2023 Half Year Results

Operational Review

Strategic initiatives

Howdens has made good progress on its strategic initiatives, which are aimed at achieving profitable growth and market share gains over the medium term. The four strategic initiatives are:

1. Evolving our depot model by using space more efficiently to provide the best environment in which to do business with our customers.
2. Improving our range and supply management to help customers’ buying decisions, to improve service and to enhance productivity in our manufacturing, sourcing and supply chain activities.
3. Developing our digital platforms to raise brand awareness, support the business model and to deliver productivity gains and more leads for depots and customers.
4. Expanding our presence in selective countries with attractive kitchen and joinery markets outside the UK.

These ongoing investments support the execution of our growth strategy and are within our overall capital expenditure guidance. Progress on each of these initiatives is reviewed below:

Evolving our depot model

Since the start of the year, we have made good progress in finding new depot sites and we are now planning to open 33 new depots in 2023, ahead of our previous guidance, having opened eight in the first half. We are opening all new depots in our updated format which is designed to provide the best environment in which to do business with our customers. At maturity, we expect to operate with around 1,000 depots in the UK, versus the 808 trading at the end of 2022. This will be supported by our cross docking (XDC) facility which enables depots to optimise their stock holdings and provide high levels of service across the product range. It also enables us to operate out of depots with smaller footprints, without impacting sales, service, or product availability. This is particularly useful for infills in metropolitan districts where lease costs are relatively higher than in less populated areas.

We have also continued with our reformatting programme for existing depots. Depot reformats have a pay back of around four years and the programme is delivering incremental sales and has received very positive feedback from depot teams and customers. In the first half, including relocations, we have we reformatted 28 depots, and we now plan to reformat 90 depots in 2023, 10 more than our previous guidance. By the end of 2023, we expect to have reformatted around 275 of the 671 depots which were opened in the old format.

Improving our product range and supply management

Range Management

In recent years we have reorganised our range architecture to support growth and improve the balance between new kitchen introductions and timely discontinuations. This year, our range count will be around 90, organised in 10 families. At a time when many competitors are paring back their range offerings, Howdens has accelerated new product introductions to ensure we are at the forefront of the industry, inspiring our customers with the latest trends and design highlights. For 2023, we have increased the net number of ranges aimed at the entry and the mid-market segments, making more kitchen looks and styles accessible to all budgets. Value for money is a consistent feature of buying decisions, particularly given current pressures on household budgets. We have continued to develop our offering of higher priced kitchens, a significant segment of the market where we are under-represented.

This year we have launched 23 new kitchen ranges including:

• For our entry ranges, we have added more colour options including Greenwich in Reed Green, Witney in Pebble and Navy and Allendale in Dusk Blue and we have new frontals for Greenwich and Witney to match the new Croft Grey cabinet platform we introduced this year. We have refreshed the look of our bestselling shaker family, which we have named Halesworth and we have added a new mid-priced beaded shaker family, Bridgemere, initially available in three colours.
• In recent years, introductions of higher priced kitchens have proved very popular, and in 2023 we have updated our offer to these market segments but kept to a similar in-stock range count to last year.
• A strategic priority for us is the development of a market-leading supply and fit capability for premium solid work surfaces. Following the acquisition of the Sheridans business, our in-house solid surface capacity is amongst the largest in the UK. The number of solid surface worktop orders taken by depots has increased significantly in 2023 and we continue to improve our offer and expand our range.
• In the second half we are launching a new premium paint to order service for our ‘Best’ timber kitchen ranges in the Chilcomb and Elmbridge families initially in 15 new colours. The offer will support requirements for a bespoke look, which will be priced at a premium to the range colours available in stock. Dedicated manufacturing will ensure a short lead time between order placement and delivery.
• For 2023, we have also reinvigorated our offering in other categories, for example in doors, where we have introduced more colours and bolder styles at all price points, and in flooring, where we have launched of a new in-house brand, “Oake & Gray”. We have added to our private label Lamona appliance brand, which is the leading integrated appliance brand in the UK and we have also extended our range of third party branded appliances. In sinks and taps we have introduced more styles, colours and finishes.

Manufacturing and supply chain

Howdens is an in-stock business and a high level of stock availability is one of the key reasons our customers buy from us. Our dedicated manufacturing and supply chain is critical to the success of our in-stock offer. We supply all product, whether manufactured or sourced, to all depots. We keep under review what we believe it is best to make or buy, balancing cost, overall supply chain availability, resilience and flexibility. Over time we continue to see opportunities to increase the proportion of products we make. As a result of improving supply chain stability, we will continue to operate with enhanced safety stocks in 2023 as a contingency against unexpected demand patterns and interruptions to supply, but at more normalised levels by volume than in recent years.

In 2019, investment in manufacturing technology enabled us to make the doors for our popular Hockley kitchen ranges. Since then, we have invested in new lines at our Howden site, which are amongst the most advanced of their type in Europe. These give us the ability to make a variety of kitchen furniture, principally doors and panels, for more of our ranges, at the same quality as we can source externally but at a lower cost and at a reduced lead time to delivery. Our second architrave and skirting line is operational, enabling us to service in-house more of the substantial increase in demand we have seen for these products and for which we are extending our offering in 2023.

At the end of 2022, in tandem with the implementation of a new stock management system, we trialled a new initiative, “Daily Traders”, which we have subsequently rolled-out to all UK depots. This improves customer service and increases sales by optimising in-depot stock holdings of the best-selling SKUs and associated “range completers” in a depot. Sales of these products are outperforming those of non-Daily Trader SKUs and we are seeing improvements to other key metrics including a reduction in customer back-orders and a higher proportion of stock being replenished via a depot’s core weekly delivery order. This gives us efficiencies as it reduces utilisation of our XDC regional cross docking service.

With the extension of the XDC service to Scotland in January 2023, it is now operating across all mainland regions, supplied by a network of 12 regional hubs. With mainland XDC coverage completed, our focus is now on using these assets most efficiently. The improved depot stock mix following the introduction of a new re-ordering system and the Daily Traders initiative have enabled us to reduce annualised XDC capacity, leading to lower operating costs.

Developing our digital platforms

Our digital strategy reinforces our model of strong local relationships between depots and their customers by raising brand awareness, supporting the business model with new services and ways to trade with us and delivering productivity benefits for depot employees and customers. In 2023, usage of our online account facilities, which benefits customers and depots, has continued to increase and we now have around 45% of our customers using our digital platform.

In 2023 we are adding new services and capabilities to our trade platform which collectively improve stock and account knowledge, promote frequency and ease of trading and reduce time consuming manual tasks in depots, including stock allocation. These include a new “multi-list” feature which gives visibility of dates saved for future projects enabling depots to prioritise leads on a daily basis and customers to manage all their jobs efficiently in one place. We have commenced first phase testing of a digitised in-depot stock management system to record and pick deliveries, check allocations and determine depot stock levels.

We are also continuing to focus on helping end-users interact with Howdens on line at each stage of their buying decision, creating higher quality leads for our designers and customers. Our “Kitchen Visualiser” is raising end-user familiarity with our kitchens, including how our solutions meet their needs, as well as our appreciation of their priorities. Our market leading search functionality enables users, including our teams, to find what they are looking for much more efficiently. We have also equipped our kitchen designers with an upgraded CAD tool which features faster rendering, photo realistic imagery and is easier to use than the previous version. As our digital presence has grown, awareness of Howdens amongst end-consumers has increased. Our unprompted brand awareness amongst end-consumers is now at 25%, which has more than doubled since 2019, and we see the potential to raise awareness to higher levels.

Developing our international operations

Our International operations, predominantly based in France, continue to make good progress. The business model for France is similar to the UK with a market size in kitchens of around €4.3bn, excluding appliances. The French market has low penetration rates of integrated kitchens and most are purchased through DIY outlets and specialist small independent businesses. The maturity profile of new depots, which is similar to new depots in the UK. We believe appreciation of the advantages of our trade-only in-stock model, our service levels and competitive pricing is growing and with around 90% of common product versus our UK ranges this helps us realise scale benefits.

Since 2019, we have been opening depots in small clusters within cities which benefit from word of mouth between customers and our ability to build a local and trusted brand. Clustering also helps to build the Howdens culture within our business teams. Over the next eighteen months, we expect to open up to 20 more depots, including five or so this year. This would take the number trading to around 80 by the end of 2024 with around 35 located in Paris.

We also opened for business in the Republic of Ireland in 2022 and we are using a similar approach to that in France. Our initial phase opening five depots was clustered around Dublin, and the reaction from trade customers has been very positive. We have opened two depots so far this year, including our first located in Cork in the West of Ireland, and we expect to have 10 or so trading by the end of the year.

Environment, social and governance (ESG)

We want to create an inclusive environment and make a positive contribution to all our stakeholders, including our customers, staff, communities, suppliers and shareholders. We believe that our business needs to be worthwhile for all concerned. We actively manage risks and identify opportunities across the business to improve our environmental, social and governance performance to minimise our impact on the environment.

Our focus remains on:

• reducing direct emissions in our own manufacturing and logistics
• working closely with suppliers to reduce emissions throughout our external supply chain
• accelerating our product and packaging sustainability programme.

Our top 30 suppliers account for over 80% of our total emissions and we continue to engage with them to work together to minimise emissions in the supply chain. An early priority has been accurate measurement of emissions which will help us prioritise activities and make better informed decisions. Since the start of the year, we have been logging Scope 1, 2 and 3 emissions through our ESG 360 online system in the supply base.

Several significant milestones were reached in the period. First, we submitted our Net Zero plan to SBTi for their approval, 12 months ahead of schedule, with an objective to achieve net zero carbon emissions by 2050, having halved our direct emissions by 2030. Second, we want to continue to be a carbon neutral manufacturer and our main factories in Howden and Runcorn have been recertified this year. We recently received carbon neutral accreditation for one of our new solid surface facilities at Spaldington and we are continuing to work towards achieving accreditation for Normanton (formerly the Sheridan site). Finally, we achieved our objective to ensure that 100% of our kitchen range SKUs are FSC^Ò or PEFC^Ô certified by the end of 2022, which independently certifies that the wood comes from responsibly managed forests.

Our network of over 816 UK depots has also been running on sustainable energy sources for over six months. We are also making good progress with our waste reduction initiatives with our factories achieving zero waste to landfill again this year. We have now achieved 99.7% zero waste to landfill in our depot network. With respect to fleet management, we have also recently committed to expanding our trial of Hydrotreated Vegetable Oil (HVO) in our vehicle fleet as an alternative to diesel, which is a major contributor to our Scope 1 greenhouse gas emissions. We now have around 5% of the fleet running on HVO and replacing diesel in this way will significantly reduce our own fleet emissions. This will have no negative impact on fuel efficiency or maintenance costs. We continue to trial electric vehicles (EVs) within the overall fleet and are operating our first two EVs as part of a trial in our XDC network. XDC deliveries tend to be within a region and therefore more suited to the range limitations of current battery technology.

Going concern

The directors have adopted the going concern basis in preparing these half-yearly condensed financial statements and have concluded that there are no material uncertainties leading to significant doubt about the Group’s going concern status. The reasons for this are explained below. 

Going concern review period

This going concern review period covers the period of 12 months after the date of approval of these financial statements. The directors consider that this period continues to be suitable for the Group.

Assessment of principal risks

The directors have reached their conclusion on going concern after assessing the Group’s principal risks, as set out immediately below this going concern statement.​ While all the principal risks could have an impact on the Group’s performance, the specific risks which could most directly affect going concern are the risks relating to continuity of supply, changes in market conditions, and product relevance. The Group is currently holding additional amounts of fast-moving inventory as a specific mitigation against supply chain disruption, and considers that the other effects of these risks would be reflected in lower sales and/or lower margins, both of which are built into the financial scenario modelling described below.

Review of trading results, future trading forecasts and financial scenario modelling

The directors have reviewed trading results and financial performance in the first half of 2023, as well as trading in the weeks between the half-year end and the date of approval of the half-year results. They have reviewed the Group’s balance sheet at the half-year end, noting that the Group is debt-free, has cash and cash equivalents of £118m, and appropriate levels of working capital.

They have also considered three financial modelling scenarios prepared by management:

1. A “base case” scenario. This is based on the latest 2023 Group forecast, made in June 2023. The basis of this scenario has been approved by the Board. 
    
   This scenario assumes future revenue and profit in line with management and market expectations as well as investments in capital expenditure and cash outflows for dividends and share buy backs in accordance with our announced capital allocation model.

 

2. A “severe but plausible” downside scenario based on the worst 12-month year-on-year actual fall ever experienced in the Group’s history. This is more significant than the combined effect of COVID and Brexit on 2020 actual performance.
    
   This scenario models a reduction in most of the variable cost base proportionate to the reduction in turnover. It includes capital expenditure at a lower level than in the base case, but which is still in line with our announced strategic priorities for growth, namely: new depot openings and refurbishments, investment in our manufacturing sites, investment in digital and expanding our international operations. It also includes dividends and share buy backs in line with the Group’s stated capital allocation model.
    
   In this scenario the Board considered the current economic conditions that the company and its customers are facing and, noted that the downside scenario included allowances for reduced demand and increased costs to reflect such adverse conditions.

 

3. A “reverse stress-test” scenario. This scenario starts with the severe but plausible downside model and reduces sales even further, to find the maximum reduction in sales that could occur with the Group still having headroom over the whole going concern period, without the need to take further mitigating actions.

Borrowing facility and covenants

The Group has a five-year, committed, multi-currency revolving credit facility of up to £150m, which expires in July 2027 and which was not drawn at the half-year end. A summary of the main terms of the facility is set out in note 19 to the December 2022 Group financial statements.

As part of the scenario modelling described above, we have tested the borrowing facility covenants and the facility remains available under all of the scenarios. We have therefore included the credit available under the facility in our assessment of headroom.

Results of scenario modelling

In the base case and the severe but plausible downside scenarios, the Group has significant headroom throughout the going concern period after meeting its commitments.​

In the reverse stress-test scenario, the results show that sales would have to fall by a significant amount over and above the fall modelled in the severe but plausible downside scenario before the Group would have to take further mitigating actions. The likelihood of this level of fall in sales is considered to be remote.​

Conclusion

Taking all the factors above into account, the directors believe that the Group is well placed to manage its financing and other business risks satisfactorily and they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the going concern review period set out above. Accordingly, they continue to adopt the going concern basis in preparing these half-yearly condensed financial statements.

Principal risks and uncertainties

The principal risks and uncertainties that could have a material impact on the Group’s performance over the remaining half of the financial year have not changed from those which are set out in detail in the Group's 2022 Annual Report and Accounts. One risk has decreased - ‘Supply chain’.   

• Market conditions – Challenging conditions could affect our ability to achieve sales and profit forecasts, impacting on our cash position. Exchange rates fluctuation could increase our cost of goods sold.
• Supply chain – Any disruption to our relationship with key suppliers or interruption to manufacturing and distribution operations could affect our ability to deliver the in-stock business model and to service our customers’ needs. If this happened, we could lose customers and sales. This risk has decreased as our supply-base continues to improve, reducing the likelihood of a significant impact. 
• Business model and culture – if we lose sight of our model and culture, we may not serve our customers successfully and our long-term profitability may suffer.
• Maximising growth – if we do not understand and exploit our growth opportunities in line with our business model and risk appetite, or if we do not meet the related challenges, we will not get maximum benefit from our growth potential.
• People – Our operations could be adversely affected if we were unable to attract, retain and develop our colleagues, or if we lost a key member of our team without succession.
• Health and Safety – Poor management or an incident could compromise the safety and wellbeing of individuals, and the reputation and viability of the business. 
• Cyber security – Events such as ransomware attacks continue to rise globally. A major security breach could cause a key system to be unavailable and/or sensitive data to be compromised.
• Product – If we do not offer the builder the products that they and their customers want, we could lose sales and customers.
• Business continuity and resilience – We have some business operations and locations in our infrastructure that are critical to business continuity and are essential for ensuring our customers can get the product and services they want when they need them.

Cautionary statement

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

Responsibility statement

We confirm that, to the best of our knowledge:

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

(b)  the interim management report includes a fair review of the information required by DTR 4.2.7R
(indication of important events during the first 24 weeks and description of principal risks and uncertainties for the remaining 29 weeks of the year); and

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

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

By order of the Board

Andrew Livingston                          Paul Hayes
Chief Executive Officer                 Chief Financial Officer

19 July 2023

Independent review report to Howden Joinery Group Plc

Conclusion

We have been engaged by Howden Joinery Group Plc (“the Company”) to review the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 10 June 2023 which comprises the condensed consolidated balance sheet of Howden Joinery Group Plc and the related condensed consolidated income statement, condensed consolidated statement of other comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated cash flow statement and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 10 June 2023 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”). 

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity (“ISRE (UK) 2410”) issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.  

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group/Company to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group will continue in operation.

Directors’ responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards.

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

In preparing the condensed set of financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Our responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

Robert Brent
for and on behalf of KPMG LLP 

Chartered Accountants 
15 Canada Square
London
E14 5GL

19 July 2023

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of changes in equity

Condensed consolidated statement of changes in equity - continued