Headlam Group (LSE:HEAD) — Investor Presentation

0:01 Good morning, and welcome to the HEADLAM GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, company will review all questions submitted today and publish responses whether it's appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you

0:32 over to CEO, Chris Payne. Good morning to you, sir. Good morning, and thanks to everybody for joining the session today. So welcome to HEADLAM's half year results for 2023. I'm Chris Payne, the Chief Executive. I'm also joined delighted to say joined for the first time by Adam Phillips, recently joined us as CFO a few months ago. So welcome to Adam as well. You can see on screen just a brief summary of the what we're gonna talk about today. So summary of the half one performance. So we'll have a little look back half one. There'll be an update on the strategic progress of the activities that we've been carrying out and then a look forward both in terms of current trading and how we see the short and medium term panning out.

1:21 So without further ado, I'll just turn to HEADLAM on a page. So this is about us. For those who are new to the HEADLAM story, this this slide's got sort of four boxes on it. This top left, if you like, is around the heritage and the legacy and the the experience of the business. We've been around a long time, thirty years market leading and we have got some great relationships with customers and many suppliers, mostly in The UK and Europe, but also Turkey and Asia as well. So well established business, largest in the in The UK industry. So bottom left, we've got the deepest product range, the broadest and deepest range of of products available for our customers.

2:08 And that's the stance is apart from from competitors. And we're able to give most of our services next day to customers, which obviously is is market leading service. Top right, we talk about the the network and the scale of the business, in particular in The UK. We've got very deep range across the country and we're able to, as I said, offer next day service. From an increasing number of of of locations as well and trade counter growth is an area that I'll come back to. We're also in in overseas territories. We've got a nationwide service in France and also a nationwide service in The Netherlands. So three three geographies nationwide in each of those. And then bottom right, this talks to service. And service is where we focus and we regularly carry out surveys of our customers and we do that every six months. We've been doing that for a number of years now.

3:03 And consistently, we're seen as the number one service provider in the industry and that's what stands us apart. Again, we're we're not looking to compete on price necessarily. This is about service and of adding service to our customers. And again, that would be a feature of some of the strategic areas I'll cover very shortly. So so that's us that's us on a page. I said it's been around a long time. Good strong business, good strong balance sheet, and nationwide service across three territories.

3:32 So just a quick look back before I hand over to Adam, who will cover some of the h one performance in a little bit more detail. You know, pleasingly, revenue was up, actually. So despite tough market, which will be a feature of some of this commentary, no doubt, it was it was good to be able to report revenue growth for the first six months relative to last year. But that is off the back of weaker volumes. So volumes volumes have been down, particularly in The UK, but with some inflationary benefits and also expanding into new areas. And the second bullet point probably illustrates this best. We've seen the growth areas into larger customer offer and increasing deployment of trade counters help us grow and the growth really came from the 26.5% larger customer expansion in particular, leaving the regional distribution business where we serve the independent retailer on the high street and the local fitters slightly under year on year. And that does sort of talk to the market, talks to volume and our overall market share was a little up as a result of the expansion into larger customers. So mixed mixed bag revenue increases but off slightly weaker volume.

4:54 And and then you look at the profitability and that's probably the key as to why has been under threat. You know, we've got this perfect storm, unfortunately, of of weak residential volume in particular driven by some of those macro headwinds that everyone's been talking about in various businesses that are coming out recently. Cost inflation also been the the second factor. And really a drawing up of some of the other sort of industry head headwinds or tailwinds that we had in the past where we've had some price inflation coming through our industry in recent times, which has helped offset inflation in the past. But those head those headwinds really, those tailwinds that we enjoyed in the past have now sort of dried up, and we're not seeing cost of goods inflation going forward at the moment. So we've got nothing there for to offset the operating cost inflation that's coming through. So a bit of a tougher time on profitability and a significant reduction year on year. So what are we doing about it? We are taking some steps to to address that. We're we're taking steps in a couple of areas. Again, Adam will cover this in a bit more detail.

6:03 But we're doing two things really. One is to look at how we can improve efficiency, take cost out of the business, And indeed, we've reduced our operational headcount broadly in line with the reduction in volumes that we've seen to help offset the loss of gross profit and also deliver cost savings in other areas further down the overhead list. So we've been able to support that first half performance to the tune of GBP 5,000,000 to mitigate that decline in gross profit. On the plus side, we have seen some strong cash generation and a sort of return to the operating profit dropping through to cash is is a feature of the business for many years. Over the last couple of years, we've seen a bit of a stock build in a difficult supply chain environment. Now that's mostly behind us.

6:56 We've been able to see a return to cash generation in the first half, which is also meant that the, you know, the continued investment in the business, whether it's investment in the trade counters or improvement in the operating assets has been able to be performed out of operating cash. And indeed, we've announced a dividend of 4p with a slightly lower earnings cover that we have in recent times. So we dropped the cover to 1.5x to protect the ordinary dividend through what is a challenging, but we believe short term impact on earnings. So a mixed bag of performance in the first half, decent on revenue, challenging on profit and strong cash generation.

7:43 So I will hand over to Adam, who will talk a little bit more detail about some of the features of that H1 performance. Thanks, Chris, and good morning, everyone. I've got a few slides I'll walk you through on p and l, cash flow and balance sheet. But this just on this slide here, just an overall financial summary covering p and l and and and cash. So just top line there. And as as Chris mentioned, revenue growth of 2.5% in the in the first half. That was a mix of 3.3% growth in The UK and a 2.9% decline in Europe. And it and and in The UK, I've got a customer split we'll we'll cover on the next slide, but that is the strategic growth areas of trade counters and key accounts in particularly strong growth, and that's offsetting some decline in the regional distribution business.

8:35 Just moving down then to margins. So margin in the first half, 31.5%. That that returned to the pre 2021 average of 31% to 32%. And in the previous year in 2022, we had the temporary margin benefit from the unprecedented price increases that we're going through on on stock, and that's unwound in the first half of this year and will happen and will go through to q in in q three before we annualize that in q four this year. Profit then, operating profit, 8,000,000, and I'll take you through a bridge on this in a moment. But that was lower due to the macro and industry headwinds that that Chris mentioned in terms of lower residential volumes, high operating cost inflation, as well as that return to to the pre 2021 margin levels with the unwind of that price benefit we had last year.

9:33 Just moving down then to cash flow. So we generated so cash generation was good in the first half, 20,000,000 of operating cash, which is up 35,000,000 year on year. And that left net debt at the end of the first half at about 20,000,000, and that was actually up 20,000,000 on the end of December. And that reflects 10 investments in CapEx, which is 10,000,000, and 14,000,000 of shareholder returns, which is a mix of ordinary dividend from last year, of 9,000,000 and then, 5,000,000 completing the the buyback program, which finished in March this year. So just moving on to revenue. There's quite a bit on this, slide, which I won't go through all of it. On the left hand, it just breaks down the the revenue even from half one last year to half one this year. UK, Europe, as I mentioned, UK up 3.3%, Europe down 2.9%.

10:26 On the top right hand side, you can see the split, by customer channel, with the larger customers up 26.5%

10:36 year on year. Trade count is up 8.5%, offsetting that regional distribution decline of of 2.6%. Taking The UK overall to 3.3% growth, offsetting that 2.9% decline in Europe. And if we just go through volumes and this chart shows by month from the start of last year, our year on year volumes by month. And you can see and we haven't put an axis on this, but just to give you a sense of of scale. So January, as we entered this year, we were mid to high single digit volume decline. But that had been on an improving trajectory. So from from a significant double digit volume decline in kind of summer q two, q three of twenty twenty two, that was on an improving trajectory.

11:24 We've seen that improve all the way through half one this year, and we got down to about minus 1% on volume in May. June was a bit of an anomaly. Actually, June, our volumes were down 9%, which was heavily impacted by weather. Chris will talk a bit more about current trading later, but if you were to plot July and August on here, it's similar to May. We've been about 1% down on volume. So we've seen an improvement in July and August relative to June.

11:54 So just looking at the income statement overall, we've covered revenue and we've covered margin. I've got a profit bridge, which I'll take you through. But if I just move through this table, if you comes costs, so the the sum of distribution costs and admin expenses. So operating costs in total were up 6.1% in the first half. That included Melrose. So if you exclude Melrose, costs were up 4.1%, on a like for like basis, and I've got a bridge on the next slide, which I'll take you through those moving parts. Just moving down the slide then. So you've got net finance costs, 2,200,000. They were increased year on year, combination of higher average borrowings plus the increase in the base rate that we've we've seen in the year. And that took earnings per share for the first half of the year to 4.6 p on a on a statutory basis, 6.1 underlying.

12:46 And the board declared an interim dividend of of 4p for the first half, which is 1.5 times cover. So just on the cost then. So we've broken down here our cost movement from the start of last year through to the through to to this year's first half. Melrose, as I said, added 1,900,000 of cost. We then got 5,800,000 of cost inflation in the first half of this year. About half of that is payroll. We had an average pay rise of 7% in the first half of this year, which we'll see carry on through to the second half as well. The other big part of of the cost inflation we've seen this year is around energy, And our electricity costs were about triple in the first half of the year in The UK compared to what they were last year.

13:34 So that took the total cost inflation about 6,000,000. We then got strategic investments. So these are cost choices we've made. Predominantly, this is around trade counters. So as we open a trade counter, they take about twelve months to breakeven. And in the first twelve months, they'll incur about an operating operating loss per trade counters of about 100 k. So as we've been rolling those investments out, we've got some investment cost in the first half of this year. And then offsetting that is the efficiencies and savings, about 4,000,000 of of of cost savings in the first half.

14:13 And I'll come on to that in a bit more detail in a moment. So operating profit then. So we had 17,900,000 of operating profit last year in the first half, moved to 8,000,000 this year. And if I just take you through the moving parts on on that. So volume was a 4,000,000 impact, and volumes, as Chris mentioned, they were 5% lower in the first half of this year. And that was the net of growth in larger customers and trade counters offsetting decline in the core regional distribution. And then we have the unwind of the price benefit of about £3,000,000 this year, And that's the the unwind of the price rises we had last year. And strategic investments, 1,800,000 as we mentioned, and then the cost inflation of 5.8.

15:05 And then offsetting that, all of that was about 5,000,000 of mitigating actions, 4,000,000 of that was cost, and then about 1,000,000 of that was price rises. So put the first phase of price rise to on the April 1, and then a second on the June 1. So we've had some impact to that in the first half, and that will build as we get into the second half.

15:26 And then on the cost side then, so the mitigating mitigating actions on cost, there's a there's a part of that is around reducing operational headcount to reflect lower volumes. And then we've had the transport centralization projects, renegotiation of fuel contracts, some targeted price rises, I've said, and then other cost savings. And then in total, then that's about 5,000,000 of benefit in the first half. We expect that to increase in half two. We've got further projects on transport, and we've got some further energy sort of cost savings coming through in the second half. Moving on to cash flow then. So working capital in the first half was about flat, and that compares to an outflow of about 34,000,000 last year. So we've seen a stabilization in working capital this year. And what we've seen over the last two years has been an increase in stock prices coming through. So the unprecedented stock price inflation has come through, driven the working capital outflow over the previous two years. We've seen that normalize and stabilize in the first half of this year, and that's allowed that EBITDA to flow through to the operating cash flow line. So 20,000,000 of operating cash inflow in the first half this year.

16:38 And if we just move down the rest of the cash flow, we we made an investment in Melrose in January this year, which is about 4,000,000. We then invested 10,000,000 of CapEx, which broadly splits a third into tray counters, a third into cutting tables, and then we put 1,500,000 into solar panels. And then, as I mentioned, 40,000,000 of shareholder returns, so 9,000,000 in June for the final payment on the ordinary dividends of last year, and then 5,000,000 to complete the share buyback program, which completed in March this year. So that took our net debt, as I mentioned, at the end of the first half to about 20,000,000, which is about 0.5 times EBITDA.

17:29 And then just coming on to balance sheet, I won't go through this in any particular detail, but the key point really to make on this is that we've got a strong balance sheet position at HEADLAM underpinned by that property your property portfolio. So that was valued at the start of this year about 150,000,000, and we got stock on the balance sheet

17:48 about another 150,000,000. And then from a liquidity perspective, we've got significant liquidity headroom. So at the end of June, we had cash and undrawn facilities totaling about 80,000,000. And net debt, as I mentioned, about 20,000,000 at the end of June, leverage of 4.5. And Chris will come on to our capital allocation a bit later, but we set a new leverage target, long term average range of naught point five to one time. So we're sort of sitting in the bottom of that at the end of the first half. But we have got some cash inflow opportunities around freeholds, which we'll we'll come on to a bit later, which will give us some some opportunity to to come in towards the end lower end of that range.

18:37 And then this is this is quite a chart I quite like. We've showed this previously, but I think this is quite a good illustration of actually how HEADLAM is quite modest intramonth and intrayear swings in net debt position. So the red line on this chart shows this year today to up to the end of June movements in our net debt balance. You can see actually it's pretty it's relatively modest. You get some dips, for example, with the the dividend in June as we then then move back up towards the the end of the half. And we would expect this line here, this red line to trend slightly upwards as we get to the end of this year. That's it for numbers. We'll take questions in a bit, but I'll just hand you back to Chris. We can talk through strategic progress in the first half. Thanks, Adam. So that's the sort of end of the looking back period. And and and now we're sort of gonna focus on an update on what we've been doing from a strategy perspective

19:39 and to give some updates on the growth areas with the large customers and trade counters in particular. So just as a reminder, this slide, strategic pillars, we've published before, and there there are five pillars here, five columns. The left hand side really talks to this service proposition that I mentioned right at the start. So this is about our offer in the marketplace, in particular to the independent retailers and fitters. I mentioned in here the bullets underneath. We talked about the custom surveys that we do every six months and we remain number one. We've got some new product launches which we've done in the first half which we'll come back to in a little little bit in a little bit of time. So yeah, that's that's a key key area. As we develop new areas of the business and we start to grow our new customer segments, it's imperative that we remain focused on service with our regional customers as well.

20:33 Second column in is is that area where we're looking at developing the business base. So we're looking at broadening our customer portfolios, particularly important in in difficult markets as we're seeing now. With volumes under pressure, we've been able to report growth year on year because we've expanded our offer and expanded our base into different customer types. So that's been going well. We've seen particularly strong performance in the larger customer group and I'll provide a bit of extra detail on that very shortly.

21:05 Middle column is around operational effectiveness and capability and also efficiency. So Adam described a number of actions we've taken to reduce our cost base, reduce overheads to trim our cloth according to volumes. But despite that, we've continued to invest in the business. And there's a significant investment going on to update facilities, the equipment and to continue the investment in new areas as well. So that's a twin focus of reducing cost to serve and operational efficiency whilst also investing for the future. And on the right hand side, those two pillars are really encapsulated in our ESG. So sustainability and also making HEADLAM a great place to be and to work are contained in our ESG strategy. And there's a handful of bullets there of of things that we've been doing, but we published our updated ESG strategy in our March year end reports and accounts. So a relatively sort of modest roll forward on things that we've been doing there.

22:08 And I will come back to that towards the end of the end of the presentation. So just a summary of the strategic growth area. So three areas here, the multiple customers, the larger customers, the trade counters, and also the products and brand focus that I mentioned a little while ago. So this is a slide that we shared at the year end, and I'll I'll give a bit of a deeper dive on each of these. I've got three more slides coming up where we talk about these areas in detail. But as a reminder, the the multiple retailers, larger customers represents about a third of the market, so it's a significant area. HEADLAM's had very low share in this space, so we've focused very heavily on the independent retailer and local fitting part of the market and haven't focused our efforts onto obtaining market share in the larger customers and multiple retailers.

23:04 So it's an area key area of the market, lots of floor and bought through this

23:08 segment and we've increased our service proposition here. I'll give you a bit of detail on what we've been doing. Trade counters, similarly an area that's not been heavily focused on by HEADLAM. HEADLAM's had 50 of trade counters for many years, but they've really not been a an exploited channel that we've that we've looked to to to go to market with. It's more of an adjunct to our distribution service. So in some cases, they would be a standalone selling unit, but in many cases, they would have been just a collection area for customers as part of the distribution center rather than a business in its own right. So that's something that we've invested in, set up a new management team and it formed the basis of the sort of investment in overheads that Adam mentioned in the bridge earlier. So this is a strong area of growth for us.

24:00 I will give an update on that. And on the right hand side, as I products and brands, HEADLAM has got some great product brands and local distribution brands. But in terms of product brands, it's an area that we have invested in and we think we'll have a medium term and longer term benefit for the business both in terms of consumer and customer awareness, also margin protection. So we've launched a couple of products in recent times and I'll give an update on that shortly. So first one of those are the are the larger customers. There's a handful of of names on here. For us, we've been developing our proposition. It's just very customer specific. So it's a bespoke service offer based on customers' needs. So certain customers have a different requirement than others. So something like Tappy Carpets of a specialist flooring provider, highly product knowledgeable. And in that situation, our service offer is aimed more around logistics, broad range of products, multiple locations across The UK and it's more of a logistics service offer.

25:05 Somebody like Homebase is is obviously a general DIY type of retailer and therefore, we become more of a product knowledge bank for them. So we're able to create sort of a handful of floral products and again focus on value add. So the these these types of customers can buy cheaper product directly from manufacturers. So why do they come to us? They come to us for service, good quality, consistent next day service and we're able to service all of their stores directly rather than through distribution centers. So a very successful start to the year, 26% up on the first half compared to last year and that's continued actually. We're now seeing that number grow in current trading as we develop these relationships.

25:56 So here, this is about growing our sort of share of wallet with these customers, not necessarily looking to to add a huge number of names to the list. We have reported Screwfix for the first time, so new customer Screwfix who who started work with us earlier this year. But it's a lot of this is about growing our share, growing this partnership with these large customers on a bespoke basis. So, yeah, it's pleasing to see that strong growth and that's continued to accelerate in current trading. Trade counters, so a couple of pictures there of recent additions to the estate. Now we set out a in the past a desired kind of rollout program of trade counters. A lot of this is around filling in white space around the country. So HEADLAM had a nationwide distribution service, but in many cases, as I as I mentioned, the the trade counter bringing our service and our products to customers in in their local communities has been a bit patchier.

26:56 And as a result of some heat map analysis, chimney pot analysis that we carried out across The UK, we've identified quite a lot of white space and opportunity for us to infill that with new tray counters, bringing out products and service to customers. And originally, we talked about that being 90 sites. As we've developed this plan, we said that we would continue to perform and report back on the performance of those tray counters whilst also looking at where best place to fill in the white space. So a couple of good things have come out of that. One is that we've been able to reduce the fit out cost of each of the sites. We've learned as we've gone and we're able now to deliver a lower capital cost for each of the sites. And indeed, on reviewing the map, the 90 sort of become 100. So there's a it makes sense for us to be in around about 100 locations rather than the 90 we had originally envisaged.

27:54 So from a performance perspective, it's early days in some of these sites, you know. Many of these sites have only been open a handful of months and they will take a couple of years to get to maturity. But so far, the evidence of the performance of the sites is in line with our expectations. They've performed well and certainly well compared to the marketplace. So we set the business case up for this a couple of years ago. So they are performing well in in particularly in today's tougher market conditions. So it's good to see those continue to perform well and this is something that we just need to watch because they will as I said, they will take a couple of years to get to maturity and wait quite early in the phase of that. So these sites do they are dilutive to profit in the early days because of course when you open a new site, you've got to take on the rent rates, you have to hire three or four people.

28:50 And then you open your doors and you and you take your first order. So they they do run a a loss in the early period, and then they start to generate profit once they got over a certain revenue threshold and then contribute in the longer term. So something we'll keep our eye on. We're expecting that to be, as I said, adding perhaps 100,000,000 or so of revenue over the next few years and we'll keep reporting on the performance of these sites as we go. And then the third slide just on strategic growth areas, our product brands. The the right hand side shows some of the product brands that we've got that many of which our customers would would recognize. So lifestyle in every room, brands are aimed at our customers, independent retailers.

29:38 And then further down the page, these brands are more consumer facing. So Crucial Trading, for example, is is a product that we target consumers for, albeit that they actually place their orders through retailers. We are only facing only serving our b to b customers, but the brand is aimed at more of a consumer facing audience. So we've continued to invest in these websites to bring to life some of the qualities of the product, modernize some of the engagement with consumers and customers. We've launched a new product called Every Room in the last year, and that's been highly successful from scratch, generating significant level of growth as the slide shows. So again, the group is able to leverage its overall kind of size and scale to develop a new product, which is very much of its time. So good quality, well priced product that we've deployed across The UK in scale, in-depth, and customers have really heavily bought into it.

30:43 So good developments there. Work still to go on certainly some of the the website and digital support for some of our brands. So work in progress on on this area, but great to see kind of an award winning product launched from scratch in the last twelve months. Couple of small acquisitions here that that we've referenced. One of them in The UK also gives us sort of self sufficiency in some of these brands for pattern book and sample making, which is an area of constraint in The UK market. It can take some months to launch samples into the marketplace. So by taking on a sort of small business that we're merging into our Melrose acquisition, we're able to be a little bit self sufficient in some of these sample and patent books.

31:31 So good progress made here. And then lastly, on sustainability in ESG, I said that we published our ESG updates in March and in the middle of the page here, it talks to the the strategy that we've launched. So just a handful of updates really with MSCI, which is an ESG ratings agency has has published us as a triple A rated business in this space, which is great news. We have continued this sort of building on the good work that we've already started with respect to some of the developments for people that in particular, that sort of health and safety and mental health training has been a real focus for us in the business.

32:16 And putting all of our, for example, putting all of our leaders through health and safety leadership and and training has been a real focus for us in the first six months. And we've also applied we've notified SPTI of our intentions to submit our net zero targets to them for validation. So again, a step forward in all of these areas building on what we do already published in March. So that's the sort of update on strategy. And I said that I would then focus on the sort of forward look both in terms of current trading. I did mention our cover cover capital allocation and also a little bit beyond that. So July and August, I think Adam's already mentioned, you know, we saw volumes pretty flat, slight negative, which is where we thought they'd be. We reset our expectations a little while ago and, you know, in light of some of the macro data that we've seen, businesses coming out recently in our space like DFS, Wix and Kingfisher and others have all published similar sorts of sentiments really of a of a difficult residential volume backdrop, tough cost inflations affecting their p and l's.

33:32 But revenue trying to be robust, you know, we're we're expanding into new areas to mitigate that, expanding into larger customers as I mentioned and being tough with ourselves on cost. So the volumes remain relatively subdued and we expect that to continue into 2024. So that's the sort of short term view. But in the medium term, I think there is this pent up demand. We've seen RMI spend be significantly below and volumes below, 20% below where they were pre pandemic. So that could that deferral can only happen for so long. And by broadening our business base out, we set ourselves fair for when that volume does return. And of course, then the initiatives that we've got and the cost control that we've applied means that we should see a significant increase in profit performance.

34:25 Capital allocation, as Adam said, we've, you know, just reframed this a little bit. A couple of areas where we have made some changes. So net debt and the target leverage, we've actually now given a range with a with a target in the medium term. I think it shows that we're we're prepared to use leverage. I think in the past, we've given some guidance and we've tended to stay relatively neutral on on leverage. So, you know, we are prepared to use our balance sheet and we've given some guidance as to where we feel happy and confident with that. We've also committed to the dividend, the ordinary dividend and we dropped our cover this year in terms of the interim and the announcement for the interim was to protect the ordinary dividend. And then on the on the look forward for surplus capital that rather than us having a sort of sequential view of M and A, which potentially means you're looking at M and A before you're looking at buybacks and others. You know, we've looked at this now in in the round. So we're now looking at all of those capital uses with equal priority. So we'll look at those, what does the market say, what are the best returns and we can deploy capital at that time. So some of this has been reset in anticipation of cash and the generation of cash.

35:43 And for example, we've had a question already coming in about freehold property. And as I've mentioned, there we are due to receive some proceeds from the insurers of Kilda Mixta building which burned down. And again, there's cash that would become free there. And indeed, looking at how do we make our network efficient, there may well be some freeholds that become available for disposal in the near future. So again, that gives us an opportunity to consider how we may distribute capital should it be deemed surplus at that time. So I think it was good to reframe this. Shareholders certainly have understood it and been welcoming of the clarity that we've bought in capital allocation. Subtle changes but in anticipation of things to come.

36:34 And then the the final sort of slide for me before we take questions. Just to summarize, you know, as I said, we're well well positioned business with strong deep balance sheet, great quality service across the country and indeed in three territories, market leading. And albeit short term macro challenges and short term demand challenges in The UK in particular, we are well set for the medium term recovery of RMI in particular. We've broadened our business base which should see some revenue and profit growth in the medium term. So yeah, I think it's just a tough short term with a more positive medium term. Perfect. Chris, Adam, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via our investor dashboard.

37:37 Chris, Adam, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you, kindly ask you to read out the questions, give responses where appropriate to do so, and I will pick up from you at the end. Yeah. Let me kick off. There's a couple I mentioned that someone's raised a question about freehold property. So let me just close that one out because I sort of answered it. But the question says that you have a large amount of freehold property and the asset valuation is well above current valuation. Is there an opportunity to centralize and reduce down the portfolio? And as I said, I think it remains a feature of the business and as we continue to mitigate costs in the in the light of inflation and also a flat market. Some of the efficiencies that we are deploying now and in the future are likely to result in a reduction in our footprint and that does therefore give us an opportunity to return return some disposals and and therefore some create some cash as a result. So yes, certainly that's something we're looking at.

38:39 Another question we've had which is around your recent trading statements include a claim that HEADLAM are making market share gains, will you back up this claim and publish specialist research. So we have said and we have published in the past the name of the agency that we use to prepare our market share data, MTW. So they present prepare a regular report for us both in terms of floor and spend for the whole country and indeed the share of spend that goes through the distribution channel. So although we won't make that research publicly available as you might imagine, but we will have referred to the agency who have prepared it for us. And as I said at the start, market share gains are relatively modest.

39:25 However, most of those gains have come from the growth into new areas. So the expansion into the large customers have given us some growth and indeed some trade counters. Without that, if you strip that out, market share is relatively flat. And when you look into the detail, in some areas we're winning, some areas we're we're flat, some areas we're going down slightly. So it's a bit of a mixed bag. And so we're happily referring to that name in the market and say that that's been a long term arrangement and it's something that is very important for us to continue to monitor as we deploy the strategy. Adam, do you want to pick up the the trade counter one, for example?

40:11 Yeah. Sure. So question we've had trade counters, what is the likely run rate of revenue and profit for a new trade counter once at maturity? So as Chris mentioned, we they they take, you know, they take a number of years to mature. It's about five years. We would expect upon maturity around 2,000,000 revenue, making about a 10% operating margin. Now we've already got we've already got some data on this. We've got a cohort of tray counters that are well established and mature already. So before we started this investment program, we already started with around 50 sites. We've got a number of those making quite considerably more than 2,000,000 actually, but 2,000,000. And having looked at other trade counter estates, not not ours, but looked at profiles of of what you can expect, that's that seems quite reasonable to be achievable. And we we plan those on a curve, a a typical s curve, over over five years to reach that, to reach that maturity.

41:15 And so far, we've got we've got a batch that are in there year one. We've got a we've got a batch that are coming through into year two, and we're seeing them perform in line with that that curve, that that maturity curve so far, which gives us gives us confidence that they'll they'll continue to perform in line with those business cases. We've also had a linked question actually, which it says here, historically, you've guided to a circa £200,000,000 revenue trade counter business given you are now targeting a 100 sites, not 90. Have you revised your target revenue? So I think what that what the what the revised 100 rather 90 allows us to do is it it may it may enable us to hit that 200,000,000 a little earlier. And then and then, yeah, you're right. You'd expect that once those all of the 100 have then matured, beyond that, we would expect maybe to to to exceed the the 200,000,000. But, yeah, we we compared to the 90, we we may we may get. Yeah. Yeah. It'll it'll be nice for us to get to 150 and start to talk up the 200 in there.

42:16 So I think we're we're still a way away from that yet. You know, the run rate is still below a 100,000,000 given we've we've got 50 sites. So, yeah, it will be something that'd be nice to guide up once we've once we've got most of the way there. Last question we've got actually at the moment, which says, in a weak market, can you take advantage of further consolidation opportunities? The answer to that is, of course, we we are always looking at opportunities in the market for m and a. Now we do have some constraints over us as market leader. We're a big business with some scale. Clearly, there is some competition risk and challenges with us buying distribution businesses in our in our kind of heartland. However, there are opportunities that we do consider where we could complement and expand on strategy and and whether that's geographically or product.

43:04 Certainly, there are opportunities that we would consider should they become available. But as I said that that it really rather depends on the on the type of business and where it is and the nature of of it. So I think a tendency really is to look at things that complement strategy, take us forward as I've mentioned earlier with Melrose and the the the patent book business makes sense. But, you know, we wouldn't really look at sort of small tuck in businesses that that do very much what we do now. Adam, that's great. I believe you have addressed all the questions from investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. But before redirecting investors to provide you with their feedback, which one is particularly important to the company, Chris, could I please ask you for a few closing comments?

43:52 Yeah. So thanks for everyone for for joining the the call today. As I said, tough market. I think we're doing some great stuff at expanding our offer, taking on different customers, continue to invest in the business in the down cycle. And it just positions us in a great position for for the medium term when the demand returns. So short term challenges, but we're working through that, doing the right things in the business, growing our footprint ready for for when the market returns. So, thanks for taking the time to join us, and and and see you again soon. Chris, Adam, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of HEADLAM GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.