Headlam Group Plc - Pre-Close Trading Update

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Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor, today announces a trading update in respect of the 12 months ended 31 December 2019 ahead of announcing its final results on Thursday, 5 March 2020.

Trading during 2019 largely tracked the Company's internal expectations and it is anticipated that the final results for the year will be marginally ahead of market expectations¹ with a final ordinary dividend proposed in-line with the Board's previously stated intention to maintain the full year dividend with that of 2018 despite a lower underlying² profit before tax performance in 2019.

Total revenue increased on both an absolute and like-for-like³ basis, with growth in Continental Europe outperforming that of the UK which was marginally positive on a like-for-like³ basis.  Although the residential sector performed much more strongly than the commercial sector in Continental Europe, due to the UK performance there was a continuation of the gradual shift in overall business mix towards the commercial sector, which has proven to be the more resilient UK revenue stream in the generally restrained markets evident throughout 2018 and 2019.

Mindful of the recent market backdrop, the Company's internal expectations for 2020 have been prepared on a prudent basis whilst also incorporating a planned substantial level of investment to support future growth and improved operational and financial performance.

The 2020 capital investment will be primarily focused on the Company's new regional distribution centre currently being constructed in Ipswich and in support of the Company's overall operational efficiency programme, with the ongoing implementation and roll-out of constituent projects leading to an increasingly positive impact on financial performance. The timing and investment in the Ipswich distribution centre remains on-track, with operational completion expected for Easter 2020 at a total cost of £26 million, of which the final tranche of approximately £10 million will be incurred in 2020.

After factoring in this investment, the early-stage contributions achieved through the operational efficiency programme and year-on-year inflationary cost pressures alongside the Company's prudent approach, it is currently anticipated that the 2020 financial performance will show a modest improvement compared with 2019. In-line with the Company's continued commitment to a progressive dividend policy, it is the Board's intention to reflect any increase in statutory basic EPS for 2020 in the 2020 full year dividend.

¹Company-compiled consensus market expectations for 2019 revenue and underlying² profit before tax are £705.5 million and £39.3 million respectively (mean), with the expectation for underlying² profit before tax given prior to the adjustments due to the adoption of IFRS 16 'Leases' accounting standard which came into effect on 1 January 2019. The Company currently anticipates, subject to completion of the 2019 audit, that underlying² profit before tax will be impacted by a reduction of £0.8 million due to the adoption of IFRS 16 and that 2020 underlying² profit before tax will be impacted similarly.

²Underlying is before non-underlying items which includes amortisation of acquired intangibles, acquisition related costs, contingent consideration movements, non-recurring pension costs in relation to guaranteed minimum pension ('GMP') equalisation and non-recurring costs relating to senior personnel changes.

³Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2019 and 2018 periods and is adjusted for any variances in working days.