Investing for the future
Annual Report and Accounts for the year ended 2023
INTRODUCING OUR 2023 ANNUAL REPORT
The UK's leading floor covering distributor
Our Purpose | Our Vision |
Creating great places for our communities to live, work and play
The leading, most trusted experts in flooring
Our Values
Every business in the Headlam group brings its own skills and expertise, built on a proud history of serving its customers. The 'Headlam Way' is an expression of the shared values that bring us together. It's why people choose to work with us.
Keep each other safe and well, always
Work together, with everyone
Keep improving, everywhere
Lead by example, we are all leaders
Act sustainably, use less, waste less, give back
Get it done, brilliantly
And always, do the right thing
Our Culture
Colleagues are at the heart of our business, and are our greatest asset. There are over 2,300 colleagues at Headlam within a variety of departments, including warehousing, transport, sales, and administration. We continue to focus on making Headlam a great place to work, and ensure colleagues share in the Group's long-term success.
Overview
Our investment proposition
Strong Financial Foundations
- Strong balance sheet
- Cash generative business model
- Low capital requirements
Financial Review
For more information see pages 32 to 39
Market Leading Position | Improving Future Performance | ||
• | Market leader with established | • | Significant growth opportunity |
operational expertise and | from market recovery | ||
unrivaled scale | • | Building revenue streams | |
• | Opportunity to further broaden | from strategic initiatives | |
market presence | • | Increasing efficiencies to | |
• | Large addressable market | support margins | |
Our Strategy | Our Marketplace | ||
For more information see | For more information see | ||
pages 18 to 23 | pages 14 to 15 |
Contents
Overview | Governance | Financial Statements | |||
Our Year in Review | 02 | Chair's Introduction | 78 | Independent Auditors' Report | 148 |
Our Performance | 03 | Compliance Statement | 80 | Consolidated Income Statement | 155 |
Our Business at a Glance | 04 | Board of Directors and | 82 | Consolidated Statement of | 156 |
Chair's Statement | 06 | Executive Team | Comprehensive Income | ||
Board Leadership and | Statements of Financial Position | 157 | |||
Chief Executive Review | 08 | 86 | |||
Company Purpose | Statement of Changes in Equity | ||||
Strategic Report | Q&A with Karen Hubbard | 89 | - Group | 158 | |
Market Overview | 14 | Division of Responsibilities | 92 | Statement of Changes in Equity | 159 |
Composition, Succession and | - Company | ||||
Our Business Model | 16 | 100 | |||
Evaluation | Cash Flow Statements | 160 | |||
Our Growth Strategy | 18 | ||||
Audit Committee Report | 102 | Notes to the Financial | |||
Our Strategy in Action | 20 | 161 | |||
Nomination Committee Report | 110 | Statements | |||
KPIs | 24 | ||||
Alternative Performance | |||||
Directors' Remuneration Report | 116 | ||||
Stakeholder Engagement | 28 | 208 | |||
Directors' Report | 140 | Measures | |||
Financial Review | 32 | Financial Record | 212 | ||
Statement of Directors' | |||||
Sustainability Report | 40 | 145 | Additional Information | 214 | |
Responsibilities | |||||
Environmental | 44 | ||||
Social | 48 | ||||
Governance | 54 | ||||
Task Force on Climate-Related | 56 | ||||
Financial Disclosures (TCFD) | |||||
Streamlined Energy and Carbon | 61 | ||||
Reporting (SECR) | |||||
Risk Management | 65 | ||||
Principal Risks | 68 | ||||
Viability Statement | 72 | ||||
Non-Financial and Sustainability | 74 | ||||
Information Statement |
Headlam Group PLC Annual Report & Accounts 2023
01
OUR YEAR IN REVIEW
Chris Payne, Chief Executive
- These are a few of the common questions we are asked by stakeholders "
Q
A
Q
A
Q
A
What has been the most challenging aspect of 2023?
2023 has undeniably been a very challenging year for the flooring market, reflecting a number of macroeconomic and industry headwinds, including lower RMI (residential maintenance and improvement) spend, a reduction in the number of housing transactions, and a decline in consumer spending. Home improvements has been one of the hardest hit categories of retail spend in 2023 as households cut back on discretionary spend. Added to which there was high operational cost inflation in areas such as energy costs and wages. This combination of lower demand and higher costs has weighed on profitability, although we worked hard to successfully offset a proportion of it by taking mitigating action.
What are your views on the timing of recovery in the marketplace after this suppressed period of time?
I'll leave it to the economists to predict the macroeconomic outlook for the years ahead, but what we do know is that volumes in the UK flooring market are around 20% lower than in
2019 and we would expect those volumes to come back over the next few years. There is a significant opportunity ahead, as and when those volumes recover. We have a relatively high fixed cost base, which means that declining volume can have a significant impact on profitability, but the reverse happens as volumes grow. Whilst the short-term outlook is uncertain, I feel optimistic about the medium-term prospects, with the recovery in the market combining with the results of our current strategic investments to create meaningful profit improvement.
What are your key focuses for 2024, including to recover financial performance?
The key focuses are to grow with new and existing customers and continue to deliver great service, whilst controlling costs and driving through efficiencies. By doing so we will drive volume growth whilst also supporting and improving margins. The macroeconomic conditions have been challenging, but we will continue to invest in the business to position it well for when the market improves.
02
Overview
OUR PERFORMANCE
Revenue | Statutory basic earnings per share |
(1.1)%23
£656.5m 22
(2022: £663.6m)
21
(76.1)% | ||||
656.5 | 23 | |||
9.6p | ||||
663.6 | 22 | |||
(2022: 40.1p) | ||||
667.2 | 21 | |||
9.6
40.1
23.5
Underlying1 operating profit | Total ordinary dividend2 | ||||||
(58.9)% | (42.5)% | ||||||
23 | 16.1 | 23 | |||||
£16.1m | 10.0p | ||||||
22 | 39.2 | 22 | |||||
(2022: £39.2m) | (2022: 17.4p) | ||||||
37.3 | |||||||
Statutory operating profit: | 21 | 21 | |||||
£12.2m (2022: £43.9m) | |||||||
10.0
17.4
16.4
Underlying1 profit before tax | Average net (debt)/funds3 |
(70.4)%23
£11.0m 22
(2022: £37.1m)
21
(1,209.7)% | ||||||
11.0 | 23 | (34.4) | ||||
£(34.4)m | ||||||
37.1 | 22 | |||||
(2022: £3.1m) | ||||||
35.8 | 21 | |||||
3.1
38.3
Statutory profit/(loss)before tax | Net (debt)/funds including lease liabilities4 |
(83.0)%23
£7.1m 22
(2022: £41.8m)
21
(103.3)% | ||||||
7.1 | 23 | (73.0) | ||||
£(73.0)m | ||||||
41.8 | 22 | (35.9) | ||||
(2022: £(35.9)m) | ||||||
27.6 | 21 | |||||
17.7
The financial results for 2021 represent continuing operations only and exclude the contribution from the Swiss business, Belcolor AG, in 2021 following its disposal during 2021. Commentary on the Company's use of Alternative Performance Measures ('APMs') alongside International Financial Reporting Standards ('IFRS') Measures is given on pages 206 to 207.
- To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before non-underlying items. These items are detailed in note 3 and principally comprise amortisation of acquired intangibles and other acquisition- related costs, impairment of intangibles, property, plant and equipment and right-of-use assets, insurance proceeds (following fire), profit on sale of property, plant and equipment and business restructuring and change-related costs.
- Total ordinary dividend for 2021 includes the 2.0p nominal dividend announced in March 2021.
- Average net (debt)/funds is calculated by aggregating the net debt position, excluding lease liabilities, for each business day and dividing by the total number of business days.
- Net (debt)/funds is as at 31 December, and includes lease liabilities of £43.4 million in 2023 (2022: £37.7 million; 2021: £36.0 million).
Headlam Group PLC Annual Report & Accounts 2023
03
OUR BUSINESS AT A GLANCE
Who We Are
Operating for over 30 years, Headlam is the UK's leading floor covering distributor.
The Company works with suppliers across the globe manufacturing the broadest range of products, and gives them a highly effective route to market, selling their products into the large and diverse trade customer base.
The Company has an extensive customer base spanning independent and multiple retailers, small and large contractors, and house builders. It provides its customers with a market-leading service through the largest product range, in-depth knowledge, ecommerce and marketing support, and nationwide next day delivery service.
To maximise customer reach and sales opportunity, Headlam operates 67 businesses and trade brands across the UK and Continental Europe (France and the Netherlands), which are supported by the Group's network, central resources and processes.
31 | 67 | |
Years operating | Businesses and | |
trade brands | ||
2,338 | 22 | 67 |
People | Distribution | Trade |
hubs and | counters | |
centres |
Revenue
88% | 65% |
12% | 35% |
UK | Residential |
Continental Europe | Commercial |
04
Our Customer Segments
Traditional Retailers
A mix of large and small stores, independently owned
Key needs:
- Product availability
- Next day delivery
- Customer service and strong relationships with fast response to queries
- Reliable quality
- New product launches, sampling and promotions
Tradespeople, Fitters and
Small House Builders
Often self-employed with or without a delivery address
Key needs:
- Nearby trade counter for collection
- Quick, one stop shop
- Product advice and sampling showcase for end-consumer
- Ability to check stock and order out of hours and on the move
Progressive/Lifestyle Retailers
Showroom style stores, selling other home decor items
Key needs:
- On trend, design-led products and brands
- Advice and insight into end-consumer buying trends
- Point-of-salematerials to showcase options to end- consumer
- Digital ordering and stock checking
Contractors
Large scale, with premises and contracts that span sectors
Key needs:
- Quick ordering and delivery lifecycle
- Able to supply nationwide and to site
- Account management and contracts all in one place
- Sustainability credentials
Overview
Major Multiple Retailers
Flooring specialists and generalists with nationwide premises
Key needs:
- Fast and accurate delivery nationwide
- Digital systems, real-time data sharing and automated ordering
- Supply chain management and stockholding
- Sustainability credentials, exclusive products and insight
Large House Builders and Housing Associations
Nationwide with multiple developments
Key needs:
- Single account management with contracts in place
- Able to supply nationwide at scale and to site
- Product insight, with tailored ranges, point-of-sale materials and showcase options for end-consumer
Online Retailers
Online business only (with no physical retail premises)
Key needs:
- Delivery to fulfilment centre or DSV
- Well recognised product brands with social media appeal
- Direct to customer sample fulfilment
- Digital systems, real-time data sharing and automated ordering
Headlam Group PLC Annual Report & Accounts 2023
05
CHAIR'S STATEMENT
Keith Edelman, Non-Executive Chair
- Despite 2023 being a difficult year for the industry, we made good progress with the implementation of our strategy to enhance the growth potential of the business, improve customer service and deliver efficiencies "
06
Overview
2023 proved to be a difficult year for the industry as a whole, and for many businesses exposed to consumer discretionary spend. Financial performance was hampered not just by the cost-of-living crisis, but also
by high operational cost inflation. These combined to meaningfully reduce industry volumes and put significant pressure
on margins.
Despite this backdrop, we made good progress with the implementation of our strategy to enhance the growth potential of the business, improve customer service, and deliver efficiencies. However, due to the roll out and maturity cycles of certain initiatives, coupled with the upfront investment required to deliver them, the impact was more than offset by the economic and industry headwinds. Additionally, the Company's regional distribution business, which is heavily weighted to smaller residential sector orders, was particularly impacted by both the trading environment and competitive pricing.
As a Board, despite the backdrop and considerable pressure on financial performance, we decided to continue investing in the strategy and for the future. This is aligned with our fundamental belief that the long-term success of the business and the expansion of its market-leading position is of most benefit to all stakeholders. Therefore, despite our profit performance in the year, we are pleased with progress and remain committed to our strategy.
As a business, we have achieved a lot over the past few years as we have sought to modernise the business, grow revenue opportunities through broadening our presence in the marketplace, and invested in associated people
capacity and infrastructure. However, this has also meant our colleagues having to contend with considerable change, and doing so in a very challenging trading environment. So, on behalf of the Board, I thank them for their commitment and hard work.
During 2024, we will continue with the implementation of our strategy whilst also undertaking particular scrutiny of operational performance, efficiencies, and the cost base. As a Board, we constantly appraise the strategy and its performance. We believe our strategy is the right one, and whilst the short-term outlook for the market is forecast to remain challenging, the business is fundamentally in
a much better position. Once volumes improve from the unprecedented current lows, we will be able to restore and build profitability, particularly given the ongoing execution and maturity of our strategy.
I would like to thank all our stakeholders for their support during what has been a difficult year for most.
Keith Edelman,
Non-Executive Chair
5 March 2024
Headlam Group PLC Annual Report & Accounts 2023
07
CHIEF EXECUTIVE REVIEW
Chris Payne, Chief Executive
-
Whilst the short-term outlook remains difficult to forecast, the medium-term market recovery, combined with the impact of our current investments
to broaden the base of the business, provide opportunity for material profit improvement "
08
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Headlam Group plc published this content on 18 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 March 2024 16:31:12 UTC.