Highlights

Chief Executive, Matthew Ingle, said:

"The good performance in the first half of the year was in line with our expectations for 2016, with good price progression being seen.

"With the outcome of the referendum last month, there is clearly a heightened degree of uncertainty as to how demand in the rest of the year will pan out. At this stage, we are continuing with our plans. That said, we remain watchful and will quickly take whatever steps are appropriate to the market conditions as we find them.

"The strength of our business model is based on the service proposition that Howdens provides to our small builder customers, and the support of the unique combination of our locally empowered staff and intrinsically low cost depots, and our efficient supply operations. This, when combined with our strong financial position, means that Howdens is well positioned to react to changing circumstances."

Financial results

The information presented here relates to the 24 weeks to 11 June 2016 and the 24 weeks to 13 June 2015, unless otherwise stated.

• Howden Joinery UK depot revenue increased by 9.1% to £518.9m (up 6.7% on a same depot basis). Group revenue was £528.9m (2015: £482.6m);
• Gross profit margin was 64.5% (2015: 63.7%), reflecting the implementation of a price increase and the lagged impact of adverse currency movements;
• Operating profit rose to £74.7m (2015: £60.9m);
• Profit before tax increased to £74.8m (2015: £59.2m), net interest falling by almost £2m;
• Basic earnings per share increased to 9.1p (2015: 7.1p);
• £52.8m returned to shareholders by way of a share buyback programme;
• Net cash of £182.7m at 11 June 2016 (26 December 2015: £226.1m net cash, 13 June 2015: £223.3m net cash), reflecting the repurchasing of shares and increased capital expenditure (see below);
• Interim dividend of 3.3p per share (2015: 2.8p).

Business developments

• Investment in the future growth of the business remains a priority:
  • 10 new UK depots opened so far in 2016, bringing total to 629;
  • capital expenditure totalled £28.0m (2015: £11.7m).

Current trading and outlook

• Howden Joinery UK depot revenue increased by 5.2% in the first four week period of the second half of the year (to 9 July), which included the EU referendum;
• Referendum result has created uncertainty about outlook for remainder of year, but no evidence of any impact on demand so far;
• Continuing with plans but remain watchful and ready to respond;
• Weaker exchange rate would affect cost of goods sold.

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery (Howdens). In the UK, Howdens is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 600 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 small operations in France, Belgium and Holland, with plans to extend these to Germany.

Website: www.howdenjoinerygroupplc.com

SUMMARY OF GROUP RESULTS

INTERIM MANAGEMENT REPORT

FINANCIAL REVIEW

FINANCIAL RESULTS FOR FIRST HALF OF 2016

The information presented below relates to the 24 weeks to 11 June 2016 and the 24 weeks to 13 June 2015, unless otherwise stated.

The financial performance of the Group during the first half of 2016 benefited from the Group's competitive position and the continuing focus on improving operational performance. We also benefited from stable market conditions.

Total Group revenue increased by £46.3m to £528.9m.

Howden Joinery UK depots' revenue rose by 9.1%, increasing 6.7% on a same depot basis.

This growth has been achieved through a number of factors and is testament to the proven strength of our business model. In particular, we have continued to open new depots and increased the number of customer accounts. As well as driving an increase in revenue, the business continued to focus on price discipline and margin.

Sales by our depots in continental Europe totalled £10.0m. The growth of £3.2m primarily reflected the contribution of the new outlets opened in the last 18 months. In constant currency terms, underlying sales of the original 11 French depots were up by 3%.

Gross profit rose by £34.1m to £341.4m. The gross profit margin of 64.5% (2015: 63.7%) reflects the impact of the implementation of a price increase offsetting the lagged impact of adverse currency movements, one third of our cost of goods sold being denominated in euros or US dollars.

Selling and distribution costs, and administrative expenses increased by £20.3m to £266.7m. In addition to the costs of new depots, this reflects additional costs incurred across the business to support growth. In particular, these related to additional headcount, logistics and our business in continental Europe.

Operating profit increased by £13.8m to £74.7m.

Net interest received of £0.1m compared with a net interest charge of £1.7m in 2015, primarily reflecting a lower finance expense in respect of pensions. The net result was that profit before tax rose by £15.6m to £74.8m. The tax charge on profit before tax was £17.0m, an effective rate of tax of 22.7%.

Basic earnings per share were 9.1p (2015: 7.1p).

At 11 June 2016, the pension deficit shown on the balance sheet was £86.5m (25 December 2015: £49.2m). The increase in the deficit in the period was due to a decrease in the net discount rate used to calculate liabilities, partly offset by higher asset returns and the Group's contribution to fund the deficit.

There was a net cash inflow from operating activities of £35.9m. This was after a cash contribution to the Group's pension schemes, in excess of the operating charge, of £11.6m.

Working capital increased by £30.6m, reflecting the seasonality of sales. Within this, debtors at the end of the period were £30.5m higher than at the beginning of the period and stock levels increased by £7.4m. Offsetting this, creditors increased by £7.3m, and included the then still to be paid 2015 final dividend.

Also included within net cash flows from operating activities was tax paid totalling £10.2m, this reflecting a refund received of £7.9m.

Payments to acquire fixed and intangible assets totalled £28.0m (2015: £11.7m), this mainly relating to investment in our supply operations (see below).

As part of the £70m share buyback programme announced in February 2015 and the £55m programme announced in February 2016, the Group has acquired 11.2m shares in the year to date, for which the consideration was £52.8m. This is equivalent to the £25m of the £70m programme that was outstanding at the end of 2015 and half of the £55m programme, which we said would be implemented over the course of two years.

Reflecting the above, there was a £43.4m net cash outflow in the first half of the year, the Group having net cash at the end of the period of £182.7m (25 December 2015: £226.1m net cash, 13 June 2015: £223.3m net cash).

DIVIDEND

It is the Group's policy to pay an interim dividend equal to one third of the previous year's full dividend (2015: 9.9p).

Reflecting this, the Board has approved the payment of an interim dividend of 3.3p per share (2015: 2.8p). It will be paid on 18 November 2016 to shareholders on the register at close of business on 21 October 2016.

OPERATIONAL REVIEW

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

Since we started in 1995, the business has opened new depots and increased turnover continuously, except for a 12-month period in 2008-9.

Even today, with over 600 depots across the UK, we continue to see the opportunity to increase the scale of the business, seeing scope for up to 800 depots. We continue to invest in all aspects of the growth and performance of the business, including new depots and depot operations, new and existing employees, product development, and manufacturing and distribution.

UK depot network and operations

10 new depots have been opened in the UK so far this year, bringing the total to 629. A number of other depots are at various stages of the acquisition/shopfitting process, the opening programme being in line with our expectations to open around 30 depots this year.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products during the first half of the year across all product categories. Notable amongst these were the introduction of two new wood grained detail kitchens in our Burford range. We have also introduced a number of new products in our doors, flooring and joinery ranges.

We continue to invest in our marketing communications and brand advertising.

• A magazine distributed to our small builder customers, the Rooster News, has been used to help drive footfall and sales in our depots.
• To further raise awareness of the Howdens brand, we are attending eight county shows and agricultural fairs throughout the UK during the summer.

Manufacturing and logistics operations

Our UK-based manufacturing and logistics operations play a vital role in ensuring that we are able to supply our small builder customers from local stock nationwide at all times. This requires us to have the space and the flexibility to respond to each depot's individual needs, even during our critical 'period 11', when sales are more than double the level seen in other periods.

In February 2015, we said that we had undertaken a review of the medium and longer-term growth prospects for the business and had identified more opportunities than previously foreseen. On the basis of this, we said that we had considered how to ensure that we are best placed to deal with and take advantage of what the future might bring. One outcome of this work was the identification of a programme of investment in our supply operations.

During the first half of 2016, a number of projects have progressed as follows.

• Manufacturing operations
  
  At our Howden site, the refurbishment phase of a new cabinet production facility has been completed and assembly lines are now being installed. This will improve our cabinet manufacturing capability.
  
  At our Runcorn site, installation of new cabinet component lines is complete and these are now being commissioned.

• Logistics
  
  A new 650,000 sq ft warehouse that has been built near Raunds, which is to the east of our existing national distribution centre in Northampton, has been handed over to us. This is now being fitted-out and will be fully operational in 2017.

CURRENT TRADING AND OUTLOOK

In the first four week period of the second half of the year (to 9 July), total sales of Howdens Joinery UK depots rose by 5.2% on the same period in 2015. This is seen as providing little guidance to the outlook for the remainder of the year as the referendum fell in the middle of the period and it is too early to see any impact of the result of the referendum.

We recognise that there is clearly a heightened degree of uncertainty as to how demand in the rest of the year will pan out.  At this stage, we are continuing with our plans. That said, we remain watchful and will quickly take whatever steps are appropriate to the market conditions as we find them.

In February, we said that the prevailing exchange rates would increase our cost of goods sold by around £15m. Good progress on pricing in the first half of the year helped to protect our gross profit margin.

Since the referendum, the pound has weakened compared with the exchange rates seen in the first half of the year. If current rates were to prevail for the rest of 2016, the increase in costs of goods sold in 2016 would rise to around £20m.

GOING CONCERN

The Group meets its day-to-day working capital requirements through cash generated from operations. If required, the Group also has access to an asset-backed lending facility of £140m which expires in July 2019.

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in economic conditions and trading performance. The results of this testing show that the Group should be able to operate within the level of its current net cash balances and its committed bank facility, and that it would not breach the facility covenants.

After making due enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

RELATED PARTIES

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

RISKS AND UNCERTAINTIES

The Board continually assesses and monitors the key risks of the business. The principal risks and uncertainties that could have a material impact on the Group's performance over the remaining 28 weeks of the financial year have not changed from those which are set out in detail on pages 20 to 22 of the Group's 2015 Annual Report & Accounts, and which are summarised below. It should be noted that our exposure to the risk in respect of 'changes in market conditions' has been increased by the outcome of the referendum on UK membership of the EU held in June 2016.

• Changes in market conditions - could affect our ability to achieve sales and profit forecasts, which in turn could put pressure on our cash availability and banking covenants, but could also provide opportunities to exploit new markets and create value;
• Deterioration of business model and culture - could have an adverse effect on the Group's future financial condition and profitability;
• Failure to maximise the growth potential of the business - could affect our ability to obtain maximum benefit from our growth potential;
• Interruption of continuity of supply - could adversely affect the Group's ability to implement the business model;
• Loss of key personnel - could adversely affect the Group's operations;
• Credit control failure - could affect our ability to continue to support our customers and potentially our ability to collect debt;
• Cyber security incident - could cause a system and/or sensitive data to be compromised.

A copy of the Group's 2015 Annual Report & Accounts is available on the Group's website, www.howdenjoinerygroupplc.com.

CAUTIONARY STATEMENT

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

RESPONSIBILITY STATEMENT

We confirm that, to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
• the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 24 weeks and description of principal risks and uncertainties for the remaining 28 weeks of the year); and
• 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

20 July 2016

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

Condensed consolidated balance sheet - continued

Condensed consolidated statement of changes in equity

Condensed consolidated statement of changes in equity - continued

The Group issued 5,289,319 shares during the period.

Condensed consolidated cash flow statement

Condensed consolidated cash flow statement - continued

Notes

The full results including Notes can be downloaded in pdf format.