SUMMARY OF GROUP RESULTS¹

¹ The information presented relates to the 24 weeks to 10 June 2017 and the 24 weeks to 11 June 2016.

Chief Executive, Matthew Ingle, said:

"We delivered a solid revenue performance in the first half in line with our plans for the full year. As expected during H1 2017, we saw currency movements and additional operating costs impacting our year-on-year profitability.

"The sales initiatives which began in Q4 2016 have shown positive results, with UK growth of 4.0% year-on-year in H1 2017 and growth of 6.5% for our most recent period of trading. We continue to develop the range of products and services we offer to broaden the entry-level appeal of the Howdens' proposition. Our investment programme remains on track and we have begun operations in our new distribution centre in Raunds, Northamptonshire.

"We believe that current market conditions are stable, although we remain watchful given continuing economic uncertainties."

Financial highlights¹:

• Howden Joinery UK depot revenue £539.5m (2016: £518.9m), an increase of 4.0% and 2.4% on a same depot basis. Group revenue was £553.0m (2016: £528.9m);
• Gross profit margin 64.1% (2016: 64.5%), stable on FY 2016 and including £12m of currency costs;
• Operating profit £66.6m (2016: £74.7m), reflecting expected costs due to new distribution centre and new product introduction programme;
• Basic earnings per share 8.4p (2016: 9.1p);
• £11.3m returned to shareholders by 9 June 2017 as part of a £80m share buyback programme announced in February 2017;
• Net cash of £215.1m at 10 June 2017 (24 December 2016: £226.6m net cash; 11 June 2016: £182.7m net cash), including repurchasing of shares and capital expenditure;
• Interim dividend 3.6p per share (2016: 3.3p).

¹The information presented here relates to the 24 weeks to 10 June 2017 and the 24 weeks to 11 June 2016, unless otherwise stated.

Business developments:

• 11 new UK depots in 2017 bringing total to 653;
• 22 new kitchen ranges introduced in H1 2017;
• New distribution centre at Raunds operational and IT systems integration completed, in preparation for H2 2017 trading;
• Capital expenditure of £22.0m (2016: £28.0m) as part of three-year investment programme started in 2015.

Current trading and outlook

• Howden Joinery UK depot revenue increased by 6.5% in the first four week period of the second half of the year (to 8 July 2017);
• Our overall expectations for the full year are unchanged.

FINANCIAL REVIEW

FINANCIAL RESULTS FOR FIRST HALF OF 2017¹

REVENUE

¹The information presented below relates to the 24 weeks to 10 June 2017 and the 24 weeks to 11 June 2016, unless otherwise stated.

We continue to see good progress from our sales initiatives which started in Q4 2016. Total group revenue increased to £553.0m (2016: £528.9m).

Howden Joinery UK depots' revenue rose by 4.0%, increasing 2.4% on a same depot basis. Revenue growth in the UK reflects the growth in maturing and new depots, as well as the increased number of customer accounts. We have seen ongoing weakness in the London area being offset by stronger performance elsewhere.

Our depots' revenue in Continental Europe was £13.5m (2016: £10.0m), the growth reflecting both the benefits of FX and the contribution of the new outlets opened during 2015 and 2016. In constant currency terms, sales of the French depots increased 5.3% on a same depot basis.

GROSS PROFIT

Our gross profit increased to £354.6m (2016: £341.4m). The gross profit margin of 64.1% (2016: 64.5%) was broadly stable on full year 2016, and reflected the impact of our sales initiatives offsetting the lagged impact of adverse currency movements and inflationary pressures, (one third of our cost of goods sold being denominated in euros or US dollars).

OPERATING PROFIT

Selling and distribution costs, and administrative expenses (SD&A) increased to £288.0m (2016: £266.7m). In addition to the costs of new depots, we incurred additional costs including costs in respect of our new distribution centre in Raunds, marketing charges relating to our new product introduction programme, reflecting 22 new kitchen ranges introduced in the first half of the year, and additional depreciation due to our investment programme.

As a result, our operating profit declined in line with management expectations to £66.6m (2016: £74.7m).

PROFIT BEFORE AND AFTER TAX

We had a net interest charge of £1.0m (2016: £0.1m benefit), primarily reflecting a higher finance expense in respect of pensions. Profit before tax was £65.6m, (2016: £74.8m), reflecting the additional costs outlined above.

The tax charge on profit before tax was £13.5m (2016: £17.0m), an effective rate of tax of 20.6% (2016: 22.7%). As a result, profit after tax was £52.1m (£57.8m). Basic earnings per share were 8.4p (2016: 9.1p).

PENSION

At 10 June 2017, the pension deficit shown on the balance sheet was £124.0m (24 December 2016: £106.0m). The increase in the deficit 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.

In July 2015, we announced that agreement had been reached in relation to the schedule of payments towards the funding of the Group's defined benefit pension scheme's deficit from April 2015. It was agreed that the Group would continue to make deficit contributions equivalent to £35m per annum until 30 June 2017. However, in light of movements seen in discount rates since this agreement was reached, it has been agreed that the Group will also make an 'interim' payment of £25m over the period July 2017 to June 2018. This will result in a deficit contribution of £30m in 2017.

The last completed triennial actuarial review of the defined benefit pension scheme was carried out as at April 2014 and the valuation as at April 2017 is in progress.

CASH

There was a net cash inflow from operating activities of £20.3m (2016: £35.9m). This was after a cash contribution to the Group's pension schemes, in excess of the operating charge, of £9.5m.

Working capital increased by £31.2m, reflecting typical seasonality of sales (2016: £30.6m). Debtors at the end of the period were £37.1m higher than at the beginning of the period and stock levels increased by £29.6m due to the introduction of new product ranges. Creditors increased by £35.5m, which included the still to be paid 2016 final dividend of 7.4p. We paid tax totalling £20.0m (2016: £10.2m), the lower payment in 2016 reflecting a tax refund received in H1 2016.

Payments to acquire fixed and intangible assets totalled £22.0m (2016: £28.0m), in line with our three-year investment programme which started in 2015.

BUYBACK

As part of the £80m share buyback programme announced in February, the Group acquired 2.5m shares, to 10 June 2017, for a consideration of £11.3m.

Reflecting the above, there was an £11.5m net cash outflow in the first half of the year (2016: £43.4m ), the Group having net cash at the end of the period of £215.1m (24 December 2016: £226.6m net cash, 11 June 2016: £182.7m 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. Reflecting this, the Board has approved the payment of an interim dividend of 3.6p per share (2016: 3.3p) which will be paid on 17 November 2017 to shareholders on the register at close of business on 20 October 2017.

OPERATIONAL REVIEW

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. We continue to see the opportunity to increase the scale of the business and see scope for up to 800 depots in the UK.

UK DEPOT NETWORK AND OPERATIONS

We have opened 11 new depots in the UK so far this year, taking the total to 653. A number of other depots are at various stages of the acquisition/shopfitting process and we expect to open up to 30 new depots in total this year.

Our debt collection performance continues to be robust.

PRODUCT AND MARKETING

We continue to enhance our product offering and expect to introduce 26 new kitchens ranges in total during 2017.

During H1 2017, we introduced 22 kitchens ranges, including eight new grey kitchens as the trend for this colourway continues, additional Clerkenwell ranges in gloss and matt colourways, a new Allendale family and a lower priced alternative to the successful Fairford (textured shaker) collection. We also introduced an enhanced rigid cabinet platform and Technik (flat pack) offering, completed a design update of our Lamona appliance range and continued to roll-out quartz worktops.

We also introduced a number of new joinery products including a collection of pre-finished doors, quick fit hardware and vinyl flooring.

MANUFACTURING AND LOGISTICS

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, especially 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. On the basis of this, we considered how to ensure that we are best placed to deal with and take advantage of future opportunities.

One outcome of this work was the identification of a programme of investment in our supply operations. During the first half of 2017, a number of the investment projects have progressed as follows.

• Manufacturing operations
  
  At our Howden site, our refurbished cabinet production facility and assembly lines were fully installed and commissioned, and we are ramping-up operations at this site.
  
  At our Runcorn site, our new cabinet component line was installed and is now fully operational.

• Logistics
  
  A 650,000 sq ft warehouse near Raunds, which is to the east of our current national distribution centre in Northampton, was handed over to us in July 2016. We have completed IT systems integration and we have undertaken tests to distribute product to a number of depots. The facility is currently being used for bulk storage and we expect to see further utilisation of this warehouse during Period 11.

CONTINENTAL EUROPE

We have 20 depots in France, one in each of Germany and The Netherlands, and two in Belgium. Revenue growth in France increased by 5.3% on a same depot and constant currency basis, while our nascent operations in the other regions are enabling us to gain a greater understanding of each local market.

CEO RETIREMENT AND APPOINTMENT

On 7 July 2017, it was announced that Howdens' founder and CEO, Matthew Ingle, has decided to retire in the first half of 2018 after 22 years with the Group. He will be succeeded as CEO by Andrew Livingston, currently CEO of Screwfix Direct Ltd, a division of Kingfisher Plc.

Andrew Livingston has been the CEO of Screwfix since 2013 and was previously Commercial and Ecommerce Director from 2009 to 2013. Before joining Screwfix, he was Commercial Director and Chief Operating Officer of Wyevale Garden Centres Plc. Prior to that he was the Commercial Director of Kitchens and Bathrooms at B&Q. Andrew is an independent Non-Executive Director at LondonMetric Property Plc, a FTSE 250 company.

In recognition of his unique contribution to Howdens, the Board has asked Matthew to become Howdens' honorary Lifetime President.

CURRENT TRADING AND OUTLOOK

In the first four week period of the second half of the year (to 8 July 2017), total sales of Howdens Joinery UK depots rose by 6.5% on the same period in 2016.

We continue to anticipate additional foreign exchange costs in 2017 of approximately £20m compared to 2016.

We continue to expect additional operating costs of around £20m in total due to pension costs, new product introductions, our new distribution centre at Raunds and additional depreciation. We see ongoing additional costs from inflationary pressures in both costs of goods sold and SD&A.

We continue to expect capital expenditure to be approximately £65m in 2017. Thereafter, given the opportunities we see ahead, we expect to continue to invest in the profitable growth of the business and will provide more detail in due course.

Our overall expectations for the full year are unchanged.

We believe that current market conditions are stable although we remain watchful given economic uncertainties.

Our 2017 financial year will include a 53rd week, which will increase operating costs by around £10m, but will not contribute to revenue.

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

Additional risk in 2017

We have decided to identify health and safety as a further principal risk.

Howdens is about people and relationships. When the business started in 1995, we had 14 depots, less than 30 employees and, on Day 1, no customers. Today we have 653 depots, 8,900 employees, more than 400,000 customer accounts, and suppliers all over the world.

The values on which the business was founded remain the same. We expect our people to do what they say and to treat others as they would wish to be treated themselves. Care for the health and safety of employees, customers, suppliers and everyone who comes into contact with Howdens is integral to our principles and to our behaviour.

Risk

Failure to ensure safe ways of working across the business.

Impact

Such a failure could compromise the safety and wellbeing of individuals and the reputation and viability of the business.

Mitigation

As the business has grown we have invested in safe ways of working. We have developed dedicated health and safety teams and formalised systems that help us stay safe. We monitor, review and update our practices to take account of changes in our environment or operations and in line with best practice and changing legislation. Most importantly, we make sure we keep talking about health and safety at every level of the business.

We cherish the managers who are so important to the local welfare of all our staff.

Risks that are unchanged since December 2016

The other principal risks and uncertainties that could have a material impact on the Group's performance over the remaining 29 weeks of the financial year have not changed from those which are set out in detail on pages 24 to 26 of the Group's 2016 Annual Report & Accounts, and which are summarised below.

• Changes in market conditions - weaker market conditions could affect our ability to achieve sales and profit forecasts. Weaker exchange rates could increase our cost of goods sold.
• Deterioration of business model and culture - if we lose sight of our model and culture we may not serve our customers successfully and our long-term profitability may suffer.
• Failure to maximise the growth potential of the businesses - if we don't understand and exploit the potential of our growth opportunities, and don't meet the related challenges, we won't get maximum benefit.
• Interruption to continuity of supply - if this happened, it could compromise our ability to deliver our in-stock 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 via their nett monthly trade accounts;
• Cyber security incident - could cause a key system and/or sensitive data to be compromised;
• Product design relevance - if we don't offer the builder the products that they and their customers want, we could lose sales and customers.

A copy of the Group's 2016 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 29 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

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 did not issue any 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.