Headlam confident in strength amid Brexit headwinds

16th Jan 2019 10:36

(Sharecast News) - Floorcoverings distributor Headlam Group updated the market on the 12 months ended 31 December on Wednesday, reporting that despite the UK market weakness that was evident throughout 2018, it expected to report final results for the year marginally ahead of 2017, and in-line with market expectations.The London-listed firm said it also expected to propose a final dividend in-line with market expectations, resulting in a "very slight increase" in the total dividend payable in respect of 2018 against that of 2017.It currently anticipated that the UK market would show further general weakness during 2019, particularly in the residential sector where its distribution business was more heavily weighted.As a result, the board said it considered it "prudent" to expect revenue for the current financial year to be in-line with 2018.While Headlam said it had been effective at improving gross margin over the last couple of years, it anticipated that underlying profit before tax in 2019 would be lower than 2018 and in the range of £39m to £41m.That was primarily due to an anticipated movement in revenue mix and associated margin, year-on-year inflationary pressure on distribution costs and administrative expenses, and a number of efficiency initiatives aimed at lowering the breakeven point and improving operating margin, being at the early roll-out phase or trialling.The firm's efficiency initiatives, which included more effective inventory management, delivery fleet utilisation, and examination of all goods not for resale and other expenditure, would yield increasing benefits as 2019 progressed, and have a "more meaningful" impact in 2020 and beyond.Headlam said it currently intended to maintain the 2019 dividend in-line with that of 2018 despite the profit guidance for the year.The board said that reflected its continued confidence in the firm's ability to improve profitability, and its commitment to a progressive dividend policy and maintenance of a strong balance sheet and operational cash generation.Net cash as at 31 December was expected to be higher than the £35.3m reported for 2017, following acquisition spending of £9m during the year.Since the beginning of the year, and in anticipation of the UK leaving the EU at the end of March, Headlam said it had invested in additional inventory across its fastest-moving products.That, coupled with the company's "significant" warehousing network and associated inventory positions, should assist in partially mitigating any potential disruption and help preserve customer service in the event of a hard Brexit."In the face of a year which presents general uncertainty, a high degree of difficulty predicting any outcome, and an anticipation of further weakening in markets due to the wider economic environment, I believe we are taking a prudent view," said Headlam chief executive officer Steve Wilson."Our intention to maintain the dividend for 2019 despite this backdrop is testament to our belief in the strength of the business."We are focused on expediting the efficiency initiatives to improve our performance going forward, irrespective of any weaker trading conditions and remain committed to providing improving returns to shareholders."Wilson said company-compiled consensus market expectations for 2018 revenue, underlying profit before tax and total ordinary dividend was £708.7m, £43.6m and 24.88p per share respectively.Headlam said its final results for the year ended 31 December would be released on 6 March.