Headlam Regulatory News (HEAD)

16 January 2019

Headlam Group plc

('Headlam' or the 'Company')

Pre-Close Trading Update

Headlam Group plc (LSE: HEAD), Europe's leading distributor of floorcoverings, today announces a trading update in respect of the 12 months ended 31 December 2018 ahead of announcing its final results for the year ended 31 December 2018 on Wednesday, 6 March 2019.

Despite the UK market weakness that was evident throughout 2018, the Company expects to report final results for the year ended 31 December 2018 marginally ahead of 2017 and in-line with market expectations*. The Company also expects to propose a final dividend in-line with market expectations*, resulting in a very slight increase in the total dividend payable in respect of 2018 against that of 2017.

It is currently anticipated that the UK market will show further general weakness during 2019, particularly in the residential sector where the Company's distribution business is more heavily weighted. As a result, the Company considers it prudent to expect revenue for the current financial year to be in-line with 2018.

Whilst the Company has been effective at improving gross margin over the last couple of years, it is anticipated that underlying profit before tax in 2019 will be lower than 2018 and in the range of £39 million to £41 million. This is primarily due to an anticipated movement in revenue mix and associated margin, year-on-year inflationary pressure on distribution costs and administrative expenses, and a number of efficiency initiatives aimed at lowering the breakeven point and improving operating margin being at the early roll-out phase or trialling.

The efficiency initiatives, which include more effective inventory management, delivery fleet utilisation, and examination of all goods not for resale and other expenditure, will yield increasing benefits as 2019 progresses and have a more meaningful impact in 2020 and beyond.

The Company currently intends to maintain the 2019 dividend in-line with that of 2018 despite the profit guidance for the year. This reflects the Board's continued confidence in the Company's ability to improve profitability, and its commitment to a progressive dividend policy and maintenance of a strong balance sheet and operational cash generation. Net cash as at 31 December 2018 is expected to be higher than the £35.3 million reported for 2017, and which follows acquisition spend of £9 million during the year.

Since the beginning of the year, and in anticipation of the UK leaving the EU at the end of March 2019, the Company has invested in additional inventory across its fastest-moving products. This coupled with the Company's significant warehousing network and associated inventory positions should assist in partially mitigating any potential disruption and help preserve customer service in the event of a hard Brexit.

Steve Wilson, Headlam's Chief Executive, commented:

"In the face of a year which presents general uncertainty, a high degree of difficulty predicting any outcome, and an anticipation of further weakening in markets due to the wider economic environment, I believe we are taking a prudent view. Our intention to maintain the dividend for 2019 despite this backdrop is testament to our belief in the strength of the business. We are focused on expediting the efficiency initiatives to improve our performance going forward, irrespective of any weaker trading conditions and remain committed to providing improving returns to shareholders."

*Company-compiled consensus market expectations for 2018 revenue, underlying profit before tax and total ordinary dividend is £708.7 million, £43.6 million and 24.88 pence per share respectively (mean). Underlying is before non-underlying items which includes intangibles amortisation relating to businesses acquired, acquisition fees, and non-recurring costs relating to personnel changes.

Enquiries:

Notes for Editors:

Headlam is Europe's largest distributor of floorcoverings having grown significantly via organic growth and acquisition since 1992.

Headlam's core business provides the distribution channel between suppliers and trade customers of floorcoverings, providing suppliers with the greatest coverage and customer penetration for their products across the UK and Continental Europe, and customers with the broadest range of products supported by next day delivery.

The Company is engaged with suppliers across 16 primary countries whose products cover a significant proportion of the floorcoverings market including carpet, residential vinyl, engineered wood, laminate, luxury vinyl tiles, ceramic tiles, underlay and commercial flooring. The Company's customers are within both the residential and commercial sectors and comprise principally independent retailers and flooring contractors.

The Company comprises 67 wholly-owned businesses in the UK and Continental Europe (UK 63, Continental Europe 4) each operating under their own trade brand and utilising their individual sales team which achieves greater market penetration.

Each of the businesses is supported by the Company's centralised and financial resources and extensive distribution network across the UK and Continental Europe.

www.headlam.com