Floorcoverings distributor Headlam revenue decline slowed in the second half of the year, despite a lack of market improvement, and has extended its transformation plan.

Stating consumer confidence declined in the run-up to the budget announcement, with deterioration in consumer spending on home improvements, the group estimates the market declined at 10-15% year-on-year.

In a trading update for the five months ended 30 November 2024, the group reported revenue for the five months to the end of November declined 7.3%, compared to an 11.8% decline in the first half of the year.

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According to the group, the slowing of revenue decline in the second half of the year has been driven by large customers, resulting from Carpetright exiting the market.

In the UK, revenue decline slowed from 11.3% in H1 to 6.6% in the five months to the end of November

Despite the slowing revenue decline over recent months, Headlam states the market has been weaker than previously projected.

Accordingly, the Group expects the underlying loss before tax for the second half to be “broadly” in line with the first half.

In September, the Group announced a two-year “transformation” plan to simplify its business, improve profitability and enhance its customer offer,  increase market share, release capital and dispose of surplus property.

The company is consolidating its 32 trading businesses into one single, national business, trading as Mercado, and has centralised buying and stock control teams.

It reports over 90% of customers (by revenue) have started to consolidate trading accounts and approximately 50% of applicable revenue is now trading through the new Mercado business.

Headlam Group further states its customers benefit from being able to order from a broader, unified product list and have more time with sales teams, who now have smaller geographic territories.

It reports customer and colleague response has been positive and there has been no “discernible” disruption to revenue.

The group is nearing completion of a new distribution centre in Rayleigh (Essex), expected to be operational in early 2025, and consolidated two sites into one distribution centre in Glasgow.

It means both its Ipswich distribution centre and Uddingston site in Scotland are now surplus to requirements and will be sold.

Headlam Group reports the transformation plan remains on track to deliver the financial benefits set out in September, and in light of the “continued market weakness” has been extended to deliver additional benefits.

Management believes the release of at least £70million cash from disposal of surplus property and optimisation of net working capital (prior to one-off transformation costs), could be achieved before two years.

Ongoing profit improvements are now targeted to be at least £20million, starting to be realised during 2025 and achieved as a run-rate by the end of 2026.

Following the budget announcement, while the Board anticipated some of the changes such as national minimum wage increase, the reduction in the national insurance threshold was not anticipated.

When combined with the rise in the employers’ national insurance rate to 15%, the business reports the overall effect will be to add around £2 million to its annual operating costs, from April 2025.

CEO Chris Payne commented: “The challenges impacting the UK flooring market have continued to weigh on our trading performance in the short term.

“However, the Board remains encouraged by the significant progress we are making against our strategy and transformation plan to simplify our operations and improve our customer offering.

 “In light of the additional market headwinds, we are extending this programme to target greater benefits over the next two years.

“This progress remains critical to ensuring the business is positioned for long-term success given the wider current macroeconomic uncertainty and its impact on consumer confidence and our markets in the near-term.”