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2012 Preliminary Results

28 February 2013


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HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


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The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


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The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


Download

The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares from share trust
1.1 0.5
Decrease in loans
(2.2) (1.1)
Repayment of capital element of obligations under finance leases
(0.1) (0.4)
Decrease in other assets
- 0.2
Dividends paid to Group shareholders
(5.0) -
Net cash used in financing activities
(3.9) (1.8)




Net increase in cash and cash equivalents
37.3 20.8
Cash and cash equivalents at beginning of period
59.4 38.6
Cash and cash equivalents at end of period 10 96.7 59.4

For the purpose of the cash flow statement, cash and cash equivalents are included net of overdrafts payable on demand. These overdrafts are excluded from the definition of cash at bank and in hand disclosed on the balance sheet. There were no such overdrafts at the current or prior period ends.

Cash flows from discontinuing operating activities are shown in note 10. There are no cash flows from discontinued investing or financing activities.

 

2012 Preliminary Results

28 February 2013


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The full results
are available in PDF Format

 


HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has delivered another good set of results in 2012, making further progress on sales and profitability, and seeing strong cash flow.

"Our performance allows us to continue to pursue growth opportunities, as we open new depots and invest in our supply chain, manufacturing capability and new products, and address legacy issues.

"Our confidence in the long term strength and performance of the business is reflected in the Board's decision to recommend an increase in our dividend.

"We expect market conditions to continue to be challenging and we will continue to respond to the prevailing conditions we encounter."

Financial results (continuing operations1)

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

  • Howden Joinery UK depot revenue increased by 4.0% to £872.5m (up 1.9% on same depot basis). Group revenue was £887.1m (2011: £853.8m);
  • Gross profit margin increased to 61.5% (2011: 59.7%);
  • Operating profit rose from £115.3m to £119.8m;
  • Profit before tax increased to £112.1m (2011: £111.0m), the net interest charge rising by £3.4m (due to a rise in the pensions finance expense);
  • Basic earnings per share increased from 13.5p to 14.0p;
  • Net cash of £96.4m at year-end (24 December 2011: £57.1m net cash);
  • Full year dividend for 2012 of 3p per share (2011: 0.5p).

1 These comments all relate to continuing operations. There was a loss before tax from discontinued operations of £4.4m in 2012 (2011: £9.3m), arising from the closure of two non-core support businesses. Profit before tax from continuing and discontinued operations was £107.7m (2011: £101.7m).

Business developments

  • Investment in the future growth of the business continues:
    • - 20 new depots opened in 2012, bringing total to 529;
    • - capital expenditure totalled £24.2m;
    • - £16m investment in operating costs to support growth, including marketing initiatives and a revised regional and area structure, within which our depots are managed;
  • Leases on five legacy properties terminated in 2012, and two 'early releases' since then, bringing total remaining to 14.

Current trading

  • Howden Joinery UK depot revenue in the first two periods of 2013 rose by 17%, reflecting additional week of trading and timing of price increase - expect growth to normalise through coming periods;
  • Our outlook for the business remains unchanged, with the Group well placed to respond to the ongoing challenging conditions.

 

Enquiries


Investors/analysts:
Gary Rawlinson
Head of Investor Relations
+44 (0)207 404 5959 (28 February 2013 only)
+44 (0)207 535 1127
+44 (0)7989 397527


Media:
Brunswick +44 (0)207 404 5959

Kate Holgate

Zoe Bird

 

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery. In the UK, Howden Joinery is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 520 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 has a small operation in France.

 

SUMMARY OF GROUP RESULTS

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

Continuing operations, £m unless stated 2012 2011



Revenue

- Group 887.1 853.8
- Howden Joinery UK depots 872.5 838.7



Gross profit 545.3 509.3
Gross profit margin, % 61.5 59.7



Operating profit 119.8 115.3



Profit before tax 112.1 111.0



Loss before tax on discontinued operations (4.4) (9.3)



Basic earnings per share from continuing operations 14.0p 13.5p



Basic earnings per share from continuing and discontinued operations 13.4p 12.1p



Dividend per share 3p 0.5p



Net cash at end of period 96.4 57.1



 

FINANCIAL REVIEW

FINANCIAL RESULTS FOR 2012

The information presented here relates to the 53 weeks to 29 December 2012 and the 52 weeks to 24 December 2011, unless otherwise stated. The inclusion of a 53rd week in 2012 (23 - 29 December) had no impact on revenue, as the business did not trade that week. It is estimated to have increased operating costs by around £5m, reducing 2012 operating profit and profit before tax by the same amount, and reducing profit after tax by around £4m.

The financial performance of the Group during 2012 benefited from the Group's competitive position and actions taken to improve performance. Although there was a modest decline in the volume of kitchen cabinets sold, the impact of this was offset by an improved gross profit margin and changes in the mix of kitchen ranges sold.

Total Group revenue increased by £33.3m to £887.1m.

Revenue £m 2012 2011
Group 887.1 853.8

comprising:


Howden Joinery UK depots 872.5 838.7

Howden Joinery French depots 14.6 15.1



Howden Joinery UK depot revenue rose by 4.0% to £872.5m, increasing 1.9% on a same depot basis.

In demanding market conditions, this growth was achieved through a number of factors and is a testament to the strength of the business model. The slowing of the growth rate in the second half of the year, from 6.8% in the first half to around 3%, reflected the benefit of the earlier timing of the price rise in 2012 falling away on the anniversary of the June 2011 price increase. It also reflected continuing focus on price discipline and margin (see below). We have continued to see an increase in the number of customer accounts.

Sales by our French depots of £14.6m were up over 5% on a same depot basis in constant currency terms.

Gross profit rose by £36.0m to £545.3m. As a result, the gross profit margin for the year increased to 61.5% (2011: 59.7%). This reflected the continuing focus on price discipline and margin achievement across all depots, particularly in the second half of the year, supported by our focused supply chain, and an exchange rate gain on the cost of goods purchased from overseas of £5m.

Selling and distribution costs, and administrative and other operating expenses increased by £31.5m to £425.5m. The increase reflects the costs of new depots, investment in growth, increased marketing expenditure, and the impact of inflation, particularly on payroll costs. Also reflected in the increase are the impacts of around £5m of costs arising from the inclusion of a 53rd week in 2012 and certain one-off credits of around £5m in 2011.

Operating profit from continuing operations increased by £4.5m to £119.8m.

The net interest charge rose by £3.4m to £7.7m, due to an increased finance expense in respect of pensions. The net result was profit before tax from continuing operations rose by £1.1m to £112.1m. For 2013, the finance expense in respect of pensions will decrease by £4m, albeit that this is expected to reverse in 2014, when a revision to IAS 19 is implemented.

As previously announced, there was a loss attributable to discontinued operations before tax of £4.4m in respect of the closure of two non-core support businesses.

The tax charge on profit before tax from continuing operations was £24.1m, an effective rate of tax of 21.5%. There was a tax credit of £0.6m in respect of the loss from discontinued operations. Basic earnings per share from continuing operations were 14.0p (2011: 13.5p). Basic earnings per share from continuing and discontinued operations were 13.4p (2011: 12.1p).

We have seen a strong performance in cash flow in 2012, with underlying working capital decreasing slightly. The performance is in part due to timing changes in capital expenditure, legacy property payments and the resolution of a tax dispute.

There was a net cash inflow from operating activities of £64.9m. This was after payments relating to legacy properties totalling £16.4m and a cash contribution to the Group's pension schemes, in excess of the operating charge, of £41.7m.

Excluding the legacy property payments, underlying working capital decreased by £2.1m. A small decrease in stock (£2.6m) was partly offset by a small increase in debtors (£0.7m), creditors being virtually unchanged.

Also included within net cash flows from operating activities was tax paid totalling £16.9m.

Payments to acquire fixed and intangible assets totalled £24.2m (2011: £19.6m).

Reflecting the above, there was a net cash inflow of £39.3m in 2012, the Group having net cash of £96.4m at the end of the year (24 December 2011: £57.1m net cash).

At 29 December 2012, the pension deficit shown on the balance sheet was £154.5m (24 December 2011: £136.9m). An increase in the scheme's assets, arising from the Group's contribution to fund the deficit and better than expected asset returns, was more than offset by higher liabilities, arising from a decrease in the discount rate.

DIVIDEND

The Board intends to target a capital structure that is both prudent and recognises the benefits of financial leverage and, after considering all other uses of capital, to return surplus capital to shareholders, by way of either ordinary dividends or alternative returns of capital.

The Group has significant property leases for the depot network, and currently has a material deficit in the Group pension fund and a small number of remaining legacy liabilities related to the Group's ownership of MFI. Taking into account this underlying level of gearing, the Board believes it is appropriate for the Group to be able to operate throughout the working capital cycle without incurring bank debt.

The Board has concluded that the Group now has the balance sheet strength to allow it to move towards a more normalised dividend policy. As a result, it intends to move over the medium term to a dividend cover of between 2.5x and 3.5x, with one third of the previous year's dividend being paid as an interim dividend each year.

The Board will monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders.

For the 2012 financial year, the Board is proposing a final dividend of 2.7p per share, giving a total dividend for the year of 3.0p per share (2011: 0.5p).

 

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing routine kitchen and joinery requirements, assuring no-call-back quality and best local price".

In July 2010, in our Half Yearly Report, we said that the opportunity to transform the scale of the business was apparent and that, as the performance of the business was improving and legacy issues were diminishing, we were stepping up investment in the future growth of Howden Joinery.

Since then, this investment in growth has not only seen a step-up in capital expenditure but also increased expenditure in a number of other areas, to support the growth of the business and its performance in demanding market conditions.

Depot network and operations

During the course of 2012, 20 new depots were opened in the UK, bringing the total trading at the end of the year to 529. In addition, 16 depots were extended and one depot was relocated. In France, two new depots were opened.

We have introduced a system that allows us to provide our builder customers' clients with a video of the kitchen that has been designed for them.

Our account base continues to grow, having increased by over 20,000 net new credit accounts in 2012. While there has been a significant increase in accounts in recent years, our debt collection performance continues to improve.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during 2012 across all our product categories. Notable amongst these were: eight new kitchen ranges, amongst which we introduced grey options in four of our kitchen families, across all price points, and we extended gloss options to our lower priced Greenwich family; twenty new worktops and associated accessories, including fourteen new square edged and five contemporary 3mm radius matt laminate worktops; significant changes to our sinks and taps categories; an extension of tall wall units offered; a range of black appliances; and a range of sliding wardrobe doors.

Throughout the year, we again held a series of roadshows with our kitchen designers and other depot staff to help inform our new product development programme. These roadshows considered how sales of various product categories could be improved through the sharing of ideas and selling tools, learning from successful existing products and identifying gaps in our offering.

Supporting our sales effort, in addition to updating our extensive product literature, we introduced a wider format joinery brochure and a new hardware catalogue. We have also implemented a Howdens You Tube channel, accessible through our website (www.howdens.com), which offers an extensive range of videos showcasing products and a number of cookery demonstrations using Lamona appliances.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a key role in ensuring that we are able to supply our small builder customers from local stock nationwide. We continue to invest in these operations so as to ensure that this key aspect of the Howdens model is never compromised.

The £20m two-year programme of investment in our two manufacturing sites is on schedule, with the new cabinet production line facilities due to be fully operational at Howden by the end of the first quarter of 2013 and at Runcorn by the end of the first half of 2013.

A new painted skirting board and architraves production facility costing £1.5m has been installed in our Howden factory, and will be fully operational in the first quarter of 2013.

A new stock planning system was implemented that provides improved information for our manufacturing scheduling and product purchasing teams. This has helped improve service and stock efficiency through our central warehouses.

GROUP DEVELOPMENTS

Legacy properties

The Group continues to reduce its legacy property portfolio.

During 2012, the leases of five properties were terminated, at a cost of £11.7m, mitigating future liabilities that would have totalled over £27m. Since the year-end, two properties have been released early, with less than one year of each lease remaining, at a cost of £1.4m, with small savings being made.

As a result, the number of legacy properties now stands at 14, compared with 21 at the end of 2011. Included within this are seven properties that are fully or part occupied by tenants.

The net annual rent and rates of the remaining properties is less than £4m. By the end of 2014, all other things being equal, both the number of leases remaining and the net annual rent and rates will have approximately halved, as leases expire. The leases remaining thereafter will all have expired by 2025.

Board membership

Angus Cockburn, who is Chairman of our Audit Committee, has decided to step down from the Board and an Executive Search Agency will be used to assist in the search for his successor. Angus will remain on the Board until a date, yet to be determined, after the 2013 AGM that will allow an orderly handover to his successor.

Playing an active role in local communities

Throughout the business, our depots, manufacturing sites, distribution and support centres continue to provide support and engage with local community activities, donations of over £0.8m having been made to local good causes in 2012. We continue to support Leonard Cheshire Disability, providing funding and kitchen products for its operations. This relationship also helps with our inclusive kitchen research, which enables us to offer affordable kitchen solutions to people of all abilities.

CURRENT TRADING AND OUTLOOK FOR 2013

Howden Joinery UK depot sales in the first two periods of 2013 (to 23 February) were up 17% on the same periods last year. This reflects the benefit of an additional week of trading in the first period of 2013. It also reflects the earlier timing of a price change, which will shortly annualise last year's price increase. The pattern and volume of sales in the first two periods is in line with our expectations and, given the one-off nature of these impacts, we expect the rate of UK depot sales growth to normalise through the coming periods.

For the rest of 2013, we expect market conditions to continue to be challenging and we remain cautious about the outlook. As in recent years, we will quickly and appropriately adapt our business model to the market and economic conditions we encounter.

The Group remains committed to its view that the number of depots in the UK can be increased from its current level of 529 and believes that this number could be around 700. During the course of 2013, we are currently planning to open around 20 to 30 depots as part of our investment in the next stage of Howdens' longer term growth and development.

Since its inception in 1995, Howden Joinery has grown rapidly and has gained a significant share of the UK kitchen market. Even in these challenging market conditions, we would expect to continue to benefit from the opening of new depots and from the growth of our depots that have yet to reach maturity.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations and, when required, by utilising an asset backed lending facility of £160m, which is due for renewal in July 2016. The facility was extended during 2012, and now runs to July 2016, having previously run to May 2014. The current economic conditions create uncertainty, particularly over (a) the level of demand for the Group's products and, (b) the exchange rate between sterling and both the euro and the US dollar, which would affect the cost of the Group's operations.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in trading performance. The results of this testing show that the Group should be able to operate within the level of its current facility and 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 accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the Group's principal risks and uncertainties, together with an indication of actions taken to manage and mitigate them, are as detailed below. They do not comprise all risks associated with the Group and are not set out in any order of priority. Additional risks not presently known to management or currently deemed to be less material may also have an adverse affect on the Group's business in the future.

Market conditions

The Group's products are predominantly sold to small local builders for installation in public and private housing, mainly in the repair, maintenance and improvement markets.

The Group's results are consequently dependent on levels of activity in these markets, which are impacted by many factors including general economic conditions, consumer confidence, interest rates and credit availability, unemployment, demographic trends and, in the short term, weather. A severe downturn in market conditions could impact on our ability to achieve our sales and profit forecasts. This could in turn put pressure on our cash availability and banking covenants.

We monitor the market closely and can take swift management action as necessary in response to adverse changes, with the aim that the business is aligned to market conditions and, consequently, that we should have sufficient cash facilities for business needs and adequate covenant headroom.

Failure to implement the Group's business model and culture

The future success of the business depends on the successful implementation of the Group's business model and locally-enabled, entrepreneurial culture.

In particular, if the Group fails to implement its business model in the locally enabled, decentralised manner envisaged, there may be an adverse affect on the Group's future financial condition and profitability.

Led by the actions of the Board and Executive Committee, the business model and the Howdens culture are at the centre of the activities and the decision-making processes of the Group, and are continually emphasised. The Executive and senior management regularly visit our depots and factories, and hold regular events during which they reinforce the importance of the Group's business model and culture. Throughout the business, successful implementation of the Group's business model and culture forms the basis of the incentive structure.

Failure to maximise exploiting the growth potential of the business

The Group considers that there is significant potential for growth, and has identified this as a strategic opportunity and aim.

If the growth opportunities are not understood and exploited in line with our business model, or if current structures and skills within the Group are not aligned to meet the challenges of growth, there may be an adverse affect on the Group's ability to obtain maximum benefit from this growth potential.

The Group places continuing focus on the opportunities, challenges and additional requirements related to growth. The potential for growth is incorporated into group strategic plans and budgets, and existing structures and skills are reviewed in the context of growth, and adjusted where necessary.

Continuity of supply

The Group's business model requires that every depot can supply product from local stock.

Any disruption to the relationship with key suppliers or interruption to manufacturing operations could adversely affect the Group's ability to implement the business model.

With suppliers, the Group tries to maintain dual supply wherever possible to mitigate the effects if a key supplier was unable to deliver goods or services. We also enter into long term contracts to secure supply of our key materials. Good supplier relations are maintained by prompt settlement of invoices, regular communication and an annual supplier conference. Within our manufacturing operations, we adopt best practice health & safety and fire prevention procedures. Business continuity plans are in place for key production processes. The Group continues to make significant investment in its manufacturing facilities, to enable manufacturing capacity to match our expected growth, as well as providing further cabinet production capacity which will provide additional cover in the event of an interruption to manufacturing operations.

Loss of key personnel

The skills, experience and performance of key members of the Group's management team make a large contribution to the Group's success.

The loss of a key member of the Group's management team could adversely affect the Group's operations.

The Group uses the Remuneration Committee to ensure that key team members are appropriately compensated for their contributions and incentivised to continue their careers with the Group.

Input price pressure

The Group's gross margin performance drives profitability.

The Group's financial success could be adversely affected by increasing commodity prices, inflationary pressures and currency fluctuations.

The Group adopts a number of measures to mitigate input price pressure. As well as conducting regular reviews of the market and of price trends, these measures include negotiation with suppliers, consideration of longer-term supply deals, "make vs. buy" decisions where appropriate and product pricing decisions. The Group also has an ongoing review process to drive efficiency and identify opportunities to reduce costs in the supply base, to protect margin and profitability.

Financial position

The growth of the business relies in some part on our ability to open new depots, develop and introduce new product, and to invest in manufacturing capacity.

If the Group's financial position was to deteriorate, limiting financial resources to meet its obligations and to fund the growth and development of the business, this would impact on future growth.

The Group regularly forecasts its cash availability and its compliance with banking covenants, with the aim that there is sufficient cash and/or available credit under our banking facility to meet planned future expenditure and investment requirements. These forecasts are closely monitored throughout the year and reviewed against actual performance, and actions are taken to realign the position where necessary.

 

CAUTIONARY STATEMENT

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.

DIRECTORS' RESPONSIBILITY STATEMENT

The following statement will be contained in the Annual Report and Accounts 2012.

The directors confirm that to the best of their knowledge:

  • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole;
  • the review of operations and finance, along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business, and the position of the Company 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

M Ingle
Chief Executive Officer
M Robson
Chief Financial Officer


27 February 2013

 

Consolidated income statement

Continuing operations: Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Revenue - sale of goods
887.1 853.8
Cost of sales
(341.8) (344.5)
Gross profit
545.3 509.3
Selling & distribution costs
(359.1) (333.2)
Administrative expenses
(66.4) (60.6)
Other operating expenses
- (0.2)
Operating profit

119.8 115.3
Finance income 4 0.2 -
Finance expense 5 (0.6) (1.2)
Other finance expense - pensions 5 (7.3) (3.1)
Profit before tax
112.1 111.0
Tax on profit 6 (24.1) (29.2)
Profit after tax
88.0 81.8




Discontinued operations:


Loss before tax 3 (4.4) (9.3)
Tax on loss 6 0.6 0.8
Post tax loss
(3.8) (8.5)




Profit for the period attributable to the equity holders of the parent
84.2 73.3




Earnings per share:


From continuing operations


Basic earnings per 10p share 7 14.0p 13.5p
Diluted earnings per 10p share 7 13.9p 13.1p




From continuing and discontinued operations


Basic earnings per 10p share 7 13.4p 12.1p
Diluted earnings per 10p share 7 13.3p 11.8p

 

Consolidated statement of comprehensive income


53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Profit for the period 84.2 73.3
Items of other comprehensive income:

Actuarial losses on defined benefit pension scheme (52.0) (31.4)
Deferred tax on actuarial losses on defined benefit pension scheme 13.0 8.5
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss (7.5) (6.5)
Current tax on share schemes 2.0 -
Deferred tax on share schemes 1.9 0.3
Effect of change in UK tax rate on deferred tax on cumulative balances on share schemes (0.4) -
Currency translation differences (0.3) (0.3)
Other comprehensive income for the period (43.3) (29.4)



Total comprehensive income for the period attributable to equity holders of the parent 40.9 43.9

 

Consolidated balance sheet


Notes 29 December 2012
£m
24 December 2011
£m
Non-current assets


Goodwill
- 2.5
Other intangible assets
4.0 4.7
Property, plant and equipment
89.3 81.7
Deferred tax asset
46.1 43.4
Bank borrowings net of prepaid fees
1.0 -


140.4 132.3
Current assets


Inventories
115.9 118.5
Trade and other receivables
96.0 95.3
Cash at bank and in hand
96.7 59.4


308.6 273.2




Total assets
449.0 405.5
Current liabilities


Trade and other payables
(137.1) (139.1)
Current tax liability
(16.9) (16.9)
Current borrowings
(1.2) (1.1)


(155.2) (157.1)
Non-current liabilities


Non-current borrowings
(0.1) (1.2)
Pension liability
(154.5) (136.9)
Deferred tax liability
(4.3) (4.8)
Provisions 9 (22.1) (35.3)


(181.0) (178.2)
Total liabilities
(336.2) (335.3)




Net assets
112.8 70.2

Equity



Called up share capital
64.2 63.4
Share premium account
87.2 85.1
ESOP reserve
(19.0) (22.8)
Other reserves
28.1 28.1
Retained loss
(47.7) (83.6)
Total equity
112.8 70.2

The financial statements were approved by the Board on 27 February 2013 and were signed on its behalf by Mark Robson - Chief Financial Officer.

 

Consolidated statement of changes in equity


Called up
share
capital
£m
Share
premium
account
£m
ESOP
reserve
£m
Other
reserve
£m
Retained
loss
£m
Total
£m
As at 25 December 2010 63.4 85.1 (26.0) 28.1 (127.5) 23.1
Accumulated profit for the period - - - - 73.3 73.3
Net actuarial loss on defined benefit scheme - - - - (22.9) (22.9)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (6.5) (6.5)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.2 - - 3.2
Deferred tax on share schemes - - - - 0.3 0.3
As at 24 December 2011 63.4 85.1 (22.8) 28.1 (83.6) 70.2
Accumulated profit for the period - - - - 84.2 84.2
Net actuarial loss on defined benefit scheme - - - - (39.0) (39.0)
Effect of change in UK tax rate on deferred tax on cumulative actuarial loss - - - - (7.5) (7.5)
Current tax on share schemes - - - - 2.0 2.0
Deferred tax on share schemes - - - - 1.9 1.9
Effect of change in UK tax rate on deferred tax on cumulative balance on share schemes - - - - (0.4) (0.4)
Currency translation differences - - - - (0.3) (0.3)
Net movement in ESOP - - 3.8 - - 3.8
Issue of new shares 0.8 2.1 - - - 2.9
Dividends declared and paid - - - - (5.0) (5.0)
As at 29 December 2012 64.2 87.2 (19.0) 28.1 (47.7) 112.8

The ESOP Reserve includes shares in Howden Joinery Group plc with a market value on the balance sheet date of £37.8m (2011: £25.3m), which have been purchased in the open market and 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 Other Reserve was created in the year to 30 April 1994, following a Group reconstruction.

 

Consolidated cash flow statement


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m




Group operating profit before tax and interest


Continuing operations
119.8 114.3
Discontinued operations
(4.4) (8.3)
Group operating profit before tax and interest
115.4 106.0




Adjustments for:


Depreciation and amortisation included in operating profit
16.9 17.6
Share-based payments charge

2.7 2.7
Loss on disposal of property, plant and equipment and intangible assets
- 0.2
Discontinued exceptional items (before tax)
3.3 8.3
Operating cash flows before movements in working capital
138.3 134.8




Movements in working capital and exceptional items


Increase/(decrease) in stock
2.6 (13.0)
Increase in trade and other receivables
(0.7) (0.3)
Decrease in trade and other payables and provisions
(16.2) (25.5)
Difference between pensions operating charge and cash paid
(41.7) (33.3)
Net cash flow - discontinued exceptional items
(0.5) -


(56.5) (72.1)
Cash generated from operations
81.8 62.7
Tax paid
(16.9) (22.5)
Net cash flow from operating activities 10 64.9 40.2

 

Consolidated cash flow statement - continued


Notes 53 weeks to
29 December 2012
£m
52 weeks to
24 December 2011
£m
Net cash flows from operating activities
64.9 40.2




Cash flows used in investing activities


Payments to acquire property, plant and equipment and intangible assets
(24.2) (19.6)
Interest received
0.2 -
Receipts from sale of property, plant and equipment and intangible assets
0.3 -
Repayment of investment
- 2.0
Net cash used in investing activities
(23.7) (17.6)




Cash flows from financing activities


Interest paid
(0.6) (1.0)
Receipts from issue of share capital
2.9 -
Receipts from release of shares fr