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SUMMARY OF GROUP RESULTS1

£m (unless stated) 2020 2019 % change
Revenue   
 - Group465.0652.6 (28.7)
 - Howden Joinery UK depots 453.4638.1 (29.0)
Gross profit 276.1404.2 (31.8)
Gross profit margin, % 59.461.9 (250)bp
Operating (loss)/profit (9.8)77.7 (112.6)
(Loss)/profit before tax (14.2)78.1 (118.2)
Basic (loss)/earnings per share (1.8)p10.3p (117.5)
Dividend per share 0.0p3.9p (100.0)
Net cash at end of period 253.4217.1 16.7

1 The information presented relates to the 24 weeks to 13 June 2020 and the 24 weeks to 15 June 2019, unless otherwise stated. The H1 2020 results are presented under IFRS 16 for the first time, 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.

Financial highlights1:

  • Howden Group results were significantly impacted by the COVID-19 pandemic, with Group revenue in the first half of £465.0m (2019: £652.6m). Howden Joinery UK depot revenue reduced by 29.0% to £453.4m (2019: £638.1m), and by 30.3% on a same depot basis2. Split by quarter, Howden Joinery UK revenue was 1.1% higher in the first quarter and 55.9% lower in the second quarter.  
  • Gross profit margin of 59.4% (2019: 61.9%), reflected mix changes and the impact of carrying fixed costs during reduced levels of production;
  • Loss before tax of £14.2m (2019: profit before tax of £78.1m), included government furlough income of £21.5m;
  • Net cash of £253.4m at 13 June 2020 (28 December 2019: £267.4m net cash; 15 June 2019: £217.1m net cash), assisted by £76m support from Government schemes, including tax deferrals, and actions taken by the Group to conserve cash

Chief Executive, Andrew Livingston, said:

“Howdens performance in the first half of 2020 was materially impacted by COVID-19, with sales for the period being significantly lower than last year. The shortfall in sales all occurred in the second quarter, which coincided with the start of lockdown in the UK, and led to us making an overall loss of £14m in the first half. Our performance improved period on period in the second quarter as we found ways to re-open for business safely and with full stock availability. UK Depot Sales in the first four week period of the second half were up 2% year on year.

“During the period our first priority has been the health and wellbeing of our staff and our customers, whose ability to work was curtailed by lockdown. We introduced new ways of operating, provided new services to support our customers during this difficult time and reduced cash expenditure, whilst protecting essential areas.

“Given the COVID related and other economic uncertainties, we remain cautious about underlying market conditions, however we believe a more challenging and demanding marketplace can play to the advantage of our in-stock, local model.”

Operational developments:

  • On 24 March 2020, in response to the COVID-19 pandemic, Howdens announced the temporary closure of all its UK depots, along with its manufacturing and distribution sites. From late April, in line with the latest Government guidance and with additional safe working processes in place, Howdens began a phased reopening of depots, manufacturing and distribution. By period 6, all sites were open and operating safely.
  • 13 new kitchen ranges introduced in H1 2020, 11 of which were in stock for the start of the year and synchronised with a promotional offer;
  • Other new product introductions include extending the range of Lamona new technology appliances and 11 new worktops;
  • Further progress on developing the new digital offering, with the new Howdens.com web platform improving brand awareness and leading to increased web visits, online brochure requests and resulting depot contacts, and the online trade customer area seeing a significant increase in adoption and usage;
  • Capital expenditure of £22.3m (2019: £24.1m) included the next phase of our Raunds distribution centre and digital investments.

 

CURRENT TRADING AND OUTLOOK FOR 2020

In the first four-week period of H2 (Period 7, to 11 July 2020), total sales at Howdens Joinery UK depots rose by 2.2% on the same period in 2019, and by 0.3% on a same depot basis2.

During the course of 2020, we now plan to open around 20 depots in the UK and France. We also intend to extend our mature depot test by refurbishing around 30 older depots to the new format during the year, 18 of which were completed in the first half, and introduce vertically racked product to a further 25 depots without further modifications, five of which have been completed. 

 

In 2020, we expect additional operating costs of £20m to be incurred in respect of: the one-year impact of running the old National Distribution Centre whilst also incurring the costs of the second phase of our new Raunds distribution facility; increased pension charges; and additional depreciation. These are in addition to the impact of on-going growth in the business, inflationary pressures, new depots and COVID-19. Compared to 2019, we will benefit from not bearing the £5.8m costs of closing our operations in the Netherlands and Germany. Capital expenditure of around £60m (2019: £61.1m) is expected, including the final phase of the Raunds distribution centre, together with further investment in digital, new depots and depot refurbishments.

We continue to be cautious given the economic uncertainties that we face, with our key Period 11 trading ahead of us and with consumer and regulatory reactions to COVID-19 making predictions of future levels of demand difficult. However, despite this, we remain confident in our business model for the future.

 

2 Same depot basis for any year excludes depots opened in that year and the prior year. See Financial Review on page 4.

 

Enquiries

Investors/analysts:
Guy Stainer
Head of Investor Relations + 44 (0) 20 7535 1164/+44 (0) 7739 778187

Media:
Citigate Dewe Rogerson
Simon Rigby + 44 (0) 20 3926 8522, Kevin Smith +44 (0) 20 3926 8509
Nick Hayns + 44 (0) 20 3926 8503

 

Note to editors:

Howden Joinery Group Plc is the parent company of Howden Joinery (Howdens). In the UK, Howdens is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through more than 730 depots. Around one-third of the products it sells are manufactured in the company’s own factories in Runcorn, Cheshire, and Howden, East Yorkshire. The business also operates a total of 27 depots in France and Belgium.

There will be an audio webcast for analysts and investors at 09.30 UK time today, 23 July 2020. For details and more information, please see: www.howdenjoinerygroupplc.com. The presentation can also be heard via a phone link, where there will be the opportunity to ask questions, details below:

 

Confirmation code: 1332261

Location Phone Number
United Kingdom, Local +44 (0)330 336 9411
United States, Local +1 929-477-0324

FINANCIAL CALENDAR

2020
Trading update 5 November 2020
End of financial year 26 December 2020
 
2021
2020 Preliminary Results 25 February 2021
Trading update 29 April 2021
Annual General Meeting 6 May 2021
Half Year Report 22 July 2021
Trading update 4 November 2021

FINANCIAL REVIEW

FINANCIAL RESULTS FOR FIRST HALF OF 20201

REVENUE

2020 2019
Revenue £m £m
Group:465.0652.6
   
     Howden Joinery UK depots - same depot basis 443.8636.8
     UK depots opened in previous two years 9.61.3
     Howden Joinery UK depots – total sales 453.4638.1
   
     Howden Joinery Continental European depots 11.614.5
   
Revenue €m €m
     France and Belgium – same depot basis 12.4 16.4
     Depots opened in previous two years 0.9 -
     France and Belgium – total sales 13.3 16.4
   

1 The information presented relates to the 24 weeks to 13 June 2020 and the 24 weeks to 15 June 2019, unless otherwise stated. The H1 2020 results are presented under IFRS 16 for the first time, 2019 results have not been restated.
Same depot basis for any year excludes depots opened in that year and the prior year.

Total group revenue was £465.0m (2019: £652.6m). Howden Joinery UK depot revenue fell by 29.0% to £453.4m (2019: £638.1m). UK revenue reduced by 30.3% on a same depot basis2 to £443.8m in 2020 (2019: £636.8m); this excludes the additional revenue from depots opened in 2019 and 2020 of £9.6m in 2020 (2019: £1.3m). Split by quarter, Howden Joinery UK revenue was 1.1% higher in the first quarter and 55.9% lower in the second quarter, and 0.8% lower and 56.9% lower, respectively, on a same depot basis2.

As can be seen from the table below, steady progress was made following the initial impact of COVID-19 at the beginning of period 4, with period 7 showing growth compared to the same period last year.

Howden Joinery UK Revenue 2020 2019 Change
£m£m %
    
    Quarter 1 (periods 1 – 3) 304.6301.3 1.1
    Period 4 15.3113.6 (86.5)
    Period 5 48.7109.2 (55.4)
    Period 6 84.8113.9(25.5)
    First half 453.4638.1 (29.0)
    
    Period 7 116.7114.1 2.2
    

Depot revenue in Continental Europe was £11.6m (2019: £14.5m). On a local currency basis, sales at our French and Belgian depots reduced by 19.2% overall and by 24.5% on a same depot basis2.

Sales in the first period of the second half (Period 7) increased 46% compared to the same period last year, and by 34% on a same depot basis

GROSS PROFIT

Gross profit reduced £128.1m to £276.1m (2019: £404.2m). This change reflected a negative volume and mix impact of £183m, lower pricing of £4m and input cost pressures of £2m. These were partly offset by £60m lower cost of goods and a £1m benefit from exchange rate movements. The gross profit margin was 59.4% (2019: 61.9%), reflecting mix changes and the impact of carrying fixed manufacturing costs with reduced levels of production.

OPERATING PROFIT

Selling and distribution costs and administrative expenses (SD&A) reduced to £285.9m (2019: £326.5m). As expected, cost increases were due to continued investments in areas across the business, including £6m in depots opened in 2019 and £4m additional costs to support growth, including the Raunds development. The lower activity levels resulted in £13m lower costs in existing depots and £8m lower other operating costs. £21m was claimed in furlough payments and the adoption of IFRS 16 reduced operating costs by £4m. There was also the absence of £5m depot closure costs in Germany and the Netherlands, incurred in the prior year. As a result, the Group reported an operating loss of £9.8m (2019: operating profit of £77.7m).

PROFIT BEFORE AND AFTER TAX

There was a net interest credit of £0.2m (2019: £0.4m credit) and an IFRS 16 interest charge for the first time of £4.6m. The loss before tax was £14.2m (2019: profit before tax of £78.1m).

The tax credit on profit before tax was £3.3m (2019: tax charge of £16.4m), representing an effective rate of tax of 23.2% (2019: 21.0%).

As a result, loss after tax was £10.9m (2019: profit after tax of £61.7m). Reflecting the above and the reduced share count following share repurchases, basic loss per share was 1.8p (2019: earnings per share of 10.3p).

DIVIDEND AND SHARE REPURCHASESS

As previously announced, the dividend and share buy-back programmes have been suspended until further notice and will resume as soon as the Group has greater clarity about the impact on the business of COVID-19. This means that the Group will not pay an interim dividend in 2020 (2019: 3.9p per share). Ahead of this decision, the Group acquired 1.8m shares for a consideration of £9.8m, relating to the £50m 2019 share repurchase programme.

CASH

As soon as the impact of COVID-19 became clear, the Group took a number of actions in order to preserve cash, including suspending shareholder returns, deferring non-essential capital expenditure and agreeing a deferral of payments towards the Group pension deficit. In addition, the Group benefitted from available UK Government support, including furlough receipts of £15m and tax payment deferrals of £61m.

There was a net cash inflow from operating activities of £44.1m (2019: £56.3m). This was after a cash contribution to the Group’s pension schemes, in excess of the operating charge, of £2.6m (2019: £9.8m).

Working capital reduced by £14.5m. Debtors at the end of the period were £39.0m lower than at the beginning of the period and stock levels increased by £33.9m, due to COVID-19 contingency stock and the introduction of new kitchen ranges. Creditors increased by £9.4m.

Payments to acquire fixed and intangible assets totalled £22.3m (2019: £24.1m). We expect full year capital expenditure to be around £60m (2019: £61.1m).

Share repurchases totalled £9.8m (2019: £46.3m), corporation tax payments were £12.3m (2019: £20.8m) and the interest and principal paid on lease liabilities totalled £26.8m.

Reflecting the above, there was a £14.0m net cash outflow in the first half of the year (2019: £14.2m), leaving the Group with net cash at the end of the period of £253.4m (28 December 2019: £267.4m net cash; 15 June 2019: £217.1m net cash).

The Group has access to both a £140m asset backed lending facility and an agreed Government facility, both of which remained undrawn at the balance sheet date

PENSIONS

At 13 June 2020, the pension deficit shown on the balance sheet was £33.3m (28 December 2019: £56.6m). The decrease in the deficit was primarily due to actuarial gains of £21.0m, arising mainly from a change in actuarial assumptions which increased liabilities by £118.6m offset by increased asset returns of £139.6m. The current service, administrative and finance charges totalled £11.2m and employer contributions were £13.5m. As mentioned above, deficit contributions were deferred during the COVID-19 lockdown period.

On 28 June 2018, we announced that, following the triennial actuarial valuation of the scheme as at 5 April 2017, we had reached agreement with the Trustees of the defined benefit pension scheme in relation to the schedule of payments required to fund the scheme deficit. We will make annual deficit contributions of £30m per annum for up to five years until June 2023.

The funding position will be monitored on an ongoing basis, and deficit contributions will be suspended should the scheme's funding position improve to at least 100 percent of the scheme's funding basis for two consecutive months and resumed if the funding position subsequently falls back below 100 percent.

IFRS 16 - LEASES

The Group adopted IFRS 16 for the first time in the current period.  The effects of adoption are shown in detail at note 13 to the condensed financial statements, together with our revised accounting policies.

The effect of IFRS 16 on the Income Statement in the first half of 2020 compared to the previous accounting standard, IAS 17, was an increase in operating profit of £3.9m. This is more than offset by an increase in interest charges of £4.6m.

OPERATIONAL REVIEW

Howdens knows what it stands for: to help our trade customers achieve exceptional results for their customers and to profit from doing so. When our customers succeed, we succeed. 

Our model is a powerful combination of locally empowered depot management teams served by a dedicated supply chain, which is both cost effective and critical to the success of our in-stock offer.

A key feature of Howdens success is our trade customer focus, which underpins everything we do.

Our account base remains stable at approximately 470,000 customers.

RESPONDING TO COVID-19

On 24 March 2020 we announced the closure of all UK depots and manufacturing and distribution facilities, having already closed depots in Continental Europe. Thereafter, a phased re-opening of our facilities was undertaken, initially with a skeleton staff and restricted trading hours, as we established ways of operating safely in a socially distanced environment. Throughout lockdown we maintained an emergency provision to support the NHS, care providers and vulnerable people. By the start of period 6 on 18 May 2020, all depots were trading, albeit not at full scale, with closer to a full complement of staff and Saturday opening. 

During this time our priorities have been to: take care of our people, working with Trade Unions and Works Councils to ensure a safe environment for those returning to work and to provide financial support for those on furlough; preserve cash where possible, by deferring new depot openings and refurbishments but continuing with essential works, such as the move to the new Raunds distribution facilities, and maintaining sufficient stock available for depots; and support our customers and their communities by re-opening depots safely and as soon as possible, selectively investing in price and introducing new services such as “call and collect” and a remote kitchen design service.

The last few months have necessitated changes to our business practices but we believe there are learnings that can be taken and applied to the ways we operate in the future. We understand more about the potential value of remote working; have a more validated view of how we utilise IT to free depot time and manage stock more effectively; appreciate people’s propensity to shop online and interact remotely; and are helping identify whether there are surplus costs and inefficiencies in the business that can be eliminated.

UK DEPOT ROLLOUT AND OPERATIONS

The total number of depots trading at the end of the half was 732, with around 15 new depots now expected to be opened in the second half. All new depots are in the new format, described below, aimed at creating the best depot environment in which to do business with our customers.

New depot format and roll-out

Howdens depots typically have an average size of around 10,000 square feet. The new depot format, using vertical racking in the warehouse section, has the potential to make productivity gains from reduced picking times and reduces required storage space.

Where this new racking has been tested, the space has been reallocated to provide a more open front area, allowing depot staff to better interact with customers, and approximately doubling the space available to display a wider range of kitchen designs. There is also space for a small goods picking area behind the counter with an improved range of everyday essential items, including hardware and ironmongery, to add incremental profit and as a way of encouraging footfall and incremental kitchen sales. The fit-out cost of a new format depot is around £350,000, broadly in line with the cost of our previous format.

The new format also offers the potential to open new, smaller, infill depots of around 6,000 square feet in rural locations and big cities. Including the smaller sized depots, the number of UK depots could potentially reach around 850.

By the end of 2019, 11 older depots had also been converted as a test to understand the rollback opportunity of the new format in the existing depot estate. This year we are extending the test by converting around 30 more of the older depots to the new format, at an expected average cost of £225,000. Having completed 18 conversions in the first half, we expect to convert a further 11 in the second half. We also now plan to introduce vertically racked product to around a further 25 depots, without further modifications, compared to our previous plan of 50 depots, including the five which were completed in the first half.  

By the end of 2020, assuming our revised depots plans for this year are implemented, we will have a total of 115 new format depots, comprising 75 new depots and 40 refurbished depots, and 87 depots that have been re-racked without other modifications.

PRODUCT AND MARKETING

We introduced 13 new kitchen ranges in the first half of 2020, of which 11 were launched and in stock in January and synchronised with a promotional offer. First half new range sales were ahead of last year, when the new ranges were launched later, and this earlier introduction meant we were well positioned with product when we returned to all-depot trading following the temporary closure in late March.

With the remaining five new kitchen ranges already launched in Period 7, we have all our new products on sale well ahead of our traditional peak Period 11 trading period. This brings our total kitchen range introductions to 18 for the year.

New producextending the range of Lamona new technology appliances, including self-cleaning ovens and design led refrigeration at lower price pointst initiatives and launches for this year include:

  • two new kitchen styles, the Hockley (a modern slab range with seamless door edges that offers a trade up from our entry-price Greenwich Gloss range) and the Chilcomb (an updated painted timber shaker range available in six colours);
  • adding more colours across ranges, including adding a new green in the successful mid-priced Fairford shaker range and pebble and navy being extended across three kitchen families, including Greenwich, thereby strengthening our entry price point offer;
  • development of a new handle less cabinet platform to meet demand for a linear look which can be used within the current ranges, thereby providing increased customer choice without a commensurate rise in the range count;
  • introducing 11 new worktops, focussing on lighter shades and thinner profiles, which complement our new Linear kitchen range; and
  • extending the range of Lamona new technology appliances, including self-cleaning ovens and design led refrigeration at lower price points.

Range management

Managing the number of kitchen ranges efficiently is crucial for both our customers, who want best availability, and for our own profitability, as the number of ranges and the products within a range add significant complexity to our supply chain and the inventory that we hold.

A key part of this is the timely discontinuation of underperforming ranges and the management of clearance stock from the business. At the start of the year, we had 67 current kitchen ranges, including initial stock of some ranges launched in 2020, having cleared 19 ranges during 2019. We believe around 65 current ranges is the appropriate number for our market at present and we plan to remove at least as many ranges as are added during 2020. We are also looking at how we can further improve service and availability by looking at where we hold stock and delivery patterns to depots.

MANUFACTURING AND SUPPLY

Our dedicated manufacturing and supply chain is critical to the success of our in-stock offer, supplying all product, whether manufactured or sourced, to all depots, each of which have individual and changing day to day requirements. It is structured to respond to these needs and meet demand in our peak weeks of Period 11 trading, when sales are typically more than double those in other periods.

Operating under COVID-19 conditions has meant finding ways to re-engineer how factories operate and how we distribute product to depots. Following the temporary closure of our sites in late March, in preparation for a phased return to work, our leadership and engineering teams assessed and designed, with employee consultation, a series of social distancing measures and safe working processes and practises.

In April, with these additional safety measures in place, we were able to re-open our manufacturing sites in Howden and Runcorn and associated distribution facilities. New measures included specialised lifting equipment, shift airlocks, one-way systems, additional welfare facilities, screening and advanced hygiene measures. Throughout the process we engaged and worked with Trade Union representatives and Works Councils and the measures taken were implemented with their support.

Since re-opening, we have continued to work through processes with “COVID bottlenecks” and we are now able to manufacture all products whilst maintaining social distancing and our efficiency, whilst below pre-COVID levels, is much improved.

We have continued with our policy of holding increased levels of safety stock and back-up sources of supply when we believe this is necessary to protect our “in-stock offer” against potential disruptions to our supply chain. We first did this as part of our Brexit planning and again ahead of lockdown. We also took temporary additional storage space pending some warehouse capacity that forms part of our new Raunds facilities.

We continue to keep under review what we believe it is best to make or to buy, both in terms of cost and overall supply chain resilience and flexibility. Actively managing our stock position also helps us to accommodate changes in patterns of demand, should these be less regular or predictable than in the past. We believe that successfully operating this in-stock model provides us with a competitive advantage, particularly at these times when supply chains are being interrupted.

DIGITAL

We are continuing to develop the new platform for our website as we enhance our digital capability to reinforce the Howdens model. Our investment in digital will enhance the strong local relationships and improve communications between depots and their builder customers, including through offering streamlined operating processes to free up depot staff and customers’ time. In the first half, the digital investments that we made were particularly instrumental in doing this, at a time when relationships and ways of doing business were disrupted.

The new web platform, which has enriched product content and improved search optimisation, has moved Howdens.com into more prominent search positions, raising brand awareness with consumers. As a result, visitors to the site were up 31% year on year with an average of over 340,000 visitors per week. In the second quarter, average visitors exceeded 500,000 visitors a week for the first time. Furthermore, depot contacts made via the website increased 58% in the half and brochure requests increased by 34% in the second quarter.

In January, we rolled out our digital online account offering in line with our aim to put “a tradesperson’s local depot in their pocket”. Around 19% of our credit account holders have registered to use this secure customer-only area of the website with around 40% of users making a payment or downloading documents, with average online payments per customer above the average company level.  

With planning meetings in our depots or in peoples’ homes not permitted, a new personal kitchen design service was also made available online. Depot kitchen designers equipped with online design and conferencing tools to work from home were able to plan kitchens and transmit designs to depots to deal with as they re-opened. Feedback from users and depots has been positive and we are making this service a permanent feature of the Howdens offer.

In the second half, we will continue to improve content and add capability to our platform, including introducing digitised account opening to reduce the time and costs of administering that process, improving functionality to improve communications between customers and depots and using computer-generated imagery to extend the number of kitchen range lay-out options which can be viewed online

    CONTINENTAL EUROPE

    At the end of 2019, there were 27 depots across France (25) and Belgium (2), with the Belgian depots continuing to be run within the French field structure.

    In France, lockdown occurred a little earlier than the UK and all depots closed on 17 March 2020, at which point sales were up around 3% on the prior year. By adopting the same safety-first approach and taking similar measures to the UK we re-opened for business with depots offering a “call and collect” service, with depots starting to trade again during the first two periods of the second quarter. The French Government ended lockdown on 11 May and depots were opened to more normal ways of trading with appropriate safety measures in place. While first half sales were down around 20% compared with last year as a result of lockdown, they increased significantly in the final two periods compared with the same periods last year. Sales in the first period of the second half (Period 7) increased 46% compared to the same period last year.

    We believe there is the potential for a viable business based in France. The French market has low penetration rates of integrated kitchens and most kitchens are purchased through DIY outlets and specialist shops, which is similar to the way the UK market was structured when Howdens was founded.

    Based on the way current depots perform in their local areas we think both the French trade customer and end consumer can see the benefits of buying a kitchen though the trade. We also believe that depots in small clusters within cities perform better, partly due to word of mouth between builder customers and because of our ability to build a local and trusted brand.

    Clustering also helps to build the Howdens culture within our business teams. We are therefore developing our operation in France by way of a city-based strategy. We now expect to open four depots in France in the second half.

    GOING CONCERN

    The directors have adopted the going concern basis in preparing these accounts after assessing the Group’s principal risks including the risks arising from COVID-19 and Brexit.  

    Consumer and regulatory reactions to COVID-19 make prediction of future levels of demand difficult, particularly whilst sales remain on a recovery path. Management have taken actions to secure availability of stock and raw materials and to secure workplaces and distribution routes to meet reasonably foreseeable levels of sales. The most significant remaining uncertainties are therefore around the timing and level of demand.

    The directors have reviewed actual trading results in the first half of 2020 and the first four-week period after the half year end, which are presented in the Financial Review and Current Trading and Outlook sections of this report. They have also considered three scenarios prepared by management:

    • the Group’s latest forecast, which takes into account the experience of actual trading under COVID 19 until the half year end, and assumes some improvement for the remainder of the going concern period;
    • a plausible downside scenario which assumes no further recovery from the year-on-year reduction in sales experienced in the final four-week period of this half year over the whole of the going concern period; and
    • a reverse stress test which finds the maximum level of additional reduction in sales that could occur, over and above that modelled in the downside scenario, with the Group still remaining cash positive over the whole going concern period, without borrowing or taking further mitigating actions.

    In the first two scenarios the Group has significant cash throughout the going concern period after meeting its commitments.  

     

    The results of reverse stress testing show that there would have to be a significant additional fall in sales over and above the downside scenario before the Group has to take further mitigating actions or draw on borrowing facilities. 

    None of these scenarios envisage the Group drawing on either its existing £140m borrowing facility or the agreed Government facility, which is for a substantially greater amount. In certain downside scenarios, the EBITDA covenant in the Group’s existing facility may need to be renegotiated or partially waived for the facility to be available. More detail on the facility is given in Note 18 of the December 2019 Annual Report and Accounts.

    Taking these 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 Company and Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

     

    RELATED PARTIES

    Related Party transactions are disclosed in Note 12 to the condensed set of financial statements. There have been no material changes to the related party transactions described in the last Annual Report & Accounts.

    PRINCIPAL RISKS AND UNCERTAINTIES

    The principal risks and uncertainties that could have a material impact on the Group’s performance over the remaining half of the financial year have not changed from those which are set out in detail in the Group's 2019 Annual Report & Accounts, and which are summarised below.   

    1. Failure to maximise the growth potential of the business – if we do not understand and exploit our growth opportunities in line with our business model and risk appetite, or if we do not meet the related growth challenges, we will not get maximum benefit from our growth potential.
    2. Deterioration of business model and culture – if we lose sight of our model and culture, we may not serve our customers successfully and our long-term profitability may suffer.
    3. Changes in market conditions – weaker market conditions could affect our ability to achieve sales and profit forecasts, impacting on our cash position. Weaker exchange rates could increase our cost of goods sold. This risk has increased due to the impact of Covid-19.
    4. Interruption to continuity of supply – could compromise our ability to deliver our in-stock business model.
    5. Loss of key personnel – could adversely affect the Group’s operations.
    6. Health and Safety – could compromise the safety and wellbeing of individuals and the reputation and viability of the business.
    7. Cyber security incident – could cause a key system and/or sensitive data to be compromised.
    8. Product design relevance – if we do not offer the builder the products that they and their customers want, we could lose sales and customers.
    9. Credit control failure – could affect our ability to continue to support our customers via their nett monthly trade accounts, and potentially our ability to collect debts.

    COVID-19

    Our principal risks have been and continue to be impacted by the pandemic to some degree. Management have taken mitigating actions to protect the safety of our staff and customers whilst securing the continued sustainability and viability of the group.



    Effect of COVID-19 on principal risks

    Principal Risk Area ImplicationsActions taken
    Operations
    - Supply Continuity


    - Cyber Security



    - Credit Control Failure
     
    - Potential supply chain delays
     
    - Increased cyber threat’s both externally and through increased remote working
    - Risk to continued operation of critical activities
     
    - Increased safety stock to secure supply during disruption and worked actively with our suppliers
    - Refreshed cyber training for staff, reinforced existing safe ways of working remotely
     
     
    - Invoked our Business Continuity Plans to secure critical business activities.
    People
    - Health & Safety
    - Loss of Key Personnel
     
    - Normal operations not safe for COVID-19 Environment
    - Potential loss of business leadership
     
    - Risk assessed all operations through a COVID-19 lens
    - Introduced new operating procedures to protect our staff, customers and other stakeholders
    - Established links with external expertise to ensure approach remains appropriate.
    Strategy, Model & Culture
    - Growth
    - Market Conditions
     
    - Model & Culture
     
    - Market uncertainty impacting on sales, strategic decisions and cash holdings
    - Potential cultural impact of new ways of working
     
    - Modelling challenges and opportunities and optimising strategic plans whilst protecting the cashflow of the business
    - Adapting leadership approach and using technology to secure culture in new operational environment.

    We have a low appetite for COVID-19 risk and aim to mitigate its effects as much as reasonably possible. It remains a key point of focus across the entire business.

    BREXIT

    Brexit will impact a number of our principal risks, with the severity and timeframes varying significantly, depending on the nature of our exit from the EU. These influences are summarised in the table below:

     

    Risk Area What it meansActions takenRisks
    Trade & Customs
    -           UK exits Single Market
    -           UK exits Customs Union
    -           Regulatory Differences
     
    -           Product Tariffs
    -           Supply Chain Delays
    -           Regulatory Uncertainty
     
    -           Modelling risks & opportunities
    -           Obtained importer accreditation
    -           Managing stock levels
    -           Reviewing Supplier Contracts
     
    1
    2
    3
    4
    People & Immigration
    -           No free movement
     
    -           Labour shortages for us, our suppliers and our customers
     
    -           Monitoring workforce composition
    -           Working with our migrant workers
     
    1
    4
    Strategy & Business Plan
    -           Uncertainty with
    o Consumer
    o Investor
    o Exchange rates
     
     
    -           Impact on Sales; and, Strategic Decisions
    -           Increased costs
     
     
    -           Modelling challenges and opportunities
    -           Optimising strategic plans
     
     
    1
    2
    3
    4

    The business has established a Brexit Committee who regularly meet to discuss the likely exit scenarios to ensure our exit plans remain appropriate.

    CAUTIONARY STATEMENT

    Certain statements in this half yearly report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

    RESPONSIBILITY STATEMENT

    We confirm that, to the best of our knowledge: 

    (a)  the condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’;

    (b)  the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 24 weeks and description of principal risks and uncertainties for the remaining 28 weeks of the year); and

    (c)  the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).

    The directors are responsible for the maintenance and integrity of the corporate and financial information included in the company’s website.  Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

     

    By order of the Board

    Andrew LivingstonMark Robson
    Chief Executive OfficerDeputy Chief Executive and Chief Financial Officer
    22 July 2020

    Condensed consolidated income statement

     Notes24 weeks to 13
    June 2020

    unaudited
    £m
    24 weeks to 15
    June 2019
    unaudited
    £m
    52 weeks to
    28 December 2019
    audited
    £m
    Revenue - sale of goods 465.0652.61,583.6
    Cost of sales (188.9)(248.4)(597.4)
    Gross profit 276.1404.2986.2
    Selling & distribution costs (245.5)(275.7)(621.7)
    Administrative expenses (40.4)(50.8)(104.5)
    Operating (loss)/profit (9.8)77.7260.0
    Finance income 0.50.61.1
    Other finance cost - interest on lease payments (4.6)--
    Other finance cost - pensions (0.3)(0.2)(0.4)
    Finance costs (4.9)(0.2)(0.4)
    (Loss)/profit before tax  (14.2)78.1260.7
    Tax credit/(charge) on profit63.3(16.4)(51.7)
    (Loss)/profit for the period attributable to the equity holders of the parent (10.9)61.7209.0
    (Loss)/earnings per share:    
    Basic (loss)/earnings per 10p share7(1.8)p10.3p35.0p
    Diluted (loss)/earnings per 10p share7(1.8)p10.2p34.8p

    Condensed consolidated statement of comprehensive income

     Notes24 weeks to 13
    June 2020

    unaudited
    £m
    24 weeks to
    15 June 2019
    unaudited
    £m
    52 weeks to
    28 December 2019
    audited
    £m
    (Loss)/profit for the period (10.9)61.7209.0
    Items of other comprehensive income
    Items that will not be reclassified subsequently to profit or loss:
    Actuarial gains/(losses) on defined benefit pension scheme1021.019.5(47.1)
    Deferred tax on actuarial gains/losses on defined benefit pension scheme (4.0)(3.4)8.0
    Change of tax rate on deferred tax 1.1-(0.7)
    Items that may be reclassified subsequently to profit or loss:
    Currency translation differences 0.5(0.9)(1.9)
    Other comprehensive income for the period 18.615.2(41.7)
    Total comprehensive income for the period attributable to equity holders of the parent 7.776.9167.3

    NOTE: the figures for the 24 weeks to 13 June 2020 include lease depreciation and lease-related interest charges accounted for under IFRS 16, whereas the figures for the previous half year and full year account for leases under the previous leasing standard, IAS 17. This difference in treatment is because the Group has adopted IFRS 16 in the current period using the modified retrospective basis, which does not require restatement of prior periods. For more detail on the effects of adopting IFRS 16, see note 13.

    Condensed consolidated balance sheet

     Notes13 June 2020
    unaudited
    £m
    15 June 2019
    unaudited
    £m
    28 December 2019
    audited
    £m
    Non-current assets    
    Intangible assets 22.823.624.9
    Property, plant and equipment9207.7194.7212.4
    Lease right-of-use assets 530.2--
    Deferred tax asset 13.75.513.5
    Long-term prepayments 0.81.10.9
      775.2224.9251.7
    Current assets    
    Inventories 265.7247.6231.8
    Trade and other receivables 129.9203.2193.1
    Cash and cash equivalents 253.4217.1267.4
      649.0667.9692.3
    Total assets 1,424.2892.8944.0
    Current liabilities    
    Lease liabilities (73.0)--
    Trade and other payables (224.3)(310.6)(241.4)
    Current tax liability (4.3)(13.3)(20.3)
      (301.6)(323.9)(261.7)
    Non-current liabilities    
    Pension liability10(33.3)(6.9)(56.6)
    Lease liabilities (490.1)--
    Deferred tax liability (1.5)(1.5)(1.5)
    Provisions 11(10.2)(6.9)(9.0)
      (535.1)(15.3)(67.1)
    Total liabilities  (836.7)(339.2)(328.8)
    Net assets 587.5553.6615.2
    Equity    
    Share capital 60.360.660.5
    Share premium account and capital redemption reserve 92.492.192.2
    ESOP reserve (5.6)(9.3)(6.3)
    Treasury shares (28.2)(29.3)(29.3)
    Retained earnings 468.6439.5498.1
    Total equity 587.5553.6615.2

    NOTE: the figures as at 13 June 2020 include lease-related right-of-use assets and liabilities, accounted for under IFRS 16. The figures at the previous half year and full year end account for leases under the previous leasing standard, IAS 17. Under IAS 17, the Group's leases were treated as operating leases and not recognised on the balance sheet. This difference in treatment is because the Group has adopted IFRS 16 in the current period using the modified retrospective basis, which does not require restatement of prior periods. For more detail on the effects of adopting IFRS 16, see note 13.

    Condensed consolidated statement of changes in equity

     Share
    capital

    £m
    Capital redemption reserve
    £m
    Share
    premium account

    £m
    ESOP
    reserve

    £m
    Treasury
    shares

    £m
    Retained
    earnings

    £m
    Total
    £m
    24 weeks to 13 June 2020       
    At 28 December 2019 - audited60.5 4.7 87.5 (6.3) (29.3) 498.1 615.2
    Impact of adopting IFRS 16 (Note 13)- - - - - (30.9) (30.9)
    Tax effect of adopting IFRS 16 (Note 13)- - - - - 3.6 3.6
    Adjusted opening balance after adopting IFRS 1660.5 4.7 87.5 (6.3) (29.3) 470.8 587.9
    Accumulated loss- - - - - (10.9) (10.9)
    Other comprehensive income- - - - - 18.6 18.6
    Total comprehensive income- - - - - 7.7 7.7
    Current tax on share schemes- - - - - 0.1 0.1
    Deferred tax on share schemes- - - - - (0.2) (0.2)
    Movement in ESOP- - - 1.8 - - 1.8
    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 13 June 202060.3 4.9 87.5 (5.6) (28.2) 468.6 587.5

    The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £30.4m (June 2019: £30.9m, December 2019 £38.7m), which are held by the Group's Employee Share Trusts in order 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 period, together with any receipts of cash from employees on exercise of share options.

    At the current period end there were 5.8 million ordinary shares held in treasury, each with a nominal value of 10p (June 2019: 6.0 million shares, December 2019: 6.0 million shares).

    Condensed consolidated statement of changes in equity - continued

     Share
    capital

    £m
    Capital
    redemption reserve

    £m
    Share
    premium account

    £m
    ESOP
    reserve

    £m
    Treasury
    shares

    £m
    Retained
    earnings

    £m
    Total
    £m
    24 weeks to 15 June 2019       
    At 29 December 2018 - audited61.5 - 87.5 (8.8) (32.9) 459.8 567.1
    Accumulated profit- - - - - 61.7 61.7
    Other comprehensive income- - - - - 15.2 15.2
    Total comprehensive income- - - - - 76.9 76.9
    Current tax on share schemes- - - - - 0.1 0.1
    Deferred tax on share schemes- - - - - 0.1 0.1
    Movement in ESOP- - - 3.1 - - 3.1
    Buyback and cancellation of shares (Note 1)(0.9) 4.6 - - - (50.0) (46.3)
    Transfer of shares from treasury into share trust- - - (3.6) 3.6 - -
    Dividends declared and paid- - - - - (47.4) (47.4)
    At 15 June 201960.6 4.6 87.5 (9.3) (29.3) 439.5 553.6

    Note 1: This includes a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve for the shares bought back and cancelled before 29 December 2018, under which retained earnings has been reduced by £3.7m and the capital redemption reserve has been increased by £3.7m. This line also records the shares bought back and cancelled in the 24 weeks to 15 June 2019, which had an aggregate nominal value of £0.9m and a cost of £46.3m.

     Share
    capital

    £m
    Capital
    redemption reserve

    £m
    Share
    premium account

    £m
    ESOP
    reserve

    £m
    Treasury
    shares

    £m
    Retained
    earnings

    £m
    Total
    £m
    52 weeks to 28 December 2019       
    At 29 December 201861.5 - 87.5 (8.8) (32.9) 459.8 567.1
    Accumulated profit- - - - - 209.0 209.0
    Other comprehensive income- - - - - (41.7) (41.7)
    Total comprehensive income- - - - - 167.3 167.3
    Current tax on share schemes- - - - - 0.3 0.3
    Deferred tax on share schemes- - - - - 0.2 0.2
    Movement in ESOP- - - 6.1 - - 6.1
    Buyback and cancellation of shares (Note 2)(1.0) 4.7 - - - (58.9) (55.2)
    Transfer of shares from treasury into share trust- - - (3.6) 3.6 - -
    Dividends declared and paid- - - - - (70.6) (70.6)
    At 28 December 201960.5 4.7 87.5 (6.3) (29.3) 498.1 615.2

    Note 2: This includes a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve for the shares bought back and cancelled before 29 December 2018, under which retained earnings has been reduced by £3.7m and the capital redemption reserve has been increased by £3.7m.  This line also records the shares bought back and cancelled in the 52 weeks to 28 December 2019, which had an aggregate nominal value of £1m and a cost of £55.2m.

    Condensed consolidated cash flow statement

     Notes24 weeks to
    13 June 2020

    unaudited
    £m
    24 weeks to 15
    June 2019
    unaudited
    £m
    52 weeks to
    28 December 2019
    audited
    £m
    Group operating (loss)/profit before tax and interest (9.8)77.7260.0
    Adjustments for:    
    Depreciation, amortisation and impairment of owned assets 16.615.434.5
    Depreciation of leased assets 36.1--
    Share-based payments charge 1.62.54.9
    Loss on disposal of property, plant and equipment, and intangible assets -1.11.4
    Operating cash flows before movements in working capital 44.596.7300.8
         
    Movements in working capital    
    Increase in inventories (33.9)(21.3)(5.5)
    Decrease/(increase) in trade and other receivables 39.0(17.0)(7.1)
    Increase in trade and other payables and provisions 9.428.56.3
    Excess of pension operating charge over cash paid (2.6)(9.8) (26.9)
      11.9(19.6)(33.2)
    Cash generated from operations 56.477.1267.6
    Tax paid (12.3)(20.8)(46.2)
    Net cash flows from operating activities 44.156.3221.4

    Condensed consolidated cash flow statement - continued

     Notes24 weeks to
    13 June 2020

    unaudited
    £m
    24 weeks to
    15June 2019
    unaudited
    £m
    52 weeks to
    28 December 2019
    audited
    £m
    Net cash flows from operating activities 44.156.3221.4
         
    Cash flows used in investing activities    
    Payments to acquire property, plant and equipment, and intangible assets (22.3)(24.1)(61.1)
    Receipts from sale of property, plant and equipment, and intangible assets -0.10.3
    Interest received 0.50.41.1
    Net cash used in investing activities (21.8)(23.6)(59.7)
         
    Cash flows from financing activities    
    Payments to acquire own shares (9.8)(46.3)(55.2)
    Receipts from release of shares from share trust 0.20.51.1
    Decrease/(increase) in long-term prepayments 0.1(1.1)(0.9)
    Dividends paid to Group shareholders8--(70.6)
    Interest paid - including on lease payments (4.6)--
    Repayment of principal on lease liabilities (22.2)--
    Net cash used in financing activities (36.3)(46.9)(125.6)
         
    Net (decrease)/increase in cash and cash equivalents (14.0)(14.2) 36.1
    Cash and cash equivalents at beginning of period 267.4231.3231.3
    Cash and cash equivalents at end of period 253.4217.1267.4

    HOWDENS Making space more valuable

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