How has Headlam Group managed to recover during the second half of 2020?

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Summary

• Headlam Group PLC had delivered a decline of 15.3% in total revenue during FY20.
• HEAD had registered an underlying profit before tax of £15.9 million during FY20.
• The Company had resumed its dividend payments.
• The UK revenue represented approximately 82.8% of the total revenue produced during FY20.

Headlam Group PLC (LON:HEAD) is the LSE listed household goods stock. HEAD’s shares have generated a return of approximately negative 3.84% in the last 12 months. It is listed on the FTSE All-Share Index. HEAD was incorporated in 1948.

Business Model

Headlam Group PLC is a UK-based Company, which is engaged in the supply and distribution of floor covering products.

(Source: Company presentation)

FY20 Financial Review (for 12 months ended 31 December 2020, as of 09 March 2021)

 (Source: Company result) 

• The total revenue dropped by 15.3% during FY20 to £609.2 million, while it was £719.2 million during FY19. However, the revenue had recovered significantly during the second half of 2020 as the revenue declined by approximately 30.6% during H1 FY20 as compared to H1 FY19.
• On the profitability front, HEAD witnessed a significant recovery during the second half of FY20. HEAD registered an underlying profit before tax of £15.9 million during FY20. However, it posted an underlying loss before tax of negative £1.2 million during H1 FY20.
• Moreover, the average net debt during FY20 stood at £8.6 million, which had improved from the levels of £35.3 million recorded during H1 FY20.
• The trading during January 2021 and February 2021 remained slow as non-essential businesses were closed due to Covid-19 related restrictions.
• HEAD’s net funds after the impact of IFRS 16 'Leases' remained at £8.3 million as of 31 December 2020.
• The Company had managed to accelerate the progress of certain projects under the Operational Improvement Programme (“OIP”) during the year.
• Meanwhile, HEAD resumed its dividend payments and will pay a FY20 dividend of 2 pence per share in May 2021.

FY20 Divisional Highlights

• Both geographic business segments had demonstrated a decline, with UK revenue witnessing a reduction of 17.3% during FY20, while the Continental Europe division had posted a decline of 4.1% to £104.5 million during FY20. The UK revenue represented approximately 82.8% of the total revenue generated during the year.
• Moreover, within the UK region, the revenue across the residential sector and the commercial sector had shown a decline of 10.8% and 29.5%, respectively, during FY20.
• Furthermore, during H2 FY20, the UK residential revenue surged by 9.3%, and the UK commercial revenue declined by 20.9%, illustrating material improvements from the levels achieved during H1 FY20.
• Regarding the Continental Europe region, the revenue across the residential segment remained flat, and the commercial segment registered a reduction of 9.4% during FY20 as compared to FY19. The residential segment represented almost 58.4% of total revenue in Continental Europe during FY20.

Share Price Performance Analysis of Headlam Group PLC

(Source: EODHD/Others, chart created by Kalkine group)

HEAD’s shares were trading at GBX 413.45 and were down by close to 2.03% against the previous closing price as of 09 March 2021 (before the market close at 09:47 AM GMT). HEAD's 52-week Low and High were GBX 235.00 and GBX 455.00, respectively. Headlam Group PLC had a market capitalization of around £359.17 million.

Business Outlook

The Company had started FY21 amid ongoing mitigating actions and an Operational Improvement Program providing substantial benefits to its business performance. HEAD had anticipated a net benefit of over £4 million in 2021 and above £8 million in 2022, driven by the progress of OIP. Furthermore, Ipswich regional distribution centre would enable HEAD to enhance customer service through network consolidation activities. Meanwhile, the resumption of dividend payments had illustrated HEAD’s confidence in the growth trajectory of the business. Overall, the HEAD would continue to achieve operational excellence through recent strategic actions considering the adverse impact of the Covid-19 pandemic.

(Source: Company presentation)