Headlam Group (LSE:HEAD) — Investor Presentation

0:01 Good afternoon, and welcome to the HEADLAM GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today. We'll publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Chris Payne, CEO. Good afternoon, Chris.

0:30 Hi there. Good afternoon, everybody. Yeah. I'm I'm Chris Payne, chief executive of the HEADLAM GROUP, and welcome to the presentation. Bear with me because I am actually driving these slides myself. So, hopefully, it it'll be seamless, but you never know. So just on the agenda, look. I haven't done one of these with you guys for a little while, so so good good year, something like that. So gonna try and just do a quick refresh of what HEADLAM's about, jump straight into trading and the '22 update that we announced this morning, and then moving on to the strategy, which we've been talking about for a little while. I'll go into a little bit of detail about the kill the core elements of the strategy and then rounding off the presentation just to give a quick update on ESG, some board changes that we've recently made, and then take questions later.

1:17 So without further ado, HEADLAM. This is HEADLAM on a page. The group's been around for thirty years. It's got a really great footprint, particularly in The UK, offering a logistics service and and a distribution service for floor coverings. We've been doing this for thirty years, as I said. We we operate through a number of brands and businesses across The UK, The Netherlands, and in France. We've got 67 businesses. And we operate through distribution centers mainly, and we've got trade counters as well, which I'll come on to. But we've got 22 distribution centers in those countries. And the boxes on this page really show the sort of strength and depth of the of of the business. We've been around, as I said, for a long time with a really strong balance sheet, very cash generative.

2:02 We've got a growing customer base and really market leading in what we do. So something that HEADLAM has been really proud of for for many years, and it does give you a scale of that sort of efficient operating base and a real scale quality business that we've got. So that's HEADLAM on a page. What I'll do is I'll I'll just sort of jump into the 2022 trading update that we've just given. It was a very short update, but I'll try and add a bit of color to that and just give a quick summary of what we've seen during the year and perhaps a small look forward as well. So some sort of key points coming out of the trading update we've given, the one that we gave in November, and also sort of half year view that we gave earlier in the year.

2:50 I think we've seen quite a consistent weakness, if you like, in the residential consumer facing space. And now many reasons for that, of course, you know, cost of living crisis, the the the the energy price that we've seen, some of the the problems with price inflation in the marketplace generally. So the residential seat sector has seen a weakness pretty much all year. Now the good thing for us is that we've got a couple of things which can add as a counterweight to that. So one of the counterweights that we've got is the commercial sector, and typically around two thirds, one third, so two thirds residential, one third commercial flooring, which goes into office spaces, hospitality, NHS usage, that kind of thing. So we've got a a counterweight, and that's done reasonably well this year. So that's been a positive aspect of the business, which has offset some of the market weakness in the residential space.

3:49 Similarly, some of the growth strategy, which I referred to in the trading update, has started to deliver some benefits. So some of the contracts or wins that we announced at the half year, for example, home base, has generated good revenue in the second half. And that's meant that that's a new new customer to us, which meant that we've been able to take a little bit of revenue through, which is offset, if you like, the kind of core like for like weakness that you might see in the residential sector. So that's good news. I mentioned we've got a couple of businesses in The Netherlands and and in France as well. And those markets have been slightly differently affected by the trading challenges we've seen over the last year or so. And we've actually seen some good performances in those European businesses. Some of those down to just market, as I mentioned, and the other the other really down to execution of the strategy and the turnaround in performance that we've been delivering in France for the last couple of years in particular.

4:42 And that's provided a good strong positive counterweight to to the weakness in The U UK market. The other feature is that other with this sort of weakness in volume, if you like, and demand pressures on the residential space, we have seen some supply chain price inflation. Price inflation has affected the whole market, whether it's in overheads or indeed cost of goods for us. So the the supply challenges that we saw going back at the end of twenty one and into '22 have followed through and led to price inflation, and we were able to pass that on largely to our customers, which has meant that we've seen an increase in revenue driven by the inflation to offset the volume weakness. So there's a number of factors there, and they're they're all sort of compensating for one another. And it's left our numbers relatively flat actually year on year, but you can see there's quite a challenging sort of backdrop that we've navigated navigated through.

5:37 Now just in terms of what those numbers are, we haven't given specific numbers, but we did give an indication that the the performance of the business was marginally ahead of expectations. And we've reproduced the expectations just for convenience on this slide so you can see the numbers there. We'll actually provide a bit more clarity, and, the numbers themselves in March when we do the trading update and the and the year end announcement, the first week of March. So bit more bit more detail to come then. So just just turning the page. I I said I'd cover growth in a bit more detail. So rather than spend a lot of time talking about numbers and things, obviously, we'll we'll come we'll come up with those in March. But I just wanted to spend a bit of time here focusing on the key elements of the strategy, summarizing for those who perhaps haven't heard the HEADLAM story before what the key features of the strategy are and a brief update on how they're progressing.

6:28 As I said, there'll be more information to come in March, but this is an opportunity for us just to catch everybody up with the strategy as a whole. So, really, the this sort of main slide, this is the main slide that I've talked to consistently over the last few presentations in the last sort of year, eighteen months or so. And it's the thing that we use to look at the marketplace in The UK and to examine what the customer buying profile is like, how they go about buying flooring in The UK, and what our service proposition and offer could be to that marketplace. And the numbers at the bottom of this page and the boxes, they are deliberately colored. So on the left hand side of this slide, they're green. On the right hand side, they're red. And apologies for those who've seen this slide before, but it really is very important to the rest of the strategy. So what we looked at was how much flooring is spent in The UK or bought in The UK, and and there's £3,000,000,000 of annual spend distributed prices and which type of customers carry that spending out. And we've identified seven boxes here.

7:30 There are slightly more than that, but for simplicity, we focused on these seven key customer groups. And the customer groups are color coded depending on our relative strength in the marketplace. So HEADLAM, as I mentioned, has been around for for thirty years. It's traditionally focused on the independent retail sector, and those are the boxes on the left hand side. So the traditional retailers on the high street and the tradespeople who carry outfitting. Many of those don't have retail premises or they have one store. So quite small businesses, and that's been the sort of bread and butter of HEADLAM's business model in the past. Now if you look to the right hand side, those boxes on the right are customer types that HEADLAM typically hasn't serviced or hasn't focused on. And of the £3,000,000,000 market in The UK, we typically have about 600,000,000, so around 20% of of the market.

8:23 But a lot of that is focused on those independent retailers and relatively less on the boxes on the right, in particular, the multiple retailers, the house builders, and and the online customers as well. So our strategy became one of growing share and and and creating more of a growth story for HEADLAM. So HEADLAM has all been about service and good quality and quality balance sheet, and that remains. But what we wanted to do is stretch out offer into those other customer types where we had little or no share, and I think we're very well placed to offer good quality service, good pricing, and a competitive offer to those customers. So that's been the focus over the last eighteen months. So just turning the page in a little bit more detail. These are the four kind of building blocks of how we would deliver a strategy against those customer types.

9:16 And I've got a slide on each of these boxes in a moment. So I'll just briefly summarize the four elements of the strategy, and then we'll go into a little bit more detail about what those strategic measures mean and how we're performing against them. And, again, we've talked about this before for those who know the story. So I'll come on to just a a brief update on each of those areas. So firstly, trade counters. This is something I mentioned at the start when I was talking about HEADLAM on a page. The the group is very much dominated by a distribution center model. So it it is a sort of hub and spoke type delivery distribution business where we deliver to customers, endpoint customers who are retailers or fitters. However, one of the things which is a feature of The UK market in particular is offering us with a trade counter network. Many people do this exceptionally well. People at HEADLAM GROUP PICS and others offer and and the reason I mentioned HOUDs is they offer a b to b service as we do in sort of local geography in small trade counter footprints.

10:19 And that's something I think that we could and should be doing more of. And there's lots of white space around the country where we have little or no offer from a trade counter perspective. So we had 54 trade counters in the network, but many of those were just parts of the distribution center or stand alone relatively small, lowly invested assets and and trade counters around the country. So, again, I'll come on to the detail in a minute, but we felt that that was an area that we could infill, take more of a customer presence and and really offer something to the customer in their own patches, it were. The next box, multiple retailers. These are your large, whether they're DIY sheds like B and Q, Homebase, I've mentioned already, and and Wix and the like, whether they're building materials, merchants, people like Juice and and Travis Perkins and and the like, or whether they are high street multiples. People like Tappy is a great example of those multiple flooring companies. So that's a a customer group there. We had one or two customers and only one meaningful relationship, really, with with B and Q, which is a very large customer.

11:30 And then we had a number of smaller ones, but we've really focused on that area as an area of expansion. Now on the right hand side, two of the key features of us being successful is is offering an improvement in our digital and ecommerce space. Now you might imagine when HEADLAM was largely focused on the independent retail space, many of those customers are not demanding of a large digital offer. They work in a quite traditional way on the telephone. They know their product, and they know what they like to order. As you move into different customer groups and as the next generation of customers are coming through, the demands on business to become much more digital savvy, much more ecommerce focused as we all are in our home nights. You know, we're all used to the Amazon experience, and we have that expectation when we deal with retailers.

12:20 And certainly, our customers are starting to demand that, and we absolutely need that offer in place if we're gonna be successful at working with house builders and the multiple retailers and certainly for online customers. So to invest and develop our digital ecommerce footprint has been important, and I'll come on to what we've done there in a moment. And then lastly, on the right hand side, products and brands. I think HEADLAM has had a number of brands and got number of brands in its portfolio, and that's an area for for opportunity to develop. And I I will come on to what we've been doing in that space. But consumers like brands. Brands tend to win out in the end, and therefore, it is an opportunity for us to do a bit of investment in that and make some of those brands relevant for the customers of today. So that's the sort of an outline of the strategy that we've been following in order to deliver sales to those new customer groups.

13:09 And I'll turn the slides, and I'll just do these sort of four pages that illustrate each of those boxes, one in turn. So trade counters, let's let's talk about those. So I've I've covered a a brief summary of what they were. And what we've been doing is looking at how do we deploy a consistent footprint, consistent blueprint of what a good quality trade counter looks like. Clearly, there are some great reference points in the marketplace. I've mentioned Houdouns and others, but this is about bringing sort of flooring to our customers in their own domain and allowing customers to place orders online or on the telephone and offer a sort of click and collect service. So customers come to us, collect their product, and whilst they're there, they're able to make additional purchases of things like screed and adhesives and tools and other matters that they can just do self pick from the sort of retail like environment they get when they walk in.

14:03 So there are some images on this slide of four sites, and they all look quite consistent, and that's deliberate, obviously. So you can see here Ipswich leads Coles Hill in Swindon. Four new sites are either in a new location, Swindon, or they are refurbishments of existing premises, Coles Hill leads. And Ipswich was a new site that we developed a couple years ago. But the important point here is that they all look and feel quite similar. The product ranges are all quite similar, and it's important that we have things like tools on the shelf available for customers to order and pick up as as as they're collecting their orders. And we're seeing things like tripling of tool sales in those sites because customers are able to see them, and they have bit of an impulse purchase. So that type of offer has gone down very well with customers. We did customer surveys to assess their desire and need and and want for this type of offer, and we got some pretty strong responses.

15:01 Relatively modest level of capital investment on each site. So we're looking to, as it says in the notes here, looking to roll out 90 of these, 50 of of of which we've already got, but they need to be refurbished and turned into this blueprint. So we're looking at 90 sites across the country over the next couple of years, and we're looking to invest. They they they absorb something between 2 and 300,000 of capital per site, which, again, is relatively modest given the scale of the improvement in revenue we're expecting to see. We think these these sites should generate £2,000,000 worth of revenue once they're fully up to speed. They do take a couple of years to get up to speed. The sites that we have deployed and we've refurbished, we have seen an impact on the numbers. So we're seeing revenue improvements on a like for like basis over the ones we haven't invested in.

15:55 More new customers, better margins, and and so all of those sort of KPIs around what makes a good trade counter are going in the right direction. So it's given us confidence to carry on with this and actually go reasonably fast. You know, we're opening a couple of these to our site every couple of weeks. So this is it's

16:13 quite hard for us to do 90 sites over a couple of years as you might imagine, but it's something that started really well, very positive, and the numbers look look good. So just turning the the page. Multiple retailers and larger customers I talked about, and I I categorized these into the different groups. So the DIY chains, the builders, merchants, the high streets with business part retail multiples like TAPI and others that I mentioned. And we've had a really good start to the deployment of this strategy, being able to announce new customers like Homebase, and they've moved into meaningful million multimillion pounds worth of annualized turnover following their contract with us. So that's really impressive to to to be able to identify a new customer group, be able to make the pitch into them, secure the sale, and deliver happy service to to happy customers in a meaningful amount of revenue, which, as I said earlier, is is able to offset some of the weakness we've seen in the residential demand. So this is something that we think we can scale.

17:16 It's an offer that we can offer across the country. We've got consistent product, consistent service across the whole country, and there's a sort of thing that these types of customers are looking for. They do need investment in some of the ecommerce opportunities and some of the service that comes with that. So I'll I'll talk about that in a moment, but it's a really encouraging start. I mentioned home base, and we've also referenced on this slide one of The UK's top 10 house builders, which we secured under a contract towards the end of twenty twenty two. So on home base, pull out a few examples of the things that we're doing here. So we're offering service across their entire state. We're offering a limited number of SKUs, which is just the expanding actually. So that's expanding in '23.

18:07 So we're seeing the increase in run rate on revenue going forward, which is good. And then on The UK housebuilder side, there's some really good and interesting statistics about housebuilding plots. Now there there's been various bits of stats that have come out in in in the press recently about whether new plots are going up and down, and, clearly, interest rates are having an impact on demand for for homes. But the point is here, this is a new customer type for us. Now we we happen to do a bit of service for some customers, but that's more on the on the local contractor. We happen to fit some floors in new homes. But this is a concerted national deal with a with a major house builder for the first time. We've got little or no share in that space. So any sales that we do take, even if it's below what the original assumptions were on the number of plots that would come out is new business for us and therefore grow growth.

19:07 So the plots as they come out, we're in all of their new sites. So as the plots get released to the market and as homeowners by product by properties, we're able to service the flooring and supply flooring to the fitters on-site on adjusted time basis ready for for homeowners to move in. So sales are coming through. We've taken our first orders, which is great, but that's on a kind of slow burn really as you sell the plot through. So we're expecting a a much longer 23. Digital and ecommerce. So I've mentioned what we've been having to do here. Now this is an investment for us, and we have been doing this for a little while. Again, not not millions and millions of pounds, but a good quality investment in in websites, improving things like the app, enable our customers to order products online, search for availability, check stockholding, check prices, look at room visualization of the flooring in the home for their customers, all those sort of good things we developed over the last year or so.

20:06 We've seen a real meaningful level of sales at the end of twenty two, and I've quoted a number in here of £6,000,000 or so. And we've seen an increase in the number of the percentage of our sales being taken digitally. So this is really a customer service proposition. It's enabling our customers to place orders any time of the day. And as I said, check check stock relatively easily without having to make telephone calls to the sales office and things like that to to check availability. So it really does help with small customers and large customers alike, and it's a it's a real key enabler of people like Homebase being able to place their orders electronically, and we receive those electronically rather than clearly it'd be impossible to do that on the telephone. And then just turning the page to products and brands. This is an area that we probably haven't talked a huge amount on in the past, but it's just to to note that we've got a number of brands, which are product brands that servicing the the end consumer that that our retailers would would would recognize and buy from.

21:08 And we try and match price points in the marketplace. Now there's been a lot of inflation in recent recent periods, and and the average sort of flooring has become slightly more expensive. And we spotted an opportunity to to develop new product ranges and new brands, if you like, at the at the sort of lower price points. And on this slide, we talk about the various sort of four price points that we cover with four of our key brands, like Cruiser Trading, Curse and Cobb, Lifestyle servicing the sort of upper mid and mid to lower price points in the market. And then every room was a product that we launched in 2022 to focus on that sort of lower to mid price point again and and to offer something really affordable. And I've got a slide which covered this in a little bit more detail.

21:53 But here, it's about being relevant, having the consumers recognizing these these brands, and being able to service the whole market. To sort of head up our customer facing channels, we just appointed a new chief customer officer. So Tony joined us. He'd previously been a commercial director at DFS and new furnish more recently. So a really exciting appointment, and Tony's gonna really help us drive this sort of ecommerce part of our business. And it's as I said, it's a real underpinning for the future growth of the business. So just turning the page, every room is a a product launch that I mentioned. This is something that that was our brainchild about twelve months ago where we noticed this sort of drift of pricing and a and a part of the market where we don't have a huge offer actually that's the lower end of the price point.

22:40 So we're able to curate a range of really good quality products, well branded, nice color ranges, reasonably tight number of SKUs, and then launched it to the market in the midyear. And a couple more products are coming out at the end of right at the end of twenty two and early twenty three. So it's slightly a revolving product group, but a really good range that was offered to the marketplace. Great feedback from customers. Again, as you might imagine, we road tested that with customers before launching it. Customers very pleased with what they saw. Good demand. And we had a very strong take up in the in that final quarter. So to hit sort of £6,000,000 over a little more than a quarter was was really positive. And and then when we looked at the data, it's not it's not cannibalizing any other revenue. This is new revenue for the group. So fantastic to be able to get that product out from sort of inception to delivery within the year, and the team that are responsible for it have have done a great job.

23:39 Just moving on. I've had a couple of questions on this. This might answer some of those questions. The it was really great to be able to announce the acquisition of Melrose at the start of the year, and and this will probably help put it into context. So Melrose are predominantly a distributor of rugs, some of which they make, and they're able to distribute rugs through a sort of drop ship vending solution for for their customers. And that's something that's important to us. So I mentioned being here in home base and others in the multiple retailer space. They require distributors. They require us to have a drop ship vendor solution for their end consumers. Now we're not selling to the end consumers, but it enables us as distributors to be able to ship directly to consumers' homes.

24:26 And that's something that Melrose do currently, and that's something they've got great experience of. So Melrose for us was an opportunity for us to look at a business that has been doing that for a while. They've got good experience of of of servicing their consumer. And the rugs is an area that we're a little underweight in. You know, we do have offer rugs in our business, but it's not one of our largest product groups. So it's it's meant that we've been able to acquire business in an area that we're underweight in, doing some technical stuff that we can really learn from and and roll into the rest of the business. And the recycling side of their business is really important. It gives us an outlet for some of our surplus material, some of the end of roles, and also they have developed their own range of sustainable flooring using recycled materials.

25:13 So exciting acquisition, albeit relatively modest. And we indicated in the trading update that their revenue is in the order of sort of £8,000,000 annualized. So relatively small in scale, but it's not about the scale. It's about giving us its expertise and access to the new product group. So I briefly mentioned that I'd cover ESG and the sort of board changes. And I've just got a slide here which covers some of these things. So probably the most important thing on this slide actually is at the bottom right hand side of it. So we're gonna give a a full update on our sustainability position, ESG update in our March reporting. So what we try and do is give a a kind of biannual update on how we're progressing with our ESG strategy. We do a full sustainability report to coincide with the year end in March, and then we do an update of that at the half year. So these are just a handful of things that we've been doing around ESG.

26:08 I do tend to dwell on those three things as separate things. So the environmental side of things and the social side of things and then and then governance element. So on the e, we've done a number of things where we set out now our our net zero ambition targets for 2035. And we've been planning on how we're going to do that and what the key drivers are to get us there. And we've got an interim target that we've announced and and we'll work to by 2030. So that's that's good piece of work that we've done. We've got a bunch of actions off the back of that, which we'll share a bit more on in March. But one of the key key ones, of course, is is solar panels. Now we do own most of our distribution centers here, and and that gives us an opportunity to to go more aggressively on solar panel installation, take advantage of the roof space that we've got, and it really has strong payback now.

27:00 We've seen the the increase in energy prices. So that's something that we've that we're on with. We've ordered those panels for all of the sites, and that's something we'll be progressing with through '23. On the on the social side, so the s of ES and G, we've worked really quite hard with some of our people issues and giving some improvements in salary for some of those who really needed it. So moving on to the real living wage, for example, is something that I was keen to do and and was pleased to be able to announce in the year. And also some, I suppose, nonfinancial measures as well for our people. You know, we've increased increased sick pay and pension and and mental health awareness, and we have mental health investors across across the business now. I'd also introduced a recognition program in the year. I think it's important that sometimes when people have done a great job, you can say, well done. It doesn't have to be financial. It's just that recognition of being able to to congratulate people on on doing a great job. The other thing that we've been doing is that we're we're a business that works quite closely with its communities. Our people that work in the business live and work close to home, and therefore, having a sort of community focus is important.

28:11 Number of our businesses support local charities, whether with it's with volunteering for food banks or whether it's some financial support, and we were keen to support that as a group. So we've we've got a HEADLAM community approach, and we sponsor and support businesses of community projects across the country. And and that's something that was great to to be able to announce, and people are participating across the country. So it's something that's that's really important to us. And then on the g side, I think governance is something you might expect we would we would be great at with as being a PLC, and that's, of course, the case. And we've really focused on strengthening the board. I'll come on to the board changes in a minute to help us with that oversight and doing things in in the supply chain. You know, there's increasing focus on what's happening with modern slavery and various other things and where where products have come from.

29:02 You know, the the Ukraine war, for example, has had a pressure on supply chain. Many of our manufacturers have switched products out that we're using wood from that part of the world and and and gone into other other territories. So it's important that we're on top of that, and that's something that we've been working hard on in '22. I mentioned board appointments. So we've got a pretty new board, actually. So we've made a number of changes, some of which are in the second half. So I I've mentioned on here Karen joining Robin and Jeremiah as nonexecs, and Adam Phillips, who we announced as our next CFO, who will join us towards the end of q one next year. Just in time for me to finish the road show for the year end results, but it it'd be great to work him in my board, and I look forward to working with him. They've all of those individuals have got some great experience that will help us with, as I said, governance oversight, but importantly, helping me with the strategy and implementing that sort of go forward and and really growing the top line that we're focusing on.

30:00 And so just sort of coming towards the the end of the slides, you know, in summary, we've we've seen an effective deployment of our strategy, and I think it's it's starting to to to gain some traction now. We've seen this residential weakness that I talked to earlier, and that's affected the whole market. You know? But it's be it's pleasing to be able to announce these sort of countermeasures and see contributions from other parts of the business, which has really helped us out. I'll go back to that first slide. You know, HEADLAM's been around a long time. It's got that market leading position. It's got a strong balance sheet. It's here to stay a really robust offer, and customers are enjoying that quality of service. So solid base, solid business, and the strategy is starting to pay dividends. So we're well positioned for the future.

30:47 I I think that pretty much brings me to the end of the slide. So I'm I'm turning towards q and a. Fantastic, Chris. You you've got quite a few questions that have come in there as well. So thank you very much indeed for for for going through those. Just to give you two seconds, just to remind the attendees that they will have the ability to see these questions and obviously a copy of the slides and the q and a on the platform. So if I could ask you just to read out the question where appropriate to do so, Chris, and give you a response. Know about you. Have been quite a few. Thank you. The first one, I think we've answered. So there's a question about what the rev what revenues is the new acquisition add. As I said, the the acquisition turned over around about £8,000,000 in in the previous year. So relatively modest level of revenue, but but the the strategic benefit is is strong.

31:34 Another question from Clive as well. We talked about improvements in the quality of the business to generate a seven and a half percent operating margin. Look. We we talked about that and and also the needing to have a reasonably positive level of demand. So our business is an operationally geared one. We've got a a relatively comprehensive nationwide network. So the more volume you put in, the the the stronger the returns are. So there is a need for us to have a bit of a bit of volume growth for us to get to that seven and a half percent. But the distribution cost that we've taken out, and we talked about this in the previous years, we took between 6 and £8,000,000 out. So that's a reasonable chunk of of savings, which was enabling us to move most of the way towards that sort of seven and a half percent operating margin. And the final bits really needed to come from through volume growth. So the volume has has has due to the market reasons I said earlier, it's pretty much been held back.

32:36 So those savings that we banked earlier are still giving us some protection, but I think we'll need a bit more volume growth to come back to hit those operating margin targets that we've talked to. So there's a question here saying, can I touch on the impact of the balance sheet post Melrose acquisition? So the Melrose business was relatively small, as I said earlier. We'll announce a bit more detail around the scale and size of the acquisition, but relatively modest in terms of in terms of cash out, a little bit of deferred earn out as well. So I think it's £4,500,000 of of of investment on that business. So relatively modest. All of that will be disclosed in the March results. So not material really to the group as an overall on the balance sheet.

33:28 So a question here saying, is the group's obsession with larger customers, multiples, and digital channels coming at the neglect or lack of focus on the important independent floor and retailer segment?

33:40 So that's a a question that it's a good question, and and I spend much of my time in the business with our regional businesses. So I have done a a complete UK and overseas tour in the last nine months. So I've visited all of our businesses and and discussed face to face with many of our colleagues, our strategy. And one of the key things which perhaps hasn't come out so strongly on this presentation is independent retailer space remains our most important and highly contributing part of our business. Clearly, we've been doing this for thirty years, and it's great that we can focus growth on new areas of the market, but that is not coming at the expense of our longs long served respected customers and all of those regional brands that we've got around the country. We talk to our customers every six months, and our customer surveys have remained really positive.

34:35 And our customers like working with our regional brands. They like that local service, and that's something that we need to maintain and and remain good at. So that is a key message I give when I'm out with the businesses. So this isn't about the shiny new toy of growing into new new new customers. It's about being excellent at what we do today and adding the strategy of of new customer focus as well. There's a question here around welcoming buybacks at low prices, but whether we are sort of inadvertently supporting the price. I think one of the one of the features that we noticed when we announced the buyback was just around the lack of liquidity and and lack of movement.

35:23 And it was just taking an awful long time to to buy the shares. And I think, you know, looking at the strategy, looking at the value that we're creating, share prices on a relatively low footing are on historic basis and certainly around the multiples. So given that we're not buying all of the shares in that in that marketplace, there is still trading happening. We felt it was the right thing to do to increase the run increase the run rate. So we're still not through it. We still got an element of the buyback to come, and we've been doing this for for nine months. So I don't think it's I I I don't think we could really extend this and be more patient. We've been doing this for nine months, as I said. So that's quite a long period, particularly when we've got a relatively show low share base to work from. So I think I think it's the right thing for us to do.

36:16 Yeah. A question on the on the Melrose deal. What sort of multiples have we paid? What synergies are there and things like that? So so the vendor is very much staying with the group. Really delighted to to be part of the of the business, and it's it's really important that we can work with the vendor to to help us grow our business and very much locked in and part of the fabric of the business already. We've had a couple of the other businesses that we work with on-site in their premises working together, working how we can drive those synergies. So we're looking at how we can, as I mentioned, become an outlet for use of some of our remnants, how we can start to harness the the new product development that's using recycled materials, Great customer list that we can offer service into as well. But I think the biggest one is the sort of drop ship vendor experience that that Melrose had for many years and working that into our digital and ecommerce development so that we can learn and accelerate that program. So, yep, staying with the group and, yeah, delighted to work with them.

37:26 So another question around the focus on the traditional flooring retailer. So the question is, with your trade counter rollout expanding, will this mean you're accelerating away from traditional floor retailers and contractors? As I'll go back to the previous question the previous answer I gave really up. Look. This is all about us re re re remaining excellent and and offering a great service to that customer group. We're not stepping away from them. We're not reducing our service quality to them. What we are trying to do is address parts of the market where we've got little or no offer. And in some respects, some of these independent fitters who are our traditional customers are seeing an improvement in service because they're able to become come and click and collect product. They're able to, be closer to new sites, and they're able to come and, self pick, additional flooring products that they may need in the short term. So what we have seen is our customers seem to be pleased with that, and it isn't about reducing the focus on on independent retailers or or the fitters. It's about offering something new to the marketplace.

38:35 One of the questions here from Andrew. So have you noticed any standout trends within residential over the last six months with the product choice or order size, etcetera? One of the features we have seen is a which, again, is probably not surprising, a more resilient medium and upper price point demand. So the residential demand, I've described all of the price points that we have. The ones that have probably been more negatively affected are the ones in the mid and lower price points, as you might imagine, because I think the disposable income will be slightly tighter there given the cost pressures that we've seen in the marketplace. And and therefore, the more resilient products have been the ones at the medium and medium and upper price point. So that is a trend that we've seen. I think q two was particularly difficult, and we talked about that at the half year.

39:21 But I think, you know, more generally, I think that has now sort of worked its way through. So we'll see what happens in '23 against the comps. But as I said, I think it was a resilience really in the in the price points rather than product groups in particular. Question about house builders. Tougher market for them right now. Any any strategic progress to highlight either with that particular individual or prospects. I I think, as I mentioned in the slides, one of the key things for me to do was to get a customer on board and then make sure that we deliver the service that we have offered and and promise that customer systematically. And that's something that we're doing. So we've now taken orders, and that was the the challenge was to convert the opportunity into a contract and the contract into a proposition and sampling in the sites for for for consumers to look at. But, But, obviously, that is on a on a long lead time because the sites need to be to be developed, orders placed by customers. And remember, flooring is pretty much the last thing that goes in.

40:30 So we only really get the order just as the as the consumer's about to move into the house, and and we only picked up these sites from September. So the progress is really one of taking orders and seeing consumers actually move into to the properties. As you might imagine, given this long lead time, I think it's important that we do develop those prospects because they take quite a long time to land. So there is a pipeline of activity that we're looking on for for '23. Just moving down the questions list. A good question here on in in looking at 2023, do we what do we think is happening with product price inflation? Do we think that's gonna weaken, or do we expect this trend to continue? I think it's who knows? And is is the short answer to that crystal ball on price inflation seems to be a bit challenging given what's happened over the last eighteen months. What does appear to be the case is that the really strong sort of almost double digit price inflation that we saw early in '22 affect some product groups.

41:32 Doesn't seem to be there at the moment. So we have seen some price inflation coming through, but it's sort of more in that three to 5% rather than eight to 10% that perhaps we saw earlier on. And and that's the sort of thing we've assumed will happen for this year. So we think that there will be price inflation. And, clearly, I I think we we would expect that because of the cost inflation in overheads and various other things. So I think we would expect there to be price inflation, but we have assumed it will be slightly more modest than perhaps we saw in '22. There's a whole bunch of questions, I think, which I've already answered about inflation here. A question about the future on on the buyback program. So price increases I've covered, but then what what's next after for the buyback program after q one? I think it's one of those that when we announced the buyback program, we took a number of questions at the time about is this an ongoing feature of of the business. And we just as a reminder, we ran through our capital allocation priorities and and what do we do with capital.

42:37 And, clearly, we invest in the business first. We look at m and a. We look at the the ordinary dividends we've paying out to to shareholders, and then there may well be surplus capital at the end of that process. And then that's something that we've looked at, and whether we return that special dividends or buybacks can be determined at the time. And I think that's a feature we expect to continue. But as we sit here right now and we look forward, I think we just have to see how '23 pay pays out. We've we've announced and delivered on the buyback program and the special dividend that we announced last year. So that that's largely now complete. And as we look forward, I think we need to see how the business performs. We've got an increased level of investment in the business that I've talked about in the past on things like tray counters and and replacement of some of the equipment in the business.

43:24 So it's likely that should we do something like this again, it it will be a bit later in the cycle. Got a question here. What is the impact, if any, that the likewise group is having on HEADLAM in terms of competition and talent hiring of moving? We've spoken about this in the past and, likewise, and other competitors are are competitive in the marketplace. We typically see them in all channels and all sectors, but predominantly in the independent retail space and and regional space. So it it I think it's good and healthy to have good competition, and we've been able to announce in in the recent times that we've taken some market share. So that's good news. So, likewise, I'm reporting sort of taking market share. So I think others perhaps are are suffering a little bit, but it keeps us fit, keeps us sharp, and so I welcome that.

44:19 So, yeah, I think that's that's that's good. I'm sure that will continue as well. In the current is the current economic climate providing opportunity for further acquisitions? And if so, is the presence is the preference for The UK or Continental Europe? Think m and a might be a feature of our business, but I think our focus is very much as we've seen by the Melrose acquisition. It's really focused on helping us deliver strategy. So there are elements of our strategy that we that we can speed up, that we can accelerate, we can learn from, and maybe some product groups where they're a bit underweighting, and I and I've mentioned that in the past. So it's not really about trying to sort of opportunistically find distributors that are in trouble. It's much more about helping us deliver the strategy. We've got a great strategy that's already been outlined, and we're making some good traction. And that is pretty much in The UK. The businesses in Continental Europe that I've mentioned have been doing well. They've got their own challenges which they've been resolving and and improving the quality of their return. So there may be some things that we do overseas as well, but I think it's very much aimed at delivering on our strategy first and foremost.

45:34 Just skip past that one. Okay. There's a long question here. Thanks for the update. You mentioned an additional £120,000,000 of new revenue coming from trade counter rollout. And assuming a 100,000,000 of revenue coming from the multi retailers or large customers, can you give any guidance when you're likely to pass the 800 revenue mark? Is this an ambition for the next five years? Well, you might you might not expect me to to give sort of forecast like that, but but interestingly, Peel Hunt did actually produce a note a little while ago where they did do that kind of exercise sort of blue sky thinking of, well, if we deliver a £120,000,000, which is in the sort of public domain, which I've said about trade counters, there might be, as you say, $50,100,000,000 pounds coming from the multiples. You can see how we can grow our current revenue from that sort of $6.50 or so mark up to 800 in the next sort of two or three years.

46:28 So that that that is a logical kind of conclusion, and that was where Peel Hunt got to in their notes. So I'm not going to necessarily comment on that, but that's that's what Peel Hunt did in their notes. That's a good question, I think. Is it now the intention to maintain the French and Dutch operations? If so, how do they fit in the current strategic direction? So, again, we've spoken about this in the past that and with the predominant focus of our strategy is in demand acceleration in The UK, so we're not addressing all of The UK market. In the other territories that we that we look at, the French business is going through a recovery phase, and I worked quite hard with the French leadership team there to really drive improvements in the quality of that business, and that's the focus for that business. There is a little bit of a little bit of synergy between working together certainly on product purchases and things like that with the French business, but the the French business is very much aimed at improving the quality of that business in its own territory.

47:29 And we've we've got some great benefits and look through, and we've worked together in some of the health and safety oversight and things like that, but it's very much about improving the quality of that business. And in The Netherlands, in fact, I was there this morning with the MDs in The Netherlands. That, again, that business is is in it's got a great footprint in its in its own market, relatively small geography, which helps distribution. So, again, that's a business that can benefit and learn from the best practice that we're deploying in The UK. And, again, there are some good product look throughs that both both businesses can can benefit from. So it's very much benefiting from our strategic direction, how we're focusing on transport integration, how we're delivering improvements in systems, and that's something that we're deploying the overseas businesses as well.

48:19 Question here. Can I please comment on the competitive environment for the core business? And I mentioned the sort of likewise and the other competitors in that space. It remains competitive, and it always has been. These the businesses that likewise have bought recently, for example, have existed in the marketplace for some time, and there were other competitors in that space as well. It remains a competitive market. And as I said in the November update, you know, we've continued to take share in that space. So that's good news for us, but it does it does show that we're able to compete in there. And I think that will continue. You know, the the residential market, who knows what that demand will look like this year, but the competition element needed to be great at service, offer good pricing is is not going to change. And that's as I said, I think that's something that I've reassured our businesses about. I've mentioned it just now to some of the questions that would come through. You know, we are predominantly still an independent retail servicing business, and and that's likely to remain so.

49:18 Another question on the operating profit target of seven and a half percent. Are you able to give any guidance on the level of volume uplift that needs to return and expect the time of this KPI to be met? Look. We we really don't know what the volume is going to be over the next couple of years. You know, it's no one could really predict what happened with COVID. The market is uncertain as we look forward. You know, analysts have taken a stab at where we might get to in terms of revenue and profitability. When we articulated that at the time, volumes were fair degree higher than they are right now. So, clearly, we need to get back to the volumes that we saw pre pandemic and then have some growth on that. So, again, I don't know when that might happen. All we could do is deliver on the strategy and focus on being as efficient on cost as we can.

50:08 There's a question about another question about the commercial market. So what do we think the prospects for the commercial markets are going forward? I I think the commercial market has had a strong bounce back, but, really, it's only covering lost ground that it that it saw in the COVID period. So COVID period saw quite difficult investment parameters for the commercial space, And we've seen a stronger '22, which has largely covered some of that back, but the volumes themselves haven't been that strong. They've there's been price inflation, which has helped, if you like, that. So the volumes themselves have have only been modestly increased. So the prospects going forward, it's difficult to say. I think it's it's probably a little tighter than it was given the investment uncertainty. But as I said, the the volumes themselves are not significantly higher or lower than they were pre COVID. So I expect that they will normalize, which given some of the price inflation we've seen helping revenue might mean that there is still an ongoing sort of strength to to revenue in the medium term.

51:12 A question on can I give us can I give more color on the European operations? Well, the European operations we've got, as I said, in two territories, they're very much similar sort of model to The UK. So they are distributors. They service manufacture product from Mainland Europe and some Asia product, and we offer a nationwide coverage in both France and The Netherlands. We've got a couple of brands, and we have some of our own label products in there as well. So very similar operations to to The UK. However, the only slight difference is that some of the transport network is sort of is a mix and match of some some self delivery and some third party logistics. So very similar distribution hub and spoke type network. Hence, it's a it's sort of similarity to The UK.

52:01 A question about market share. With respect to our overall 2020% market share, how variable is that share at an individual client level? Why might it vary? Is it is it possible to gradually nudge up the market share, or is that a cap? Coming back to the fundamental of that strategy slide, the 20% market share that I referred to is for the whole UK market. Now, clearly, our focus is on developing a growing market share by offering service to those new customer growth groups. So I would expect our share to increase as a result. So the more that we can sell into the multiple retailers, whether it's a DIY share to all the other multiples. Clearly, that is going to be growth and is going to be some sort of share growth. We are looking to maintain the independent retail space.

52:48 So it does vary, of course, from customer to customer. In some customers, we'd have zero. Some customers, we have a reasonably large proportion. So it does vary depending on the individual customer needs and wants and the type of products that they can get access to in the geography. So our proposition is about offering good quality service at the right price in the right place. And the more we can do for that in the customers, the more chance we've got growing our share. But our our our the core part of our strategy is very much about taking share and growing our share of that £3,000,000,000 market in The UK. I think that might be it, guys. Thank you very much indeed, Chris. Thanks for covering off all those questions you can from investors. Of course, you will have the ability to review any further questions that do come through, and we can publish responses to all of those on the Investor Meet company platform.

53:40 Kraus, just before redirecting investors to provide you with their feedback, which I do know is important to you, if I could just ask you just for a few closing comments, please. Yes. Coming back to the sort of Q and A really, good good q and a. I mean, market demand and how the next of a year or eighteen months are gonna pan out, we don't know. And market demand might be a bit patchy. But it's great to see our strategy start to deliver and start to see some traction on some of those new customers that we talked about, some of the investments that we're making in the business. So it's good to see that having an an impact. And, also, I'm delighted to to welcome, you know, the malware's team to the business, and that just shows that we're able to do these things and invest in the future. So as I said, market demand may be a bit uncertain, but it is great to be able to see us sort of well placed, if you like, delivering on strategy and taking advantage of the opportunities as they arise.

54:29 That's fantastic. Chris, thanks indeed for updating investors today. Can I please ask investors not to close the session? You'll be automatically redirected to provide your feedback in order Chris and the team can better understand your views and expectations. This will only take a few moments to complete, and that's greatly valued by the company. On behalf of Chris and the team at HEADLAM GROUP PLC, we'd like to thank you very much for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all.