REG - Howden Joinery Grp - 2023 Full Year Results
29/02/2024 07:00
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RNS Number : 8669E Howden Joinery Group PLC 29 February 2024
Performance in line with expectations, with further market share gains.
Investing to drive future growth.
Results summary
£ millions (unless stated) 2023(1) 2022(1) Change Change
vs 2022 vs 2019
Group revenue 2,310.9 2,319.0 -0.3% +45.9%
- UK 2,241.1 2,256.1 -0.7% +44.6%
- International(2) 69.8 62.9 +11.0%
Gross profit margin, % 60.8% 60.9%
Operating profit 340.2 415.2 -18.1% +30.8%
Profit before tax 327.6 405.8 -19.3% +25.7%
Basic earnings per share, p 46.5p 65.8p -29.3%
Total ordinary dividend per share, p 21.0p 20.6p +1.9%
Cash at end of period 282.8 308.0
(1) The information presented relates to the 53 weeks to 30 December 2023, the
52 weeks to 24 December 2022 and the 52 weeks to 28 December 2019, unless
otherwise stated. The 2023 and 2022 results are presented under IFRS 16, 2019
results have not been restated.
(2) Comprises Howdens' depots in France, Belgium and the Republic of Ireland
(ROI)
Highlights(1)
- Group revenue of £2,310.9m in line with last year's record
performance.
o UK revenue was 0.7% below last year or level after excluding £14.4m of
third-party sales associated with the acquisition of Sheridans in 2022, not
repeated in 2023.
o International revenue was 11.0% ahead of last year with continued
expansion in France and the Republic of Ireland.
- Gross margins broadly maintained at 60.8% despite higher cost
inflation and the dilutive impact of growing the sales of everyday joinery
products and solid work surfaces which both performed strongly.
- Operating costs well controlled at prior year levels, with cost
inflation of around £50m more than offset through efficiencies. This
protected our investment of another £53m in our strategic initiatives.
- Strategic initiatives included 43 new depots across the Group, 89
depot reformats in the UK, 23 new product ranges, further development of
digital and upgrades to manufacturing and supply chain.
- Profit before tax was £327.6m and included £17m of additional
costs relating to a 53(rd) week. Before these costs profit before tax was down
15.0%.
- Strong cash generation supported by a robust balance sheet with
period end cash at £282.8m.
o £50m share buy back completed in the first half.
o Proposed final dividend of 16.2p, bringing the total for the year to
21.0p, up 1.9%.
- The Science-Based Targets initiative recently approved our 2030
carbon emissions reduction target. We have also committed to set long-term
targets consistent with our intention to reach net-zero by 2050.
- Encouraging revenue trends since the period end. The Group is on
track with its outlook for 2024.
Commenting on the results Andrew Livingston, Chief Executive said:
"The combination of a strong product line-up, high stock availability and
outstanding customer service, alongside investments to drive future growth,
all contributed to further market share gains in 2023.
"Our established markets for kitchens and joinery in the UK are now estimated
to be around £12 billion and we continue to seek further opportunities in
adjacent markets. The focus remains on executing our strategic initiatives at
pace to capitalise on this attractive, long-term growth opportunity, while
selectively expanding Howdens' differentiated, trade-only business model
internationally.
"Our robust balance sheet underpins our strategy as we invest in growth,
including expanding our manufacturing and supply chain capabilities, and
returning surplus capital to shareholders. While we are cautious about the
macro-economic and geo-political environment, given the encouraging start to
the year and the agility of our business model, the Board is confident in the
outlook for 2024."
Operational developments in the year
- Opened 33 new depots, bringing the total in the UK to 840.
Revamped 89 older depots during the year, including relocations, having now
upgraded 274 of the 670 UK depots opened in the old format.
- Opened 10 international depots with 65 trading in France &
Belgium and 10 in the Republic of Ireland.
- Introduced 23 new kitchen ranges predominantly aimed at entry and
mid-price ranges.
- Launched a new 'paint-to-order' service for our best timber
kitchen ranges and successfully trialled a new fitted bedroom range during
peak trading. Both initiatives achieving encouraging results.
- Expanded our joinery ranges, which represented a greater
proportion of the sales mix in 2023.
- Invested in upgrading our manufacturing operations. Howdens now
manufactures 35% of its cost of goods sold (COGS) in-house compared to 28% in
2021.
- Completed the roll-out of the cross-docking logistics network
(XDC) in early 2023, enabling us to deliver even higher levels of service and
availability and further differentiating our offer and scale advantages.
- Retained our #1 position in the digital search market with nearly
20m visits to Howdens.com (http://www.howdens.com) and grew unprompted brand
awareness by end-users to around 31%.
Outlook and summary of planned major strategic initiatives
While it is still early in the new financial year, revenue growth in the new
financial year has been encouraging and compared to last year has increased in
all the countries in which we operate. We anticipate that market conditions in
2024 will be broadly unchanged and we are well prepared for the challenges and
opportunities that this may present. We aim to maintain a profitable balance
between margin and volume and we have aligned our operating costs to expected
market conditions. We will work with our suppliers to keep product and input
costs well controlled.
We will continue to invest in our strategic initiatives to strengthen our
differentiated business model and capitalise on the significant growth
opportunities in our attractive markets. This is supported by our strong
balance sheet and sustained cash generation. Howdens is well placed to
continue to outperform its competitors and the Board is confident in its
outlook for 2024.
Summary of major strategic initiatives for 2024 (see pages 6 to 10 for more details)
- We plan to open around 30 new depots, revamp 85 in the UK and open
10 new international depots.
- We are expanding our manufacturing capability and capacity
including new kitchen furniture and range expansion in solid work surfaces,
alongside more joinery products.
- We will launch nine new product ranges with more looks and styles
accessible to all budgets with a continued focus on our premium kitchen ranges
where we are under-represented.
- We will continue to develop our competitively priced
paint-to-order service launched last year.
- Our new fitted bedroom ranges will feature in all our depots for
the first time.
- We are refreshing our joinery offerings including doors, flooring
and skirting, which generate more depot footfall. We are also extending these
offerings in France where the category is under-represented.
- We are introducing a new 'click and collect' service with an
in-depot stock management system alongside initiatives to optimise depot
product availability. This time-saving feature will also enable customers to
see live-stock information at their local depot through the trade app.
Technical guidance for 2024
Income statement
- Continued operating expense investment to support our strategic
initiatives including new depots, manufacturing and supply chain and digital
investments.
- Higher freight costs are expected to result in additional costs of
around £5m in 2024, at current pricing.
- Foreign exchange sensitivity in COGS of Euro: +/- €0.01 =
£1.8m; US Dollar: +/- $0.01 = £0.8m.
- Patent box impact on the Group's effective tax rate around 3%
lower to c.23%.
Cashflow
- Receivables expected to increase by around £50m due to the later
calendar end of our autumn peak trading period, with a higher proportion of
customer payments not being due until after the year-end.
- Capital expenditure anticipated at around £125m including
investments to support future growth.
- Following the triennial valuation in 2023, cash contribution to
the Group pension scheme reduced to
£1m per month, should the scheme be in deficit for more than two consecutive
months.
For further information please contact
Howden Joinery Group Plc Media Enquiries
Paul Hayes, CFO Nina Coad, David Litterick (Brunswick)
Tel: +44 (0) 207 535 1162 Tel: +44 (0) 207 404 5959
Mark Fearon, Director of IR and Communications
Mobile: +44 (0)7711 875070
Results presentation:
There will be an in-person analyst and investor presentation at 0830 today
hosted by Andrew Livingston, Howdens' CEO, and Paul Hayes, Howdens' CFO at:
Deutsche Numis, 45 Gresham St London EC2V 7BF, with light refreshments served
from 0800.
A live video webcast will be available on https://brrmedia.news/HWDN_FY
(https://brrmedia.news/HWDN_FY) .
For more information see: www.howdenjoinerygroupplc.com
(http://www.howdenjoinerygroupplc.com) . The presentation can also be heard by
dialling the phone numbers below:
Location
United Kingdom, Local
Phone Number
United States, Local
+44 (0) 33 0551 0200
+1 786 697 3501
Confirmation code: Please quote
'Howdens Full Year Results'
The webcast will be recorded and available on our website after the event has
finished at:
www.howdenjoinerygroupplc.com (http://www.howdenjoinerygroupplc.com)
Note to editors:
1. About Howden Joinery Group Plc
Howdens is the UK's number one specialist kitchen and joinery supplier. In the
UK, the company sells kitchens and joinery products to trade customers,
primarily local builders, through 840 depots. In 2023, the Group generated
revenues of around £2.3 billion and profit before tax of £327.6 million.
Around 35% of Howdens' cost of goods sold are products manufactured in-house
at its two principal factories in Runcorn, Cheshire, and Howden, East
Yorkshire both of which have achieved carbon neutral status. At the end of
2023, Howdens operated from 65 depots in France and Belgium and 10 depots in
the Republic of Ireland.
2. Timetable for the final dividend
The timetable for payment of the proposed final dividend is shown below. A
Dividend Reinvestment Plan ("DRIP") is provided by Equiniti Financial Services
Limited. The DRIP enables the Company's shareholders to elect to have their
cash dividend payments used to purchase the Company's shares. More information
can be found at www.shareview.co.uk/info/drip
Ex-dividend date: 11 April 2024
Record date: 12 April 2024
Payment date: 24 May 2024
3. Provisional financial calendar for 2024
Trading update 30 April
Annual General Meeting 2 May
Half Year Results 25 July
Trading update 7 November
End of financial year 28 December
Financial review
Financial results for 2023(1)
Revenue £m (unless stated) 2023 2022 Change # of depots 2023
UK depots - same depot basis(2,4) 2,195.3 2,232.8 -1.7% 777
UK depots opened in previous two years 45.8 23.3(3) 63
Total - UK depots 2,241.1 2,256.1 -0.7% 840
Total - International depots 69.8 62.9 +11.0% 75
Total - Group 2,310.9 2,319.0 -0.3% 915
Local currency revenue €m (unless stated) 2023 2022(5) Change # of depots 2023(5)
International - same depot basis(2) 58.4 66.8 -12.6% 35
Depots opened in previous two years 21.9 6.9 40
Total - International depots 80.3 73.7 +8.9% 75
(1) The information presented relates to the 53 weeks to 30 December 2023 and
the 52 weeks to 24 December 2022 unless otherwise stated.
(2) Same depot basis for any year excludes depots opened in that year and the
prior year.
(3) 2022 includes additional third party sales generated by the Sheridans
solid work surface business acquired in the period.
(4) One depot was closed in the UK at the end of 2023.
(5) During 2022, 25 depots were opened and five depots were closed in France.
Group revenue of £2,310.9m was in line with last year (2022: £2,319.0m) and
45.9% ahead of the same period in 2019. UK depot revenue of £2,241.1m (2022:
£2,256.1m) was broadly consistent with last year's record performance and
1.7% lower on a same depot basis. Revenue in the international depots was
11.0% ahead of the prior year at £69.8m (2022: £62.9m) and included sales in
the Republic of Ireland, where we opened depots for the first time last year.
We continued to expand our international depot network with ten openings in
the year, bringing the total to 75.
Gross profit
We maintained our sector leading margins by appropriately balancing pricing
and volumes in a high inflation environment. Gross profit was broadly similar
to last year at £1,403.9m (2022: £1,411.2m). The slightly lower gross margin
percentage of 60.8% (2022: 60.9%) reflected the dilutive impact of a higher
mix of everyday joinery products and growth of our solid work surfaces
offering, which performed strongly in its first full year of trading. Solid
work surfaces, often associated with sales of higher priced kitchens, make an
attractive cash margin contribution but have a lower gross margin percentage
than most of Howdens' kitchen products. During the year we also delivered a
number of productivity improvements in our manufacturing operations, which
partially offset increases in commodities, wage inflation and energy costs.
Operating profit and profit before tax
Operating profit was below last year at £340.2m (2022: £415.2m) given the
continued investment in the strategic initiatives and £17m of additional
costs arising from an additional 53(rd) week. It was, however, 30.8% ahead of
pre-COVID profit levels in 2019 of £260.0m.
Operating expenses increased by £67.7m to £1,063.7m (2022: £996.0m) with
productivity and efficiency actions taken throughout the year more than
offsetting cost increases of around £50m relating to inflation. This tight
cost control enabled us to protect our ongoing investments in our strategic
initiatives across the business. The £53m of strategic investments this year
included £16m on new UK depots opened in 2022 and 2023 and £12m on
international depots opened in the period and prior year. We also invested
£25m in warehouse and transportation initiatives including the full year
impact of our investment in our regional cross docking facilities (XDCs).
The net interest charge was £12.6m (2022: £9.4m). Profit before tax of
£327.6m was £78.2m below the prior year (2022: £405.8m) and 25.7% ahead of
2019 (2019: £260.7m).
Tax, profit after tax and basic earnings per share
The tax charge on profit before tax was £73.0m (2022: £31.6m) and
represented an effective tax rate of 22.3% (2022: 7.8%). This includes a
higher corporation tax rate for businesses introduced in the UK from April
2023. The lower tax rate in the prior year reflected the previously announced
backdated tax credit relating to the patent box claim, which was included in
Howdens' financial statements last year. While always subject to review by
HMRC, as previously indicated, the Group expects an ongoing reduction of
around 3% to Howdens' effective tax rate.
Profit after tax was £254.6m (2022: £374.2m). Reflecting the above and the
benefit of the reduced share count following the share buyback, basic earnings
per share were lower at 46.5p (2022: 65.8p).
Cash
The net cash inflow before movements in working capital was £470.8m (2022:
£548.5m). Overall working capital increased by £35.0m with stock £9.5m
higher as a result of inflation. Debtors at the end of the period were £38.8m
lower than at the end of the previous period with ageing in good shape and
benefitting from the later timing of the year end. Creditors were £64.3m
lower. Capital expenditure cash payments were below the prior year at £118.9m
(2022: £140.8m). Corporation tax payments were £63.5m (2022: £101.5m), and
dividends amounted to £114.1m (2022: £115.0m). Share buy backs totalled
£50.0m (2022: £250.5m). The interest and principal paid on lease liabilities
totalled £121.8m (2022: £79.2m).
Reflecting the above, there was a net cash outflow of £23.1m, or £25.2m
including foreign exchange movements, (2022: outflow of £207.3m), leaving the
Group with cash at the year end of £282.8m
(24 December 2022: £308.0m).
Capital allocation and returns to shareholders
We have a well-established policy for capital allocation. We focus on
achieving sustainable profit growth by investing in and developing our
business. We also want to maintain and grow our ordinary dividend in line with
earnings 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.
Within its definition of surplus capital, the Board's objective is for the
Group to be able to operate through the annual working capital cycle without
incurring bank debt, noting that there is seasonality in working capital
balances through the year, particularly in advance of our peak trading period
in the second half. We also take into account that the Group has a significant
property lease exposure for the depot network, and a large defined benefit
pension scheme. Our policy remains that when period-end cash is in excess of
£250m we expect to return surplus cash to shareholders. This provides
sufficient headroom to support organic growth, our seasonal working capital
requirements, and ongoing investments in our strategic initiatives, while
maintaining a strong balance sheet.
Considering the Group's prospects and strong financial position, in July 2023
the Board declared an interim dividend of 4.8p per ordinary share (2022: 4.7p
per ordinary share). The Board is recommending a final dividend for 2023 of
16.2p per ordinary share (2022: 15.9p per ordinary share), resulting in a
total dividend of 21.0p per ordinary share (2022: 20.6p per ordinary share).
The total dividend represents a year-over-year increase of 1.9% and if
approved by shareholders at the AGM in May the final dividend will be paid on
24 May 2024 to shareholders on the register on 12 April 2024.
Pensions
At 30 December 2023, the defined benefit pension scheme was in a deficit
position of £12.6m on an IAS 19 basis compared to a deficit of £41.5m on 24
December 2022. The scheme is closed for future accrual.
The triennial actuarial valuation of the scheme was conducted as at 31 March
2023 and the scheme was in a surplus position on a technical provisions basis.
The Company and Trustee agreed a new recovery plan in November 2023, should
the scheme move into a technical deficit, and this agreement will run until 31
May 2026. This recognises the improvement in the pension scheme funding since
it was last set in 2020. Under this agreement deficit contributions of £1m a
month will be made if there is a deficit, on a technical provisions basis, for
more than two consecutive months. This compares to the previous rate of £2.5m
per month. In the year to 30 December 2023 deficit payments totalled £19m.
Board changes
In May, Andrew Cripps was appointed as the Senior Independent Director in
addition to his responsibilities as Audit Committee Chair. He replaced Geoff
Drabble who stepped down from the Board during the year.
In May, we announced the appointment of Louis Eperjesi as a Non-Executive
Director with effect from 1 June 2023. In July, we announced that Debbie
White, Non-Executive Director, had informed the Board of her intention to
retire on 30 December 2023 in order to take up a new position as a
Non-Executive Director and Chair of the Co-operative Group.
In November, we announced that Karen Caddick, Non-Executive Director and
Remuneration Committee Chair, will step down from the Howdens Board at the end
of the Annual General Meeting on 2 May 2024. Vanda Murray was recently
appointed as a Non-Executive Director with effect from 1 February 2024 and
will succeed Karen as Remuneration Committee Chair from 2 May 2024.
The Board thanks all those directors who have stepped down in the year for
their valuable contributions and, welcomes the incoming new directors to
Howdens.
Operational Review
Update on the UK kitchen and joinery markets
Howdens conducts its own research analysis into the size and structure of the
UK kitchen and joinery markets. The work undertaken is based on existing
third-party sources supplemented by management estimates. The findings show
that the UK kitchen and joinery markets are large and fragmented with a
significant opportunity for Howdens to continue to grow its market share.
Management believes that based on this research the value of the kitchen
market was around £6.6bn as at the end of 2023.
The UK joinery market is also large and very fragmented at around £5.4bn
across the four segments that Howdens supplies; joinery, doors, flooring, and
hardware. During the year the Company entered the fitted bedroom market in the
UK with a market value of around £1.2bn.
Consequently, we believe Howdens' established markets for kitchens and joinery
(excluding fitted bedrooms) totals around £12bn for the UK which compares
with Howdens' UK revenue of £2.2bn last year. We continue to look to expand
into adjacent markets which suit our competitive strengths and given the
significant market opportunity in the UK we are investing commensurately in
our strategic initiatives as outlined below.
Strategic initiatives
Howdens has made further progress on its strategic initiatives, and we expect
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.
2. Improving our range and supply management to help customers' buying
decisions, to improve service and choice 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 and leads for depots and
customers.
4. Expanding our presence selectively in kitchen and joinery markets
outside the UK.
Progress on each of these initiatives is reviewed below:
Evolving our depot model
In the UK, since the start of the year we made good progress in finding new
depot sites and we opened 33 new depots in 2023. 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. At maturity, we expect to operate
with around 1,000 depots in the UK, versus the 840 trading at the end of 2023.
This will be supported by our newly established network of 12 XDC facilities
which enable depots to optimise their stock holdings and provide high levels
of availability across the product range.
We have also continued with our reformatting programme for existing depots.
Depot reformats have a pay back of around four years. The programme is
delivering incremental sales and has received very positive feedback from
depot teams and customers. In the year, including relocations, we reformatted
89 depots. By the end of 2023, we had reformatted around 274 of the 670 depots
which were opened in the old format. During 2024, we expect to open around 30
new depots and reformat around 85 sites in the UK.
Improving our product range and supply management
Range Management
In recent years we have reorganised our range architecture to support growth
and improve the balance between new kitchen introductions and timely
discontinuations. At a time when many competitors are paring back their range
offerings, Howdens has accelerated new product introductions to ensure we are
leading the industry and inspiring our customers and end-users with the latest
trends. In 2023, we increased the net number of ranges aimed at the entry and
the mid-market segments, making more kitchen styles accessible to all budgets.
Value for money is a consistent feature of buying decisions, particularly
given current pressures on household budgets. We have also continued to
develop our offering of higher priced kitchens, a significant segment of the
market where we are under-represented.
In 2023 we launched 23 new kitchen ranges including:
- Seven new entry level ranges, where we added more colour options.
We introduced new colours to our Greenwich and Witney families to match the
new Croft Grey cabinet platform we introduced during the year. We have
refreshed the look of our bestselling shaker family, which we have named
Halesworth, and we have added a new mid-priced beaded shaker family,
Bridgemere.
- The integration of Sheridans is now largely complete and we have
overhauled our work surfaces business to align it with our 'customer-first'
approach. For example, during the year we re-engineered the template to fit
process to improve the service for customers, with typical lead times for jobs
reduced from 10 days to 5 days nationally. Our in-house solid surface capacity
is now amongst the largest in the UK and the number of solid surface worktop
orders taken by depots has increased significantly as we continue to improve
our offer and expand our range.
- In the second half we launched a premium paint to order service
for our 'Best' timber kitchen ranges in the Chilcomb and Elmbridge families
initially in 15 new colours. The offer supports requirements for a bespoke
look, which is priced at a premium to the colours available from stock.
Dedicated manufacturing ensures a short lead time between order placement and
delivery, which is attractive for our trade customers. Initial sales have been
encouraging and there is a range of 24 colours available for 2024.
- We continue to invest in our joinery business, for example in
doors, where we have introduced more colours and bolder styles at all price
points, and in flooring, where we have launched a new in-house brand, "Oake
& Gray". We have added to our private label Lamona appliance brand, which
is now the leading integrated appliance brand in the UK and extended our range
of third-party branded appliances.
- This year, ahead of our peak trading period, we also developed an
in-house manufactured fitted bedroom range, testing the concept in 200 depots
nationally. Initial uptake has been encouraging and the fitted bedrooms are
now available in all UK depots in four styles drawn from our kitchen platform
and matched with new internal accessories to suit all tastes and budgets.
Manufacturing and supply chain
Howdens is an in-stock business, and a high level of stock availability is one
of the key reasons our customers buy from us. 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. We keep under review
what we believe it is best to make or buy, balancing cost, overall supply
chain availability, resilience, and flexibility. Over time we continue to see
opportunities to increase the proportion of products we make and during the
year we increased this to around 35% of COGS from 28% in 2021.
We have continued to invest in new lines at our Howden site, which are amongst
the most advanced of their type in Europe. These give us the ability to make a
variety of kitchen furniture, principally doors and panels, for more of our
ranges, at the same quality as we can source externally but at a lower cost
and at a reduced lead time to delivery. More than 1,000 in-house manufactured
SKUs were introduced in the period including bedrooms, a new croft grey
cabinet, worktops, and more volumes of skirting and architrave products.
Our "Daily Traders" initiative was rolled out to all UK depots this year. This
improves customer service and increases sales by optimising in-depot stock
holdings of the bestselling SKUs and associated "range completers" in a depot.
Sales of these products outperformed those of non-Daily Trader SKUs in the
period and we are seeing improvements to other key metrics including a
reduction in customer back-orders and a higher proportion of stock being
replenished via a depot's core weekly delivery order. This gives us
efficiencies as it reduces utilisation of our XDC service.
XDC provides market-leading product availability to our depots and with
mainland XDC coverage now completed, our focus has been on using these assets
most efficiently. The improved depot stock mix following the introduction of a
new re-ordering system and the Daily Traders initiative have enabled us to
reduce annualised XDC capacity, leading to lower operating costs.
Developing our digital platform
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 2023, usage of our
online account facilities, which benefits customers and depots, has continued
to increase and we now have around 48% of our customers with an on-line
account.
In 2023, we added new services and capabilities to our trade platform which
collectively improve stock and account knowledge, promote frequency, and ease
of trading and reduce time-consuming manual tasks in depots, including stock
allocation. These include a new "multi-list" feature, which gives visibility
of dates saved for future projects enabling depots to prioritise leads daily
and customers to manage all their jobs efficiently in one place. We have
commenced the roll out of a digitised in-depot stock management system to
record and pick deliveries, check allocations, and determine depot stock
levels. We expect the new system to be rolled out to all our UK depot network
in 2024. 'Live-stock' will enable a better service to our customers which will
save them time as they will see real time stock availability live on the trade
app.
We are also continuing to focus on helping end-users interact with Howdens
online at each stage of their buying decision, creating higher quality leads
for our designers and customers. In June, we added more prominent 'Book a
Design Appointment' signposting on our website which since launch has
generated over 60,000 depot contacts. Our market-leading search functionality
enables users, including our teams, to find what they are looking for much
more efficiently.
As our digital presence has grown, awareness of Howdens amongst end-consumers
has increased. According to our in-house research, our unprompted brand
awareness amongst end-consumers is now at around 31%, which has nearly tripled
since 2019, and we see the potential to raise awareness to higher levels. We
ended the year with 554,000 followers across the major social media platforms.
Developing our international operations
Our international operations, predominantly based in France, continued to make
good progress. The business model for France is similar to the UK with a
market size in kitchens of c.€4.0bn, excluding appliances. The French market
has low penetration rates of integrated kitchens, and most are purchased
through DIY outlets and specialist small independent businesses. We believe
appreciation of the advantages of our trade-only in-stock model, our service
levels and competitive pricing is growing. In addition, most of the product
range is common versus our UK ranges, which helps us realise scale benefits.
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, and we now have 65 depots in France and Belgium and expect
to open around five this year. During 2024 after significant depot expansion
in recent years, including 35 new depots in the past 24 months we are focusing
on developing our existing depot teams and we are investing behind our joinery
offerings to drive greater footfall into the depot network.
We continue to invest in establishing our presence in the Republic of Ireland
adding a further 5 depots in 2023 to bring the total in the region to 10. The
reaction from local trade customers has been very positive and we expect to
have 15 or so trading by the end of the year.
Environment, social and governance (ESG)
We want to create an inclusive environment and make a positive contribution to
all our stakeholders, including our customers, staff, communities, suppliers,
and shareholders. We believe that our business needs to be worthwhile for all
concerned and Howdens' ambition remains to be the UK's leading responsible
kitchen and joinery business. 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.
Summary of 2023 performance
People
Howdens' key asset is its workforce, and we want to attract, train, and retain
great people from the widest possible pool of talent as well as keep them safe
and healthy while at work. Howdens is committed to ensuring that safety is
embedded as a core value in everything we do. Our safety KPI has remained low
at 153 RIDDOR (Reporting of Injuries Diseases and Dangerous Occurrences
Regulation) reportable injuries per 100,000 employees in 2023. This is 29%
below the 2022/2023 HSE All-Industry rate of 215. Our accident severity rate
has also remained low at 33.4 hours lost to accidents per 100,000 hours
worked.
We are particularly proud of our longstanding commitment to apprenticeships
and the development of homegrown talent, which is essential to our
entrepreneurial model. In 2023, we recruited 362 apprentices, and we ended the
year with 492 on various programmes across the business. We are particularly
proud of the fact that today over one-in-ten of our current workforce started
their career with Howdens as an apprentice.
Howdens is committed to maintaining a corporate culture that respects the
principles aimed at promoting, protecting, and supporting all internationally
recognised human rights. We recognise the Company's responsibility to respect
human rights and avoid complicity in human rights abuses. During 2023, we have
developed and introduced a new Human Rights policy for the Company, which
supports all of our locations, staff, suppliers, customers and key
stakeholders in achieving this aim. This programme will be rolled out fully
throughout 2024 to all relevant stakeholders.
In 2023, we have also partnered with specialist organisations including
Wellbeing for Women and 'ANDY'SMANCLUB' to provide workplace support and
webinars for mental health and women's health issues. So far, we have 31
trained wellbeing reps and have plans to increase this further to widen the
reach across the business. We have a calendar of wellbeing events throughout
the year to ensure we give these issues appropriate focus amongst our
employees.
Environment
Our focus remains on:
- reducing direct emissions in our own manufacturing and logistics
operations.
- working closely with suppliers to reduce emissions throughout our
external supply chain.
- accelerating our product and packaging sustainability programme.
We remain well-placed to achieve this given our UK manufacturing focus, our
trusted supplier partnerships and Science Based Net Zero targets commitment.
We submitted our Net Zero Plan to Science Based Targets Initiative (SBTi) in
April 2023 and received approval early in 2024. This commits us to reducing
our Scope 1 and 2 emissions by 42% and our Scope 3 supply chain emissions by
25% by 2030 and targeting a 90% reduction by 2050 against a baseline year of
2021.
In 2023, we made further progress to reduce our Scope 1 and 2 emissions. Over
the past decade we have driven continuous improvements to reducing emissions
in manufacturing, including achieving carbon neutral status in our two major
factories in Howden and Runcorn two years ago. We are now transitioning from
Carbon Neutral Status to the Route to Net Zero Standard Certification with the
Carbon Trust. This moves us from site-based accreditation to whole
organisation certification and is aligned to SBTi.
We have also continued our focus on eliminating waste, including again
achieving zero to landfill in our manufacturing operations, and 99.7% avoiding
landfill in our depot network. Some of our waste timber is now recycled back
to our major supplier for chipboard helping with the recycled content which
stands at c.35%. Most waste material is now being recycled into more plastic,
cardboard, or metal and our waste sawdust is used for biomass and heating our
own factories and warehouses. We are also using quartz offcuts from our solid
surface factories as hardcore for building roads.
Following the move to purchasing renewable energy for all our UK sites, we are
planning the first phase installation of solar panels on our Primary
Distribution Centre at our Howden factory site. Solar panels will cover 350k
ft(2) and reduce our carbon emissions by c.1,000 tonnes/year once the
installation is completed at the end of 2024. We are now using 100% renewable
energy in manufacturing and 96% in our depots.
With respect to fleet management, we have also recently committed to expanding
our 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. We now have around 5% of the fleet running on HVO and replacing
diesel in this way will significantly reduce our own fleet emissions. This
will have no negative impact on fuel efficiency or maintenance costs. We
continue to trial electric vehicles (EVs) within the overall fleet and are
operating our first two EVs as part of a trial in our XDC network. XDC
deliveries tend to be within a region and therefore more suited to the range
limitations of current battery technology.
95% of our total emissions are Scope 3, with 76% of these relating to goods
purchased from our suppliers and the use of products that we source from our
suppliers. As a result, aligning the supply base with our emissions reduction
targets is a key priority, and during the year we have focused engagement on
the top 6 suppliers who represent 25% of overall emissions. All suppliers are
actively engaging, and a programme of work continues to secure real (rather
than estimated) supplier emissions data and reduction targets with
commitments. In addition to our suppliers Code of Conduct, we have now updated
our purchased goods trading terms and conditions to make Net Zero targets a
contractual obligation.
Finally, we are incorporating sustainability as a key part of the design
process and building it into our product ranges. This year, an important step
was achieved to improve our bestselling Greenwich Matt Kitchen frontals so
that they are now 100% recyclable. We have launched a Plastic Pledge
initiative looking across all products to remove, reduce, or replace plastic
packaging where possible. For example, we continue to remove polystyrene
packaging from our drawer boxes and look to more recyclable alternatives such
as carboard. We have also removed it from cooker hoods and set targets to
remove all polystyrene from our Lamona appliance range by the end of 2025. We
are also reviewing alternatives to plastic materials such as in our cabinet
leg, which will reduce energy consumption therefore saving CO(2) emissions.
GOING CONCERN
The Directors have adopted the going concern basis in preparing the 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 at least 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, as set out in detail in the "Principal risks and
uncertainties" section, starting on page 14. While 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 Group is
currently holding additional amounts of faster-moving inventory as a specific
mitigation against supply chain disruption, and the Directors consider that
the effects of the other risks could result 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 trading results and financial performance in 2023,
as well as early weeks' trading in 2024. They have reviewed the Group balance
sheet at 30 December 2023, noting that the Group is debt-free, has cash and
cash equivalents of £283m, and appropriate levels of working capital. They
have also considered three financial modelling scenarios prepared by
management:
1. A "base case" scenario. This is based on the final 2023 Group
forecast, prepared in December 2023, and including the actual results of the
2023 peak sales period. This scenario assumes future revenue and profit in
line with management and market expectations as well as investments in capital
expenditure and cash outflows for dividends and share buybacks in accordance
with our capital allocation model.
2. A "severe but plausible" downside scenario based on the worst 12
month year-on-year actual fall ever experienced in the Group's history. For
additional context, this is more significant than the combined effect of COVID
and Brexit on 2020 actual performance. This scenario models a reduction in
most of the variable cost base proportionate to the reduction in turnover. It
includes capital expenditure at a lower level 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. It also
includes dividends and share buybacks in line with the Group's capital
allocation model. In this scenario, the Board considered the current economic
conditions that the Group and its customers are facing and noted that the
downside scenario included allowances for reduced demand and increased costs
to reflect such adverse conditions.
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 having
headroom over the whole going concern period, without the need to take further
mitigating actions. Capital expenditure in this scenario has been reduced to a
"maintenance" level. Variable costs have been reduced in proportion to the
reduction in turnover on the same basis as described in the severe but
plausible downside scenario. It assumes no dividends or share buybacks.
Borrowing facility and covenants
The Group has a five-year, committed, multi-currency revolving credit facility
of up to £150m, which expires in September 2027 and which was not drawn at
the period end.
As part of the scenario modelling described above, we have tested the
borrowing facility covenants and the facility remains available under all the
scenarios. We have therefore included the credit available under the facility
in our assessment of headroom.
Results of scenario modelling
In the base case and the severe but plausible downside scenarios, the Group
has 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 severe
but plausible downside scenario before the Group would have to take further
mitigating actions. The likelihood of this level of fall in sales is
considered to be remote.
Conclusion on going concern
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 have a reasonable expectation that the Group will have
adequate resources to remain in operational existence for the going concern
review period set out above. Accordingly, they continue to adopt the going
concern basis in preparing these financial statements.
LONG-TERM PROSPECTS AND VIABILITY
Assessment of long-term prospects
The Directors have assessed the Group's long-term prospects, solvency, and
liquidity, with particular reference to the factors below:
Current position
- History of profitable trading, with strong net profit margins.
- Cash and cash equivalents balance at 30 December 2023 of £283m.
- Debt-free. Consistently cash-generative. Proven ability to maintain
strong cash balances whilst also investing for growth and returning cash to
shareholders.
- £150m committed borrowing facility, due to expire in September
2027. Unused, but available if needed.
- Strong relationships with suppliers and customers.
- Proven ability to flex the operating cost base in a severe economic
downturn.
- Robust disaster recovery and business continuity framework.
Strategy and business model
- Proven, successful business model.
- Demonstrated agility and resilience of the business model to adverse
economic conditions.
- Clear strategic direction.
Robust assessment of principal risks
- The Directors' role in the risk identification, management, and
assessment process is outlined on pages 13 to 17, together with details of the
principal risks and mitigations.
- The Directors are satisfied that they have carried out a robust
assessment of the Group's principal risks over the viability period on the
basis already described in the going concern disclosure directly above.
ASSESSMENT OF VIABILITY
Time period and scenario modelling
The Directors' review of the Group's long-term viability used a three-year
period to December 2026. This was considered to be the most suitable period as
it aligns with the Group's strategic planning process.
The financial modelling to support the assessment of viability was based on
the three scenarios used for the going concern assessment and detailed on
pages 11 to 12. We have tested the borrowing facility covenants and the
facility remains available under all of the viability scenarios. We have
therefore included the credit available under the facility in our assessment
of headroom.
1) The base case scenario takes the base case described in the
discussion of going concern on pages 11 to 12 and extends it over the
viability assessment period. It assumes future revenue and profit in line with
management expectations, investments in capital expenditure, and cash outflows
for dividends and share buybacks in accordance with our capital allocation
model on page 5.
2) The severe but plausible downside scenario takes the same decline
over the going concern period as described in the discussion of going concern
on pages 11 to 12, and then assumes a phased recovery over the rest of the
three-year period. It assumes capex at a lower level than in the base case but
which is still in line with our announced strategic priorities for growth, and
dividends and share buybacks in line with our capital allocation model.
3) In the reverse stress-test scenario, the model assumes a phased
recovery of margin and profit on the same bases as for the severe but
plausible downturn scenario. This is then stress-tested to find the maximum
amount by which sales in the first year would have to fall before the Group
would no longer have headroom at any point in the viability assessment period,
without taking further mitigating actions. It assumes capex at a maintenance
level and no dividends or share buybacks.
The Directors consider that the reasonably foreseeable financial effects of
any reasonably likely combination of the Group's principal risks are unlikely
to be greater than those effects which were modelled in the severe but
plausible downside and reverse stress-test scenarios.
Results of scenario modelling
The results of the base case and plausible downside scenario modelling showed
that the Group would have sufficient headroom over the viability assessment
period.
The reverse stress-test showed that the level of fall in sales required in the
first year of the viability assessment period was significantly more than the
fall modelled in the severe but plausible downturn scenario before the Group
would have to take further mitigating actions. The likelihood of this level of
fall in sales is considered to be remote.
Conclusion on long-term prospects and viability
Having considered the Group's current position, strategy, business model and
principal risks in their evaluation of the prospects of the business, and
having reviewed the outputs of the scenario modelling, the Directors concluded
that they have a reasonable expectation that the Group will continue to
operate and to meet its liabilities in full and as they fall due during the
three-year period to December 2026.
Principal Risks and Uncertainties
When we look at risks, we specifically think about internal and external
drivers of operational, hazard, financial and strategic risk areas over short,
medium, and long-term timescales.
Our principal risks
The following describes our principal risks, the possible impact arising from
them, what we do to mitigate them and our risk appetite.
1. Market Conditions
Risk and impact
We sell our products to small builders who install them in different types of
housing. Our sales depend on the demand for repair, maintenance, and
improvement services. If activity falls in these areas, it can affect our
sales.
Mitigating factors
§ We have proven expertise in managing both selling prices and costs. This
continues to be a major focus.
§ We are good at adapting to market changes. We keep a close eye on our
supply chain and depots
and use our good relationships to alert us of any changes. This helps us to
act quickly to reduce market risks.
§ We manage this risk through market analysis, competitor review, price, and
cost optimisation, and
close relationships with the small builder.
Risk appetite
We have a low appetite for market condition risks and leverage our
relationships to identify movements early to enable appropriate action to be
taken.
2. Maximising Growth
Risk and impact
Failure to recognise, innovate and exploit opportunities could impact on
growth, we must align our business model, risk appetite, structures, and
skills with opportunities to maximise our growth potential.
Mitigating factors
§ We continue to invest in our depot environment, people, services and
systems, and our manufacturing and distribution capabilities to equip them for
growth.
§ Growth activities are reviewed in the light of our risk appetite, values,
business model and culture.
Risk appetite
We have a balanced appetite for risk when it comes to growth, and we are
willing to accept some risk where we see opportunity but carefully balance
that risk with the potential reward presented.
3. People
Risk and impact
Our business could be adversely affected if we were unable to attract, retain
and develop our staff, or if we lost a key member of our team.
Mitigating factors
§ We invest in our employee value proposition, striving to provide the best
possible working environment and growth opportunities for all our colleagues.
§ We support our colleagues with a wide variety of apprenticeships,
accreditations, and development programmes across all areas of our business.
§ Our Remuneration Committee ensures that key team members are appropriately
compensated for their contributions and incentivised to continue their careers
with us.
§ We work continuously to ensure that appropriate continuity and succession
plans are in place.
Risk appetite
We have a low appetite for people risk and work hard in ensuring that they
feel valued, rewarded appropriately, and have opportunities to develop and
progress in their Howdens career.
4. Supply Chain
Over 2023, the scoring of this risk has decreased as our supply base continues
to improve and return to a more pre-pandemic environment. While further
escalation of the conflict in the Middle East could have a knock-on impact for
shipping transit times and freight costs, the direct impact for Howdens is
currently limited. As a precaution we are holding additional safety stocks to
manage any extended lead times and support market leading product
availability.
Risk and impact
Disruption to our supply chain, relationship with key suppliers, or
manufacturing and distribution operations could affect our ability to service
our customers' needs. If this happened, we could lose customers and sales.
Mitigating factors
§ We maintain strong supplier relationships which are focussed on being
worthwhile for all concerned.
§ We adopt secure supply chain strategies such as long-term contracts and
multiple sourcing to safeguard the supply of key products.
§ We invest in our supply chain and distribution to secure capacity and
agility when it is required.
§ We optimise our stock levels to reduce impact of supply chain constraints.
Risk appetite
We have a very low appetite for supply chain risk and will put effort in
identifying them early to enable us to prevent stock issues at our depots.
5. Health & Safety
Risk and impact
We have a large estate which employ various activities that could cause harm
to our staff, our customers, their customers, and the communities around us.
Mitigating factors
§ We have invested in safe ways of working. We have developed dedicated
health and safety teams and formalised systems that help us stay safe.
§ We monitor, review, and update our practices to take account of changes in
our environment or operations and in line with best practice and changing
legislation.
§ We make sure we keep talking about health and safety at every level of the
business, led by the Executive Committee.
Risk appetite
We put a great deal of effort into identifying and managing health and safety
issues before they occur and have a very low appetite for health and safety
risks.
6. Cyber Security
Risk and impact
A major cyber security breach could result in systems being unavailable,
causing operational difficulties, and/or sensitive data to be unavailable or
compromised.
Mitigating factors
§ We place continuous focus on training our people in cyber security, as we
recognise that these risks are dynamic, not always technical and awareness is
our first point of mitigation.
§ We employ industry standard IT security controls and regularly engage
external specialists to validate the effectiveness of our controls against
best practice.
§ We have robust disaster recovery and business continuity plans that are
tested regularly.
§ We adopt a continuous improvement approach to IT security and continue to
invest in the security of our systems.
Risk appetite
We have a very low appetite for cyber security risk and manage IT security
closely to secure the confidentiality, integrity, and availability of our
systems.
7. Business Model and Culture
Risk and impact
If we lose sight of our values, model, or culture we will not successfully
service the needs of the local small builder and their customers, and our
long-term profitability may suffer.
Mitigating factors
§ Our values, business model and culture are at the centre of our activities
and decision-making processes, and they are led by the actions of the Board,
Executive Committee, and senior management.
§ The Board and Executive Committee regularly visit our depots and factories,
our logistics and support locations and hold events to reinforce the
importance of our values, model, and culture.
§ Regular 'Town Hall' meetings, Regional Board meetings and Staff Forums are
held to bring together teams and discuss our successes and challenges ahead.
Risk appetite
We have a very low appetite for risks that can adversely impact on our
business model and culture and put great emphasis on identifying issues and
addressing them early.
8. Product
Risk and impact
If we do not support the builder with products that they, and their customers,
want we could lose their loyalty and sales could diminish.
Mitigating Factors
§ Our product team regularly refresh our offerings to meet builders' and
end-users' expectations for design, price, quality, availability, and
sustainability.
§ We work with our suppliers, external design and brand specialists and
attend product design fairs to monitor likely future trends.
§ Our local depot staff have close relationships with their customers and
end-users, and we actively gather feedback from them about changes in trends.
Risk appetite
We have a balanced appetite for product risk and are willing to take some
calculated risks when selecting new products to continue to meet the needs of
our customers.
9. Business Continuity & Resilience
Risk and impact
We have some key business operations and locations in our infrastructure that
are critical to the continuity of our business operations.
Mitigating factors
§ We maintain and regularly review our understanding of what our critical
operations are.
§ We ensure resilience by design, building high levels of protection into key
operations and spreading risk across multiple sites where possible.
§ We ensure appropriate business continuity plans are in place for these and
have a Group-wide incident management team and procedures established.
§ We regularly review our continuity plans covering our sourcing and
logistics to support peak trading.
Risk appetite
We have a very low appetite for business continuity risk, ensuring that
critical functions are resilient and appropriate plans are in place to protect
them.
Cautionary Statement
Certain statements in this Full 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.
Directors' Responsibility Statement
The 2023 Annual Report and Accounts, which will be issued in March 2023, will
contain a responsibility statement in compliance with DTR 4.1.12 of the
Listing Rules which sets out that as at the date of approval of the Annual
Report and Accounts the Directors confirm to the best of their knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Group and
Company, and the undertakings included in the consolidation taken as a whole;
- the Annual Report and Accounts includes a fair review of the
development and performance of the business and the position of the Group and
the undertakings including the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face; and
- the Annual Report and Accounts, taken as a whole, is fair,
balanced, and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
Thie responsibility statement was approved by the Board of Directors and is
signed on its behalf by:
Andrew Livingston Paul Hayes
Chief Executive Officer Chief Financial Officer
28 February 2024
Consolidated income statement
Notes 53 weeks to 52 weeks to
30 December
24 December
2023
2022
£m £m
Continuing operations:
Revenue 2 2,310.9 2,319.0
Cost of sales (907.0) (907.8)
Gross profit 1,403.9 1,411.2
Operating expenses (1,063.7) (996.0)
Operating profit 3 340.2 415.2
Finance income 5.5 3.8
Finance costs (18.1) (13.2)
Profit before tax 327.6 405.8
Tax on profit 4 (73.0) (31.6)
Profit for the period attributable to the equity holders of the parent 254.6 374.2
Earnings per share:
Basic earnings per 10p share 5 46.5p 65.8p
Diluted earnings per 10p share 5 46.3p 65.6p
Consolidated statement of comprehensive income
Notes 53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
Profit for the period 254.6 374.2
Items of other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains /(losses) on defined benefit pension scheme 13.3 (183.0)
Deferred tax on actuarial gains and losses on defined benefit pension scheme (2.9) 34.8
Change of tax rate on deferred tax (0.4) 11.0
Items that may be reclassified subsequently to profit or loss:
Currency translation differences (0.5) 2.1
Other comprehensive income for the period 9.5 (135.1)
Total comprehensive income for the period attributable 264.1 239.1
to equity holders of the parent
Consolidated balance sheet
Notes 30 December 2023 24 December 2022
£m £m
Non-current assets
Intangible assets 43.5 35.9
Property, plant and equipment 456.9 398.7
Lease right-of-use assets 647.9 614.3
Deferred tax asset 15.6 35.9
Prepaid credit facility fees 0.8 1.0
1,164.7 1,085.8
Current assets
Inventories 382.8 373.3
Corporation tax 4 39.7 32.3
Trade and other receivables 194.5 233.3
Cash and cash equivalents 282.8 308.0
899.8 946.9
Total assets 2,064.5 2,032.7
Current liabilities
Lease liabilities (85.3) (95.3)
Trade and other payables (373.2) (433.9)
Provisions (9.5) (12.0)
(468.0) (541.2)
Non-current liabilities
Pension liability 7 (12.6) (41.5)
Lease liabilities (599.2) (570.0)
Deferred tax liability (3.3) (3.8)
Provisions (3.0) (4.5)
(618.1) (619.8)
Total liabilities (1,086.1) (1,161.0)
Net assets 978.4 871.7
Equity
Share capital 55.4 56.1
Capital redemption reserve 9.8 9.1
Share premium 87.5 87.5
ESOP and share-based payments 16.6 11.7
Treasury shares (24.0) (25.5)
Retained earnings 833.1 732.8
Total equity 978.4 871.7
The financial statements were approved by the Board and authorised for issue
on 28 February 2024 and were signed on its behalf by
Paul Hayes
Chief Financial Officer
Consolidated statement of changes in equity
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
At 25 December 2021 59.8 5.4 87.5 5.9 (27.1) 860.0 991.5
Accumulated profit for the period - - - - 374.2 374.2
Other comprehensive income for the period - - - - - (135.1) (135.1)
Total comprehensive income for the period - - - - - 239.1 239.1
Current tax on share schemes - - - - - 0.4 0.4
Deferred tax on share schemes - - - - - (1.3) (1.3)
Movement in ESOP - - - 7.4 - - 7.4
Buyback and cancellation of shares (3.7) 3.7 - - - (250.5) (250.5)
Transfer of shares from treasury into share trust - - - (1.6) 1.6 - -
Dividends - - - - - (115.0) (115.0)
At 24 December 2022 56.1 9.1 87.5 11.7 (25.5) 732.8 871.7
Accumulated profit for the period - - - - 254.6 254.6
Other comprehensive income for the period - - - - - 9.5 9.5
Total comprehensive income for the period - - - - - 264.1 264.1
Current tax on share schemes - - - - - 0.3 0.3
Deferred tax on share schemes - - - - - - -
Movement in ESOP - - - 6.4 - - 6.4
Buyback and cancellation of shares (0.7) 0.7 - - - (50.0) (50.0)
Transfer of shares from treasury into share trust - - - (1.5) 1.5 - -
Dividends - - - - - (114.1) (114.1)
At 30 December 2023 55.4 9.8 87.5 16.6 (24.0) 833.1 978.4
The item "Movement in ESOP" consists of the share-based payment charge in the
year, together with any receipts of cash from employees on exercise of share
options.
At the current period end there were 4,918,375 ordinary shares held in
treasury, each with a nominal value of 10p (2022: 5,237,907 shares of 10p
each).
Consolidated cash flow statement
Notes 53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m(1)
Profit before tax 327.6 405.8
Adjustments for:
Finance income (5.5) (3.8)
Finance costs 18.1 13.2
Depreciation and amortisation of owned assets 50.8 44.0
Depreciation, impairment and loss on termination of leased assets 90.1 80.8
Share-based payments charge 6.0 7.3
Decrease/(increase) in prepaid credit facility fees 0.3 (0.7)
Difference between pensions operating charge and cash paid (16.9) 2.0
Loss/(profit) on disposal of property, plant and equipment and intangible 0.3 (0.1)
assets
Operating cash flows before movements in working capital 470.8 548.5
Movements in working capital
Increase in inventories (9.5) (69.8)
Decrease/(increase) in trade and other receivables 38.8 (23.7)
(Decrease)/increase in trade and other payables and provisions (64.3) 41.8
(35.0) (51.7)
Cash generated from operations 435.8 496.8
Tax paid (63.5) (101.5)
Net cash flow from operating activities 372.3 395.3
Cash flows used in investing activities
Payments to acquire property, plant and equipment and intangible assets (118.9) (140.8)
Receipts from sale of property, plant and equipment and intangible assets - 0.7
Acquisition of subsidiary - net of cash acquired - (14.6)
Interest received 4.7 1.1
Net cash used in investing activities (114.2) (153.6)
Cash flows used in financing activities
Payments to acquire own shares (50.0) (250.5)
Receipts from release of shares from share trust 0.5 0.1
Dividends paid to Group shareholders 6 (114.1) (115.0)
Interest paid - including on lease liabilities (16.8) (13.1)
Repayment of capital on lease liabilities (105.0) (66.1)
Net cash used in financing activities (285.4) (444.6)
Net decrease in cash and cash equivalents (27.3) (202.9)
Cash and cash equivalents at beginning of period 308.0 515.3
Effect of movements in exchange rates on cash held 2.1 (4.4)
Cash and cash equivalents at end of period 282.8 308.0
(1) In 2023 the Directors have determined that is appropriate for the
consolidated cash flow statement to start from profit before tax and to
present
'Difference between pension operating charge and cash paid' as an
adjustment to profit before tax. 2022 has been represented on this basis.
Notes to the consolidated financial statements
1 General Information
Accounting period
The Group's accounting period covers the 53 weeks to 30 December 2023. The
comparative period covered the 52 weeks to 24 December 2022.
Statement of compliance and basis of preparation
The Group financial statements have been prepared in accordance with
UK-adopted international accounting standards.
The financial statements have been prepared on the historical cost basis,
modified for certain items carried at fair value, as stated in the accounting
policies.
These consolidated financial statements include the accounts of the Company
and all entities controlled by the Company (its subsidiaries, together
referred to as "the Group") from the date control commences until the date
that control ceases.
"Control" is defined as the Group having power over the subsidiary, exposure
or rights to variable returns from the subsidiary, and the ability to use its
power to affect the amount of returns from the subsidiary. Further details
of all subsidiaries are given in the "Additional Information" section at the
back of the Annual Report and Accounts. All subsidiaries are 100% owned and
the Group considers that it has control over them all.
2 Segmental reporting
(a) Basis of segmentation, and other general information
Information reported to the Group's Executive Committee, which is regarded as
the chief operating decision maker, is focused on one operating segment,
Howden Joinery. Thus, the information required in respect of profit or loss,
assets and liabilities, can all be found in the relevant primary statements
and notes of these consolidated financial statements.
The Howden Joinery business derives its revenue from the sale of kitchens and
joinery products, and related services.
(b) Geographical information
The Group's operations are mainly located in the UK, with a smaller presence
in France, Belgium and the Republic of Ireland. The Group has depots in each
of these locations. The number of depots in each location at the current and
prior period ends is shown in the five year record which is located towards
the back of the Annual Report and Accounts. The Group's manufacturing and
sourcing operations are located in the UK.
The following table analyses the Group's revenues from external customers by
geographical market, irrespective of the origin of the goods:
Revenues from external customers
53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
UK 2,241.1 2,256.1
France, Belgium and the Republic of Ireland 69.8 62.9
2,310.9 2,319.0
The following is an analysis of the carrying amount of assets, and additions
to property, plant and equipment and intangible assets, analysed by the
geographical area in which the assets are located.
Carrying amount of assets
30 December 2023 24 December 2022
£m £m
UK 1,935.6 1,903.1
France, Belgium and Ireland 128.9 129.6
2,064.5 2,032.7
Non-current assets (excluding deferred tax)
30 December 2023 24 December 2022
£m £m
UK 1,068.3 975.4
France, Belgium and Ireland 80.8 74.5
1,149.1 1,049.9
Additions to property plant and equipment and intangible assets
53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
UK 108.3 122.7
France, Belgium and Ireland 9.1 24.5
117.4 147.2
3 Operating profit
Operating profit has been arrived at after (charging)/crediting:
53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Net foreign exchange (loss)/gain (8.2) (0.7)
Cost of inventories recognised as an expense (892.8) (893.1)
Write down of inventories (6.1) (14.0)
(Loss)/profit on disposal of fixed assets (0.3) 0.1
Auditor's remuneration for audit services (1.4) (1.1)
All of the items above relate to continuing operations.
4 Current tax
(a) Tax in the income statement
53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Current tax:
Current year 64.7 77.2
Adjustments in respect of previous periods (8.2) (33.6)
Total current tax 56.5 43.6
Deferred tax:
Current year 14.9 2.1
Adjustments in respect of previous periods 0.9 (14.7)
Effect of changes in tax rate 0.7 0.6
Total deferred tax 16.5 (12.0)
Total tax charged in the income statement 73.0 31.6
UK Corporation tax is calculated at 23.5% (2022: 19%) of the estimated
assessable profit for the period. Tax for other countries is calculated at the
rates prevailing in the respective jurisdictions.
(b) Tax relating to items of other comprehensive income or changes in equity
53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
Deferred tax charge/(credit) to other comprehensive income on actuarial 2.9 (34.8)
difference on pension scheme
Change of rate effect on deferred tax 0.4 (11.0)
Deferred tax (credit)/charge to equity on share schemes - 1.3
Current tax (credit) to equity on share schemes (0.3) (0.4)
Total charge/(credit) to other comprehensive income or changes in equity 2.9 (44.9)
(c) Reconciliation of the total tax charge
The total tax charge for the period can be reconciled to the result per the
income statement as follows:
53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Profit before tax 327.6 405.8
Tax at the UK corporation tax rate of 23.5% (2022: 19%) 77.0 77.1
IFRS2 share scheme charge 0.5 0.3
Expenses not deductible for tax purposes 2.9 1.0
Overseas losses not utilised 6.2 2.7
Non-qualifying depreciation 1.0 1.6
Super deduction - capital allowances - (2.4)
Rate change 0.7 0.6
Patent box claim (8.0) (9.0)
Other tax adjustments in respect of previous years (7.3) (40.3)
Total tax charged in the income statement 73.0 31.6
The Group's effective rate of tax is 22.3% (2022: 7.8%). The difference in the
effective tax rate from prior year is driven by the effect of the Patent Box
deduction claims for 2017-2021, which were realised during 2022 as a prior
year adjustment along with the increase in headline corporation tax as of 1
April 2023.
5 Earnings per share
From continuing operations 53 weeks to 30 December 2023 52 weeks to 24 December 2022
Earnings Weighted average number of shares Earnings Earnings Weighted average number of shares Earnings
per share
per share
£m m
£m m
p p
Basic earnings per share 254.6 548.1 46.5 374.2 568.6 65.8
Effect of dilutive share options - 2.1 (0.2) - 2.1 (0.2)
Diluted earnings per share 254.6 550.2 46.3 374.2 570.7 65.6
The difference between the weighted average number of shares used in the
calculation of basic earnings per share and the total number of shares in
issue at the period end is due to the net effect of time-apportioned
adjustments for shares held in treasury, shares held in trust which are not
unconditionally vested, and shares bought back and cancelled in the
period.
6 Dividends
Amounts recognised as distributions to equity holders in the period: 53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Final dividend for the 52 weeks to 25 December 2021 - 15.2p/share - 88.9
Interim dividend for the 52 weeks to 24 December 2022 - 4.7p/share - 26.1
Final dividend for the 52 weeks to 24 December 2022 - 15.9p/share 87.8 -
Interim dividend for the 53 weeks to 30 December 2023 - 4.8p/share 26.3 -
114.1 115.0
Dividends proposed at the end of the period (but not recognised in the 53 weeks to
period):
30 December 2023
£m
Proposed final dividend for the 53 weeks to 30 December 2023 - (16.2p/share) 88.4
88.4
The Directors propose a final dividend in respect of the 53 weeks to 30
December 2023 of 16.2p per share, payable to ordinary shareholders who are on
the register of shareholders at 12 April 2024, and payable on 24 May 2024.
The proposed final dividend for the current period is subject to the approval
of the shareholders at the 2024 Annual General Meeting, and have not been
included as a liability in these financial statements.
Dividends have been waived indefinitely on all shares held by the Group's
employee share trusts which have not yet been awarded to employees.
7 Retirement benefit obligations
The Group operates a funded pension plan which provides benefits based on the career average pensionable pay of participating employees. This plan was closed to new entrants from April 2013, and closed to future accrual on 31 March 2021.
(a) Total amounts charged in respect of pensions in the period
53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Charged to the income statement:
Defined benefit plan - administration cost 2.3 2.4
Defined benefit plan - total service cost 2.3 2.4
Defined benefit plan - net finance charge/(credit) 1.3 (2.7)
Defined contribution plans - total operating charge 42.5 37.6
Total net amount charged to profit before tax 46.1 37.3
Charged to equity:
Defined benefit plan - actuarial (gains)/losses (13.3) 183.0
Total charge/(credit) 32.8 220.3
(b) Other information - defined benefit pension plan
Key assumptions used in the valuation of the plan 53 weeks to 52 weeks to
30 December 2023 24 December 2022
Discount rate 4.55% 4.70%
Inflation assumption - RPI 3.05% 3.15%
Inflation assumption - CPI 2.60% 2.70%
Rate of increase of pensions in deferment capped at lower of CPI and 5% 2.60% 2.70%
Rate of CARE revaluation capped at lower of RPI and 3% 2.40% 2.45%
Rate of increase of pensions in payment:
- pensions with increases capped at lower of CPI and 5% 2.60% 2.65%
- pensions with increases capped at lower of CPI and 5%, with a 3% minimum 3.40% 3.45%
- pensions with increases capped at the lower of LPI and 2.5% 2.15% 2.15%
- pensions with increases capped at the lower of CPI and 3% 2.20% 2.25%
Life expectancy (yrs): pensioner aged 65
- male 85.7 86.6
- female 88.0 88.4
Life expectancy (yrs): non-pensioner aged 45
- male 86.7 87.6
- female 89.6 90.2
Sensitivities
Present value of Projected 2024 pension cost
scheme liabilities at
30 December 2023
Total service Net interest Net pension
cost
(credit)/cost
(credit)/
expense
£m £m
£m
Assumption
Current valuation, using the assumptions above 914 2.1 0.3 2.4
0.5% decrease in discount rate 979 2.1 2.9 5.0
0.5% increase in inflation 945 2.1 1.7 3.8
1 year increase in longevity 946 2.1 1.7 3.8
The sensitivities above are applied to the defined benefit obligation at the
end of the reporting period, and the projected total service cost for 2024.
While the analysis does not take account of the full distribution of cash
flows expected under the scheme, it does provide a reasonable approximation.
The same amount of movement in the opposite direction would produce a broadly
equal and opposite effect.
To address the requirements of both IAS 1 and IAS 19, we note that the effect
on the discount rate and inflation sensitivities of flexing them down by 0.25%
or up by 1% in a linear manner would give materially correct results.
30 December 2023 24 December 2022
Analysis of plan assets Quoted market price in an active market No quoted market price in an active market Quoted market price in an active market No quoted market price in an active market
£m £m £m £m
LDI* - -
- fixed income 282.9 270.0
- derivatives 20.5 (268.7)
- cash 12.7 172.8
Equities
- passive equities 49.8 - -
Private equity - - - 0.6
Alternative growth assets
- fund of hedge funds - - - 152.4
- absolute return fund - - 1.0 -
Insurance-linked securities - 70.8 - 105.2
Corporate bonds 0.1 - 1.8 -
Commercial property funds - 233.4 7.7 239.9
Other secure income 60.0 161.9 1.2 179.3
Asset-backed securities 0.5 - 0.5 -
Cash and cash equivalents 8.3 - 25.3 -
Total 385.1 515.9 211.6 677.4
The plan assets do not include any of the Group's own financial instruments
nor any property occupied by, or other assets used by, the Group.
*LDI - Liability Driven Investments - is a portfolio of investments chosen
with the aim that its value is expected to move in line with movements in the
value of the underlying liabilities. The LDI portfolio can include a variety
of investments, the simplest being conventional and index-linked gilts with
appropriate maturities. LDI portfolios often use a degree of leverage to
achieve the same aim but to allow more return-seeking assets to be invested in
at the same time. Derivatives and repurchase agreements are the main tools
used to employ
leverage.
Balance sheet
The amount included in the balance sheet arising from the Group's obligations
in respect of defined benefit retirement benefit plan is as follows:
30 December 2023 24 December 2022
£m £m
Present value of defined benefit obligations (913.6) (930.5)
Fair value of scheme assets 901.0 889.0
Deficit in the scheme, recognised in the balance sheet (12.6) (41.5)
Movements in the present value of defined benefit obligations were as follows:
53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
Present value at start of period 930.5 1,512.5
Administration cost 2.3 2.4
Interest on obligation 42.8 28.3
Actuarial losses/(gains):
- changes in financial assumptions 14.2 (622.8)
- changes in demographic assumptions (26.5) (3.5)
- experience (9.2) 55.8
Benefits paid, including expenses (40.5) (42.2)
Present value at end of period 913.6 930.5
Movements in the fair value of the plan's assets is as follows:
53 weeks to 52 weeks to
24 December 2022
30 December 2023
£m
£m
Fair value at start of period 889.0 1,653.3
Interest income on plan assets 41.5 31.0
Employer contributions 19.2 0.4
(Loss)/return on assets excluding amounts included in net interest (8.2) (753.5)
Benefits paid, including expenses (40.5) (42.2)
Fair value at end of period 901.0 889.0
Movements in the deficit during the period are as follows:
53 weeks to 52 weeks to
30 December 2023 24 December 2022
£m £m
Deficit at start of period (41.5) 140.8
Administration cost (2.3) (2.4)
Employer contributions 19.2 0.4
Other finance (charge)/income (1.3) 2.7
Total remeasurements recognised in other comprehensive income 13.3 (183.0)
Deficit at end of period (12.6) (41.5)
Income statement
Amounts recognised in the income statement arising from the Group's
obligations in respect of the defined benefit plan are shown below.
Amount charged to operating profit: 53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m £m
Current service cost - -
Administration cost 2.3 2.4
Total pensions cost 2.3 2.4
The total pensions cost is included in Staff Costs.
Amount credited to other finance income or expense: 53 weeks to 52 weeks to
30 December 2023
24 December 2022
£m
£m
Interest income on plan assets (41.5) (31.0)
Interest cost on defined benefit obligation 42.8 28.3
Net finance expense/(income) 1.3 (2.7)
The actual return on plan assets was a gain of £33.5m (52 weeks to 24
December 2022: loss of £722.5m).
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