REG - Howden Joinery Grp - Howden Joinery Group Plc 2021 Full Year Results
24/02/2022 07:00
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RNS Number : 6320C Howden Joinery Group PLC 24 February 2022
Howdens delivers record results
Results summary
£ millions (unless stated) 2021(1) 2020 Change Change
vs 2020 vs 2019(3)
Group revenue 2,093.7 1,547.5 +35.3% +32.2%
UK depots revenue 2,043.3 1,509.6 +35.4% +31.8%
Gross profit 1,289.0 930.0 +38.6% +30.7%
Gross profit margin, % 61.6% 60.1% +150bps (70)bps
Operating profit 401.7 195.7 +105.3% +54.5%
Operating profit margin, % 19.2% 12.6% +660bps +280bps
Profit before tax 390.3 185.3 +110.6% +49.7%
Basic earnings per share, p 53.2p 24.9p +113.7% +52.0%
Total ordinary dividend per share, p 19.5p 9.1p
Special dividend, p - 9.1p
Cash at end of period 515.3 430.7
(1) The information presented relates to the 52 weeks to 25 December 2021, the
52 weeks to 26 December 2020 and the 52 weeks to 28 December 2019, unless
otherwise stated. The 2021 and 2020 results are presented under IFRS 16, 2019
results have not been restated.
(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 due to the significant impact of COVID-19 on the 2020
results.
Highlights(1)
- Group revenue of £2,093.7m was 35.3% ahead of last year
reflecting the strengths of our trade only, in-stock business model.
- UK depot revenue 35.4% ahead of last year and 33.7% ahead on a
same depot basis(2).
- Gross margin progression of 61.6% year-over-year with disciplined
pricing recovering cost increases.
- Profit before tax of £390.3m, up 110.6% on 2020 and 49.7% on
2019, significantly outpacing revenue growth.
- Good cash generation and the balance sheet remains strong with
cash at end of period of £515.3m.
- Final dividend of 15.2p per share bringing total dividend to 19.5p
per share with £50m share buy-back completed.
- New £250m share buy-back announced today.
- Good progress on ESG, achieving carbon neutral status at our two
principal UK manufacturing facilities this year.
Andrew Livingston, Chief Executive said:
"2021 was a very successful year for Howdens as we both delivered record
financial results and progressed our strategic plans for the business. Our
performance demonstrates the strength of our trade only, in-stock local
business model and our ability to meet heightened demand for our products. I
would like to express my thanks to our 11,000 employees for their dedication
and commitment to delivering outstanding service to our customers against a
continued backdrop of COVID-19 and supply chain challenges.
"We believe there is now potential for at least 950 depots in the UK and we
are expanding our presence in France and the Republic of Ireland. We continue
to invest in our depot network, market leading products, manufacturing and
supply chain, and digital capabilities, all of which improve service to our
customers and help us take advantage of market opportunities. Our robust
balance sheet gives us the flexibility to continue to invest in our growth
plans for the business at the same time as delivering enhanced returns to
shareholders through ordinary dividends and share buy-backs."
Operational Developments in the Year
- Opened 31 new depots in the UK, bringing the total to 778 at
period end and revamped 62 older UK depots in the year. By the end of 2021 we
had 210 UK depots trading in the updated format.
- Opened 10 new depots in France, bringing total to 40 at the period
end.
- Introduced 17 new kitchen ranges and grew higher priced kitchen
ranges strongly in the year.
- Continued to invest in upgrading our manufacturing capacity and
capabilities to support future growth which included investment in capacity
for kitchen frontals, solid work surfaces, architrave and skirting products.
- Invested in regional cross docking facilities (XDCs) with 6
operating at the end of the period supporting around 400 depots. XDCs enable
improvements in customer service and product availability by optimising
inventory and delivering patterns of product to depots across the full product
range.
- 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.
Capital expenditure investment is expected to be around £100m in 2022 (2021:
£90m) which includes investment in our strategic initiatives. There will also
be an additional one-off investment of £10m this year on the acquisition of
freehold land to support our investments in additional manufacturing capacity.
Current Trading and Outlook for 2022
The following table shows sales in the first two periods of the new financial
year to 19 February 2022 in absolute terms, on a same depot (LFL) basis(2) and
adjusted for working days.
Revenue growth (%) Periods 1-2 Periods 1-2 Adj(*)
% LFL% % LFL %
UK depots 17.1% 15.6% 19.5% 18.0%
Continental European depots** 21.4% 18.9%
(*) compared with 2021 which had 38.5 trading days, 1 more than 2022 in the
UK. The 38.5 trading days in Continental Europe depots are the same in both
2021 and 2022.
** excludes 5 French depots which will be closed in 2022.
We have made an encouraging start to 2022 and are confident in our resilient
business model across changing market conditions:
- We are continuing to execute and invest in our strategy and see
many attractive medium-term opportunities for profitable growth and increased
volumes.
- We are currently offsetting inflationary pressures through price
management and cost control, underpinned by our service-led business model and
the scale of our manufacturing and sourcing operations.
- We remain watchful of macro-economic uncertainties and vigilant
for any potential headwinds in our markets.
- During the second half of 2022 we will be trading against record
revenue comparatives which includes our all-important peak trading period.
While it is still early in the new financial year, we have, at present, the
momentum for another successful year in 2022 and the plans in place to deliver
one.
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
Mark Fearon, Director of IR and Communications
Mobile: +44 (0)7711 875050
Results presentation:
There will be a live audio webcast for analysts and investors at 08:30 UK time
today, 24 February 2022: https://brrmedia.news/HWDN_FY21
(https://brrmedia.news/HWDN_FY21) For more information see:
www.howdenjoinerygroupplc.com (http://www.howdenjoinerygroupplc.com) . The
presentation can also be heard by dialling the phone numbers below, where
there will be the opportunity to ask questions:
Location Phone Number
United Kingdom, Local
+44 (0)330 336 9601
United States, Local
+1 323-701-0160
Confirmation code: 7136938
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 Howdens 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 778 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 factories in Runcorn, Cheshire, and Howden, East Yorkshire both of
which recently achieved carbon neutral status. The business also operates a
total of 40 depots in France and Belgium.
2. Timetable for the final dividend
The timetable for payment of the proposed final dividend of 15.2 pence per
ordinary share is as follows:
Ex-dividend date: 7 April 2022
Record date: 8 April 2022
Payment date: 20 May 2022
3. Provisional financial calendar
2022
Trading update 28 April 2022
Annual General Meeting 12 May 2022
Half Year Report 21 July 2022
Trading update 3 November 2022
End of financial year 24 December 2022
Financial Review
Financial Results for 2021(1)
Revenue £m (unless stated) 2021 # of depots 2020
Group: 2,093.7 818 1,547.5
Howden Joinery UK depots - same depot basis 2,017.7 731 1,508.8
UK depots opened in previous two years 25.6 47 0.8
Howden Joinery UK depots - total sales 2,043.3 778 1,509.6
Howden Joinery Continental European depots 50.4 37.9
Local currency revenue (€m)
France and Belgium - same depot basis 55.3 26 41.7
Depots opened in previous two years 3.1 14 0.9
France and Belgium - total sales 58.4 40 42.6
(1) The information presented relates to the 52 weeks to 25 December 2021 and
the 52 weeks to 26 December 2020 unless otherwise stated.
(2) Same depot basis for any year excludes depots opened in that year and the
prior year.
Total Group revenue of £2,093.7m was ahead by 35.3% (2020: 1,547.5m). UK
depot revenue grew 35.4% to £2,043.4m (2020: £1,509.6m). UK revenue
increased by 33.7% on a same depot basis(2) to £2,017.7m (2020: £1,508.8m);
this excludes the additional revenue from depots opened in 2021 and 2020 of
£25.6m (2020: £0.8m).
Depot revenue in Continental Europe was £50.4m (2020: £37.9m). On a local
currency basis, revenue at our depots in France and Belgium increased by 37.3%
on a same depot basis(2).
Gross Profit
Gross profit was £1,289.0m (2020: £930.0m; 2019: £986.2m). The £359m
increase compared with 2020 reflected a positive volume and mix impact of
£282m and higher pricing of £107m. There were also £30m of cost pressures
reflecting the net impact of higher commodity, freight costs and foreign
exchange. These factors contributed to an increase in gross margin of 150
basis points versus the prior year to 61.6% (2020: 60.1%; 2019 62.3%) as we
appropriately balanced mix with higher overall volumes.
The £303m increase compared with 2019 reflected growth in sales volumes and
mix of £254m and changes in price of £91m partly offset by £42m of product
cost pressures. This included the net impact of significant increases in input
costs including commodities, freight and transportation partially offset by
initiatives to reduce costs.
Operating Profit
Operating profit was strongly ahead of last year and 2019 at £401.7m (2020:
£195.7m; 2019: £260.0m on a pre IFRS 16 basis) and the operating profit
margin was 19.2% (2020: 12.6%; 2019 16.4%).
Selling and distribution costs and administrative expenses (SD&A)
increased by 20.8% to £887.3m (2020: £734.3m; 2019: £726.2m). As expected,
costs increased due to continued investment in areas across the business.
Compared to 2020 this included £11m on UK depots opened in 2020 and 2021 and
£13m on French depots opened in the period. We also invested £28m in
warehouse and transportation initiatives which included the investment in
regional XDCs and £10m in marketing and digital costs. £70m of additional
costs were also incurred in the existing depot network as a result of the
significant increase in volumes and there was also a £21m increase in other
operating costs.
SD&A costs increased in 2021 compared with 2019 by £161.1m. Investment in
executing our strategy included £33m on new depots in the UK opened since
2019, and £22m on new depots in France. Other growth initiatives included
logistics investments of £38m (including XDCs) and £13m of marketing and
digital investment. This was partly offset by £17m of the non-repeat benefit
from depot closure costs in Germany and the Netherlands, and lease
amortization charges consequent upon adopting IFRS 16. Between 2019 and 2021
the increase in revenue in the older UK depots resulted in £50m of additional
costs.
Profit Before and After Tax
The net interest charge was £11.4m (2020: £10.4m; 2019: £0.7m credit, on a
pre IFRS 16 basis) principally reflecting the additional interest rate expense
on our lease liabilities. Profit before tax of £390.3m was strongly ahead of
the prior year (2020: £185.3m; 2019: £260.7m).
The tax charge on profit before tax was £75.8m (2020: £37.7m; 2019: £51.7m)
as a result of the higher operating profit and represented an effective tax
rate of 19.4% (2020: 20.3%; 2019: 19.8%). As a result, profit after tax was
£314.5m (2020: £147.6m; 2019: £209.0m). Reflecting the above and the
reduced share count following share buy backs, basic earnings per share were
53.2p (2020: 24.9p; 2019 35.0p).
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 will review the potential scale of any claim with our
advisers before deciding whether to make a claim under these rules.
Cash
The net cash inflow from operating activities was £437.4m (2020: £329.5m).
Net working capital increased by £1.7m due to higher levels of business
activity. Debtors at the end of the period were £39m higher than at the
beginning of the period, creditors were £84m higher and stock was £47m
higher due to our actions to increase levels of safety stock to support our
customers. Capital expenditure was £85.9m (2020: £69.7m). Corporation tax
payments were £73.1m (2020: £32.2m), and dividends amounted to £133.6m
(2020: nil). Share buy backs totalled £50.0m (2020: £9.8m) and the cash
contribution to the Group's pension schemes in excess of the operating charge
was £18.5m (2020: £22.2m). The interest and principal paid on lease
liabilities totalled £85.8m (2020: £87.6m).
Reflecting the above, there was a net cash inflow of £84.6m (2020: £163.3m),
leaving the Group with cash at the year end of £515.3m (26 December 2020:
£430.7m). 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 has primarily focused 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 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 believes it is appropriate
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 that has only recently moved into a surplus.
Howdens has a prudent risk appetite towards balance sheet management, an
approach which has been borne out over the past two years with the balance
sheet being a source of great strength through the challenges of the pandemic.
In the crisis phase of COVID-19 the Board took decisive action to conserve
capital, and as markets have recovered, we have progressively reinstated our
capital priorities including the return to paying dividends in 2021 and also
the return of surplus capital in the second half of the year. These returns
were only initiated after having repaid all government support received early
in the pandemic.
The Board has recently reviewed its capital allocation policy considering the
current economic environment to ensure it is clearly defined and retains a
disciplined approach to enhance shareholder value. This prioritises our
strategy of continuing to invest in depots, manufacturing and logistics
capabilities and related strategic investments while delivering a progressive
dividend. Our policy will be that where year end cash is in excess of £250m
we expect to return surplus cash to shareholders, which 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 with a leverage of approximately 0.7x EBITDA
after taking into account lease liabilities.
On this basis, the Board has decided that the Group will undertake a £250m
share buyback programme which we aim to complete over the next 12 months. This
is in addition to the £50m share buyback programme announced with the half
year results, which was completed during the second half of 2021.
During 2020, no interim dividend was paid, but a final dividend of 9.1p per
ordinary share and a special dividend of 9.1p per ordinary share were paid in
June 2021 in respect of 2020. Taking into account the Group's prospects and
strong financial position, in July 2021 the Board declared an interim dividend
of 4.3p per ordinary share. The Group's unchanged dividend policy is to target
a dividend cover of between 2.5x and 3.0x and Board is recommending a final
dividend for 2021 of 15.2p per ordinary share, giving a total dividend of
19.5p per ordinary share. The final dividend will be paid on 20 May 2022 to
shareholders on the register on 8 April 2022.
Pensions
At 25 December 2021, the defined benefit pension scheme was in a surplus at
£141m (26 December 2020: deficit of £48m) on an IAS 19 basis. This movement
from a deficit to a surplus was primarily a result of an increase in the net
discount rate which was a benefit of £113m, a £25m cash contribution and an
increase in asset returns of £58m. The current service, administrative and
finance charges totalled £7m. The defined benefit pension scheme closed for
future accrual from 31 March 2021. The scheme's funding level on an IAS19
basis was 104.1% (2020: 99.0%) at the end of the financial year and in
accordance with the scheme rules, deficit contributions were suspended in July
2021. Due to the scale of the scheme with around £1.6bn of assets and
liabilities, it is possible that the scheme could return to a deficit position
on a technical provisions basis. If this were the case, then deficit
contributions of £2.5m per month would recommence.
Board Changes
We announced in February 2022 that Richard Pennycook had indicated his
intention to retire from the Board with effect from 17 September 2022. Richard
was appointed as Howdens' Chairman in May 2016, having joined the Board in
September 2013, initially as a non-executive Director and Chairman of the
Audit committee. His retirement aligns with the Company's Board succession
plan and good governance practice, including the UK Corporate Governance Code
requirement for a chair to step down after nine years on the Board. A process
is already underway to identify and appoint his successor. The Board would
like to express its thanks to Richard for the significant contribution he has
made to Howdens and his outstanding stewardship of the Board.
Operational Review
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. Expand our presence in selective countries 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
High service levels, including local proximity and immediate availability are
very important to our customers and we have continued to extend our UK depot
footprint in 2021. We are opening all new depots in our updated format which
is designed to provide the best environment in which to do business and to
make space utilisation and productivity gains in a cost-effective way, by
using vertical racking in the warehouse section of the depot.
In 2021, we opened 31 new depots, up from the 16 opened in 2020. We now
believe there is potential for at least 950 depots in the UK, including c.25
in Northern Ireland, and we plan to open around 25 new depots in 2022. 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 depots and customers.
During the year, including relocations, we reformatted a total of 62 depots,
taking the total number of revamped depots to 103 at the year-end. The scale
and scope of the revamps has been refined, with an average cost per depot of
circa £225,000 going forward with an average payback of less than 4 years.
Including relocations, we plan to re-format around 70 more depots in 2022 and
to re-rack the warehouses of a further 35 sites without other modifications at
that time.
At the end of 2021, including new depots we had 210 UK depots trading in the
updated format. By the end of 2022 we expect to have increased this to around
305 UK depots and, to have re-racked the warehouses of 133 depots without
other modifications. By the end of 2022, these new refurbished depots and
reracks will represent around 55% of our UK estate.
2. Improving Our Product Range And Supply Management
Range Management
As product lifecycles shorten, managing the number of kitchen ranges
efficiently is crucial for both our customers, who want best availability, and
for profitability. We are managing range introductions and clearances so that
our 2022 current range count is around 80, organised in nine families. New
products for 2021 featured 17 new kitchen ranges with total sales well ahead
of 2020 and 2019. We are now placing greater emphasis on building out our
share of higher priced kitchens where we have been historically
under-represented. Such kitchens contributed more to our kitchen mix by volume
in 2021, in a year in which sales and volumes across all price bands
increased.
New product introductions for 2022 features 20 new kitchens and include:
- launching new products across entry level kitchen ranges which
have traditionally been our strongest performers;
o by adding new ranges in both modern and shaker styles including the
introduction of our new entry priced smooth shaker kitchen family Witney,
which is available in three matt colours;
- introducing more higher priced kitchens including adding new
colours for our timber shaker families introduced last year; 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.
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, each of which have individual and changing day to day requirements. In
2021 we continued to hold "safety" stock as a contingency against unexpected
demand patterns and interruptions to supply and we are utilising multi modal
freight routes to ship in-bound goods and materials where appropriate. Last
year we broadened the range of products we protect in this way and increased
the number of weeks cover we have on some lines. In 2022, we will continue
with our policies on safety stocks 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. In 2019,
investment in manufacturing technology enabled us to make the kitchen frontals
for our popular Hockley kitchen ranges. We then 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 is scheduled to be completed in July 2022, enabling us to
service in-house more of the substantial increase in demand we have seen for
these products.
We are also upgrading our bespoke solid surface worktop capabilities, which is
a growing segment of the market, supporting our strategy to increase our share
of the higher priced segment of the kitchen market. We first partnered with
three fabrication companies to develop a design, template and fit capability
and then acquired the assets of a solid surface fabricator which we branded as
Howdens Work Surfaces ("HWS"). We have subsequently been investing in
expanding HWS's capacity and, to support this further. In February 2022 we
acquired Sheridan Fabrications Ltd, a leading industry specialist for the
manufacture, fabrication, laser templating and installation of premium
worksurfaces. The acquisition increases our manufacturing capacity and will
lead to lower installation costs, with associated margin benefits. The
business is based in Normanton, West Yorkshire and employs around 200 people.
To support continued growth plans we have acquired 5 acres of land and,
subject to detailed planning, we are committed to acquire an additional 20
acres of land to extend our factory at Howden, East Yorkshire. In particular,
we will increase the manufacturing capacity for cabinets with new panel
machining and rigid assembly lines and a new machining line for shaker doors.
With this investment, we plan to have the capability to manufacture kitchen
doors for most of our ranges and we expect that the new lines will be
operating by early 2025. At the same time, we will retain the benefits of
sourcing from external suppliers, who will continue to provide around half of
our kitchen frontals. We also plan to invest in a new, purpose-built warehouse
and distribution near the Howden site and once built, both the picking and
dispatch will migrate there. This will enable the Howden site to be dedicated
primarily to manufacturing, allowing it to flow and operate more efficiently,
with room for further expansion if needed.
Regional cross docking centre ('XDCs')
In 2020 we initiated a programme to make an improvement to stock replenishment
via XDCs. We know that our customers value our high levels of stock
availability and XDCs improve stock replenishment by supplementing depots'
core weekly deliveries with a daily top-up service. This improves the service
levels they can deliver to customers and frees up more time and resources to
focus on sales and service reducing the need for inter-depot stock transfers.
This year we have significantly increased 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 year end, we had 6 XDCs
operating in the UK with the service available to around 400 depots, up from
120 at the end of 2020. We plan to roll out the XDC service to all our depots
during 2022, taking the number of XDCs to 12 in total.
3. Developing Our Digital Platforms
Our digital strategy reinforces our model of strong local relationships
between depots and their customers by raising brand awareness and further
supports the business model with new services and ways to trade. It also frees
up time for depot staff and customers to use more productively. In 2021 we
have seen increased activity on our web platform and growth in our social
media presence. "Impressions" were present in 28% more organic search results
a month with site visits at 24 million, 11% ahead of last year. The time users
spent looking at pages increased by 20% and the number of pages viewed per
session was up 11%. Across our social media sites our follower base was
c.400,000, up 49%, with our monthly reach up 34% and 1.3m users actively
engaging monthly.
Take-up and usage of online account facilities which enable our trade
customers to manage their accounts and make payments at any time, continues to
increase. New account registrations exceeded 100,000 for the year and the
service is being used across the week, both in and out of hours on average
twice weekly per account. Payments made per account increased 70%. In February
2021, "Anytime Ordering" was launched, providing efficiencies for depots and
customers alike. Developed with input from customers, features of the service
include enabling account holders to see their confidential prices, order
product and quote for individual jobs out of hours. There is also a scheduler
for customers to select a collection depot and pick-up time of their choosing
and we have seen average weekly logins on our trade platform increase by 160%.
In Autumn 2021, we launched new search functionality on www.howdens.com to
help our customers with both improved product search and extended search
results to connect to documents and other features.
We have also invested in capabilities which help end users interact with
Howdens on-line at each stage of their buying decision. For example, at the
turn of the year, we launched "Real Kitchens" which utilises user generated
content to showcase Howdens' kitchens in peoples' homes. Image views were 17.2
million in 2021 and this content is being used both by consumers and our
designers to streamline the buying and design process.
4. Developing Our International Operations
In 2019 we refocussed our international operations on a city-based approach in
France serving solely trade customers. The business' performance has been
encouraging and has given us confidence to accelerate our investment in more
depots in this region. Revenues of €58.4m were 37% ahead of 2020 and 55%
ahead of 2019. We believe appreciation of the advantages of our trade only,
in-stock model with our high service levels and competitive pricing is growing
and our account base grew by 37% in 2021. We opened 10 depots in France in
2021, ending the year with a total of 40 in France and Belgium and we plan to
expand our footprint to 60 depots by the end of 2022, 40 being located in the
Paris area.
In 2022, we will also be opening for business in the Republic of Ireland. As
in France we will be using a "city-based" approach which fits the population
distribution of the region. Initially we will test the model with 5 depots
around Dublin, and we expect all of these to be open by June 2022. The depot
teams will be supported by our UK infrastructure and the Group's digital
platform.
Environment, Social and Governance (ESG)
We actively manage risks and identify opportunities across the business to
improve our environment, social and governance performance. The Board has
detailed oversight of our ESG performance and we are determined to minimise
our impact on the environment and make a positive contribution to all our
stakeholders, including our customers, staff, communities, suppliers and
shareholders. That means that our business needs to be worthwhile for all
concerned.
During 2020, we carried out a wide-ranging strategic review of our ESG
performance. This identified four priority commitments for 2021, including
enhanced reporting and disclosure aligned with the Taskforce on
Climate-Related Financial Disclosures (TCFD) and we have made good progress
towards full implementation this year. An Executive Committee member has been
assigned responsibility for delivery of each commitment.
The four main commitments are:
Zero Waste to Landfill Carbon Neutral Manufacturing Behavioural Health and Safety Leader Reporting and Disclosure
Maintain zero waste to landfill in manufacturing and distribution. Zero waste Carbon neutral manufacturing by the end of 2021. Maintain international safety standard ISO 45001 in our manufacturing and Progressive, phased implementation of high quality TCFD reporting. Implement
to landfill in depots over time, with target of less than 5% by end of 2022. distribution operations. Achieve ISO45001 in our depot network by the end of the ISS ESG reporting platform in 2021.
2021.
The review also confirmed Howdens' five material focus areas. These are:
1. People: keeping them safe, embracing diversity and inclusion, and
offering rewarding careers;
2. Sustainable supply chain: certified wood, responsible purchasing and
efficient distribution;
3. Sustainable product: developing new sustainable products,
re-engineering existing products and having a sustainable sourcing strategy;
4. Environment and operations: reducing waste, responsible operations
and lowering emissions; and
5. Communities: local community projects including charitable donations
and our nationwide work with Leonard Cheshire Disability.
Summary of 2021 performance
In our first year since formalising our ESG strategy, we have continued to
work on improving and expanding our reporting and making progress on each of
our four main commitments. A highlight during this year was certification of
the achievement of our target of 100% carbon neutral manufacturing at our two
major UK manufacturing sites in Howden, East Yorkshire, and Runcorn, Cheshire.
We have also continued to focus on waste reduction and building on the
achievement of our target of zero waste to landfill in our manufacturing and
distribution facilities last year. We are now committed to reducing waste in
our depot network and during 2021 we achieved 99% depot waste avoiding
landfill across all 778 UK depots, which was achieved from a baseline
performance of 60% in 2019. With respect to carbon emissions while our overall
gross emissions increased by 12% given higher activity levels though our
turnover ratio improved by 17% to 27.3 tCO(2)e per £m of revenue.
Howdens is committed to embedding safety as a core value driver in everything
we do and we have worked hard to drive better performance. While there was
some disruption to the business due to COVID-19 in 2021 our accident frequency
rate was flat year-on-year which was encouraging as we held the gains in
performance made in recent years. This was achieved despite a significant
increase in activity levels, new staff and changes to working practices due to
COVID-19. Despite several years of improving trends the Company's reportable
injuries per 100,000 employees under RIDDOR (Reporting of Injuries Diseases
and Dangerous Occurrences Regulation), increased in 2021 to 196 reportable
injuries (2020: 162). We are determined to improve our RIDDOR performance in
2022 and have engaged with our leadership teams and specialists in the
business as well as employees to ensure we learn the lessons and continue to
reduce overall accident rates.
Further details of the Group's ESG strategy and performance can be found in
the 2021 Annual Report and Accounts which will be available shortly on the
Group's website www.howdenjoinerygroupplc.com
(http://www.howdenjoinerygroupplc.com) .
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 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. Pages 13 to 18 give more detail on these risks,
their potential impacts and mitigations, and include a discussion of the
effects of COVID and Brexit. 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 directors note that
the Group is currently holding additional amounts of fast-moving stock items
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
below.
Review of trading results, future trading forecasts and financial scenario modelling
The directors have reviewed trading results and financial performance in 2021,
as well as early weeks' trading in 2022. They have reviewed the Group balance
sheet at December 2021, particularly noting that the Group is debt-free, has
cash and cash equivalents of £515m, and has appropriate stock levels. They
have also considered three financial modelling scenarios prepared by
management:
1. A "base case" scenario. This is based on the final 2021 Group
forecast, made in November 2021 and including the actual results of the 2021
peak sales period. The basis of this scenario has been approved by the
Board. It assumes future revenue 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.
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 2%. This level of reduction in
sales and margin has been chosen as it replicates the worst fall ever
experienced in the Group's 25-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 2%. 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; additional investment in our manufacturing sites,
and additional investment in digital. This scenario models a reduction in
most of the variable cost base proportionate to the reduction in turnover. It
includes dividends at a level of dividend cover in line with the Group's
stated policy, 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 borrow
or 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.
In the first two scenarios the Group has significant cash 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 facilities available but not included in the scenario modelling
The Group has a bank facility which allows borrowing of up to £140m, which
expires in December. The facility has not been used at any time since it was
set up. All the going concern scenarios are modelled on the basis that the
Group does not draw on this facility.
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 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 December 2021 of £515m.
- Debt-free. Consistently cash-generative. Proven ability to
maintain strong cash balances whilst also investing for growth and returning
cash to shareholders.
- £140m borrowing facility, due to expire in December 2023. Unused,
to date.
- Strong relationships with suppliers and customers, built on trust.
- 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 18, 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 2024. 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 above.
1. The base case scenario takes the base case described in the
discussion of going concern above and extends it over the viability assessment
period. It assumes an increase in sales and profit, capital expenditure in
line with our plans for growth and investment in our strategic priority areas,
and cash outflows for shareholder returns.
2. The severe but plausible downside scenario takes the
same decline over the going concern period as described in the discussion of
going concern above, and then assumes a phased recovery over the rest of the 3
year period. It assumes that sales recover cautiously. On gross margin, which
had been modelled at 2% down on the base case over the going concern period,
the model assumes an improvement of 1% each subsequent year, thereby returning
to the base case margin level by the end of the viability assessment period.
It assumes capital expenditure which is less than the base case, but which is
still in line with investing in our strategic priorities, dividends in line
with our current level of dividend cover, and no share buybacks.
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 be cash positive at any point in the viability assessment
period, without borrowing or taking further mitigating actions.
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 cash over the viability assessment period
and would not need to use its borrowing facility. The reverse stress-test
showed that the level of fall in sales required in the first year of the
viability assessment period before the Group would need to use its borrowing
facility at any point over the viability period was over three times the fall
modelled in the severe but plausible downturn scenario.
Conclusion
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 2024.
Principal Risks and Uncertainties
Our approach to risk is adaptive. We aim to protect what we have while
responding to opportunities to grow and create value. 2021 presented some
significant risk challenges with the ongoing COVID-19 pandemic impacting on a
number of our principal risks. These are explained in more detail below.
1. Supply chain
Risk and Impact
- Howdens is an in-stock business. Our customers expect this and
rely on it.
- 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.
Mitigating factors
- We build strong relationships with our suppliers, focused on
integrity, fairness, and respect, and which are worthwhile for all concerned.
- Where appropriate we enter into long-term contracts to secure
supply of key products, services, and raw materials.
- Wherever possible we have multiple-sourcing strategies for our key
products, to reduce the effect of a supply failure.
- We have invested in our supply chain operations which gives us
increased capacity and agility.
- We are also investing in new warehouse space to support our
distribution capabilities and equip them for growth.
- Increased stock holding of at-risk products to help ensure
continuity of supply during continued Brexit uncertainty and COVID-19
difficulties.
- Obtained Authorised Economic Operator (AEO) preferred
importer/exporter status to reduce potential customs delays.
Mitigation Actions in 2021
- Increased our safety stocks further, to reduce the potential risk
of global supply constraints.
- Increased warehousing capacity with the use of our third
distribution centre in Raunds.
- Increased the number of deliveries to our depots during our peak
trading period to ensure availability.
- Secured HGV driver resources ahead of demand, ensuring continuity
of supply to the depots.
2. Market conditions
Risk and Impact
- Our products are mostly sold to small builders and installed in
owner occupied and private and public sector rented housing, mainly in the
repair, maintenance and improvement markets. If activity falls in these
markets, it can affect our sales.
Mitigating factors
- We have proven expertise in managing both selling prices and
costs. This continues to be a main area of focus.
- We have a good track record of dealing with changes in market
conditions. We monitor activity across our supply chain and depots closely,
using the good relationships we have to give us early warnings of changing
conditions. This enables us to take swift mitigating action to emerging market
risk factors.
Mitigation Actions in 2021
- Maintained focus on continuing COVID-19 impacts across our supply
chain and business.
- Frequent scenario planning based on latest information to ensure
our plans were appropriate to changing market conditions.
3. Business model and culture
Risk and Impact
- Our future success depends on continuing to maintain our values,
our unique business model and our locally enabled, entrepreneurial culture.
- 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.
Mitigation Actions in 2021
- Regular 'Town Hall' meetings held to bring together teams and
discuss our successes and challenges ahead.
- Embarked on our ESG programme enhancement, with a key element
focussing on re-enforcing our core values and further embedding our equality,
diversity and inclusion standards.
- Worthwhile foundation created to further develop our charitable
efforts and support our business model through training of our builder
customers.
4. Maximising growth
Risk and Impact
- We see a significant potential for growth. This brings both
opportunities and challenges.
- If we don't innovate, recognise and exploit our growth
opportunities in line with our business model and risk appetite, or if we
don't align structures and skills to meet the challenges of growth, we won't
get maximum benefit from our growth potential.
Mitigating factors
- The opportunities and challenges related to growth are a major
area of focus throughout the business, at all levels.
- 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.
- Plans to continue with our expansion of our operations in France
and other territories.
Mitigation Actions in 2021
- Converted more UK depots to the new depot environment.
- Opened more depots in the UK.
- Opened more depots in France.
- Strengthened our solid worksurface offering with the introduction
of Howden Worksurfaces.
- Improved our service offering through our core logistics sites to
ensure our ability to support growth.
5. People
Risk and Impact
- The success of our business is fundamentally driven by our people,
their strength of spirit, drive, and unwavering customer focus.
- 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.
Mitigating factors
- We support our colleagues with a wide variety of apprenticeships,
accreditations and development programmes across all areas of our business.
- We use the Remuneration Committee to ensure 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. We will continue to focus on leadership
development and succession planning.
Mitigation Actions in 2021
- We continued to ensure our working environments remained COVID-19
safe for all of our workers and brought in remote working for all of our
offices, in line with Government advice, to reduce the Health and Safety risk
to all personnel.
- Wellbeing programme introduced, with targeted training for our
staff based on their role
- Equality, diversity and inclusion (EDI) Programme further
developed with specific goals established.
- Increase in Apprenticeship offerings.
- Joined the Government Kickstart employment programme and supported
51 Kickstart roles.
6. Health and safety
Risk and Impact
- Howdens is about people and relationships. We have 778 depots,
about 11,000 employees, hundreds of suppliers and hundreds of thousands of
customers.
- Care for the health and safety of employees, customers, suppliers
and everyone who comes into contact with Howdens is integral to our values and
to our behaviours.
- If we do not ensure safe ways of working across the business, this
could compromise the safety and wellbeing of individuals and the reputation
and viability of the business.
Mitigating factors
- Since the beginning of our business, 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.
- Most importantly, we make sure we keep talking about health and
safety at every level of the business, led by the Executive Committee.
- Rapid implementation of a COVID-19 governance framework and risk
mitigations secured a safe working environment as the pandemic developed.
Mitigation Actions in 2021
- Maintained COVID-19 safe practices in line with government advice.
- Increased Health and Safety resources in France to support
on-going expansion.
- Continued to provide regular updates to all staff on our response
to changing Covid 19 guidance and regulation in all the countries in which we
operate.
7. Cyber security
Risk and Impact
- We depend on a core set of critical IT systems which are
fundamental to the day-to-day running of the business. These systems are at
risk from increasingly sophisticated security threats.
- If we experienced a major security breach, this could result in a
key system being unavailable causing operational difficulties, and/or
sensitive data to be unavailable or compromised. This could also lead to
breach of customer data.
Mitigating factors
- We place focus on training our people in cyber security, as we
recognise that these risks are not always technical, and awareness is our
first point of control.
- We employ complex technical IT security controls to protect our
information and our key systems. We regularly engage external specialists to
validate the effectiveness of our controls against industry best practice.
- We have robust disaster recovery and business continuity plans,
and we test them regularly.
- We adopt a continuous improvement approach to IT security and
continue to invest in the security of our systems.
Mitigation Actions in 2021
- We continue to review our cyber security posture and engage with
3rd party expertise to provide insight and assurance.
- Further development of our multi-factor authentication (MFA) and
tools for staff required to work remotely owing to Government guidance.
- Face to face, targeted awareness training at key staff meetings
throughout the year.
8. Product
Risk and Impact
- Ensuring that we have products that meet the design, price and
quality needs of the small builder, and their customer, is a key focus of the
business model and is a critical element of our future success and growth
aspirations. Kitchen technology and design do not stand still, and our
products must reflect that.
- If we do not support the builder with new products that their
customers want, we could lose their loyalty and sales could diminish.
Mitigating factors
- Our dedicated product team regularly refresh our offerings to meet
builders' and end-users' expectations for design, price, quality and
availability.
- We work with 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.
- We work with our suppliers, to develop new and improved products
for the future, some of which are unique to Howdens. Several new products were
introduced during the year across all product categories.
Mitigation Actions in 2021
- 17 new kitchen ranges launched.
- Solid worksurface offering brought in-house.
- Restructured our Product Team providing greater insight and
resilience.
- Further developed our website & marketing offering to builders
and end-users to provide new tools to make their lives easier.
9. Business continuity and resilience
Risk and Impact
- We have key business operations and locations in our
infrastructure that are critical to business continuity. These operations are
essential for ensuring our customers can get the product and services they
want when they need them.
- They include areas such as, our Credit Control Department, our
Manufacturing & Logistics operations and key IT systems.
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.
Mitigation Actions in 2021
- On-going monitoring of the potential COVID-19 impacts on the
continuity of our operations.
- Reviewed our continuity plans covering our sourcing and logistics
approaches to support peak trading.
COVID-19 risks
COVID-19 continues to have an effect on our business. Our rapid implementation
of an appropriate governance framework and risk mitigations during 2020
allowed us to maintain a safe working environment and continue to trade
throughout 2021. Over the year we have learned that several of the actions we
took were key to ensuring the impact that COVID was minimised. These actions
included:
- Working closely with our suppliers and optimising stockholding for
high-risk products.
- Using our supply chain resilience to respond to inbound transport
disruption.
- Rapid roll out of new IT platforms allowing our staff to continue
to work and serve our customers
- Prompt deployment of equipment and training for employees to
enable remote working.
These actions continue to help deal with the impacts of Covid-19 into 2022,
including our ongoing management of new variants. Further to this, our
learning will help us be better prepared for any future pandemics as well as
improve our wider business continuity management approach.
Brexit risks
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 in the UK and
the European Union. The main areas of potential risk for Howdens include:
Free Trade and Customs Risks
- Loss of free trade status - Tariffs or quotas in imported goods
leading to higher prices
- Exit from the customs arrangements - Supply chain delays due to
new customs regime and increased administrative burden.
- No regulatory co-operation - Regulatory uncertainty should
standards diverge, potentially affecting sales of UK goods in the EU and vice
versa.
Strategy and Business Plan Risks
- Consumer/Investor uncertainty - Potentially impacting on sales and
future growth strategy.
- Currency and stock market volatility - Increased costs due to
currency fluctuations.
We continue to actively monitor the ongoing relationship between the EU and UK
and reconsider our mitigation plans and potential impacts as part of our risk
process.
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 2021 Annual Report and Accounts which will be issued in March 2022,
contains 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 on 23 February 2022, the directors confirm to the best of their
knowledge:
- the Group and unconsolidated Company 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; and
- the performance review contained in 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.
By order of the Board
Andrew Livingston Paul Hayes
Chief Executive Officer Chief Financial
Officer
23 February 2022
Consolidated income statement
Notes 52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Continuing operations:
Revenue 2,093.7 1,547.5
Cost of sales (804.7) (617.5)
Gross profit 1,289.0 930.0
Selling & distribution costs (756.5) (636.7)
Administrative expenses (130.8) (97.6)
Operating profit 3 401.7 195.7
Finance income - 0.6
Finance costs (11.4) (11.0)
Profit before tax 390.3 185.3
Tax on profit 4 (75.8) (37.7)
Profit for the period attributable to the equity holders of the parent 314.5 147.6
Earnings per share:
Basic earnings per 10p share 5 53.2p 24.9p
Diluted earnings per 10p share 5 53.0p 24.8p
Consolidated statement of comprehensive income
Notes 52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Profit for the period 314.5 147.6
Items of other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains/(losses) on defined benefit pension scheme 7 170.4 (12.7)
Deferred tax on actuarial gains and losses on defined benefit pension scheme 4 (33.5) 2.4
Change of tax rate on deferred tax 4 (8.5) 1.1
Items that may be reclassified subsequently to profit or loss:
Currency translation differences (2.3) 0.5
Other comprehensive income for the period 126.1 (8.7)
Total comprehensive income for the period attributable 440.6 138.9
to equity holders of the parent
Consolidated balance sheet
Notes 25 December 2021 26 December 2020
£m £m
Non-current assets
Intangible assets 22.6 24.3
Property, plant and equipment 295.8 248.8
Lease right-of-use assets 555.8 544.2
Pension asset 7 140.8 -
Deferred tax asset 13.4 17.0
Prepaid credit facility fees 0.3 0.6
1,028.7 834.9
Current assets
Inventories 301.6 255.0
Trade and other receivables 205.8 166.6
Cash and cash equivalents 515.3 430.7
1,022.7 852.3
Total assets 2,051.4 1,687.2
Current liabilities
Lease liabilities (57.5) (70.0)
Trade and other payables (384.7) (300.4)
Current tax liability (25.9) (22.2)
(468.1) (392.6)
Non-current liabilities
Pension liability 7 - (47.7)
Lease liabilities (533.7) (510.5)
Deferred tax liability (37.7) (1.7)
Provisions (20.4) (13.9)
(591.8) (573.8)
Total liabilities (1,059.9) (966.4)
Net assets 991.5 720.8
Equity
Share capital 59.8 60.3
Capital redemption reserve 5.4 4.9
Share premium 87.5 87.5
ESOP reserve 5.9 (3.5)
Treasury shares (27.1) (28.2)
Retained earnings 860.0 599.8
Total equity 991.5 720.8
The financial statements were approved by the Board and authorised for issue
on 23 February 2022 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 reserve Treasury shares Retained profit Total
£m £m £m £m £m £m £m
At 28 December 2019 60.5 4.7 87.5 (6.3) (29.3) 498.1 615.2
Impact of adopting IFRS 16 - - - - - (30.9) (30.9)
Tax effect of adopting IFRS 16 3.6 3.6
Adjusted opening balance after adopting IFRS 16 60.5 4.7 87.5 (6.3) (29.3) 470.8 587.9
Accumulated profit for the period - - - - - 147.6 147.6
Other comprehensive income for the period - - - - - (8.7) (8.7)
Total comprehensive income for the period - - - - - 138.9 138.9
Current tax on share schemes - - - - - 0.1 0.1
Deferred tax on share schemes - - - - - (0.2) (0.2)
Movement in ESOP - - - 3.9 - - 3.9
Buyback and cancellation of shares (0.2) 0.2 - - - (9.8) (9.8)
Transfer of shares from treasury into share trust - - - (1.1) 1.1 - -
At 26 December 2020 60.3 4.9 87.5 (3.5) (28.2) 599.8 720.8
Accumulated 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 59.8 5.4 87.5 5.9 (27.1) 860.0 991.5
The ESOP reserve includes shares in Howden Joinery Group Plc with a market
value on the balance sheet date of £41.7m (2020: £35.9m), which are held by
the Group's Employee Share Trusts to satisfy 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
year, together with any receipts of cash from employees on exercise of share
options.
At the current period end there were 5,567,555 ordinary shares held in
treasury, each with a nominal value of 10p (2020: 5,775,230 shares).
Consolidated cash flow statement
Notes 52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Operating profit 401.7 195.7
Adjustments for:
Depreciation and amortisation of owned assets 40.6 34.5
Depreciation, impairment and loss on termination of leased assets 74.8 79.5
Share-based payments charge 10.1 3.6
Decrease in prepaid credit facility fees 0.3 0.3
Write downs of property, plant and equipment and intangible assets 3.2 -
Operating cash flows before movements in working capital 530.7 313.6
Movements in working capital and exceptional items
Increase in inventories (46.6) (23.2)
(increase)/decrease in trade and other receivables (39.2) 2.3
Increase in trade and other payables and provisions 84.1 91.2
Difference between pensions operating charge and cash paid (18.5) (22.2)
(20.2) 48.1
Cash generated from operations 510.5 361.7
Tax paid (73.1) (32.2)
Net cash flow from operating activities 437.4 329.5
Cash flows used in investing activities
Payments to acquire property, plant and equipment and intangible assets (85.9) (69.7)
Receipts from sale of property, plant and equipment and intangible assets 0.1 -
Interest received - 0.6
Net cash used in investing activities (85.8) (69.1)
Cash flows used in financing activities
Payments to acquire own shares (50.0) (9.8)
Receipts from release of shares from share trust 0.4 0.3
Inflow from receipt of forfeited dividends 0.2 -
Inflow from sale of forfeited shares 1.8 -
Dividends paid to Group shareholders (133.6) -
Interest paid - including on lease liabilities (11.0) (10.4)
Repayment of principal on lease liabilities (74.8) (77.2)
Net cash used in financing activities (267.0) (97.1)
Net increase in cash and cash equivalents 84.6 163.3
Cash and cash equivalents at beginning of period 430.7 267.4
Cash and cash equivalents at end of period 515.3 430.7
Notes to the consolidated financial statements
1 Basis of presentation and preparation
Accounting period
The Group's accounting period covers the 52 weeks to 25 December 2021. The
comparative period covered the 52 weeks to 26 December 2020.
Statement of compliance and basis of preparation, including going concern
The Group financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No1606/2002 as it applies in the European Union.
The accounting policies, presentation methods and methods of computation
followed are the same as those detailed within the 2020 Annual Report and
Accounts, which is available on the Group's website
(www.howdenjoinerygroupplc.com).
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS.
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Sections 434 to 436 of
the Companies Act 2006 and is an abridged version of the Group's financial
statements for the year 52 weeks to 25 December 2021. The statutory accounts
for the 52 weeks to 24 December 2020 have been filed with the Registrar of
Companies. The statutory accounts for the 52 weeks ended 25 December 2021 will
be filed in due course. The auditors' report on both the 2021 and 2020
accounts was not qualified or modified and did not contain any statement under
sections 498(2) or (3) of the Companies Act 2006 or any preceding legislation.
2 Segmental reporting
(a) Basis of segmentation, and other general information
Information reported to the Group's Executive Committee 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.
(b) Other information
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Capital additions 89.8 67.0
Depreciation and amortisation (40.6) (34.5)
(c) Geographical information
The Group's operations are mainly located in the UK, with a small presence in
France and Belgium. The Group has depots in each of these three countries. 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 this Annual
Report. 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
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
UK 2,043.3 1,509.6
Continental Europe 50.4 37.9
2,093.7 1,547.5
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
25 December 2021 26 December 2020
£m £m
UK 1,991.9 1,638.2
Continental Europe 59.5 49.0
2,051.4 1,687.2
Non-current assets (excluding deferred tax assets)
25 December 2021 26 December 2020
£m £m
UK 982.8 795.1
Continental Europe 32.5 22.8
1,015.3 817.9
Additions to property plant and equipment and intangible assets
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
UK 82.8 63.1
Continental Europe 7.0 3.9
89.8 67.0
3 Operating profit
Operating profit has been arrived at after (charging)/crediting:
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Net foreign exchange gain 5.2 0.4
Depreciation of property plant and equipment (31.5) (28.7)
Amortisation of intangible assets (9.1) (5.8)
Depreciation and impairment of lease right-of-use assets (74.8) (79.5)
Cost of inventories recognised as an expense (789.9) (611.0)
Write down of inventories (20.0) (6.8)
Loss on disposal of fixed assets (3.2) -
Increase in allowance for expected credit losses on trade debts (2.9) (1.5)
Staff costs (553.3) (461.7)
Auditor's remuneration for audit services (0.8) (0.6)
All of the items above relate to continuing operations.
4 Tax
(a) Tax in the income statement
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Current tax:
Current year 77.3 33.6
Adjustments in respect of previous periods (0.5) 0.6
Total current tax 76.8 34.2
Deferred tax:
Current year 0.4 4.8
Effect of changes in tax rate (1.7) -
Adjustments in respect of previous periods 0.3 (1.3)
Total deferred tax (1.0) 3.5
Total tax charged in the income statement 75.8 37.7
UK Corporation tax is calculated at 19% (2020: 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
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Deferred tax charge/(credit) to other comprehensive 33.5 (2.4)
income on actuarial difference on pension scheme
Change of rate effect on deferred tax 8.5 (1.1)
Deferred tax (credit)/charge to equity on share schemes (1.3) 0.2
Current tax charge/(credit) to equity on share schemes 0.1 (0.1)
Total charge/(credit) to other comprehensive income or changes in equity 40.8 (3.4)
(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:
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Profit before tax 390.3 185.3
Tax at the UK corporation tax rate of 19% (2020: 19%) 74.1 35.2
IFRS2 share scheme charge (0.3) 0.2
Expenses not deductible for tax purposes 1.7 0.5
Overseas losses not utilised 2.2 1.4
Non-qualifying depreciation 0.6 1.1
Super deduction - capital allowances (0.6) -
Rate change (1.7) -
Other tax adjustments in respect of previous years (0.2) (0.7)
Total tax charged in the income statement 75.8 37.7
Patent box
During 2020 we were granted a patent on a new plastic leg design which we have
incorporated into our sales of circa 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 will review the potential scale of any claim with our
advisers before deciding whether to make a claim under these rules.
5 Earnings per share
From continuing operations 52 weeks to 25 December 2021 52 weeks to 26 December 2020
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 314.5 591.2 53.2 147.6 592.3 24.9
Effect of dilutive share options - 2.1 (0.2) - 2.7 (0.1)
Diluted earnings per share 314.5 593.3 53.0 147.6 595.0 24.8
6 Dividends
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the 52 weeks to 25 December 2021 - 4.3p/share 25.3 -
Final dividend for the 52 weeks to 26 December 2020 - 9.1p/share 54.2 -
Special dividend for the 52 weeks to 26 December 2020 - 9.1p/share 54.1 -
133.6 -
52 weeks to
25 December 2021
£m
Dividends proposed at the end of the period (but not recognised in the
period):
Proposed final dividend for the 52 weeks to 25 December 2021 - 15.2p/share 89.3
89.3
The Directors propose a final dividend in respect of the 52 weeks to 25
December 2021 of 15.2p per share, payable to ordinary shareholders who are on
the register of shareholders at 8 April 2022 and payable on 20 May 2022.
The proposed final dividend for the current period is subject to the approval
of the shareholders at the 2022 Annual General Meeting, and has 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
(a) Overview of all retirement benefit arrangements
Defined contribution: auto-enrolment plan
The Group operates an auto-enrolment defined contribution plan for employees.
Under the terms of this scheme, employees make pension contributions out of
their salaries, and the Group also makes additional contributions.
The total cost charged to income in respect of this plan in the current period
of £26.5m (2020: £12.2m) represents the Group's contributions due and
payable in respect of the period. All of this amount was paid in the period as
was also the case in the previous period.
Defined contribution: other plan
The Group operates another defined contribution plan for its employees. The
assets of this plan are held separately from those of the Group, and are under
the control of the scheme trustees. This plan began operation during 2006.
The total cost charged to income in respect of this plan in the current period
of £0.7m (2020: £1.3m) represents the Group's contributions due and paid in
respect of the period.
Defined benefit plan
Characteristics and risks of the plan:
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. In November 2020, the Company entered
into a consultation process with affected employees and collective bargaining
groups regarding the potential closure of the defined benefit Howden Joinery
Pension Plan to future accrual. The outcome of the consultation was that the
Plan closed to future accrual from 31 March 2021.
The assets of the plan are held separately from those of the Group, being held
in a trustee-administered pension plan and invested with independent fund
managers. The trustee directors of the plan comprise three member-elected
trustees, two independent trustees, and three Group-appointed trustees. All
trustees are required to act in the best interests of the plan beneficiaries.
The plan exposes the Group to actuarial risks, such as longevity risk,
interest rate risk, inflation risk and market (investment) risk.
Accounting and actuarial valuation
Contributions are charged to the consolidated income statement so as to spread
the cost of pensions over the employees' working lives with the Group. The
present value of the defined benefit obligation, the related current service
cost, and past service cost are determined by a qualified actuary using the
projected unit method. The most recent completed actuarial valuation was
carried out at 5 April 2020 by the plan actuary. The actuary advising the
Group has subsequently rolled forward the results of the 5 April 2020
valuation to 25 December 2021. This roll-forward exercise involves updating
all the assumptions which are market-based (i.e. inflation, discount rate,
rate of increase in pensions and rate of CARE revaluation) to values as at 25
December 2021. We are using CMI 2020 mortality tables, being the most recent
tables available.
Funding and estimated contributions
The Group's contributions in the current and prior periods are shown in the
tables below. The Group has an agreement with the pension plan trustees to
make additional deficit contributions to the plan, over and above the normal
level of contributions, of £30m per year until June 2023. Under the
agreement, the scheme's funding position is monitored on a monthly basis and
deficit contributions are to be suspended if the scheme's funding position is
100% or greater for two consecutive months on a Technical Provisions basis,
and is resumed if the funding position subsequently falls back to below 100%.
The scheme's funding reached 100% on a Technical Provisions basis part way
through 2021 and remained in surplus on that basis until the year end.
Additional deficit contributions were suspended throughout this time. The
Group's estimated total cash contributions to the defined benefit plan in the
52 weeks ending 24 December 2022 are £3m.
This is on the assumption that the scheme remains in surplus on the Technical
Provisions basis and that there are no additional deficit contributions in the
year.
Differences between the defined benefit pension deficit on an IAS 19 basis and on a funding basis
As is mandatory under International Financial Reporting Standards, the Group
values its pension deficit in these accounts on an IAS19 basis. As shown
below, the IAS19 surplus at the current period end is £140.9m. On a funding
basis (also known as a 'Technical Provisions basis', being the basis on which
the triennial actuarial valuations are carried out), the funding surplus at
the current period end is estimated at £65.6m, this estimate being based on
an approximate roll-forward of the 2020 triennial funding valuation, updated
for market conditions.
Notes to the consolidated financial statements continued
(b) Total amounts charged in respect of pensions in the period
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Charged to the income statement:
Defined benefit plan - current service cost 4.8 20.8
Defined benefit plan - past service cost - 0.3
Defined benefit plan - administration costs 2.0 2.7
Defined benefit plan - total operating charge 6.8 23.8
Defined benefit plan - net finance charge 0.4 0.6
Defined contribution plans - total operating charge 27.2 13.5
Total net amount charged to profit before tax 34.4 37.9
Charged to equity:
Defined benefit plan - actuarial (gains)/losses (170.4) 12.7
Total charge (136.0) 50.6
(c) Other information - defined benefit pension plan
Key assumptions used in the valuation of the plan 52 weeks to 52 weeks to
25 December 2021 26 December 2020
Rate of increase of pensions in deferment capped at lower of CPI and 5% 2.85% 2.45%
Rate of CARE revaluation capped at lower of RPI and 3% 2.55% 2.35%
Rate of increase of pensions in payment:
- pensions with increases capped at lower of CPI and 5% 2.80% 2.45%
- pensions with increases capped at lower of CPI and 5%, with a 3% minimum 3.50% 3.35%
- pensions with increases capped at the lower of LPI and 2.5% 2.20% 2.10%
Rate of increase in salaries 4.30% 3.95%
Inflation assumption - RPI 3.30% 2.95%
Inflation assumption - CPI 2.85% 2.45%
Discount rate 1.90% 1.30%
Life expectancy (yrs): pensioner aged 65
- male 86.6 86.5
- female 88.4 88.3
Life expectancy (yrs): non-pensioner aged 45
- male 87.6 87.8
- female 90.3 90.5
Sensitivities
Present value of Projected 2022 pension cost
scheme liabilities at
25 December 2021
Total service Net interest Net pension
cost
(credit)/cost
(credit)/expense
£m £m £m
Assumption
Current valuation, using the assumptions above (1,513) 2.5 (2.7) (0.2)
0.5% decrease in discount rate (1,675) 2.5 0.3 2.8
0.5% increase in inflation (1,600) 2.5 (1.0) 1.5
1 year increase in longevity (1,566) 2.5 (1.6) 0.9
The sensitivities above are applied to the defined benefit obligation at the
end of the reporting period, and the projected total service cost for 2022.
Whilst 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.
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:
25 December 2021 26 December 2020
£m £m
Present value of defined benefit obligations (1,512.5) (1,641.0)
Fair value of scheme assets 1,653.3 1,593.3
Surplus/(deficit) in the scheme, recognised in the balance sheet 140.8 (47.7)
Movements in the present value of defined benefit obligations were as follows:
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Present value at start of period 1,641.0 1,485.3
Current service cost 4.8 20.8
Past service cost - 0.3
Administration cost 2.0 2.7
Interest on obligation 21.1 28.3
Actuarial losses/(gains):
- changes in financial and demographic assumptions (132.9) 165.8
- experience 20.5 (19.9)
Benefits paid, including expenses (44.0) (42.3)
Present value at end of period 1,512.5 1,641.0
Movements in the fair value of the plan's assets is as follows:
52 weeks to 52 weeks to
26 December 2020
25 December 2021
£m
£m
Fair value at start of period 1,593.3 1,428.7
Interest income on plan assets 20.7 27.7
Contributions from the Group 25.3 46.0
Actuarial gains 58.0 133.2
Benefits paid, including expenses (44.0) (42.3)
Fair value at end of period 1,653.3 1,593.3
Movements in the surplus / (deficit) during the period are as follows:
52 weeks to 52 weeks to
25 December 2021 26 December 2020
£m £m
Deficit at start of period (47.7) (56.6)
Current service cost (4.8) (20.8)
Past service cost - (0.3)
Administration cost (2.0) (2.7)
Employer contributions 25.3 46.0
Other finance charge (0.4) (0.6)
Actuarial gains / (losses) gross of deferred tax 170.4 (12.7)
Surplus / (deficit) at end of period 140.8 (47.7)
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:
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Current service cost 4.8 20.8
Past service cost - 0.3
Administration cost 2.0 2.7
Total service cost 6.8 23.8
The total service cost is included in the financial statement heading Staff
Costs.
Amount credited to other finance charges:
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m
£m
Interest income on plan assets (20.7) (27.7)
Interest cost on defined benefit obligation 21.1 28.3
Net charge 0.4 0.6
The actual return on plan assets was £78.7m (52 weeks to 26 December 2020:
£160.9m).
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:
52 weeks to 52 weeks to
25 December 2021
26 December 2020
£m £m
Actuarial gain on plan assets 58.0 133.2
Actuarial gain/(loss) on plan liabilities 112.4 (145.9)
Net actuarial gain/(loss), before associated deferred tax 170.4 (12.7)
8 Notes to the cash flow statement
Analysis of net cash Cash at bank Short-term Cash and
and in hand
investments
cash equivalents,
and net cash
£m £m
£m
At 26 December 2020 400.7 30.0 430.7
Cash flow 89.6 (5.0) 84.6
At 25 December 2021 490.3 25.0 515.3
The short-term investments had a maturity of less than three months, and as
such were considered to be cash equivalents for the purposes of the cash flow
statement.
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