28 February 2019
|- Howden Joinery UK depots||1,477.3||1,372.0||7.7|
|Gross profit margin, %||61.7||63.3||(160)bp|
|Profit before tax||238.52||232.2||2.7|
|Basic earnings per share||31.3p||29.9p||4.7|
|Dividend per share||11.6p||11.1p||4.5|
|Net cash at end of period||231.3||241.1||(4.1)|
1 The information presented relates to the 52 weeks to 29 December 2018 and the 53 weeks to 30 December 2017, unless otherwise stated. 2 Including the one-off £3.8m GMP Equalisation charge.
Chief Executive, Andrew Livingston, said:
"Howdens delivered another good performance in 2018. We increased sales by 7.7% to £1.5bn. Gross profit and profit before tax also increased, with gross margin improving in the second half. We ended the year with £231m in cash, after investing £44m in the business and returning £131m to shareholders. We opened 33 new depots in the year and the first phase of our new Raunds distribution facility became fully operational, delivering all product on time in full during our peak trading period.
"We have initiatives underway to improve business performance further, focussed on depot format efficiencies, improving range management and the development of our digital platform. We have put a new depot format into a limited number of depots, designed to enable us to use depot space more efficiently and give us the option to open smaller depots in new locations. Consequently we now see the opportunity for around 850 UK depots. Our investment in digital will both reinforce the strong local relationships we have with builders and improve awareness of the Howden offer with consumers.
"We are encouraged by the start we have made to the year and remain confident in our business model for the future."
Howden Joinery UK depots sales in the first two periods of the new financial year (to 23 February), increased by 4.0%, with one fewer trading day than in 2018. Adjusting for the one fewer trading day, sales in 2019 would have been up 5.1%.
On a same depot basis3, UK revenue increased by 2.4%, or 3.5% adjusted for the one fewer trading day.
The Group believes that there is the potential for the number of depots in the UK to be increased from the 694 operating at the end of 2018, to around 850 depots. During the course of 2019, we plan to open around 40 depots in the UK and Northern Ireland (one already having been opened), and around four in the Paris region.
Regarding the Group's financial performance, we expect further operating costs of £15m in respect of closing the operations in the Netherlands and Germany, digital upgrades and additional depreciation. These are in addition to the impact of on-going growth in the business, inflationary pressures, new depots and any impact of foreign exchange rates.
Capital expenditure of around £60m is expected, including further investment in new depots, digital upgrades and the next phase of the Raunds distribution centre.
We remain cautious given economic uncertainties, particularly the impact that Brexit might have. In preparation for a 'No-Deal' Brexit, our worst case scenario, a number of measures have been taken. Our stocking policy for at-risk items has been adjusted to secure continuity of supply during the transition. As a result, around £15m additional inventory has been purchased and key suppliers are also making plans to ensure supply. In addition, we are looking closely at the options for our inbound supply routes and pursuing appropriate logistics accreditation, including Authorised Economic Operator status, to reduce potential customs delays. Further details of Brexit planning can be found on page 9.
Whilst we remain aware of the economic uncertainties that we face, we are encouraged by the start we have made to the year and remain confident in our business model for the future.
3 Same depot basis for any year excludes depots opened in that year and the prior year. See Financial Review.
4 The non-recurring Guaranteed Minimum Pension (GMP) equalisation charge of £3.8m is in respect of equalising Guaranteed Minimum Pension entitlements between female and male members of the defined benefit (DB) pension plan between 1978 and 1997. This is an issue that affects a number of UK DB pension plans, although it is only since the High Court ruling in a test case in October 2018 that there was some clarity as to the obligations which exist and the range of suitable ways in which to measure them.
Head of Investor Relations +44 (0)20 7535 1164 / +44 (0)7739 778187
Citigate Dewe Rogerson
Simon Rigby + 44 (0)20 7282 2847, Kevin Smith +44 (0)20 7282 1054
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 approximately 700 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 22 depots in France and Belgium.
There will be a live audio webcast at 8.30am GMT, 28 February 2019. For details and more information, please see: www.howdenjoinerygroupplc.com
|Trading update||2 May|
|Half Year Report||25 July|
|Trading update||7 November|
|End of financial year||28 December|
FINANCIAL RESULTS FOR 20181
|Howden Joinery UK depots||1,477.3||1,372.0|
|Howden Joinery Continental European depots||34.0||31.8|
1 The information presented relates to the 52 weeks to 29 December 2018 and the 53 weeks to 30 December 2017, unless otherwise stated.
Total Group revenue increased £107.5m to £1,511.3m. Howden Joinery UK depot revenue rose 7.7% to £1,477.3m (2017: £1,372.0). UK revenue increased by 6.3% on a same depot basis3 to £1,449.6m in 2018 (2017: £1,364.0m). This excludes the additional revenue from depots opened in 2017 and 2018 of £27.7m (2017: £8.0m).
Depot revenue in Continental Europe was £34.0m (2017: £31.8m). On a local currency basis, sales at our French depots increased by 4.4%, and by the same amount on a same depot basis, as there were no new depots opened in 2017 or 2018.
Gross profit increased to £932.2m (2017: £888.4m). The gross profit margin of 61.7% (2017: 63.3%) was impacted by lower prices in the first quarter of 2018, as a result of giving depots more flexibility over margin, and general cost inflation, with selling prices only being increased in April 2018.
Operating profit, including the one-off £3.8m GMP Equalisation charge, rose to £240.1m (2017: £234.4m), giving an operating profit margin of 15.9% (2017: 16.7%).
Selling and distribution costs and administrative expenses (SD&A) were £692.1m (2017: £654.0m). Costs increased, as expected, due to continued investments in areas across the business, including new depots, digital upgrades, the effects of moving from our older distribution centre to Raunds and the additional depreciation arising from recent investments. There was also the one-time GMP equalisation charge of £3.8m and the absence of the additional £8.0m of costs incurred in 2017 owing to the 53rd week of trading.
PROFIT BEFORE AND AFTER TAX
The net interest charge was £1.6m (2017: £2.2m), reflecting a £2.3m (2017: £2.4m) finance expense in respect of pensions. Profit before tax, after including the £3.8m GMP equalisation charge, was £238.5m (2017: £232.2m). Without the GMP Equalisation charge, profit before tax would have been £242.3m (2017: £232.2m).
The tax charge on profit before tax was £48.1m (2017: £47.2m), representing an effective rate of tax of 20.2% (2017: 20.3%). As a result, profit after tax was £190.4m (2017: £185.0m).
Reflecting the above and the reduced share count following share repurchases, basic earnings per share were 31.3p (2017: 29.9p).
3 Same depot basis for any year excludes depots opened in that year and the prior year.
The Group's dividend policy is to target a dividend cover of between 2.5x and 3.0x, with one third of the previous year's dividend being paid as an interim dividend each year.
The Board has recommended to shareholders a final dividend of 7.9p (2017: 7.5p), giving a total dividend for the year of 11.6p (2017: 11.1p), an increase of 4.5%. This equates to a dividend cover of 2.7x (2017: 2.7x).
The final dividend payment of 7.9p per share will, if approved by shareholders, be paid on 21 June 2019, with an ex-dividend date of 23 May 2019 and a record date of 24 May 2019.
There was a net cash inflow from operating activities of £163.2m (2017: £176.7m).
Net working capital increased by £49.7m, as expected, mainly due to debtors that were up by £48.2m. This was due to Period 11 trading ending in early November, allowing payments to fall into the 2019 financial year, which started on 30 December 2018. Stock increased £18.0m due to new kitchen ranges and depot openings, partly offset by creditors, up £16.5m.
Capital expenditure on assets including depots, the new Raunds distribution centre and digital, totalled £44.3m (2017: £48.5m). Net tax paid was £45.4m (2017: £41.8m), dividends paid were £68.3m (2017: £68.4m) and share repurchases totalled £62.2m (2017: £47.9m).
Overall, there was a net cash outflow of £9.8m, leaving the Group with net cash of £231.3m at year end (30 December 2017: £241.1m net cash).
The Group reached agreement to extend its existing bank facility until December 2023.
The Board targets a capital structure that is both prudent and recognises the benefits of operational and financial leverage, and that, after considering our capital requirements, will return surplus cash to shareholders as appropriate. The Group has significant property leases for the depot network and continues to have a material deficit in the Group pension fund. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate through the annual working capital cycle without incurring bank debt.
The Board regularly reviews the Group's cash balances in light of future investment opportunities, expected peak working capital requirements, trading outlook and dividend payments.
In February 2017, we announced an £80m share repurchase programme, of which £32.1m was remaining at the start of 2018. In March 2018, we announced a further share buyback programme of £60m to be completed during the following two years.
During 2018, the Group acquired 12.8m shares for a consideration of £62.2m. This completed the February 2017 share repurchase programme and £30.0m of the March 2018 programme remains. Shares that were bought in the market by our brokers during 2018 were cancelled.
Following the Board's recent review, it has decided to complete the remaining £30m of the £60m 2018 share buyback programme and return a further £50m to shareholders through another share purchase programme, over the next two years.
At 29 December 2018, the pension deficit shown on the balance sheet was £36.0m (30 December 2017: £109.3m). The reduction in the deficit was due to a £105.3m reduction in liabilities (primarily due to an increase in the discount rate) and a £42.2m cash contribution, partly offset by a reduction in asset returns.
In July 2015, weannounced that an agreement had been reached with the Trustees in relation to the schedule of payments towards the funding of the Group's defined benefit pension scheme deficit from April 2015. It was agreed that the Group would continue to make deficit contributions equivalent to £35m per annum until 30 June 2017. It was also agreed that the Group would make an 'interim' payment of £25m over the period July 2017 to June 2018.
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.
The agreement resulted in a contribution to the pension deficit in the financial year ended 29 December 2018 of £27.5m.
Howdens knows its objective: 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.
UK DEPOT ROLLOUT AND OPERATIONS
During 2018, 33 new depots were opened, bringing the total number of depots trading at the end of the year to 694. Of the new depots, 18 were in the new format, described below. Our account base was approximately 466,000 accounts at year end, with revenue per account growing. Our debt collection performance continues to be robust.
New depot format and roll-out
Howdens depots typically have an average size of around 10,000 square feet. Through re-racking the warehouse section of the depot, tests have shown there are ways to make space utilisation improvements, of around 25%, with the potential to make productivity gains from reduced picking times.
Where re-racking has been tested, it has enabled us to reallocate space, with the new format providing a more open front area to bring depot staff closer to customers and around double 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, which is currently being trialled as a way of encouraging footfall and incremental kitchen sales. The fit-out costs of a new depot remains at around £350,000.
Three older depots have also been converted and are now trading in the new format. A further six depots will be converted by August 2019 and these will all trade through Period 11 before drawing any conclusions as to the sort of returns that can be expected.
The new format also offers the potential to open up a number of new, smaller, infill depots of around 6,000 square feet, in rural locations and big cities. With the new, smaller format the number of UK depots could potentially reach around 850.
We expect to open around 40 new UK depots in 2019, including five in Northern Ireland.
PRODUCT AND MARKETING
2018 saw the introduction of 18 new kitchen ranges, across all price points, including 10 Shaker styles, four integrated handle and four Slab styles. At the end of 2018, more than 70 current kitchen ranges were on offer.
Other new developments included:
We continue to enhance the marketing of our products and services, enabling our builder customers and their customers to see the full breadth and depth of the Howdens offer. Building on the success of the Trade Book, which was first printed in 2017, a new Trade Book was published in September, along with two new kitchen brochures published in February and September.
September also saw the launch of the new www.howdens.com website. The new site can be viewed on desktop, tablet and smart phone and offers customers improved product search and information.
Later this year, we will test a secure customer-only area of the website where builders can access their account details and interface more efficiently with their local depot. The new website, with our search engine optimisation, will be more prominent to end consumers and be more flexible with regard to style and product selections when choosing a new kitchen.
MANUFACTURING AND LOGISTICS
Our UK-based manufacturing and logistics operations are vital in enabling us to supply our small builder customers from stock available locally. This requires us to have the scale, space and flexibility to respond to each depot's individual needs, especially during our peak 'Period 11' trading, when sales are more than double the level in other periods.
During 2018, a number of investment projects progressed, as follows:
At the end of 2018, there were 24 depots across France, Belgium, the Netherlands and Germany. We believe there is the potential for a successful 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 depots perform in their local areas we think the French trade customer and 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 customers and also because of our ability to build a local and trusted brand. Clustering also helps to build the Howdens culture within our business teams. We have therefore decided to develop our operation in France by way of a City-based strategy. Although timing is subject to the outcome of Brexit negotiations, we plan to open four more depots in Paris in 2019 as we build the management capabilities required for any further expansion. Belgian depots continue to trade and are run within the French field structure.
The single depot operations in the Netherlands and Germany were closed in January 2019.
The Group meets its day-to-day working capital requirements through cash generated from operations. Following its renewal in February 2019, the Group also has access to an asset-backed lending facility of £140m, which expires in December 2023.
The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in economic conditions and trading performance. The results of this testing show that the Group should be able to operate within the level of its current net cash balances and its committed bank facility, and that it would not breach the facility covenants.
After making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Our approach to risk is adaptive. We aim to protect what we have while responding to opportunities to grow and create value.
In line with the way we manage risks within the business, we have not presented a separate principal risk relating to Brexit. Brexit will impact a number of our existing risks, with the severity and timeframes varying significantly, depending on No-Deal or Deal scenarios.
The following table summarises some of the key risk areas impacted by a 'No-Deal' Brexit, our worst case scenario. It also shows which of our principal risks these elements are managed under, and gives examples of key mitigating actions.
|What are the No-Deal Brexit risks||What this could mean||What we are doing||Managed within principal risks no:|
Trade and Customs Risks
People and Immigration Risks
Strategy and Business Plan Risks
The following describes our principal risks, the possible impact arising from them and what we do to mitigate them.
1. Failure to maximise growth potential of the business
Risk and impact
2. Deterioration of business model and culture
Risk and impact
3. Changes in market conditions
Risk and impact
4. Interruption to continuity of supply
Risk and impact
5. Loss of key personnel
Risk and impact
6. Health and safety
Risk and impact
7. Cyber security
Risk and impact
8. Product design relevance
Risk and impact
9. Credit control failure
Risk and impact
Certain statements in this Preliminary 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.
The 2018 Annual Report and Accounts which will be issued in March 2019, 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 27 February 2019, the directors confirm to the best of their knowledge:
By order of the Board
Deputy Chief Executive and Chief Financial Officer
27 February 2019
|Notes||52 weeks to
|53 weeks to
|Revenue - sale of goods||1,511.3||1,403.8|
|Cost of sales||(579.1)||(515.4)|
|Selling & distribution costs||(594.4)||(564.5)|
|Other finance expense - pensions||(2.3)||(2.4)|
|Profit before tax||238.5||232.2|
|Tax on profit||3||(48.1)||(47.2)|
|Profit for the period attributable to the equity holders of the parent||190.4||185.0|
|Earnings per share:|
|Basic earnings per 10p share||4||31.3p||29.9p|
|Diluted earnings per 10p share||4||31.2p||29.8p|
|52 weeks to
|53 weeks to
|Profit for the period||190.4||185.0|
|Items of other comprehensive income|
|Items that will not be reclassified subsequently to profit or loss:|
|Actuarial gains/(losses) on defined benefit pension scheme||59.3||(22.1)|
|Deferred tax on actuarial losses/gains on defined benefit pension scheme||(11.3)||4.2|
|Items that may be reclassified subsequently to profit or loss:|
|Currency translation differences||(0.2)||-|
|Other comprehensive income for the period||47.8||(17.9)|
|Total comprehensive income for the period attributable to equity holders of the parent||238.2||167.1|
|Notes||29 December 2018
|30 December 2017
|Property, plant and equipment||187.1||180.0|
|Deferred tax asset||11.2||25.8|
|Long term prepayments||-||0.1|
|Trade and other receivables||186.0||137.8|
|Cash and cash equivalents||231.3||186.1|
|Trade and other payables||(232.9)||(212.1)|
|Current tax liability||(20.2)||(20.6)|
|Deferred tax liability||(1.5)||(1.8)|
|Share premium account||87.5||87.5|
|At 24 December 2016||63.9||87.5||(0.2)||(52.8)||298.6||397.0|
|Other comprehensive income||-||-||-||-||(17.9)||(17.9)|
|Total comprehensive income||-||-||-||-||167.1||167.1|
|Current tax on share schemes||-||-||-||-||0.4||0.4|
|Deferred tax on share schemes||-||-||-||-||(0.1)||(0.1)|
|Movement in ESOP||-||-||6.1||-||-||6.1|
|Buyback and cancellation of shares||(1.1)||-||-||-||(46.8)||(47.9)|
|Transfer of shares from treasury into share trust||-||-||(16.6)||16.6||-||-|
|Dividends declared and paid||-||-||-||-||(68.4)||(68.4)|
|At 30 December 2017||62.8||87.5||(10.7)||(36.2)||350.8||454.2|
|Other comprehensive income||-||-||-||-||47.8||47.8|
|Total comprehensive income||-||-||-||-||238.2||238.2|
|Current tax on share schemes||-||-||-||-||0.1||0.1|
|Deferred tax on share schemes||-||-||-||-||(0.1)||(0.1)|
|Movement in ESOP||-||-||5.2||-||-||5.2|
|Buyback and cancellation of shares||(1.3)||-||-||-||(60.9)||(62.2)|
|Transfer of shares from treasury into share trust||-||-||(3.3)||3.3||-||-|
|Dividends declared and paid||-||-||-||-||(68.3)||(68.3)|
|At 29 December 2018||61.5||87.5||(8.8)||(32.9)||459.8||567.1|
The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £27.1m (2017: £36.5m), 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 year, together with any receipts of cash from employees on exercise of share options.
At the current period there were 6,738,280 ordinary shares held in treasury, each with a nominal value of 10p (2017: 7,420,580 shares).
|Notes||52 weeks to
|53 weeks to
|Operating profit before tax and interest||240.1||234.4|
|Depreciation and amortisation included in operating profit||30.2||28.0|
|Share-based payments charge||4.3||4.0|
|Loss on disposal of property, plant and equipment, and intangible assets||-||0.2|
|Operating cash flows before movements in working capital||274.6||266.6|
|Movements in working capital|
|Increase in stock||(18.0)||(24.6)|
|Increase in trade and other receivables||(48.2)||(1.9)|
|Increase/(decrease) in trade and other payables, and provisions||16.5||(0.4)|
|Difference between pensions operating charge and cash paid||(16.3)||(21.2)|
|Cash generated from operations||208.6||218.5|
|Net cash flow from operating activities||163.2||176.7|
|Notes||52 weeks to
|53 weeks to
|Net cash flows from operating activities||163.2||176.7|
|Cash flows used in investing activities|
|Payments to acquire property, plant and equipment, and intangible assets||(44.3)||(48.5)|
|Receipts from sale of property, plant and equipment, and intangible assets||0.1||-|
|Net cash used in investing activities||(43.5)||(48.3)|
|Cash flows used in financing activities|
|Payments to acquire own shares||(62.2)||(47.9)|
|Receipts from release of shares from share trust||0.9||2.1|
|Increase in long term prepayments||0.1||0.3|
|Dividends paid to Group shareholders||(68.3)||(68.4)|
|Net cash used in financing activities||(129.5)||(113.9)|
|Net increase in cash and cash equivalents||(9.8)||14.5|
|Cash and cash equivalents at beginning of period||241.1||226.6|
|Cash and cash equivalents at end of period||7||231.3||241.1|