Headlam Group H2 Earnings Call Highlights

25 Mar 2026, 14:20 by Tristan Rich · The Markets Daily

Headlam Group (LON:HEAD) used its 2025 full-year results presentation to outline a revised multi-year “core customer strategy” intended to reshape the business around profitability and cash generation, while management acknowledged a difficult trading backdrop and a materially lower revenue base expected during the transition.

Strategy shifts toward “profitable revenue” and core customers

Interim Executive Chair Stephen Bird said the company implemented the new core customer strategy in November 2025 to “transform the business and enhance the quality of earnings” by prioritizing independent retailers and contractors. Bird said the plan involves moving away from “large, low margin customers that require significant resources to serve,” and complements initiatives already underway under a broader transformation plan introduced at the end of 2024.

Bird framed the strategy around five levers:

Reduce low-margin revenue from non-core customers
Reduce fixed and variable costs associated with non-core revenue
Enhance customer service for independent retailers and contractors
Simplify ranges and consolidate suppliers to strengthen key partnerships
Optimize cash through working capital discipline and surplus asset disposals

As part of the first lever, Bird said the company intends to reduce low-margin large customer activity, optimize category mix by focusing on higher-margin categories, and “re-energize” higher-margin consumer brands used by independent customers to compete with national chains. He also highlighted plans to consolidate the 80 trade counters the group had at the end of 2025, noting some collection points have become unviable due to high rents versus delivery-only service models.

Bird said the initiatives are expected to “cumulatively reduce revenue” but improve gross and operating margins once associated costs are removed.

Leadership changes announced

Bird also updated investors on leadership changes. Rob Barclay will join as Chief Executive Officer, bringing more than 25 years of sector and transformation experience, and is expected to step into the full CEO role in April after an initial period spent with teams and customers.

In finance, Richard Jones joined two weeks prior to the presentation as Interim Chief Financial Officer and is expected to join the board later in the week. Outgoing CFO Adam Phillips presented the 2025 financials, while Bird said the board is aligned behind the next phase of the company’s transformation.

2025 performance: revenue down, underlying loss before tax reported

Phillips said the reported figures covered continuing operations, with continental European businesses held for sale and classified as discontinued operations. On a same-working-day basis, 2025 revenue declined 4.6%. Phillips said second-half performance was similar to the first half but with a different mix: growth from larger customers slowed in the second half, while the decline in the core business “lessened slightly” versus the first half.

Gross margin was “broadly unchanged” year on year at 29.5%. Phillips attributed that to the mix effect of growth in lower-margin large customers being mitigated by margin benefits from supplier sourcing initiatives and a centralized buying function.

Operating costs were flat year on year. Phillips cited around £5 million of cost inflation as a headwind and incremental costs from new trade counters, offset by transformation-related savings. Net finance costs fell by £0.7 million, reflecting lower average borrowings partially offset by increased leases.

The group recorded an underlying loss before tax of £39.5 million, which Phillips said reflected market decline, investment in new trade counter collection points, and cost inflation. Discontinued continental European operations posted an underlying loss before tax of £3.7 million for the year, according to Phillips.

Non-underlying items and ERP project pause

Non-underlying items totaled £30.1 million, though Phillips said the net cash cost was £4 million. Key items included:

£1.1 million of amortization of intangibles, consistent with prior years
£4.8 million of asset impairments related to goodwill and intangible write-downs for the Melrose business
£23.2 million of restructuring and change costs tied to the transformation plan, including severance, recruitment/retention, point-of-sale materials linked to the Mercado consolidation, and advisory costs
£6.2 million profit on the sale and leaseback of the Tamworth distribution center in July
£5.6 million of costs incurred for a replacement ERP project, which has now been paused
£1.6 million legal claim provision relating to a 2022 accident at a group site

On the ERP program, Phillips said costs were in line with expectations set at the start of the project. He said the project has been paused while the business focuses on the transformation plan, and the work completed has been “shrink wrapped” so it can be restarted later without losing development already undertaken.

Cash flow, balance sheet, and funding plan

Phillips said net debt remained “broadly the same” over the two-year period since the transformation plan began, moving from around £30 million at the end of 2023 to around £30 million at the end of 2025, as property disposal proceeds and working capital inflows were offset by trading losses and transformation costs.

In 2025, inventories were £10.6 million lower, reflecting steps to improve stock turn implemented late in the year. Phillips said the initial impact reduced both stock and payables, with a cash benefit expected in 2026 as payables cycles through. Receivables fell with revenue, while payables declined, including a £10.8 million reduction due to VAT paid in January 2025 relating to property disposals in December 2024. He said average payable days were unchanged and supplier payment terms remained stable.

Capital investment was £4.4 million, including £1.8 million for the final rollouts of trade counters; Phillips said the rollout program has now ceased. Lease payments were £15.8 million, higher year on year due to additional lease costs and sites. Discontinued European operations were a £0.8 million cash outflow during the year.

On the balance sheet, Phillips highlighted U.K. property assets with a market valuation of around £75 million, above book value, with a number expected to become surplus to requirements and three already under offer. He also pointed to a substantial net working capital asset averaging £70–£75 million in recent years. In January, the company agreed a new borrowing facility running to 2029 with an option to extend to 2031.

Bird said the strategy and transformation plan require funding to cover trading losses until the group becomes cash generative and to fund transformation costs, but he said the company has a plan to generate funds via working capital optimization and property disposals. Bird said the intention is for those inflows to more than cover requirements, leaving “little to no debt” at the end of 2027. He added that stock turn has improved since centralized buying, from around three times in 2023 to a recent run rate “strongly above four times,” with a target of at least five times as the strategy matures.

Looking ahead, Bird said the strategy will drive a “material planned reduction in revenue” in 2026 and 2027, but should enhance earnings quality through higher gross margin. Assuming a stable market and full execution of the transformation plan, he said net operating margins are expected to return to mid-single digits. Near term, management cited continued declines in consumer home improvement spending and said the Middle East conflict has already created cost pressures for the wider U.K. flooring industry, including significant price increases in polypropylene and fuel.

Bird said the board remains confident in a return to profitability in 2027, consistent with prior guidance.

About Headlam Group (LON:HEAD)

Headlam is the UK’s leading floorcovering distributor. Operating for over 30 years, the Company has expanded to a network of c. 2,030 people, 17 distribution branches, and 76 trade counters.

The Company works with suppliers across the globe manufacturing the broadest range of products, and gives them a highly effective route to market, selling their products to the large and diverse trade customer base.

The Company has an extensive customer base spanning independent and multiple retailers, small and large contractors, and house builders.