our own products, our own mixes, if you like, of this sort of wool Britannia product that I've called out on this slide is our own blend using a sustainable raw material in in wool and something that we can be proud of and put into the marketplace and consumers can associate with. So this this is important that we that we start to take this position in the market. We have a really tight range, and we know what our brands stand for.

25:45 And we're looking to do more of this. So I think this is something that we're gonna do more of. It's something that consumers can associate with, and we are looking to to launch sort of more entry level price points to go along with these premium brands. And that's something that we'll be able to provide a bit more update on, I imagine, at the half year. Just around supplies, a little bit around supplies and buying. I spent a bit of time with our suppliers in Belgium last week, and I'm I'm in Holland next week talking to some of our suppliers around sort of new products that are coming to market, how do we start to develop more sustainable ranges. And the great thing about that is that there's more and more sustainable products coming to market that we can push into The UK. We are looking to develop our conversations with those partners so that we can create more long term relationships, Perhaps even work with slightly less suppliers than we do today so that we've got good quality, deep relationships with those suppliers so that at times of, I difficult supply like we've seen in recent times, inflation, the environment, difficulties of getting raw materials, We're the ones who can get supply when we need it, and that's been a real positive thing over the last year. We talked about having strong inventory less levels, and I think I've seen a question come in earlier around supply chain issues, which we'll or perhaps come on to in a moment. But I think being having deep stock holdings and and and being well represented with all of those suppliers is really important for us so that we don't disappoint customers.

27:11 When they do have a sale and they wish to to to place an order, we've got that inventory. It's there. It's available. They don't have to wait six weeks for it to arrive. And I think that's been important in today's market. We've certainly seen an improvement and and really good response from our customer from our customers about stock availability. And and I think that's great for now, and it's great for the future. As I said, we're looking to build these strategic relationships. We're having a supply conference later in the year. First time that we that we've done that. So it's important that that we're seeing engaging with suppliers, and it's great that we're seeing as a as a valuable partner in The UK. I said about the ESG update. We have now harmonized the ESG update in the report in line with our annual reporting accounts. So they're becoming one effectively, and ESG will become part and parcel of our business strategy going forward. And I spent a bit of time in the last year end presentation sort of laboring the point that e, s, and g are separate points, not not all about sort of this homogenous sustainability.

28:20 So we are moving along with all of those three parts of that. Now the the g part, we've always been a world governed business, and we remain committed to to that part of it. But I think the EMS is probably where most people think about e s ESG. So, you know, we've made some statements. We've taken some actions. We are looking at moving to a sort of net zero carbon ambition over the next decade or so. So we are taking actions now. We're filling that that plan up with all of the steps that we can take both now and in the medium term. Around the yes, we we've talked to our colleagues around this sort of community support, and I think it's important that we represent our community and we act in that sort of holistic way with our local businesses. So be announcing to our colleagues in the businesses very shortly what we're going to do and how we're going to wrap that up into a sort of community giving scheme, and that's something that we're planning for the second half.

29:23 As I said, on the other on the others on the others with more tangible actions around commercial vehicles, we're moving all of our all of our vehicle fleet, the company cars to low emission vehicles. And that's all in place, and we set ourselves a target of of having half of our company car fleet as being low emission vehicles by the end of the year, and we're well on track for that. And, again, I mentioned these sort of sustainable products that the suppliers are launching. It's important that we play our part in that, identifying which of the products that make sense in The UK, how we can promote them, how we can get behind them, and how we can play our role in the distribution cycle for for those products. So I think that's something that's just gonna get more and more momentum, something that we are passionate about and and no doubt our customers would increasingly be so as well. And and certainly, if we're moving in to more of the the the multiple retailers and some of those other customer segments that I mentioned earlier.

30:23 This is a hygiene factor. We need to be we know we need to be focused on this. We need to be able to demonstrate our credentials in this space to be a credible supplier in in those customer types. So something that we're gonna continue to put to to focus on and provide regular updates on in the half year and the full year results.

30:42 So just turning to the trading update. We put a a trading update out this morning, and I've just pulled out a few a few bullet points here, which probably is the the, you know, the the real meat drink of the this update. You know, we are seeing revenue starting to soften a little bit, but we're still in line with the revenue that we saw in 2021. And and I mentioned this sort of residential commercial split that we saw moving towards residential during the COVID affected periods of 2020 and '21. We're actually seeing that reverse now, and I think that's consistent with a lot of other businesses that face into the home and the and the residential space. So we are seeing the residential market start to soften, and that's more surprising given what's happening with consumer sentiment and footfall and the inflationary pressures that people are under both in terms of heat, light, and power cost, but also the ability to go and spend money on other things like holidays and and hospitality.

31:38 But on the flip side, the commercial market is coming back a little bit, and and we're seeing some good bounce back on commercial spend. And I think the the anticipation and whether it's hope or expectation, there seems to be an expectation that there will be that recovery in the summer period where education will now need to replace those floors. They perhaps deferred in the last couple of years, and I think the expectation is there will be a slightly stronger commercial market in the second half than we've seen in in the last couple of years, and that's been borne out in our figures in the first four months. Amongst that sort of overview, if you like, there are some points of detail worth calling out. So those branded products that I mentioned earlier where we've tightened what the products mean, what they stand for in the marketplace, they've done better than the average blend. The trade counters that we've refurbished have done better than the average blend.

32:31 And we we refer to delayed orders on here. There was one one of our large customers had some system glitches, which meant that they weren't able to order products in April, and those have started to come through in May. So there's little bits of detail here and there, which has affected some of the trading patterns. But generally speaking, the revenue has been a little soft, broadly in line, but the margins have been strong. They've remained strong. The performance that we saw at the end of twenty twenty one has continued into '22. The operational efficiency measures that we took last year have have carried on their sort of full year effect, if you like, into 2022, which means we're slightly we're in a reasonable place on profit despite the the slight sort of softness on revenue that we started to see. So that's the sort of that's it in a picture. I think on the strategic developments, just to roll those forward, we have sort of continued the growth of new customers on on the multiple retailer sector.

33:23 The proposition like that we did has landed well, and we started now to to see some services into those customers, and those will largely be seen in the second half. The digital channel that I mentioned is up to 25%. That's a that's a high point now, and we're expecting that to continue to to increase. I've mentioned the trade counters have continued at pace. And as I said, I'm signing more sites off today even, but more and more sites will be will be coming on stream later this year. So I think that it it then comes to the outlook and and how do we see that. Who who knows how the how the year is gonna shape out? But this sort of I expect this residential softness will likely to continue given all the cost pressures we just talked to. We're expecting that commercial market to come back a bit. And I think these strategic countermeasures, you know, these large multiple retailers that I've said are signing up, we'll we'll see that as new revenue streams in the second half perhaps that can combat some of the softness. But who knows what the year is gonna bring out? And I think a note of caution perhaps there, but but everything we've got in play is is is delivering, and we'll hope that that continues. And the the education sector that we refer to, let's hope that that does also come back in the summer months.

34:41 So just sort of final slide for me, really, just a summary, sort of closing commentary. I suppose we we we remain committed to our growth strategy. The the early signs are good that we're delivering on the trade counters, delivering on the new customer types, and that will mitigate, no doubt, that some of the weakness that we've seen in the core markets and and certainly in the consumer sentiment and the residential sector. Profits are hanging in there. You know, we've still got some good margins there. The cost effects that we've taken out at the end of twenty one are still helping us in '22, so we can still see a clear path to the expectations that are in the market for for 2022. And we've got, you know, a a new board, a growing team. I'm still searching for a CFO, which is which is getting getting further down that track. And so, hopefully, we can we can close that out in the next couple of months and the and the additional net appointment that I mentioned earlier.

35:34 So so some good developments, good progress, and and and, really, I suppose that's it for for the first four months. You know? Let's hope that the that the headwinds improve a little bit. So I think that's the end of my that's the end of my presentation. So I think we're over to questions now. Chris, that's great, and thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while Chris takes a few moments to review those questions submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Chris, as you can see, we've received a number of questions from investors throughout today's presentation, and may I take the chance to thank all the investors for submitting their questions. If I could please just hand back to you to run through that q and a tab and where appropriate to do so, if you could please just read out the question and give you a response, and then I'll pick up from you at the end. Thank you.

36:29 Yeah. No problem. So we the first question is looking at are there any lessons that we can learn from HEADLAM's past where we see market softness and how the business has reacted and what we could do perhaps to to mitigate that? Of course, we have looked at that, and probably the last we've had a couple of examples of that, unfortunately, in recent times with Brexit and and going back to the 2008 sort of change in demand pattern, if you like, and, of course, COVID. There are some similarities, I suppose, particularly in the 2008 figure, and we saw demand just drop off and then come back up again. I suppose the market dynamics is slightly different now. You know, we have got a high degree of employment. So the market dynamics are a little bit different and perhaps a little bit more positive in the medium term than maybe they were then.

37:20 However, I think for me, this isn't about us just doing more of what we did in the past. Clearly, there's gonna be an impact on all of the customer segments. But the strategy that we're looking to develop of moving into new customer segments where we've got no share to defend and no share to worry about, this is all new new stuff, I think is is the right thing to mitigate the softness that will undoubtedly happen in in the next sort of six months or so.

37:49 There's a question around supply chain. I did briefly mention that. I think we the supply chain is is moved away from shortages of supply more into price inflation. So I think the scarcity of supply perhaps drove a little bit of price inflation early running the cycle. We then saw raw material prices increased partly as a result of that, and then we've moved more into sort of heat power oil driven inflation. So we took the view that we should be full and robust on our supply chain, secure orders, secure products. So our position on on stock is is good. We've got good depth of stock. And indeed, of course, in an inflationary environment, having having that protection of a deep stock hold is also helpful. So I think that's the supply the impact on supply chain isn't so much around scarcity of supply. It's now moved through through to and so inflationary pressures in the marketplace.

38:48 Another question on on m and a. The question these questions are a little difficult to answer. So m and a, I said that there's nothing. We haven't done anything in the last little while, And it's difficult to say whether that will be or the scale of that might be. I think it just what the point I was trying to make is, there may well be something that comes on. Now if it's very large, clearly, we'll we'll need to do something different around facilities anyway. But I just wanted us to have a bit of firepower up our sleeve should something opportunistic or strategic pop up that we could then execute on. So it was more just a a case of not much to try and put any shape around the scale of an m and a opportunity. It's more just to say that we need to have flexibility in the balance sheet to enable us to react should something come up. A question around how does our strategy differentiate HEADLAM from our competitors and attracting new customers and supplier accounts?

39:42 I think this comes back to the strength of the proposition in our service. I think the thing that we stand for and sets us apart is the quality of our service, the reliability of our service, and depth of stock holding. So that's that's the thing that we bring to the party. We've then been able to, over recent times, sort of tailor that. You know, that's a core fundamental service proposition. But I think for us to grow share and to take share in particularly in these new customer segments, we've gotta be able to tailor that proposition so that the customers can see and align with with with that. So, you know, there's no point in us trying to sell a regional distribution proposition to a Wix as a as a as a national retailer. We need a national position as HEADLAM or one of our national brands to sell that to them because that's what they need. So I think we've been the differentiation really is about the proposition and how we can tailor it specifically for that customer type and offer good quality service across the whole of that portfolio to make the customer happy.

40:48 Okay. So a question here around how does our organization with its multiple number of businesses and independence from sort of local empowerment, if you like, how do we assure a consistent approach and coordination of delivery? So this is a I think the way to answer that is we've we've come up with a multilayer approach of this. So I think traditionally, that question is absolutely right. We had a regional customer base with a regional distribution presence. And And I think that's okay, and and that's fine. They they can continue to serve regionally and continue to serve locally. I think where we are moving forward now is, as I said, is that we're offering some national service for national customers, and we're also offering a national service with regional and local deliveries, actually. So the one of the benefits of us coordinating and aligning our distribution network is we can now take orders in one part of the country and deliver in others through our network of distribution.

41:45 So that's meant that we can now unlock in a way perhaps we haven't before a a more coordinated approach, well, and in some cases, local delivery for national ordering. So that's relatively new, and that's part of the proposition we're taking into the multiple retailers. So I think the question was aimed at sort of this local independence versus this sort of overarching HEADLAM view. And I think we can almost get the best of both worlds if we can allow local business to continue to serve locally, but join up when we need to to to offer us with a national service to larger customers. A follow-up question around brand development. So when when I mention brand development, am I talking about product brands or HEADLAM as a brand?

42:31 And I think it's actually both in reality. You may have noticed when we launched the HEADLAM app, it's called the HEADLAM app. And there isn't very much awareness of what HEADLAM stands for as a as a part of the trading business, if you like. So we are pushing and investing in our product brands, as I said earlier. And I think perhaps a little bit more subtly, we're also investing in HEADLAM from an awareness perspective. And as I said, we're going after some of these big national customers and these new customer segments as HEADLAM. And we're doing that because that's a a a national brand. It's something that they can align with. Some of these bigger customers also quite like working with a PLC or a big corporate, and we clearly have to do that through the HEADLAM brand. So there will be a bit of strengthening of the awareness of what HEADLAM stands for. We know our customers are fully aware of HEADLAM being the sort of parent of lots of the regional distribution business. So I don't that that's not a concern. But I think it does mean that we should be investing in HEADLAM as a brand, certainly for certain customer types and also in product brands as well.

43:41 There's a question around what I think might happen on the level of digital penetration into our order numbers. So the question is, if we've seen that growth from 11 to 25 in the last couple of years, could it be 50 per 50% plus in 2025? That's a good question, and and I don't know clearly. I think where if you look at the the the growth plans that we've got and how we're trying to move the business forward, what we do know is the independent retailers and that sort of traditional part of the market is a little less embracing of this sort of move to a more digital way of ordering. So what we are seeing is the bigger customers, the larger customers, really, they have to order via a digital process. You know, they have to give us electronic order link. So if you think our growth may be aimed more at the the multiple retailers, the larger retailers, and to some extent, the trade counters, and we are trying to promote that sort of click and collect type service, I think it will continue to grow. We targeted 30%.

44:43 It will be great if we can get through that, particularly as we bring on the on stream these new customers with them as with enhanced ecommerce proposition. Whether it'll get to 50%, don't know. I think it depends on the blend on how these different customer segments move together. This question about European performance, and and admittedly, we've been relatively quiet on the European business. I think the businesses continue to perform well. Yeah. It's it's probably done a little bit better than The UK. The the the business is for different reasons in many respects. So the the the bounce back from code, if you like, has happened in The UK and The Netherlands and France in sort of equal way.

45:28 But we were for those who have followed the business for a while, we were about restoring and recovering the French business from a relatively weakened position in the last few years. So we've seen that recovery continue in France, and that's been doing well. And the Dutch business has been doing well in any event. So that sort of returned back to where it was. We're not quite seeing the same pattern of sort of softness and strength in commercial and residential as we are in the in the other European businesses. So that so they're doing well, and they remain sort of on track on tracks for the year's the year's performance. There's a question around with the acceleration of the trade counter rollout may mean that your CapEx spend will be more than the 7,000,000 this year.

46:15 The answer to that is it depends on on the timing. So there is a natural lag of getting permission from landlords, you know, getting the the building and the construction done. If you recall, some of this spend is done on our own sites. Some of this spend is done on new sites that we've yet to procure. So there's a bit of a mixed bag. In some respects, it might be quite good if it is more than 7,000,000 because it means we've got more tray counter footprint to hit the ground running for next year. I suspect it will blend out. I think we are trying to go harder and faster, and there'll no doubt be some sites that get delayed. So at the moment, I can't see that that number is gonna change, but it's certainly something that we'll keep up to watch. And if it does indeed look like it might be different, clearly, we'll we'll we'll provide some guidance accordingly. Just just scrolling through. So a question about have have we seen recently a mix change between hard and soft flooring and tiling? So there has been a sort of megatrend, if you like, in The UK to move towards harder flooring, certainly in the downstairs environments.

47:26 And in the commercial space, a real mixture of floors, so, you know, wood, laminates, and carpet tiles or carpets all in the same room, you know, coming up against each other. It's quite different to what it's been in the past. I think that's continued, and and that trend away from, say, broad and carpet type product towards certainly towards LVT and and laminate and vinyl has continued. Ceramics isn't something that we've got a great presence in. It's around 10 to 15% of The UK distribution market. That might be something that we do more of in the future. Currently, we don't do a huge amount of it. I think the growth in that market has been slightly stronger for the reasons I've just outlined. What we have seen is probably a a faster growth in the, as I said, the other hard flooring surfaces like laminates, LVT, and we and we offer distribution services across all of those product ranges. So, yeah, there that mix has changed and continues to change towards hard flooring slightly.

48:31 Last question, which I'm going to answer. So do you have any long term plans to move up the supply chain into manufacturing via a JV or similar? No is the short answer to that. So I think, you know, we see ourselves as distributors. We we, if anything, have got more consumer presence than than in the supply in the vertical, if you like, than manufacturing. I think manufacturing isn't something that that that we would look to do. We work with manufacturers to access products and and distribute them into The UK. So I don't think there's really any need for us to do a JV. You know, we've got close relationships. We typically are those customers for for many of our suppliers. And it, for me, it's about building those supplier relationships and getting closer to them than than necessarily stepping into their shoes and starting to manufacture.

49:17 So I think if anything, perhaps getting closer to consumers through brand awareness and starting to get a real sort of in in interrelationship between consumers. So they are picking our products. You know, I I I want that, please, mister retailer, is a way of almost ensuring the sale comes to us. So I think if anything, we'll probably get closer to consumers that way rather than rather than into manufacturing. So I think that's the that's the end of the of the questions. Is there any I Chris, that's that's that's great. Thank you very much indeed for taking the time to address as many questions as you can from investors today. And of course, if there are any further questions submitted today, we'll make these available to you immediately after the presentation has ended for your review. And ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the investment company platform.

50:05 Chris, perhaps you're redirecting investors provide you their feedback, which I know is particularly important to yourself and the company. If I could please ask you for a few closing comments to wrap up with that, that'd be great. Yeah. No. Thanks for your time and and joining the presentation today. I think, you know, slide 22, the summary, which happens to be on the screen is probably my closing comment, really. You know, it's a it's a difficult market. Who who knows what's gonna happen? I think the strategy that we're deploying is well set. We've had an okay start to the year, but the strategy looks well set, and and let's see what the rest of the year brings. So positive feeling, and, let's let's let's just see how it goes this year. So thanks for joining. Thanks very much for that, Chris. That's great. And thank you very much indeed for taking the time to update investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

50:56 This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of HEADLAM GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.