REG - Howden Joinery Grp - 2022 Half Year Results
21/07/2022 07:00
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RNS Number : 2011T Howden Joinery Group PLC 21 July 2022
Continued strong sales and operating performance, well ahead
of pre-COVID-19 levels
Results summary
£ millions (unless stated) 2022(1) 2021 Change Change(3)
vs 2021 vs 2019
Group revenue 913.1 784.9 +16.3% +39.9%
UK revenue 889.3 764.1 +16.4%
Gross profit 565.0 481.0 +17.5%
Gross profit margin, % 61.9% 61.3% +60bps
Operating profit 149.1 124.3 +20.0% +91.9%
Operating profit margin, % 16.3% 15.8% +50bps
Profit before tax 145.0 119.2 +21.6% +85.7%
Basic earnings per share, p 19.6p 16.4p +19.5%
Interim dividend per share, p 4.7p 4.3p +9.3%
Cash at end of period 249.7 476.2
(1) The information presented relates to the 24 weeks to 11 June 2022, and the
24 weeks to 12 June 2021, unless otherwise stated. The 2022 and 2021 results
are presented under IFRS 16, 2019 results have not been restated for IFRS 16.
(2) Same depot basis for any year excludes depots opened in that year and the
prior year. See Financial Review on page 4.
(3) 2019 included to show pre-COVID-19 financial performance.
Highlights(1)
- Group revenue of £913.1m was 16.3% ahead of last year and 39.9%
ahead of pre-COVID levels in 2019.
- UK revenue 16.4% up on last year and 13.5% ahead on a same depot
basis(2). UK revenue in P7 grew by 8% against tough prior year comparatives
and was 44% ahead of 2019.
- Gross margins ahead of last year at 61.9% with disciplined pricing
recovering input cost increases.
- Profit before tax of £145.0m, up 21.6% on 2021 and 85.7% on 2019,
outpaced revenue growth.
- Strong cash generation with cash at end of period of £249.7m.
- Continued investment in our strategic initiatives. Brought forward
investment in some strategically important projects into 2022 with capex
guidance for the current year increased by £20m to £130m.
- Management believes that the addressable market for UK kitchen and
joinery products is larger than previous estimates at around £11bn, providing
Howdens with significant future growth opportunities.
- Strong returns to shareholders. Interim dividend up 9.3% to 4.7p
per share (2021:4.3p) and £139.5m of the previously announced £250m share
buy back completed in the period.
- In May 2022, Howdens committed to the Science Based Targets
Initiative signifying our intention to significantly reduce our emissions
throughout the supply chain and to achieve net-zero by 2050.
Andrew Livingston, Chief Executive said:
"Howdens delivered a strong financial performance in the first half, well
ahead of pre-COVID levels in 2019, as we continued to manage effectively
ongoing inflationary and supply chain pressures. Our sector leading service
and well-established and focused growth strategy ensured we continued to
outperform the market. Our kitchen and joinery markets are large and
attractive and we are prioritising investment in future growth through
execution of our strategic initiatives.
"Howdens has good momentum going into the second half of the year which
includes our all-important peak trading period. We will continue to manage
inflationary pressures according to market conditions to achieve the right
balance between pricing and volume. We are confident in our resilient business
model while recognising that we will be trading against record revenue
comparatives. While watchful of market conditions and consumer sentiment, the
Group remains on track with its outlook for the full year."
Operational developments
- Opened 10 new depots and revamped 34 older depots in the UK, with
7 new depots in France and 1 in the Republic of Ireland (ROI). Operating with
788 UK depots, 42 in France and Belgium and 1 in ROI.
- Launched 19 new kitchen ranges in the first half with more
emphasis on higher priced kitchen ranges and ensuring our most popular styles
are accessible to all budgets.
- Further investment in manufacturing with new frontal lines and a
second architrave and skirting line at our Howdens factory to be operational
in the second half. Continued investment in upgrading our solid surface
worktop capabilities alongside greater capacity.
- Rolled out our regional cross docking centres (XDCs) which are now
supporting around 530 depots providing industry leading product availability
and improved stock management.
- Invested in our digital platform which amongst other things saves
our trade customers time and money and supports them in optimising the
procurement process for end users.
Current trading and outlook for 2022
The following table shows sales in the first four week period of the second
half in absolute terms, on a same depot (LFL) basis(2).
Revenue growth (%) Period 7(1) Period 7(1)
vs 2021
vs 2019
% LFL% % LFL %
UK revenue +8% +6% +44% +36%
International revenue(2) +20% +13% +166% +108%
(1) same depot basis (LFL) for any year excludes depots opened in that year
and the prior year.
(2) excludes 5 French depots which were closed in H1 2022.
We are making good progress on our strategic initiatives and will continue to
invest in these and bring forward some capital investments that underpin our
leading market positions and that will drive future earnings. Our capex
guidance for the current year increased by £20m to £130m, including the
previously announced £10m of one-off costs relating to the purchase of
additional land at our Howden manufacturing site.
Howdens has good momentum going into the second half of the year which
includes our all-important peak trading period. We will continue to manage
inflationary pressures according to market conditions to achieve the right
balance between pricing and volume. We are confident in our resilient business
model while recognising that we will be trading against record revenue
comparatives. While watchful of market conditions and consumer sentiment, the
Group remains on track with its outlook for the full year.
For further information please contact
Howdens Joinery Group Plc Media Enquiries
Paul Hayes, CFO Nina Coad, David Litterick (Brunswick)
Tel: +44 (0) 207 535 1110 Tel: +44 (0) 207 404 5959
howdens@brunswickgroup.com
Mark Fearon, Director of IR and Communications
Mobile: +44 (0)7711 875070 ir@howdens.com
Results presentation:
There will be an in-person analyst and investor presentation at 0830 (UK time)
today at UBS, 5 Broadgate, London EC2M 2QS. A live video webcast and slide
presentation of this event will be available on
https://stream.brrmedia.co.uk/broadcast/62b99c8171203e42c1fbf58c
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. We recommend you register at 0815 (UK time). For more information see:
www.howdenjoinerygroupplc.com (http://www.howdenjoinerygroupplc.com) .
The presentation can also be heard by dialling the phone numbers below:
Location Phone Number
UK-Wide:
+44 (0) 33 0551 0200
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+44 (0) 808 109 0700
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Quote HOWDEN when prompted by the operator.
The webcast will be recorded and available on our website after the event at:
www.howdenjoinerygroupplc.com (http://www.howdenjoinerygroupplc.com)
Notes to editors:
1. About Howden Joinery Group Plc
Howden Joinery Group Plc is the parent company of Howden Joinery (Howdens). In
the UK, Howdens sells kitchens and joinery products to trade customers,
primarily small local builders, through 788 depots. In 2021, the business
generated revenues of around £2.1 billion and profit before tax of £390.3
million. Around one-third of the products it sells are manufactured in house
at its principal factories in Runcorn, Cheshire, and Howden, East Yorkshire
both of which recently achieved carbon neutral status. The business also
operates a total of 43 depots in France, Belgium and the Republic of Ireland.
2. Timetable for the interim dividend
The timetable for payment of the proposed interim dividend of 4.7p per
ordinary share is as follows:
Ex-dividend date: 13 October 2022
Record date: 14 October 2022
Payment date: 18 November 2022
3. Provisional financial calendar
2022
Trading update 3 November 2022
End of financial year 24 December 2022
2023
Full year results 23 February 2023
Financial review
Financial results for H1 2022(1)
Revenue £m (unless stated) 2022 # of depots at period end 2021
Howden Joinery UK - same depot basis(2) 866.9 747 763.5
UK depots opened in previous two years 22.4(3) 41 0.6
Howden Joinery UK depots 889.3 788 764.1
Howden Joinery International depots 23.8 43 20.8
Group 913.1 831 784.9
Local currency revenue €m (unless stated) 2022 # of depots at period end 2021
France and Belgium - same depot basis(2) 25.0 25(4) 21.1
Depots opened in previous two years 2.5 17 -
Revenue from closed depots 0.7 - 2.7
Republic of Ireland (from April 2022) - 1 -
International depots 28.2 43 23.8
(1) The information presented relates to the 24 weeks to 11 June 2022, and the
24 weeks to 12 June 2021, unless otherwise stated.
(2) Same depot basis for any year excludes depots opened in that year and the
prior year.
(3) 2022 includes additional 3(rd) party sales generated by the recently
acquired Sheridans' solid work surface business.
(4) 5 French depots were closed in the first half.
Total Group revenue of £913.1m was ahead by 16.3% (2021: £784.9m). UK depot
revenue grew 16.4% to £889.3m (2021: £764.1m) and by 13.5% on a same depot
basis(2) to £866.9m (2021: £763.5m); this excludes the additional revenue
from depots opened in 2022 and 2021 of £22.4m (2021: £0.6m).
Revenue in our International depots was £23.8m (2021: £20.8m). On a local
currency basis, revenue at our depots in France and Belgium increased by 18.5%
on a same depot basis(2).
Gross profit
Gross profit was £565.0m (2021: £481.0m). The £84m increase compared with
2021 reflected proactive price increases early in the period that contributed
£75m and a positive volume and mix impact of £34m. This more than offset
£25m of cost increases reflecting the impact of higher commodity prices,
freight costs and a weaker sterling exchange rate. These factors contributed
to an increase in gross margin of 60 basis points versus the prior year to
61.9% (2021: 61.3%).
Operating profit
Operating profit was 20.0% ahead of last year at £149.1m (2021: £124.3m) and
the operating profit margin was 16.3% (2021: 15.8%).
Selling and distribution costs and administrative expenses (SD&A)
increased by £59.2m to £415.9m (2021: £356.7m) as a result of inflation
alongside planned investment in specific areas to support our strategic
initiatives. Compared to 2021 this included £7m on UK depots opened in 2021
and 2022 and £7m on International depots opened in the same period. We also
invested £12m in warehouse and transportation initiatives which included the
investment in regional XDCs that support our differentiated service levels and
£4m in marketing and digital costs. £27m of additional costs were also
incurred in the existing depot network as a result of the higher volumes and
there was also a £2m increase in other operating costs.
Profit before and after tax
The net interest charge was £4.1m (2021: £5.1m) principally reflecting
additional finance income relating to the final salary pension scheme. Profit
before tax of £145.0m was 21.6% ahead of the prior year (2021: £119.2m).
The tax charge on profit before tax was £30.7m (2021: £22.1m) as a result of
the higher operating profit and represented an effective tax rate of 21.2%
(2021: 18.5%). As a result, profit after tax was £114.3m (2021: £97.1m).
Reflecting the above and the reduced share count following the share buy back
programme, basic earnings per share were ahead by 19.5% at 19.6p (2021:
16.4p).
During 2020 we were granted a patent on a new plastic leg design which we have
incorporated into our sales of c.5m of kitchen cabinet units. We applied for
the patent in 2017 and there is a potential to claim tax relief under HMRC
patent box rules. We are in the process of reviewing the technical aspects of
any potential claim with our advisers and HMRC before deciding whether to make
a claim under these rules.
Cash
The net cash inflow from operating activities was £62.8m (2021: £93.8m). Net
working capital increased by £104.0m to support higher levels of business
activity. Receivables at the end of the period were £14.1m higher than at the
beginning of the period, with good ageing, and we are monitoring this closely.
Payables were £22.3m higher and stock was £112.1m higher due to our actions
to increase levels of safety stock to de-risk our in-stock business model
particularly ahead of our peak trading period. Capital expenditure was £56.0m
(2021: £23.8m) as we accelerated the execution of our strategic initiatives.
Corporation tax payments were £42.4m (2021: £40.1m), and dividends amounted
to £88.9m (2021: nil). Share buybacks totalled £139.5m (2021: nil). The
interest and principal paid on lease liabilities totalled £30.9m (2021:
£27.0m).
Reflecting the above, there was a net cash outflow of £265.6m (2021: inflow
of £45.5m), leaving the Group with cash at the period end of £249.7m (12
June 2021: £476.2m). The Group has access to a £140m asset backed lending
facility which remained undrawn at the balance sheet date.
Capital allocation and returns to shareholders
Our approach to capital allocation continues to focus on achieving sustainable
profit growth by investing in and developing our vertically integrated
business. We also want to maintain and grow our ordinary dividend in line with
earnings growth to reward shareholders with an attractive ongoing income
stream. After allowing for these uses of cash, Howdens remains committed to
returning any surplus capital to shareholders.
Our capital allocation policy is that where year end cash is in excess of
£250m we expect to return surplus cash to shareholders. This provides
sufficient headroom to support organic growth, our working capital
requirements and ongoing investments in our strategic priorities. At this
level of cash, the balance sheet will remain strong.
On this basis, the Board is recommending an interim dividend for 2022 of 4.7p
per ordinary share (2021: 4.3p per share) representing an increase of 9.3%.
Following the reinstatement of ordinary dividends last year, we are rebasing
the split between the interim dividend and final dividend in 2022 to smooth
the impact of the exceptional trading performance in the second half of 2021.
This will ensure balanced dividend growth in the year while maintaining an
overall dividend cover of between 2.5x and 3.0x for the year as a whole. The
interim dividend will be paid on 18 November 2022 to shareholders on the
register on 14 October 2022.
The Board announced a £250m share buyback programme with the Full Year
results earlier this year. During the period, we bought back 19.0m shares to
the value of £139.5m, at an average purchase price of 734 pence per share. We
expect to complete the share buyback during the second half of 2022.
Pensions
At 11 June 2022, the defined benefit pension scheme was in surplus at £143.7m
(24 December 2021: surplus of £140.8m) on an IAS 19 basis. The scheme was
closed for future accrual on 31 March 2021.
The Recovery Plan sets out that if the funding level on a Technical Provisions
(TP) basis is above 100% for two consecutive months then deficit contributions
cease and if they are below 100% for two consecutive months then contributions
of £2.5m per month recommence. In July 2021, in accordance with the terms of
the plan deficit contributions were suspended.
Board changes
In March 2022, Howdens announced that Peter Ventress will join the Board on 1
July 2022 as Chairman Designate and a Non-Executive Director and will assume
the role of Chairman from 17 September 2022. The Company announced earlier in
the year that Richard Pennycook had indicated his intention to retire with
effect from 17 September 2022 and the Board wishes him well in his future
endeavours and thanks him for his strong leadership and wise counsel.
Peter is currently Chairman of Bunzl plc and Galliford Try plc. He was
previously CEO of Berendsen plc from 2010 to 2016 and prior to that he held
several senior executive roles at Staples Inc. the office supplies retailer.
Peter is stepping down as Chairman of Galliford Try in September 2022.
Operational review
Update on the UK kitchen and joinery markets
We have recently conducted some further research into the size and structure
of the UK kitchen and joinery markets. The work undertaken was based on a
number of existing 3rd party sources supplemented by management estimates. The
findings support our view that the UK Kitchen and Joinery markets are large
and fragmented with the opportunity for Howdens to continue to grow its market
share. Industry definitions of what constitutes a kitchen vary greatly with
analysis often understating the size of non-residential kitchen sales and the
independent segment which is served by several thousand small businesses and
is difficult to analyse.
Management believes that based on its recent proprietary research the kitchen
market is larger than previously estimated at around £6.5bn. The UK joinery
market is also large and very fragmented at around £4bn across the four
segments of joinery, doors, flooring and hardware where we operate.
Consequently, we believe our addressable market in the UK for the markets we
currently operate in is around £11bn compared with Howdens' UK revenue of
around £2.0bn last year. We are investing commensurately in our strategic
initiatives as outlined below.
Strategic initiatives
Howdens has made good progress on its strategic initiatives which are aimed at
increasing profit and volumes and we expect these opportunities to deliver
profitable growth and market share gains over the medium term. The four
strategic initiatives are:
1. Evolving our depot model by using space more efficiently to provide
the best environment in which to do business with our customers.
2. Improving our range and supply management to help customers' buying
decisions, to improve service and to enhance productivity in our
manufacturing, sourcing and supply chain activities.
3. Developing our digital platforms to raise brand awareness, support
the business model and to deliver productivity gains for depots and customers;
4. Expanding our presence in selective countries with attractive profit
pools outside the UK.
These ongoing investments support the execution of our growth strategy and are
within our overall capital expenditure guidance. Progress on each of these
initiatives is reviewed below:
1. Evolving our depot model
Since the start of the year, we have made good progress in finding new depot
sites and we are now planning to open 30 new depots in 2022, having opened 10
in the first half. We are opening all new depots in our updated format which
is designed to provide the best environment in which to do business with our
customers. We now believe there is potential for at least 1,000 depots in the
UK, including c.25 in Northern Ireland, versus the 788 trading at the end of
the period. This will be supported by our cross docking (XDC) facility which
enables depots to optimise stock and provide high levels of service across the
product range.
We have also continued with our revamp programme for existing depots,
concentrating on our older estate where the largest incremental sales uplifts
are expected. The programme is delivering additional sales and has received
very positive feedback from depot teams and customers. In the first half,
including relocations, we have we reformatted a total of 34 depots, taking the
total number of revamped depots to 137 at the period end. The revamps have an
average cost per depot of around £275,000 going forward with an average
payback of less than 4 years. Including relocations, we have accelerated our
planned programme in 2022 and now expect to reformat around 90 depots this
year and to re-rack the warehouses of a further 39 sites without other
modifications at that time.
By the end of 2022 we expect to have around 330 UK depots trading in the new
format and, to have re-racked the warehouses of a further 137 depots without
other modifications. By the end of 2022, these new refurbished depots and
re-racks will represent around 58% of our UK estate.
2. Improving our product range and supply management
Range Management
In 2022, we expect our range count will be around 80, organised in nine
families. We have reorganised our range architecture into fewer families by
removing duplications and improving the balance between new product
introductions and discontinuations. New product introductions for 2022 feature
20 new kitchens and include:
- Launching new products across entry level kitchen ranges which
have traditionally been our strongest performers. We have added new ranges in
both modern and shaker styles including a new entry priced smooth shaker
kitchen family Witney, which is available in three matt colours;
- We are now placing greater emphasis on building out our share of
higher priced kitchens where we have been historically under-represented. This
has included adding new colours for our timber shaker families introduced in
2020; and launching a new builder friendly "in-frame" solution, a look often
associated with high street independents; and
- refreshing our most successful families with new market leading
colours.
- We continue to innovate in other categories including new grey
laminate door ranges; flooring with new herringbone colours and further
additions to our leading integrated appliance brand, Lamona.
Manufacturing and supply chain
Our dedicated manufacturing and supply chain is critical to the success of our
in-stock offer. We supply all product, whether manufactured or sourced, to all
depots. During the period we continued to hold enhanced safety stock as a
contingency against unexpected demand patterns and interruptions to supply to
support our customers.
We keep under review what we believe it is best to make or buy, balancing cost
and overall supply chain availability, resilience and flexibility. Last year
we committed to further investment to make frontals for more of our kitchen
ranges, at the same quality as we can source externally but at a lower cost
and at a reduced lead time to delivery. We expect the new frontal lines
located at our Howdens site to be operational in the second half of 2022. Our
second architrave and skirting line will also be operational in the second
half enabling us to service in house more of the substantial increase in
demand we have seen for these products.
We are also upgrading our solid surface worktop capabilities, which is an
attractive segment of the market, supporting our strategy to increase our
share of the higher priced kitchen segment. Earlier this year we acquired
Sheridan Fabrications Ltd, a leading industry specialist for the manufacture,
fabrication, laser templating and installation of premium worksurfaces. This
supports our ambition to develop our Howdens Work Surfaces (HWS) operations as
the market leading supply and fit business. We are continuing to invest in
expanding our capacity which will lead to lower installation costs with
associated margin benefits. We have now rolled out HWS to all regions and
solid surface worktop orders have significantly increased on the prior period.
Our plans to extend our factory at Howden, East Yorkshire announced with the
2021 Full Year results are on track. In particular, we are increasing the
manufacturing capacity for cabinets with new panel machining and rigid
assembly lines and a new machining line for more door styles. We are also
investing in a new, purpose-built warehouse and distribution centre near the
Howden site which will house both the picking and dispatch. This will free up
more space at the Howden site to be dedicated primarily to manufacturing,
allowing it to flow and operate more efficiently, with room for further
expansion.
Regional cross docking centre ('XDCs')
As previously announced, we have initiated a programme to make an improvement
to stock replenishment. with facilities that supplement the depot's core
weekly replenishment with a next day service via a regional cross docking
centre (or XDC). This optimises the service levels our depots can deliver to
customers by rebalancing inventory and frees up more time and resources to
focus on sales and service reducing the need for inter-depot stock transfers.
This year we are continuing to increase the number of depots serviced by XDCs
and feedback from depots and customers using the service has been very
positive. By rebalancing where we hold stock and changing the delivery pattern
of some lines to depots, depots can allocate more warehouse space to faster
selling lines and can reduce stocks of slower moving lines while providing a
high level of service across the product range. By the end of the period the
service was available to around 530, depots up from around 400 at the year
end. We are planning for the XDC service to be operating in around 725 depots
or c. 90% of our UK depots by the end of 2022.
3. Developing our digital platforms
Our digital strategy reinforces our model of strong local relationships
between depots and their customers by raising brand awareness, supporting the
business model with new services and ways to trade with us and delivering
productivity benefits for depot employees and customers.
In 2022, we are adding to our capabilities for the builder, including new
functions which will improve our digital offerings. The Trade App which puts
more aspects of the local depot in the hands of our customers was launched in
February this year. This replicated core features of the online trade platform
including customers' account details and credit status making them readily
accessible on the move. Customers can also view their open orders and new
features include rapid check in at any depot, order status updates and an easy
order collection function.
We continue to see high levels of engagement with our web platforms and growth
in our social media presence which also stimulates interest in viewing our
products and services on Howdens.com. "Impressions" were present in 19% more
organic search results a month with site visits at 10 million. The time users
spent looking at pages increased by 84% and the number of pages viewed per
session was up 2%. Across our social media sites our follower base was
c.432,000, up 24%, with 1.3 million users actively engaging monthly.
4. Developing our international operations
Our continental European operations, predominantly based in France continue to
make good progress. The business model for France is similar to the UK with a
market size in kitchens of around €4.0bn. The French market has low
penetration rates of integrated kitchens and most are purchased through DIY
outlets and specialist small independent businesses. The UK market was
structured similarly before Howdens introduced the trade only, in stock model
in the 1990's.
Since 2019 we have been opening depots in small clusters within cities which
benefit from word of mouth between customers and our ability to build a local
and trusted brand. Clustering also helps to build the Howdens culture within
our business teams. By the end of 2022, we expect to have increased the number
of depots trading to 60, including 35 located in the Paris area, having opened
7 so far this year.
We have also now opened for business in the Republic of Ireland. We are using
a similar approach to that in France, to fit the population distribution
there. Our initial phase of openings will be clustered around Dublin, and our
inaugural Sandyford depot opened in April, with four to follow in the second
half. The depot managers and teams are being trained in the UK in advance to
speed up the induction process.
Environment, social and governance (ESG)
We actively manage risks and identify opportunities across the business to
improve our environmental, social and governance performance to minimise our
impact on the environment. We want to create an inclusive environment and make
a positive contribution to the communities we serve as well as all our
stakeholders, including our customers, staff, communities, suppliers and
shareholders. We believe that our business needs to be worthwhile for all
concerned.
Our people are our most important asset and in recent years Howdens has
achieved consistently high scores in our all-employee engagement surveys.
Earlier this year we participated in the UK's Best Big Companies survey and
were pleased to maintain our 2-star accreditation which means we demonstrated
an 'outstanding' commitment to employee engagement, which is benchmarked
against hundreds of other companies in the UK. During the first half we were
also pleased to be awarded the ISO 45001 international standard for health and
safety across the UK depot network. This builds on us achieving the standard
in our factories and supply chain network in 2020.
Howdens recently committed to set near and long-term company-wide emission
reductions in line with science-based net zero with the Science Based Targets
Initiative (SBTi). The Company is the first major UK kitchen supplier to make
this commitment and we now have 18 months to submit a roadmap to SBTi, that
will get us to net zero by 2050.
In 2021 we were proud to achieve carbon neutral manufacturing in our two major
UK factory sites and this year we have commenced the process to include our
two recently acquired solid surface worktop factories. We also continue to
make good progress on our objective to ensure that 100% of our kitchen door
frontals are FSC or PEFC certified by the end of 2022 which would
independently certify that the wood comes from responsibly managed forests.
We have also recently commenced a trial of Hydrotreated Vegetable Oil (HVO) in
our vehicle fleet as an alternative to diesel which is a major contributor to
our Scope 1 greenhouse gas emissions. If successful, replacing diesel with HVO
has the potential to reduce our own fleet emissions significantly with no
negative impact on fuel efficiency or maintenance costs.
Going concern
The directors have adopted the going concern basis in preparing the condensed
financial statements and have concluded that there are no material
uncertainties leading to significant doubt about the Group's going concern
status. The reasons for this are explained below.
Going concern review period
This going concern review period covers the period of 12 months after the date
of approval of these financial statements. The directors consider that this
period continues to be suitable for the Group.
Assessment of principal risks
The directors have reached their conclusion on going concern after assessing
the Group's principal risks, including the risks arising from trading in a
COVID-19 and Post-Brexit environment, alongside the ongoing war in the
Ukraine.
Whilst all the principal risks could have an impact on the Group's
performance, the specific risks which could most directly affect going concern
are the risks relating to continuity of supply, changes in market conditions,
and product relevance. The directors note that the Group is currently holding
additional amounts of fast-moving inventory as a specific mitigation against
supply chain disruption, and they consider that the other effects of these
risks would be reflected in lower sales and/or lower margins, both of which
are built into the financial scenario modelling described below.
Review of trading results, future trading forecasts and financial scenario modelling
The directors have reviewed the Group's balance sheet at the half-year end,
and have noted the appropriate levels of working capital, including the £250m
cash and cash equivalents balance. They have also reviewed trading results and
financial performance in the first half of 2022, as well as trading in the
weeks between the half-year end and the date of approval of the half-year
results.
They have also considered three financial modelling scenarios prepared by
management:
1) A "base case" scenario. This is based on the latest 2022 Group forecast,
made in June 2022. The basis of this scenario has been approved by the Board.
It assumes future sales and profit growth in line with management and market
expectations as well as significant capital expenditure to support that growth
and cash outflows for dividends and share buybacks in line with our announced
plans and capital allocation model.
2) A "severe but plausible" downside scenario. This scenario starts with the
base case described above - and models a going concern period where those
sales are down by 7% and margin is down by 200 basis points.
This level of reduction in sales and margin has been chosen as it was the
worst 12 month year-on-year actual fall ever experienced in the Group's
27-year history. It is worse than the combined effect of COVID and Brexit on
2020 actual performance where sales were down 2.3% on the previous year and
margin was down by 200 basis points.
This scenario includes capital expenditure which is lower than in the base
case, but which is still in line with our announced strategic priorities for
growth, namely: new depot openings and refurbishments; investment in our
manufacturing sites, investment in digital and expanding our international
operations. This scenario models a reduction in most of the variable cost
base proportionate to the reduction in sales. It includes dividends at a level
of dividend cover in line with the Group's stated capital allocation model,
but it assumes no share buybacks.
3) A "reverse stress-test" scenario. This scenario starts with the severe
but plausible downside model and reduces sales even further, to find the
maximum reduction in sales that could occur with the Group still remaining
cash positive over the whole going concern period, without the need to draw on
our borrowing facility or to take further mitigating actions other than those
detailed immediately below.
Capital expenditure in this scenario has been reduced to a "maintenance"
level. Variable costs have been reduced in proportion to the reduction in
sales on the same basis as described in the severe but plausible downside
scenario. It assumes no dividends or share buybacks are paid.
In the first two scenarios the Group has positive cash and significant
headroom throughout the going concern period after meeting its commitments.
In the reverse stress-test scenario, the results show that sales would have to
fall by a significant amount over and above the fall modelled in the plausible
downside scenario before the Group would have to draw on borrowing facilities
or take further mitigating actions. The likelihood of this level of fall in
sales is considered to be remote.
Borrowing facility and covenants
The Group has a bank facility which allows borrowing of up to £140m, which
expires in December 2023 and whose other main details are set out in note 19
to the December 2021 Group financial statements. The facility has not been
used at any time since it was set up. As part of the scenario modelling
described above, we have tested the borrowing facility covenants and the
facility remains available under all of the scenarios.
Conclusion
Taking all the factors above into account, the directors believe that the
Group is well placed to manage its financing and other business risks
satisfactorily and they have a reasonable expectation that the Group will have
adequate resources to continue in operational existence for the going concern
review period set out above. Accordingly, they continue to adopt the going
concern basis in preparing these half-yearly condensed consolidated
financial statements.
Principal risks and uncertainties
The principal risks and uncertainties that could have a material impact on the
Group's performance over the remaining half of the financial year have not
changed from those which are set out in detail in the Group's 2021 Annual
Report and Accounts, and which are summarised below.
· Market conditions - Challenging market conditions could affect our
ability to achieve sales and profit forecasts, impacting on our cash position.
Exchange rates fluctuation could increase our cost of goods sold. This risk
has increased due to multiple factors influencing conditions including
inflation, geopolitical events and macroeconomic forecasts.
· Supply chain - Any disruption to our relationship with key suppliers
or interruption to manufacturing and distribution operations could affect our
ability to deliver the in-stock business model and to service our customer's
needs. If this happened, we could lose customers and sales.
· Business model and culture - if we lose sight of our model and
culture, we may not serve our customers successfully and our long-term
profitability may suffer.
· Maximising growth - if we do not understand and exploit our growth
opportunities in line with our business model and risk appetite, or if we do
not meet the related growth challenges, we will not get maximum benefit from
our growth potential.
· People - Our operations could be adversely affected if we were unable
to attract, retain and develop our colleagues; or, if we lost a key member of
our team.
· Health and Safety - Poor management or an incident could compromise
the safety and wellbeing of individuals, and the reputation and viability of
the business.
· Cyber security incident - Events such as ransomware attacks continue
to rise globally. A major security breach could cause a key system to be
unavailable and/or sensitive data to be compromised.
· Product - if we do not offer the builder the products that they and
their customers want, we could lose sales and customers.
· Business continuity and resilience - We have some business operations
and locations in our infrastructure that are critical to business continuity
and are essential for ensuring our customers can get the product and services
they want when they need them.
Geopolitical risk
Russia, Ukraine crisis
As the Russia/Ukraine tensions grew and Russian forces increased on the
border, we conducted an emerging risk review of the potential impact that a
conflict in that region could have on our business. The review looked at
financial and operational areas and included risk to supply chain, cyber
security and energy prices. We took swift action to mitigate those areas we
could and continue to monitor the situation to ensure our risk mitigation
remains appropriate.
Brexit
The Trade and Cooperation Agreement that came into force at the end of the
transitional period on the 24th of December 2020 provides a framework for
trade between the UK and the EU. Any breakdown of this agreement has the
potential to bring with it some risk for all companies operating within both
the UK and the European Union. The main potential risk areas for Howdens
relate to our expansion plans in Republic of Ireland, the impact to the
Belfast Agreement, the current free trade agreements with the EU and potential
further market and currency volatility stemming from consumer /investor
uncertainty.
COVID-19
Some of our principal risks continue to be impacted by the pandemic to some
degree. The extent of the impact of COVID-19 on our business is dependent on
the path the pandemic takes going forward, both in the UK and abroad. We
continue to have a low appetite for COVID-19 risk and remain agile to mitigate
its potential effects as much as reasonably possible.
Cautionary statement
Certain statements in this Half Year results announcement are forward-looking.
Although the Group believes that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to have been correct. Because these statements contain
risks and uncertainties, actual results may differ materially from those
expressed or implied by these forward-looking statements. We undertake no
obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.
Responsibility statement
We confirm that, to the best of our knowledge:
(a) the condensed consolidated set of financial statements
has been prepared in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of
the information required by DTR 4.2.7R
(indication of important events during the first 24 weeks and description of
principal risks and uncertainties for the remaining 28 weeks of the year); and
(c) the interim management report includes a fair review
of the information required by DTR 4.2.8R
(disclosure of related parties' transactions and changes therein).
The directors are responsible for the maintenance and integrity of the
corporate and financial information included in the company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial information differs from legislation in other jurisdictions.
By order of the Board
Andrew Livingston Paul Hayes
Chief Executive Officer Chief Financial
Officer
20 July 2022
Independent review report to Howden Joinery Group Plc
Conclusion
We have been engaged by the company to review the condensed consolidated
financial statements in the half-yearly financial report for the 24 weeks
ended 11th June 2022 which comprises condensed consolidated balance sheet of
Howden Joinery Group Plc and the related condensed consolidated income
statement, condensed consolidated statement of other comprehensive income,
condensed consolidated statement of changes in equity and condensed
consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated financial statements in the
half-yearly financial report for the 24 weeks ended 11th June 2022 is not
prepared, in all material respects, in accordance with IAS 34 Interim
Financial Reporting as adopted for use in the UK and the Disclosure Guidance
and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority
("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly financial report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed consolidated financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the latest annual financial statements of the group
were prepared in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union and in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and the next annual financial
statements will be prepared in accordance with UK-adopted international
accounting standards.
The directors are responsible for preparing the condensed consolidated
financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed consolidated financial statements, the directors
are responsible for assessing the group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
consolidated financial statements in the half-yearly financial report based on
our review. Our conclusion, including our conclusions relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Robert Brent
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5SG
20 July 2022
Condensed consolidated income statement
Notes 24 weeks to 24 weeks to 52 weeks to
11 June 2022
12 June 2021
25 December 2021 audited
unaudited
unaudited
£m
£m £m
Continuing operations:
Revenue - sale of goods 4 913.1 784.9 2,093.7
Cost of sales (348.1) (303.9) (804.7)
Gross profit 565.0 481.0 1,289.0
Selling & distribution costs (359.6) (304.8) (756.5)
Administrative expenses (56.3) (51.9) (130.8)
Operating profit 149.1 124.3 401.7
Finance income 7 1.5 - -
Finance costs 7 (5.6) (5.1) (11.4)
Profit before tax 145.0 119.2 390.3
Tax charge 6 (30.7) (22.1) (75.8)
Profit for the period attributable to the equity holders of the parent 114.3 97.1 314.5
Earnings per share pence pence pence
Basic earnings per 10p share 8 19.6 16.4 53.2
Diluted earnings per 10p share 8 19.5 16.3 53.0
Condensed consolidated statement of comprehensive income
Notes 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
unaudited unaudited audited
£m £m £m
Profit for the period 114.3 97.1 314.5
Items of other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains on defined benefit pension plan 11 2.8 63.4 170.4
Deferred tax on actuarial gains on defined benefit pension plan (0.5) (13.2) (33.5)
Change of rate on deferred tax (0.2) - (8.5)
Items that may be reclassified subsequently to profit or loss:
Currency translation differences 0.3 (1.1) (2.3)
Other comprehensive income for the period 2.4 49.1 126.1
Total comprehensive income for the period, attributable to equity holders of 116.7 146.2 440.6
the parent
Condensed consolidated balance sheet
Notes 11 June 2022 12 June 2021 25 December 2021
unaudited unaudited audited
(restated - note 2)
£m
£m
£m
Non-current assets
Intangible assets 35.5 25.0 22.6
Property, plant and equipment 10 329.5 254.5 295.8
Lease right-of-use assets 576.3 533.5 555.8
Pension asset 11 143.7 32.0 140.8
Deferred tax asset - 7.7 13.4
Prepaid credit facility fees - 0.5 0.3
1,085.0 853.2 1,028.7
Current assets
Inventories 415.6 284.3 301.6
Trade and other receivables 223.8 208.1 205.8
Cash and cash equivalents 249.7 476.2 515.3
889.1 968.6 1,022.7
Total assets 1,974.1 1,821.8 2,051.4
Current liabilities
Lease liabilities (76.2) (69.8) (57.5)
Trade and other payables 14 (409.0) (398.6) (384.7)
Current tax liability (8.3) (0.5) (25.9)
Provisions 12 (9.5) - -
(503.0) (468.9) (468.1)
Non-current liabilities
Lease liabilities (546.4) (510.1) (533.7)
Deferred tax liability (30.1) (9.2) (37.7)
Provisions 12 (9.4) (15.3) (20.4)
(585.9) (534.6) (591.8)
Total liabilities (1,088.9) (1,033.5) (1,059.9)
Net assets 885.2 818.3 991.5
Equity
Share capital 57.9 60.3 59.8
Capital redemption reserve 7.3 4.9 5.4
Share premium 87.5 87.5 87.5
ESOP and share based payments 8.5 (1.1) 5.9
Treasury shares (25.5) (27.1) (27.1)
Retained earnings 749.5 693.8 860.0
Total equity 885.2 818.3 991.5
Condensed consolidated statement of changes in equity
24 weeks to 11 June 2022 Share capital Capital redemption reserve Share premium account ESOP and share- based payments Treasury shares Retained earnings Total
£m £m £m £m £m £m £m
As at 25 December 2021 - audited 59.8 5.4 87.5 5.9 (27.1) 860.0 991.5
Profit for the period - - - - - 114.3 114.3
Other comprehensive income in the period - - - - - 2.4 2.4
Total comprehensive income for the period - - - - - 116.7 116.7
Current tax on share schemes - - - - - 0.5 0.5
Deferred tax on share schemes - - - - - 0.7 0.7
Movement in ESOP - - - 4.2 - - 4.2
Buyback and cancellation of shares (1.9) 1.9 - - - (139.5) (139.5)
Transfer of shares from treasury into share trust - - - (1.6) 1.6 - -
Dividends - - - - - (88.9) (88.9)
As at 11 June 2022 - unaudited 57.9 7.3 87.5 8.5 (25.5) 749.5 885.2
The ESOP Reserve includes shares in Howden Joinery Group plc with a market
value on the balance sheet date of £26.4m (June 2021: £36.9m, December 2021
£41.7m), which are held by the Group's Employee Share Trusts in order to meet
share options and awards made under the Group's various share-based payment
schemes.
The item "Movement in ESOP" consists of the share-based payment charge in the
period, together with any receipts of cash from employees on exercise of share
options and the purchase price of own shares sold on the exercise of share
options.
At the current period end there were 5.2 million ordinary shares held in
treasury, each with a nominal value of 10p (June 2021: 5.6 million shares,
December 2021: 5.6 million shares).
Condensed consolidated statement of changes in equity - continued
24 weeks to 12 June 2021 (restated - note 2) Share capital Capital redemption reserve Share premium account ESOP and share- based payments Treasury shares Retained earnings Total
£m £m £m £m £m £m £m
As at 26 December 2020 - audited 60.3 4.9 87.5 (3.5) (28.2) 599.8 720.8
Profit for the period - - - - - 97.1 97.1
Other comprehensive income in the period - - - - - 49.1 49.1
Total comprehensive income for the period - - - - - 146.2 146.2
Movement in ESOP - - - 3.5 - - 3.5
Reclaim of forfeited dividends - - - - - 0.2 0.2
Proceeds from sale of forfeited shares - - - - - 1.8 1.8
Transfer of shares from treasury into share trust - - - (1.1) 1.1 - -
Dividends - - - - - (54.2) (54.2)
As at 12 June 2021 - unaudited 60.3 4.9 87.5 (1.1) (27.1) 693.8 818.3
52 weeks to 25 December 2021 Share capital Capital redemption reserve Share premium account ESOP and share- based payments Treasury shares Retained earnings Total
£m £m £m £m £m £m £m
As at 26 December 2020 - audited 60.3 4.9 87.5 (3.5) (28.2) 599.8 720.8
Profit for the period - - - - - 314.5 314.5
Other comprehensive income for the period - - - - - 126.1 126.1
Total comprehensive income for the period - - - - - 440.6 440.6
Current tax on share schemes - - - - - (0.1) (0.1)
Deferred tax on share schemes - - - - - 1.3 1.3
Movement in ESOP - - - 10.5 - - 10.5
Reclaim of forfeited dividends - - - - - 0.2 0.2
Proceeds from sale of forfeited shares - - - - - 1.8 1.8
Buyback and cancellation of shares (0.5) 0.5 - - - (50.0) (50.0)
Transfer of shares from treasury into share trust - - - (1.1) 1.1 - -
Dividends - - - - - (133.6) (133.6)
At 25 December 2021 - audited 59.8 5.4 87.5 5.9 (27.1) 860.0 991.5
Condensed consolidated cash flow statement
Notes 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
unaudited unaudited audited
£m £m £m
Group operating profit before tax and interest 149.1 124.3 401.7
Adjustments for:
Depreciation and amortisation of owned assets 19.6 16.8 40.6
Depreciation, impairment and loss on termination of leased assets 36.3 33.3 74.8
Share-based payments charge 4.2 3.2 10.1
Decrease in prepaid credit facility fees 0.3 0.1 0.3
Write down of property, plant and equipment and intangible assets - 0.1 3.2
Profit on disposal of property plant & equipment (0.3) - -
Operating cash flows before movements in working capital 209.2 177.8 530.7
Movements in working capital
Increase in inventories (112.1) (29.3) (46.6)
Increase in trade and other receivables (14.1) (41.5) (39.2)
Increase in trade and other payables and provisions 22.3 43.3 84.1
Difference between pension operating charge and cash paid (0.1) (16.4) (18.5)
(104.0) (43.9) (20.2)
Cash generated from operations 105.2 133.9 510.5
Tax paid 6 (42.4) (40.1) (73.1)
Net cash flows from operating activities 62.8 93.8 437.4
Condensed consolidated cash flow statement - continued
Notes 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
unaudited unaudited audited
£m £m £m
Cash flows used in investing activities
Payments to acquire property, plant and equipment and intangible assets (56.0) (23.8) (85.9)
Receipts from sale of property, plant and equipment and intangible assets - 0.2 0.1
Acquisition of subsidiary - net of cash acquired 15 (14.6) - -
Interest received 1.4 - -
Net cash used in investing activities (69.2) (23.6) (85.8)
Cash flows from financing activities
Payments to acquire own shares (139.5) - (50.0)
Receipts from release of shares from share trust 0.1 0.3 0.4
Dividends paid to Group shareholders 9 (88.9) - (133.6)
Repayment of principal on lease liabilities (25.3) (22.0) (74.8)
Interest paid - including on lease liabilities (5.6) (5.0) (11.0)
Inflow from receipt of forfeited dividends - 0.2 0.2
Inflow from sale of forfeited shares - 1.8 1.8
Net cash used in financing activities (259.2) (24.7) (267.0)
Net increase/(decrease) in cash and cash equivalents (265.6) 45.5 84.6
Cash and cash equivalents at beginning of period 515.3 430.7 430.7
249.7 476.2 515.3
Cash and cash equivalents at end of period
Notes to the Condensed Consolidated Financial Statements
1 General information
The results for the 24 week periods ended 11 June 2022 and 12 June 2021 are
unaudited but have been reviewed by the Group's auditor, whose report on the
current period forms part of this document. The information for the 52 week
period ended 25 December 2021 does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. A copy of the statutory
accounts for that period has been delivered to the Registrar of Companies, and
is available via the Group's website at www.howdenjoinerygroupplc.com
(http://www.howdenjoinerygroupplc.com) . The auditor's report on those
accounts was not qualified or modified, did not draw attention to any matters
by way of emphasis, and did not contain statements under section 498(2) or (3)
of the Companies Act 2006.
2 Accounting policies and basis of preparation
The condensed consolidated set of financial statements included in this
half-yearly report has been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting", as adopted for use in
the UK.
Basis of preparation
These condensed consolidated financial statements are prepared on the going
concern basis, as we explain in detail in the "Going Concern" section of the
interim management report, above. The Group's business activities, together
with the factors likely to affect its future development, performance, and
position are set out in the interim management report, which precedes these
condensed consolidated financial statements and includes a summary of the
Group's financial position, its cash flows, and borrowing facilities, its
principal risks, and a discussion of why the directors consider that the going
concern basis is appropriate.
The annual financial statements of the group for the 52 weeks ended 24
December 2022 will be prepared in accordance with UK-adopted international
accounting standards. As required by the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority, this condensed consolidated set of
financial statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's published
consolidated financial statements for the 52 weeks ended 25 December 2021
which were prepared in accordance with International Financial Reporting
Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006,
except that:
‐ the taxation charge for the half-year is calculated by applying
the annual estimated effective tax rate to the profit for the period, and;
‐ we are disclosing an additional accounting policy, below, for
business combinations and goodwill. Details of the acquisition in the current
period are disclosed at note 15.
Accounting policy for business combinations and goodwill
The Group accounts for business combinations using the acquisition method when
the acquired set of activities and assets meets the definition of a business
and control is transferred to the Group. In determining whether a particular
set of activities and assets is a business, the Group assesses whether it
includes, at a minimum, an input and substantive process and whether it has
the ability to produce outputs.
The Group has an option to apply a 'concentration test' that permits a
simplified assessment of whether an acquired set of activities and assets is
not a business. The optional concentration test is met if substantially all of
the fair value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar identifiable assets.
The consideration transferred in the acquisition is generally measured at fair
value, as are the identifiable net assets acquired. Any excess of
consideration over net assets acquired is recognised on acquisition as
goodwill, and tested for impairment at least annually. Any gain on a bargain
purchase is recognised in profit or loss immediately.
The measurement period for finalising fair values will remain open for a
maximum of 12 months from the acquisition date so long as relevant information
is still outstanding. If the fair value of assets and liabilities changes
during the measurement period, there will be a corresponding change in the
amount of goodwill recognised. Any such changes will be reported in the
financial statements of the period during which they are recognised.
Transaction costs are expensed as incurred, except if related to the issue of
debt or equity securities.
Restatement of prior period
In the prior period, a special dividend (£54.1m) was recognised in the
interim financial statements. This dividend had been declared in the
Group's 2021 Annual Report, but it was an interim dividend and so in
accordance with the relevant guidance it should not have been recognised until
it was paid. The comparatives have been restated accordingly. There is no
impact on the 2021 full year audited accounts as the special dividend was paid
on 18 June 2021 as originally declared.
3 Segmental results
Basis of segmentation
Information reported to the Group's Chief Executive is focused on one
operating segment, Howden Joinery. Thus, the information required in respect
of segmental disclosure can all be found in the condensed consolidated income
statement, and condensed consolidated balance sheet.
4 Seasonality of revenue
In a typical year, Howden Joinery sales are more heavily weighted to the
second half of the financial year. This partly reflects the fact that there
are 24 weeks in the first half of the financial year and 28 weeks in the
second half. It also reflects that our peak trading period falls in the
second half of the year. Historically, the typical trend has been that
approximately 60% of sales have been in the second half of the year.
5 Write down of inventories
During the period, the Group has recognised a net charge of £9.2m in respect
of writing inventories down to their net realisable value (24 weeks to 12 June
2021 - net charge of £7.0m; 52 weeks to 25 December 2021 - net charge of
£20.0m).
6 Tax
The half year effective tax rate is 21.2% (24 weeks to 12 June 2021: 18.5%).
This is arrived at by applying the estimated full year effective tax rate to
the actual half year profit, after adjusting for the tax effect of items which
are recognised entirely in the current period and are not spread over the full
year (such as actual share option exercises and payments to the pension
scheme).
7 Finance income and finance costs
Finance income 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Other finance income - pensions 1.2 - -
Other interest income 0.3 - -
Total finance income 1.5 - -
Finance costs 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Interest expense on lease liabilities (5.5) (5.0) (11.0)
Other finance expense - pensions - (0.1) (0.4)
Other interest payable (0.1) - -
Total finance costs (5.6) (5.1) (11.4)
8 Earnings per share
24 weeks to 11 June 2022 24 weeks to 12 June 2021 52 weeks to 25 December 2021
Earnings Weighted average Earnings per share Earnings Weighted average number Earnings Earnings Weighted average number Earnings
£m number p £m of shares per share £m of shares per share
of shares m p m p
m
Basic earnings per share 114.3 583.9 19.6 97.1 593.4 16.4 314.5 591.2 53.2
Effect of dilutive share options - 1.5 (0.1) - 1.6 (0.1) - 2.1 (0.2)
Diluted earnings per share
114.3 585.4 19.5 97.1 595.0 16.3 314.5 593.3 53.0
9 Dividends
(a) Amounts recognised as distributions to equity holders in the period
24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 (restated - 25 December 2021
see note 2)
£m
£m
£m
Final dividend for the 52 weeks 88.9 - -
to 25 December 2021 - 15.2p/share
Interim dividend for the 52 weeks - - 25.3
to 25 December 2021 - 4.3p/share
Final dividend for the 52 weeks - 54.2 54.2
to 26 December 2020 - 9.1p/share
Special dividend for the 52 weeks - - 54.1
to 26 December 2020 - 9.1p/share
88.9 54.2 133.6
(b) Proposed dividends
On 20 July 2022, the Board approved the payment of an interim dividend of 4.7
pence/share to be paid on 18 November 2022 to ordinary shareholders on the
register on 14 October 2022.
24 weeks to 24 weeks to 12 June 2021 52 weeks to
11 June 2022 25 December 2021
£m £m
Proposed interim dividend for the 52 weeks to 24 December 2022 - 4.7p/share
26.3
Proposed interim dividend for the 52 weeks to 25 December 2021 - 4.3p/share
25.5
Proposed final dividend for the 52 weeks to 25 December 2021 - 15.2p/share
89.3
10 Property, plant and equipment
During the period, the Group made additions to property, plant and equipment
("PPE") of £51.8m (24 weeks to 12 June 2019 - £23.8m; 52 weeks to 25
December 2021 - £79.8m).
There were no disposals of PPE in the current or prior periods which had any
significant net book value.
There are non-cancellable commitments to purchase PPE of £25.5m at the
current period end (12 June 2021 - £20.4m; 25 December 2021 - £16.1m).
11 Retirement benefit obligations
(a) Total amounts in respect of pensions in the period
24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Charged to the income statement:
Defined benefit plan - current service cost - 4.8 4.8
Defined benefit plan - administrative costs 1.1 1.0 2.0
Defined benefit plan - total operating charge 1.1 5.8 6.8
Defined benefit plan - net finance (credit)/charge (1.2) 0.1 0.4
Defined contribution plans - total operating charge 14.1 10.5 27.2
Total charged to profit before tax 14.0 16.4 34.4
Included in other comprehensive income:
Defined benefit plan - actuarial gains (2.8) (63.4) (170.4)
(b) Other information - defined benefit pension plan
Key assumptions used in the valuation of the plan 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
Discount rate 3.60% 1.85% 1.90%
Inflation assumption - RPI 3.35% 3.35% 3.30%
Inflation assumption - CPI 2.90% 2.85% 2.85%
Rate of increase of pensions in deferment capped 2.90% 2.85% 2.85%
at lower of CPI and 5%
Rate of CARE revaluation capped 2.55% 2.55% 2.55%
at lower of RPI and 3%
Rate of increase of pensions in payment:
- pensions with increases capped 2.85% 2.80% 2.80%
at lower of CPI and 5%
- pensions with increases capped 3.50% 3.50% 3.50%
at lower of CPI and 5%, with a 3% minimum
- pensions with increases capped 2.25% 2.25% 2.20%
at the lower of RPI and 2.5%
Life expectancy (yrs): pensioner aged 65
- male 86.6 86.6 86.6
- female 88.4 88.4 88.4
Life expectancy (yrs): non-pensioner aged 45
- male 87.6 87.6 87.6
- female 90.3 90.3 90.3
Balance sheet
The amount included in the balance sheet arising from the Group's obligations
in respect of defined benefit retirement benefit scheme is as follows:
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Present value of defined benefit obligations (1,122.8) (1,521.3) (1,512.5)
Fair value of scheme assets 1,266.5 1,553.3 1,653.3
Surplus recognised in the balance sheet 143.7 32.0 140.8
In recognising the pension surplus at the end of the current period, the Group
has considered the conditions and guidance given in IAS 19 and IFRIC 14 and
has concluded that: it is appropriate to recognise the surplus in full; there
is no issue affecting the availability of a refund or reduction in future
contributions due to minimum funding requirements, and there is no requirement
to recognise an associated liability.
Movements in this amount during the period are as follows:
24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Surplus/(deficit) at start of period 140.8 (47.7) (47.7)
Current service cost - (4.8) (4.8)
Administration cost (1.1) (1.0) (2.0)
Employer contributions - 22.2 25.3
Other finance credit/(charge) 1.2 (0.1) (0.4)
Actuarial gains 2.8 63.4 170.4
Surplus at end of period 143.7 32.0 140.8
Statement of comprehensive income
Amounts taken to equity via the statement of comprehensive income in respect
of the Group's defined benefit plan are shown below:
Actuarial gains 24 weeks to 24 weeks to 52 weeks to
11 June 2022 12 June 2021 25 December 2021
£m £m £m
Actuarial (loss)/gain on plan assets (381.8) (46.3) 58.0
Decrease in plan liabilities due to financial assumptions and experience 381.1 104.5 107.2
Decrease in plan liabilities due to demographic assumptions 3.5 5.2 5.2
Total actuarial gains 2.8 63.4 170.4
12 Provisions
Property Warranty Closure costs French post-employment benefits Total
£m £m £m £m £m
As at 25 December 2021 - audited 7.0 10.9 2.2 0.3 20.4
Created in the period 0.9 3.4 - - 4.3
Utilised in the period (0.5) (2.7) (2.1) - (5.3)
Released in the period (0.5) - - - (0.5)
As at 11 June 2022 - unaudited 6.9 11.6 0.1 0.3 18.9
Presented as current liabilities 4.1 5.3 0.1 - 9.5
Presented as non-current liabilities 2.8 6.3 - 0.3 9.4
6.9 11.6 0.1 0.3 18.9
In the current reporting period, provisions have been presented as either
current or non-current liabilities for the first time. The basis of the
allocation is outlined for each type of provision, below. Prior periods have
not been analysed.
Property provision
The property provision covers obligations to make dilapidation payments to
landlords of leased properties. Following the guidance in the IFRSs
governing leases and provisions, our assessment is that, in general, the
likelihood of a cash outflow for dilapidations at the time of signing a lease
is remote, and therefore it would be unusual for us to recognise any costs
relating to dilapidations at that time.
In these cases, the event which changes our assessment of the likelihood of a
cash outflow for dilapidations from being remote to being probable, and which
therefore triggers our recognition of a provision for that probable outflow,
typically occurs as we come towards the end of a lease and we can assess the
condition of the leased property and the likelihood of dilapidations being
payable.
The timing of any outflows from the provision is variable, and is dependent on
the timing of dilapidations assessments and works. Although circumstances will
differ from property to property, a typical pattern would be that the outflow
would occur within 1-3 years of the provision being made. The amounts provided
are specific to each property and are based on our best estimate of the cost
of performing any required works or, in cases where we will not be directly
contracting for the works to be done, our best estimate of the outflow
required to settle any claim from the landlord. Where the amounts involved
are significant, we would typically take advice on the likely costs from
third-party property maintenance specialists.
For the purposes of allocating this provision between current liabilities and
non-current liabilities we have used our best estimate of when we would
reasonably expect outflows to occur, based on circumstances at each relevant
property.
Warranty provision
The warranty provision relates to the estimated costs of product warranties.
As products are sold, the Group makes provision for claims under warranties,
based on actual sales and on historical average warranty costs incurred. As
claims are made, the Group utilises the provision and then uses the historical
data on the rate and amount of claims to periodically revise our expectations
of the amount of future warranty costs and therefore the rate at which it is
appropriate to provide for warranty costs on each sale in the future.
For the purposes of allocating this provision between current liabilities and
non-current liabilities we have used the historical data on timing and amount
of claims to estimate the costs for the next 12 months and have classified
this as a current liability.
Closure costs
Closure costs relate to a decision made and communicated in 2021 to close 5
depots in France which did not align with our city-based depot expansion
plans. The cash outflows from the provision are expected to complete during
2022.
French post-employment benefits provision
This provision relates to a benefit which is payable to employees in our
French subsidiary under French law on retirement. It is a lump sum payable
on retirement, not a recurring pension. There will only be an outflow from
this provision if any of the eligible employees are employed by our French
subsidiaries immediately before their retirement.
The provision represents our best estimate of the potential liability and it
is calculated based on several factors, mainly the age profile and salary
details of the current workforce in France, and the current rate of staff
turnover. The calculation to arrive at the best estimate of the required
provision is revised periodically by third-party specialists and our provision
is adjusted in line with the results of this calculation if necessary.
We have assumed that the whole of this provision is non-current.
13 Related party transactions
There have been no changes to related party arrangements or transactions as
reported in the 2021 Annual Report & Accounts.
Transactions between Group companies, which are related parties, have been
eliminated on consolidation and are therefore not disclosed. Other
transactions which fall to be treated as related party transactions are: those
relating to the remuneration of key management personnel, which are not
disclosed in the half-yearly report, and which will be disclosed in the
Group's next Annual Report; and transactions between the Group and the Group's
defined benefit pension plan, which are disclosed in note 11.
14 Trade and other payables
Trade and other payables at 12 June 2021 included £108.3m in respect of
dividends which had been approved at that date, but which were not paid until
18 June 2021. There were no such amounts at 11 June 2022 or 25 December
2021.
11 June 2022 12 June 2021 25 December 2021
unaudited unaudited audited
£m £m £m
Proposed dividends (see note 9(a)) - 54.2 -
Trade creditors and other payables 409.0 344.4 384.7
409.0 398.6 384.7
15 Acquisition of subsidiary
On 13 February 2022, for a total consideration of £15m from existing cash
resources, the Group acquired 100% of the shares and voting rights of Sheridan
Fabrications Limited ("Sheridans"), a leading industry specialist in the
manufacture, fabrication, laser templating and installation of premium
worksurfaces. Sheridans employs around 200 people and is based in Normanton,
Yorkshire, around 30 miles from the Group's factory at Howden.
The acquisition increases the Group's manufacturing capacity and supports our
strategy of increasing our share of this growing market.
The fair value of the major classes of assets and liabilities at acquisition
date and the amount of goodwill recognised is shown below:
Fair value recognised
£m
Intangible assets - software 0.4
Property plant & equipment 0.5
Lease right-of-use assets 1.3
Inventories 1.9
Trade and other receivables and prepayments 3.2
Trade and other payables and accruals (3.2)
Cash 0.4
Borrowings (1.2)
Total lease liabilities (1.3)
Net assets acquired 2.0
Goodwill recognised on acquisition 12.4
Consideration paid for the net assets acquired - cash 14.4
Additional consideration paid in cash - treated as settlement of existing debt 0.6
on acquisition, owed by the Group to Sheridans
Total consideration paid - cash 15.0
The goodwill represents the expected synergies from the acquisition in
expanding the Group's activities in its addressable market, including the
skills of the assembled Sheridans workforce. None of the goodwill is expected
to be deductible for tax purposes. It is presented on the balance sheet as
part of the Group's intangible assets.
The gross value of trade receivables on acquisition, excluding the debtor due
to Sheridans from the Group, was £2.3m. Their fair value, and the best
estimate at acquisition date of the cash flows expected to be collected was
£2.1m.
The Group incurred acquisition-related costs of £0.3m, which were expensed in
the period and are included in Administrative expenses.
Details of the effect of the acquisition on revenue and profit are as follows:
Revenue Gross profit
£m £m
Additional amounts recognised in respect of Sheridans in the Group 8.3 1.6
consolidated statement of comprehensive income for the period since
acquisition date (13 February 2022)
Management's estimate of results for the combined entity for the current 915.1 567.0
reporting period if the acquisition date had been at the beginning of the
reporting period (26 December 2021)
The figures in the table above exclude revenue and profit from transactions
between Sheridans and the Group. The revenue and profit figures for the period
since 13 February present leasing transactions on an IFRS 16 basis. The
estimated figures for the period between 26 December 2021 and 13 February 2022
are on an FRS 102 basis.
The Sheridans factory and offices, together with the land they stand on -
which were not owned by Sheridans Fabrications Limited - were bought for £10m
in a separate transaction. This has been accounted for as an asset purchase,
and forms part of our reported capital expenditure for the half year.
16 Financial instruments
The carrying amount of trade receivables, trade payables and leases is a
reasonable approximation of their fair value.
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