Significant pre-tax loss expected as sales fall at flooring group

Floorcoverings distributor Headlam has reported a decline in sales and expects to post a “significant” pre-tax loss in the first half as a result.

According to its latest trading update in the four months to the end of April 2024, revenue in the period was down 12.3% year on year, with the UK down 11.6% and Continental Europe down 16.9%.

“Revenue in April did not show the expected seasonal uplift usually seen in the Spring period,” Headlam said. “The strategic growth initiatives have continued to perform well, with revenue from Larger Customers and Trade Counters continuing to grow but this has been offset by ongoing decline in the overall floor coverings market, driven by continued weakness in the housing market and a deterioration in consumer spending.

“This has resulted in revenue decline in the Regional Distribution business in the UK and in our Continental European business. Despite tight cost management and other mitigating actions, the lower revenue has impacted our profitability with a pre-tax loss for the Period of £10.6 million.”

Over recent years the Group has been implementing its strategy of broadening its customer base and implementing a transformation programme of simplifying and consolidating sales teams and operations.

“We have now seen a third consecutive year of monthly decline4 in volumes and recent macro data has indicated continued weakness in RMI3, consumer spending on home improvements, and housing transactions, all of which indicate a further delay until 2025 for a recovery in the floor coverings market,” Headlam added. “Accordingly, the Group is accelerating its strategy which will see further integration and simplification across the business.

“We expect these initiatives to deliver a material reduction in operating costs along with significant one-off cash benefits from disposal of surplus property and working capital reduction over the next 18 months. The Group will provide a further update on our plans in July.

“Our independent retailer customers in Regional Distribution remain our biggest customer group and we will continue to invest in that part of our business, building on the significant investments made in 2023, to maintain and grow our market presence. The changes we’ll be making, along with the ongoing ERP replacement project, will make Headlam a more effective organisation and simplify our offer to customers.

“With the implementation of these initiatives and a recovery in the market, supported by the Group’s market leading position, the Group remains confident about the medium-term growth prospects.”

Looking ahead, Headlam said: “We expect to report a significant pre-tax loss in the first half based on a double digit decline in revenue. In the second half we expect an improvement based on our mitigating actions, as well as gradually improving market conditions, albeit we do not anticipate the market returning to growth until 2025. For the full year we expect profit to be significantly below current market expectations.

“Longer term, we expect our market to recover and there is no change to the indicative long-term revenue potential of the Group of £900m to £1bn as set out in March 2024, which together with our transformation programme, is expected to see the Group return to, and beyond, historical levels of profitability.”

Commenting, Chris Payne, Chief Executive Officer, said: “Whilst the medium-term outlook for the business remains strong, the current trading conditions across the sector have been challenging and we have seen a further deterioration in consumer spending in our markets, which has weighed on profitability.

“Despite these headwinds, the balance sheet remains strong, it is pleasing to see the strategic growth areas continuing to perform well and, with the acceleration of our strategy, we have a great opportunity to simplify our customer offer to significantly improve the Group’s profitability and further improve our cash position.”

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