Headlam Regulatory News (HEAD)

22 May 2020

Headlam Group plc

('Headlam' or the 'Company')

AGM Trading Update

Following the COVID-19 Trading Update announcement on 25 March 2020, and ahead of the AGM being held later today, the Company is providing a further update on trading and other developments that have occurred during the intervening period.

As previously stated, the Company closed all of its UK sites on 24 March 2020 with the exception of its largest national distribution hub in Coleshill, which continued to operate on a very limited basis to fulfil demand for products in relation to essential work.

Since that time, and following UK Government guidelines, the Company has taken a demand-led and phased approach to reopening its UK operations, providing its customers with limited delivery services and a collection service for pre-ordered products that was initiated during April 2020.

All of the Company's principal distribution centres in the UK are now open on a limited basis enabling the business to provide nation-wide coverage and support for its customers. Additionally, the phased full reopening of the UK trade counter network commenced this week, which will also extend the collection service for pre-ordered products.

The Company has, and will continue to ensure, that it is following all UK Government guidelines and the relevant guidelines relating to the Continental European businesses for the safety and protection of its people, customers and suppliers. The Company is currently undertaking all the necessary preparatory work to fully implement COVID-19 Secure guidance throughout its network, with strict social distancing rules, use of PPE, and hand hygiene measures already being applied across the Company's current operations.

Sites and delivery services will continue to be opened up more fully as the demand profile builds, including in response to the reopening of retail businesses. The Company has strict controls in place ensuring that as sites have reopened, and continue to reopen more fully, operating costs are aligned with the developing revenue profile to manage costs to the lowest possible level.

In the UK, for the period since 25 March 2020, the Company has been operating at a level which, on average, equates to approximately 10.4% of internal revenue expectations. For the last five trading days, led by increasing demand, this has risen to approximately 28.8%. 80.5% of the Company's UK workforce are currently furloughed, compared with 87.6% on 11 May 2020 as sites have reopened reflecting demand, and continue to be paid an enhanced form of the UK Government's Coronavirus Job Retention Scheme.

The Company's operations in Continental Europe have collectively traded comparatively well throughout the same period due to the less restrictive governmental measures, with the exception of the French business which has operated under similar restrictions to that of the UK. For the period since 25 March 2020, the Continental European businesses have collectively been operating at a level which, on average, equates to approximately 66.8% of internal revenue expectations. For the last five trading days, this has risen to approximately 75.5%, with the recent lessening of restrictions in France being a key driver. A minority of the Company's French and Swiss workforce are currently subject to the two countries' equivalent of the UK Government's Coronavirus Job Retention Scheme, with the Dutch workforce having operated fully throughout the period.

The Company remains focused on the long-term and is continuing with the planning or accelerated implementation of some of the projects forming part of its ongoing Operational Improvement Programme. The Programme has been designed to make the business more customer focused and operationally efficient to increase revenue and enhance margin. A number of these projects will support the anticipated changes to customer ordering and interaction preferences, and enable the Company to operate more effectively in the current environment. Projects include the ongoing transport integration initiative focused around more effective delivery fleet utilisation, an enhanced trade counter proposition, and increased e-commerce capabilities.

As previously stated, the Company ceased purchasing products in March 2020, before the closure of its sites. In-line with its focus on cash management and working capital, the Company will prioritise utilising its existing inventory position of £136.7 million to satisfy near-term demand and purchase as required in conjunction with specific projects and orders.

The Company has agreed revised covenant tests with its banks Barclays Bank PLC and HSBC Bank Plc for 30 June 2020 on the existing facilities which run to 30 April 2023.  The banking facilities available to the Company are £109.9 million, with current headroom of approximately £70.0 million. The Company remains confident in its ability to manage the business and cash flows within these facilities. Of the existing government support schemes on offer, it is likely that the Company will only utilise the UK Government's Coronavirus Job Retention Scheme and the Continental European equivalents.

It is not possible to provide guidance on the expected outturn for the financial year ending 31 December 2020 at this stage. As clarity improves, the Company will issue a further announcement in respect of the anticipated 2020 performance.

The Board would again like to express its thanks and utmost appreciation to all stakeholders during this period, and remains focused on returning to more normalised levels of operations with the appropriate levels of cash management, and on fully implementing COVID-19 Secure for the protection and safety of its people, customers and suppliers.

Enquiries:

Notes for Editors:

Operating for 28 years and employing 2,575 people as at 31 December 2019, Headlam is Europe's leading floorcoverings distributor.

Headlam provides the distribution channel between suppliers and trade customers of floorcoverings. Working in partnership with suppliers across the globe manufacturing a diverse range of floorcovering products and ancillary accessories, Headlam provides an unparalleled route to market for their products across the UK and certain Continental European territories.

The utilisation of an outsourced distribution channel enables manufacturers to focus on their core activities, incur reduced costs associated with distribution, and benefit from localised sales, marketing and distribution expertise that provides a more effective and greater route to market for their products.

To maximize customer and market penetration, and reflecting the regionalised nature of the marketplace, Headlam comprises 67 individual businesses in the UK and Continental Europe (France, the Netherlands and Switzerland) each operating under their own unique trade brand and utilising individual sales teams.

Headlam's extensive customer base, operating within both the residential and commercial sectors and comprising principally independent retailers and flooring contractors, receives the broadest product offering supported by next day delivery as well as additional marketing and other support.

Headlam's offering is enabled through its unrivalled operating expertise, long-established supplier and customer relationships, and comprehensive distribution network. Following years of considerable investment, Headlam's distribution network currently comprises four national distribution hubs, 19 regional distribution centres and a supporting network of smaller warehouse premises, trade counters, showrooms and specification centres.

In 2019, Headlam worked with 190 suppliers from 19 countries and fulfilled 5.3 million customer orders.

www.headlam.com