Interim Results Presentation For the six months ended 30 June 2020
About Us Across Europe Broadest product offering Market leading position Countries of operations Supplier Years in countries operation 4 19 28 Active customer accounts SKUs +70,000 +36,000 4 1 Extensive network 1. UK Scaled operations 2. France 3 2 3. Switzerland 4. Netherlands Distribution hubs Employees and centres +2,500 23 Executive Directors Customer orders Businesses processed in 2019 67 5.3m 1 Chris Payne Steve Wilson Chief Executive and Chief Financial Officer and Executive Director Executive Director
Marketplace and Customer Base 2019 UK floorcoverings End-consumer market value* £2.1 billion Corporate Independent retailer End-consumer Housebuilder Larger Flooring retailer contractor Developer Residential Sector (c 2/3 rd of Housebuilder Commercial value) Sector Corporate (c 1/3 rd of Flooring value) contractor Specifier ∆ Developer Housebuilder End-consumer Developer Other Specifier ∆ Housebuilder Developer e.g. direct to a End-consumer local authority 2 * Source: AMA Research, MTW Research, Mintel, value expressed by reference to manufacturers’ selling price ∆ Including architects and interior designers who determine the products to be used on a project
Marketplace Dynamics and Headlam’s Position Large and mature market Key drivers of demand: • Repair, Maintenance and Improvement (‘RMI’) spend • • Housing transactions • Construction activity Headlam’s position Principal customer base – independent retailer and smaller flooring contractors • • These groups considered more resilient during weaker market backdrops: • Typically lifestyle businesses, and adaptable Not encumbered with larger overheads or commitments in terms of people and rents • Very limited exposure to large scale projects and construction work • RMI spend to lower-end of the scale predominate driver of performance • • Revenue characterised by a high volume of smaller value orders • Average order size of £136 in 2019, a ‘relatively modest’ mostly discretionary spend Underweight in a variety of customer groups • 3
Interim Results - Overview Significantly impacted by Accelerated certain Pleasing current trading COVID-19, but undertook Operational Improvement given economic backdrop, swift actions to preserve Programme projects to with cash collections the Balance Sheet, and improve customer service, exceeding expectations. had returned to normalised and create operating Committed to resuming operations by end-June efficiencies and meaningful dividends once there is a overhead savings period of more normalised trading 4
COVID-19 Timeline, Response and Mitigating Actions
COVID-19: A timeline of events Jan Feb Mar Apr May Jun Jul Aug Trading resilient and broadly in-line with All UK Demand-led and All principal UK Normalised prior year until 24 March 2020 operations phased distribution centres operations, and closed except approach to open, phased July revenue largest reopening reopening of UK trade above 2019 distribution hub counter network Non-essential UK retail businesses closed: UK retail open Only limited delivery services for essential products and a customer collection service for pre- ordered products in operation French operations: Similar profile to the UK Swiss and Dutch operations: Traded comparatively well throughout due to less restrictive governmental measures 6
COVID-19: Management Response Prioritising the safety and wellbeing of our people Focus on cash management • Adhered to all government guidelines and prioritised • Swift actions to close operations, limit headcount, and the safety of people manage variable costs to materially lower levels Paid enhanced form of the UK Government's Strict centralised controls put in place, with operating • • Coronavirus Job Retention Scheme throughout costs aligned with developing revenue profile • COVID-19 Secure fully implemented throughout the • Product purchasing limited and utilisation of existing network in June 2020 inventory, with added benefits of reduction in duplications and slow-moving stock across the network Increased communications to provide as much • clarity and supportive information as possible Non-essential operational and capital spend deferred, • and decision to suspend dividend to preserve balance Operational Improvement Plan acceleration sheet strength • Designed to make the business more customer Financial Position focused and operationally efficient, aimed at revenue and margin enhancement Agreed revised covenant tests with banks for 30 June • 2020 on the existing facilities which run to 30 April 4 current primary projects, will create meaningful • 2023 overhead and operating cost efficiencies to increase sustainability • In August 2020, agreed extended revised covenant tests for 31 December 2020 • Will support anticipated changes to customer ordering /interaction preferences As at 30 June 2020, net debt was £22.4m (as at 30 • June 19: £32.4m net funds), with available banking facilities of £110.7m and headroom of £88.3m • Only £1.6m of outstanding PPE commitments as at 30 June 2020 7
H1 2020 Trading and Financial Summary Q1 2020 April 2020 May 2020 June 2020 H1 2020 Total H1 2020 revenue UK 5.7% 95.7% 72.2% 14.0% 34.4% shortfall as a % of C. Europe 3.2% 33.4% 21.6% +7.4% 9.6% that reported in H1 2019 Total revenue 30.6% below H1 2019 at £242.1m • • Gross margin resilient and maintained at 32.5% due to continued pricing discipline • Underlying distribution costs and admin expenses reduced by 16.7% (£15.9m), net of government job retention grants Small underlying operating loss of £0.5m, underlying loss before tax of £1.2m, and statutory loss before • tax of £23.9m • Inventory position reduced by £12.7m to £119.7m as at 30 June 2020 Average net debt * of £16.6m (H1 2019: £1.6m) H1 2020 Revenue • • Cash collections exceeding expectations UK 79.8% (H1 2019: 84.5%) Continental Europe 20.2% (H1 2019: 15.5%) 8 * Excluding IFRS 16 ‘Leases’
UK Distribution Businesses Daily Sales * £k Sales 2,800k 2,600k 2,400k 2,200k 2,000k 1,800k 1,600k 1,400k 1,200k 1,000k 2016 800k 2017 600k 2018 2019 400k 2020 200k 000k Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9 * Calculated on a like-for-like basis, being based on activities and businesses that made a full contribution in both the current and previous year and adjusted for any variances in working days
COVID-19: Mitigation Actions Various mitigating actions in place to support effective operation and manage any future downside: COVID-19 Secure implemented across the network to enable continuing operations • • Improved contingency plans to support more immediate action and greater response to customer demand Ability to immediately recommence the customer collection service for pre-ordered products that • was initiated in April 2020 • New infrastructure built to support increased working-from-home Enhanced e-commerce capabilities and increased digitalisation of processes • • A continuing more centralised approach to managing and limiting overheads and operating costs • Ongoing Operational Improvement Programme to support improved performance and anticipated changes to customer ordering / interaction preferences 10
Financials
H1 2020 Income Statement Change H1 2020 H1 2019 H1 2020 v H1 £m £m 2019 Revenue 242.1 100.0% 348.7 100.0% (30.6)% Cost of sales (163.4) 67.5% (235.5) 67.5% (30.6)% Gross Profit 78.7 32.5% 113.2 32.5% (30.5)% Distribution costs (56.3) (23.3%) (68.4) (19.6%) (17.7)% Administrative expenses (22.9) (9.5)% (26.7) (7.7%) 85.8% Operating (loss)/profit (0.5) (0.2)% 18.1 5.2% (2.8)% Net finance costs (0.7) (0.3% ) (1.1) (0.3%) 63.6% Underlying (loss)/profit before tax (1.2) 0.5% 17.0 4.9% (7.1)% Non-underlying items (22.7) (9.4%) (1.0) (0.3%) 22.7% Statutory (loss)/profit before tax (23.9) (9.9% ) 16.0 4.6% (49.4)% Basic earnings per share - pence (29.3)p 15.7p (86.6)% Interim dividend - pence - 7.55p £9.6m of job retention grants Provided for bad / doubtful debts at claimed, but made enhanced higher rate, resulting charge of 2.5% payments to the UK workforce revenue, but cash collections throughout the Period exceeded expectations 12
H1 2020 Non-Underlying Items H1 2020 H1 2019 £m £m Impairment of goodwill 21.3 - Amortisation of acquired intangibles 0.8 0.7 Acquisitions related fees 0.6 0.3 22.7 1.0 Non-cash impairment of goodwill The vast quantum arising as a direct consequence of the impact of COVID-19 • £20.9m in relation to Domus, reflecting a prudent full write-down of the remaining residual goodwill • Domus’s reliance on larger scale projects with long lead-times in the London area causes its financial • performance to be highly sensitive to prolonged recessionary market backdrops Restructuring commenced at Domus to align the cost base to its revenue profile • 13
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