TIDMHWDN
RNS Number : 6081X
Howden Joinery Group PLC
23 February 2017
HIGHLIGHTS
Chief Executive, Matthew Ingle, said:
"Howdens delivered a solid set of results in 2016, despite
softer trading conditions being seen in the second half. Sales grew
to GBP1.3bn, profitability increased and our net cash position at
the year-end was unchanged. As a result, we are recommending an
increase in our dividend and announcing a new cash return of up to
GBP80m to shareholders by way of a share repurchase programme.
"Performance in the last two periods (eight weeks) of the year
reflected the implementation of a price increase towards the end of
the year and two extra days trading.
"We have continued to invest in all aspects of the business,
improving our operations and pursuing the growth opportunities
before us, while making sure that our operations suit current
market conditions. In the UK, we opened 23 new depots and we pushed
forward with an expanded trial in continental Europe, opening two
additional depots in northern France, a larger outlet in southern
France and our first outlet in Germany. We are investing in our
supply operations to ensure their resilience and in order to have
sufficient capacity to enable us to take advantage of the prospects
we see before us.
"The service proposition that Howdens provides to our small
builder customers is supported by the unique combination of our
locally empowered depots and our supply operations. The strength of
this has enabled us to continue to increase the number of account
holders by more than 30,000 to over 450,000, who form the bedrock
of our business.
"We will continue to invest in the business, to ensure that we
can take advantage of the longer term growth opportunities that we
foresee, and to address the challenges of a more complex market and
security of supply. This investment will be in both our day-to-day
operations and our supply chain capability.
"Looking at 2017, softer trading conditions seen in the UK in
the second half of 2016 have continued into the early part of this
year, with volumes having weakened slightly. We raised prices
towards the end of last year in response to cost pressures in our
business and the early signs from this are encouraging.
"As well as planning to open around 30 new depots in the UK, we
will continue to invest in our supply chain capability.
"We are mindful of the uncertainty surrounding the economic
outlook and are well positioned to respond to a change in market
conditions."
Financial results
The information presented here relates to the 52 weeks to 24
December 2016 and the 52 weeks to 26 December 2015, unless
otherwise stated.
-- Howden Joinery UK depot revenue increased by 6.5% to
GBP1,281.7m (up 4.2% on same depot basis(1) ). Group revenue was
GBP1,307.3m (2015: GBP1,220.2m);
-- Gross profit margin was 64.2% (2015: 64.3%), despite adverse currency movement;
-- Operating profit rose to GBP237.2m (2015: GBP221.9m);
-- Profit before tax increased to GBP237.0m (2015: GBP219.6m),
the net finance charge falling by GBP2.1m, reflecting a decrease in
the pensions finance expense;
-- Basic earnings per share increased to 29.5p (2015: 27.3p);
-- Net cash of GBP226.6m at year-end (26 December 2015:
GBP226.1m net cash), after GBP145.4m was returned to shareholders
by way of a share repurchase programme and dividends;
-- Final dividend of 7.4p recommended, giving full year dividend of 10.7p per share (2015: 9.9p);
-- Up to GBP80m expected to be returned to shareholders, through a share repurchase programme.
1 Excludes depots opened in 2015 and 2016.
Business developments
-- Investment in the future growth of the business continues:
- 23 new depots opened in UK in 2016, with one opened in early
2017, bringing total to 643;
- capital expenditure totalled GBP63.5m (2015: GBP45.9m) as
investment in supply operations to support further growth and
increase resilience was stepped up;
- French trial extended, with three new depots opened, and our
first depot opened in Germany.
Current trading
-- Howden Joinery UK depot revenue in the first two periods of
2017 rose by 3.6%(1) , in line with our expectations;
-- To offset cost pressures, a price rise was put through
towards the end of 2016, and early signs are encouraging, against
the backdrop of softer market conditions;
-- Our outlook for the business for 2017 remains unchanged.
1 This excludes the first trading week, which had one fewer
trading days in 2017 than in 2016.
Enquiries
Investors/analysts:
Gary Rawlinson +44 (0)207 535 1127 (not 23 February
2017)
Head of Investor
Relations +44 (0)7989 397527
Media:
Maitland +44 (0)207 379 5151
Kate O'Neil
Tom Eckersley
Robbie Hynes
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 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, Holland and Germany.
Website: www.howdenjoinerygroupplc.com
SUMMARY OF GROUP RESULTS
The information presented here relates to the
52 weeks to 24 December 2016 and the 52 weeks
to
26 December 2015.
GBPm 2016 2015
Revenue
- Group 1,307.3 1,220.2
- Howden Joinery UK depots 1,281.7 1,203.8
Gross profit 839.9 784.4
Gross profit margin, % 64.2 64.3
Operating profit 237.2 221.9
Profit before tax 237.0 219.6
Basic earnings per share 29.5p 27.3p
Dividend per share 10.7p 9.9p
Net cash at end of period 226.6 226.1
--------------------------------- --------- --------
FINANCIAL REVIEW
FINANCIAL RESULTS FOR 2016
The information presented here relates to the 52 weeks to 24
December 2016 and the 52 weeks to 26 December 2015, unless
otherwise stated.
The financial performance of the Group during 2016 benefited
from the Group's competitive position and the continuing focus on
improving operational performance.
Total Group revenue increased by GBP87.1m to GBP1,307.3m.
Revenue GBPm 2016 2015
Group 1,307.3 1,220.2
comprising: 1,281.7 1,203.8
Howden Joinery UK
depots 25.6 16.4
Howden Joinery continental
Europe depots
Howden Joinery UK depot revenue rose by 6.5% to GBP1,281.7m,
increasing by 4.2% on a same depot basis (excludes depots opened in
2015 and 2016).
This growth was achieved through several factors and is a
testament to the strength of the Howdens business model. In
particular, we have continued to open new depots and increased the
number of customer accounts, while maintaining focus on pricing
discipline, which enabled us to grow turnover in existing depots of
all ages.
Sales in continental Europe rose by GBP9.2m to GBP25.6m,
primarily reflecting the expansion of the trial in France.
Gross profit rose by GBP55.5m to GBP839.9m. The gross profit
margin for the year of 64.2% was virtually unchanged (2015: 64.3%).
This was despite an increase in costs of goods sold of GBP23m that
arose from the weakening of the pound against the euro and US
dollar.
Selling and distribution costs, and administrative expenses
increased by GBP40.2m to GBP602.7m. The increase reflects the costs
of new depots, investment in both short and longer term growth, and
the impact of inflation, including on payroll costs.
Operating profit increased by GBP15.3m to GBP237.2m.
The net interest charge fell by GBP2.1m to GBP0.2m, reflecting a
lower finance expense in respect of pensions. The net result was
profit before tax rose by GBP17.4m to GBP237.0m.
The tax charge on profit before tax was GBP51.4m, an effective
rate of tax of 21.7%.
Basic earnings per share were 29.5p (2015: 27.3p).
At 24 December 2016, the pension deficit shown on the balance
sheet was GBP106.0m (26 December 2015: GBP49.2m). The increase in
the deficit was due to higher liabilities arising primarily from a
decrease in the discount rate, partly offset by the Group's
contribution to fund the deficit (GBP35m) and higher than expected
asset returns.
We saw strong cash flow in 2016, with a net cash inflow from
operating activities of GBP207.2m, after the cash contribution to
the Group's defined benefit pension scheme.
Within this, working capital decreased by GBP1.5m. Increases in
stock and trade debtors were more than offset
by an increase in trade creditors. In addition, net tax paid totalled GBP28.8m.
Payments to acquire fixed assets totalled GBP63.5m (2015:
GBP45.9m), reflecting increased investment in our supply operations
(see Operational Review).
In line with the announcements of a GBP70m share repurchase
programme made in February 2015, of which GBP45m was returned in
2015, and a GBP55m share repurchase programme made in February
2016, GBP80.0m was spent acquiring the Group's own shares during
2016, concluding both programmes.
Reflecting the above, there was a net cash inflow of GBP0.5m in
2016, the Group having net cash of GBP226.6m at the end of the year
(26 December 2015: GBP226.1m net cash).
DIVID AND RETURN OF SURPLUS CASH TO SHAREHOLDERS
The Group's dividend policy is to target dividend cover of
between 2.5x and 3x, with one third of the previous year's dividend
being paid as an interim dividend each year.
In light of this policy, given the operational performance of
the business in 2016, the Board has decided to recommend to
shareholders a final dividend of 7.4p, giving a total dividend for
the year of 10.7p (2015: 9.9p). This equates to a dividend cover of
2.75x.
As previously stated, the Board intends to target a capital
structure that is both prudent and recognises the benefits of
operational and financial leverage, and, after considering our
capital requirements, to return surplus cash to shareholders as
appropriate. The Group has significant property leases for the
depot network, and continues to have a material deficit in the
Group pension fund and a small number of remaining legacy
liabilities related to the Group's former 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 through the
annual working capital cycle without incurring bank debt.
The Board has reviewed the cash balances in light of the Group's
future investment opportunities, expected peak working capital
requirements and trading outlook. As a result, it has decided to
return up to GBP80m of cash to shareholders by way of a share
repurchase programme. This is expected be implemented over the
course of the next two years.
Shares that are bought in the market by our brokers will either
be held in treasury, to use to satisfy future obligations for
company share schemes, or cancelled.
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 ... and to
provide the builder's customer with enough choice, advice and
aftersales to make a home to be proud of".
Since it started in autumn 1995, the business has opened new
depots and increased turnover continuously, except for a 12-month
period in 2008-9. At the end of 2016, the business had 642 depots
across the UK and has small operations in continental Europe, where
it has 24 depots. Around one-third of the product the business
sells are made in its own UK factories.
Even today, we continue to see the opportunity to transform the
scale of the business, seeing scope for up to 800 UK depots. We
continue to invest in all aspects of the growth and performance of
the business, including new depots and depot operations, existing
and new employees, product development, and manufacturing and
distribution.
UK depot network and operations
During the course of 2016, 23 new depots were opened, bringing
the total number of depots trading at the end of the year to 642.
In addition, five depots were relocated and 22 were extended.
It is important that we have the optimal number of regional and
area managers leading and supporting our UK depot operations. The
continuing growth of the number of depots has led us to introduce a
new region, which consists of five areas, bringing the number of
regions to nine.
Our account base continued to grow, increasing by over 30,000
net new accounts in 2016. While there has been a significant
increase in accounts, our debt collection performance continues to
be robust.
Product and marketing
Continuing to enhance our product offering is crucial to our
competitive position. In 2016, we introduced a number of new
products across all product categories, albeit the programme was
less intensive than in recent years. Notable amongst these
were:
-- three new Burford ranges with textured wood grain finish, as
a lower priced option to the Tewkesbury family;
-- three new grey kitchens in our Greenwich and Clerkenwell
families and an ivory Greenwich Shaker door, following the growing
popularity of these colourways.
In addition, a number of successful tests were undertaken,
including pre-finished doors which make the builders life more
time-efficient.
It is planned that 2017 will see a larger new product
introduction programme, including around 20 new kitchen ranges and
a number of products that were tested in 2016.
We continued to invest in our marketing communications and brand
advertising with a number of initiatives. These included:
-- a series of Rooster News flyers distributed to our small
builder customers, which have been used to help drive footfall and
sales in our depots; and
-- to further raise awareness of the Howdens brand, we attended
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 2016, a number of projects were progressed as
follows.
-- Manufacturing operations
At our Howden site, the refurbishment phase of a new cabinet
production facility has been completed, assembly lines have been
installed and the installation of machining lines has commenced.
When complete, this will improve our cabinet manufacturing
capability.
At our Runcorn site, installation of a new cabinet component
line is complete and this has been commissioned. Production on the
line is now being ramped up.
-- 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, was handed over to us in July. Fit-out has been
completed and IT systems integration is underway.
Continental Europe
In France, we opened two new depots in the north and one in the
south, meaning that we now have 20 depots in the country. In
Germany, we opened one depot, our first in the country, which will
allow us to learn about the market.
GROUP DEVELOPMENTS
Pension scheme funding
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.
At that time, it was agreed that the Group would continue to make
deficit contributions equivalent to GBP35m 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 GBP25m over the period July 2017
to June 2018. This will mean a deficit contribution of GBP30m in
2017.
CURRENT TRADING AND OUTLOOK FOR 2017
Our 2017 financial year will include a 53(rd) week, which will
increase operating costs by around GBP10m but will not contribute
to revenue.
Current trading
Howden Joinery UK depot sales in the first two periods of 2017
(to 18 February) were up 3.6% on the same period last year (this
excludes the first trading week, which had one fewer trading days
in 2017 than in 2016). Along with the evidence we have of trading
prospects, this would suggest that the softer market conditions
seen in the second half of 2016 have continued, with volumes having
weakened slightly in the early part of this year. To offset cost
pressures, a price increase was put through towards the end of
2016, and the early signs from this are encouraging.
Outlook
The Group remains committed to its view that the number of
depots in the UK can be increased from the 642 operating at the end
of 2016, seeing the opportunity for up to 800 depots. During the
course of 2017, we are currently planning to open around 30 depots
in the UK, one already having been opened.
As already mentioned, 2016 saw us take possession of a new
warehouse and invest in our manufacturing operations. As well as
impacting operating costs in 2016, we anticipate that operating
costs will rise by around GBP15m in 2017 as a result of these
developments and a larger new product introduction programme. In
addition, the pension cost charged to the P&L account will
increase by around GBP5m, around half of this relating to the
pension interest expense.
2016 also saw the pound weaken against both the euro and US
dollar. At rates of EUR1.15 and $1.25 to the GBP, this would
increase our costs of goods sold in 2017 by around GBP20m (relative
to 2016), other things being equal.
These cost increases, the larger proportion of which will affect
the first half of 2017, are in addition to higher costs that will
arise from the on-going growth of the business and inflation.
Our supply operations encompass our own UK manufacturing of
around one third of the products that we sell, primarily cabinets
and worktops, and warehousing and delivery to our depots of
manufactured and bought-in products. Investment in the resilience
and capacity of manufacturing and warehousing means that capital
expenditure is expected to be around GBP65m 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.
Conclusion
As we sit today, market conditions seen so far in 2017 appear
broadly unchanged from the softer ones seen in the second half of
2016, with volumes having weakened slightly. We are seeing weakness
in London being offset by performance elsewhere. At this early
stage, we are encouraged by the progress our price increase has
made.
While we are on track with our plans and our expectations are
unchanged, we are mindful of the risks to the UK economy and we are
well positioned to respond to changing conditions.
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 GBP140m until the
facility expires in July 2019.
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 net cash balances and its
committed bank facility, and that it would not breach the facility
covenants.
After making due enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the accounts.
PRINCIPAL RISKS AND UNCERTAINTIES
Howdens operates in an environment that includes different types
of risk. Our approach to risk is adaptive, and is designed to
ensure that we are protecting what we have while also responding to
opportunities to grow and create value.
The following describes our principal risks, the possible impact
arising from them and what we do to mitigate them.
Changes in market conditions
Risk
Our products are mostly sold to small builders and installed in
owner-occupied, and private and public sector rented housing,
mainly in the replacement market.
Our revenues are dependent on levels of activity in these
markets, which are affected by many factors, including: consumer
confidence and buying behaviour; Government, local authority and
housing association decisions; credit availability and interest
rates; and technology developments.
With a significant proportion of the raw materials and finished
products we buy being purchased from overseas, our costs of goods
sold can be affected by exchange rate movements between the pound,
and the euro and US dollar.
Impact
Weaker market conditions can affect our level of sales, while a
lower exchange rate can increase our cost of goods sold. Without
mitigating action, these can reduce our profitability and cash
flow.
These risks were highlighted in 2016, when we saw softer market
conditions in the second half of the year, and a much weaker
exchange rate against both the euro and US dollar.
Mitigating factors
We have a good track record of dealing with changes in market
conditions. We maintain close relationships with our customers, who
can give us early warning of market conditions changing, and we
monitor activity in our depots closely. As a result, we can take
swift action to mitigate the effects of changing market conditions,
including managing cost levels and inventory. Our unique service
proposition to the small builder means that we have a good track
record of managing prices to offset cost pressures.
Deterioration of business model and culture
Risk
Our future success depends on continuing to successfully
implement our unique business model and our locally enabled,
entrepreneurial culture. The key to our trade-only model is our
local depots, who supply the small builder, with product that is
held in stock. Our aim is simple, to provide a local service to
builders saving them time, meeting their needs through product
availability and innovation. The future success of the business
depends on the continuing implementation of this model and on its
locally enabled, entrepreneurial culture.
Impact
If we lose sight of our model and culture we will not
successfully service the needs of the local small builder and their
customers, and our long-term profitability may suffer.
Mitigating factors
The Howdens business model and culture are at the core of our
activities and decision-making processes. They are led by the
actions of the Board and Executive Committee. The Board, the
Executive and senior management teams regularly visit our depots
and factories, our logistics and support locations, and reinforce
the importance of the model and culture through frequent
events.
Failure to maximise growth potential of the business
Risk
As Howdens continues to expand, this brings both opportunities
and challenges to the business. These opportunities include meeting
customers' changing expectations and demands through product and
services. This requires us to identify new market opportunities,
continue to leverage the reach of the depot network and the
performance of existing depots. Some challenges we may face in
growth include the scalability of our supply chain, systems and
personnel capabilities.
Impact
If we do not recognise, understand and exploit the potential
these opportunities offer, in line with our business model and risk
appetite, or do not align current structures and skills to meet the
challenges they present, this could affect our ability to obtain
maximum benefit from our growth opportunities.
Mitigating factors
We place continuing focus on the opportunities and challenges
related to growth. We will continue to focus on our people,
service, systems, and manufacturing and distribution capabilities.
Additionally, the builder's requirement for a local and convenient
service provides a significant opportunity for growth through
expansion of our depot network. We have increased our investment in
all of these areas as we grow, and we will continue this investment
in 2017.
Loss of key personnel
Risk
The skills, experience and performance of key members of our
management team make a major contribution to the success of the
business.
Impact
The loss of a key member of the Group's management team could
adversely affect the Group's operations.
Mitigating factors
We use the Remuneration Committee to ensure that key team
members are appropriately compensated for their contributions and
incentivised to continue their careers with us. We will continue to
focus on leadership development, succession planning and providing
the best tools for our people to achieve their objectives.
Interruption to continuity of supply
Risk
Howdens is an in-stock business. Our warehousing, distribution
and manufacturing sites only supply products to Howdens depots; the
result is an efficient system with no unnecessary waste of time,
space or product. Our business model requires depots to be able to
supply at once from local stock, and our customers expect this and
rely on it.
Impact
Any disruption to our relationship with key suppliers, or
interruption to manufacturing and distribution operations, could
adversely affect our ability to deliver the in-stock business model
and to service our customer's needs.
Mitigating factors
With suppliers, we have multiple sourcing strategies for our key
products, wherever possible, to reduce the effect of a supply
failure. Where appropriate, we enter into long-term contracts to
secure supply of key products, services and raw materials. We build
strong mutually supportive relationships focussed on integrity,
fairness and respect, which remain worthwhile for all concerned. We
have invested heavily in our manufacturing operations and this
investment gives us an enhanced disaster recovery capability. We
are also investing in new warehouse space to support our
distribution capabilities, reducing our exposure to this risk.
Cyber security incident
Risk
We are dependent on a core set of critical IT systems which are
fundamental to the day-to-day running of the business. Complex
systems are integral to our daily operations throughout the supply
chain and are essential to support business growth. These systems
are at risk from increasingly sophisticated security threats.
Impact
If we experienced a major security breach, this could result in
a key system being unavailable, causing operational difficulties
and/or sensitive data to be unavailable or compromised. This could
also lead to loss of customer data and scrutiny from
regulators.
Mitigating factors
We employ complex technical IT security controls to protect our
information and our key systems. We adopt a continuous improvement
approach to IT security and continue to invest in the security of
our systems. In addition, we are also placing focus on the training
and development of our people, in cyber security, as we recognise
that Information Systems security risks are not always technical.
We regularly engage external specialists to validate the
effectiveness of our controls against industry best practice.
Disaster recovery capability and business continuity plans are in
place, and are tested periodically.
Credit control failure
Risk
When a builder comes into one of our depots for the first time,
we open a nett monthly account for them, so they can complete the
job before paying Howdens. Our customers rely on our trade account
facilities, as cash flow is critical to their business.
Impact
Failure to provide or service these facilities could affect our
ability to continue to support our customers, and potentially our
ability to collect debt. This could have a direct impact on both
our revenue streams and our working capital arrangements.
Mitigating factors
Howdens has an effective trade account policy used to agree
terms with our customers and efficient processes for the collection
of debt, which are closely and regularly monitored. These are
supported by robust systems and tested business continuity plans.
Good personal relationships are maintained with customers, both at
depot level and within the credit control department. In addition,
concentration of debt is limited, as debt exposure is spread across
400,000 customer accounts.
Product design relevance
Risk
Ensuring that we have products that meet the design, price and
quality needs of the small builder, and their customer, is a key
focus of the business model and is a critical element of our future
success and growth aspirations. Kitchen technology and design do
not stand still; consumer buying patterns are changing, which is
increasing the need for our product to be aligned to these
expectations.
Impact
If we do not support the builder with new products that their
customers want it could influence both their ability to generate
revenue and therefore our own.
Mitigating Factors
Our dedicated product team regularly refresh our range of
kitchens and appliances to meet builders' and end-users'
expectations for design, price and quality. We work with external
design and brand specialists and attend product design fairs to
monitor likely future trends. Our local depot staff have close
relationships with their account holders, and we actively gather
feedback from them about changes in trends. We work with our
suppliers, to develop new and improved products for the future,
some of which are unique to Howdens. A number of new products were
introduced during the year across all product categories, and many
more are already planned for 2017.
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 2016 Annual
Report and Accounts.
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group and Company, and the undertakings including the
consolidation taken as a whole;
-- the Annual Report and Accounts includes a fair review of the
development and performance of the business, and the position of
the Group and Company and the undertakings including the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties they face; and
-- the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable, and provides the information necessary
for shareholders to assess the Group's and Company's performance,
business model and strategy.
By order of the Board
M Ingle M Robson
Chief Executive Deputy Chief Executive and Chief Financial Officer
22 February 2017
Consolidated income statement
52 weeks
52 weeks to
to 24 December 26 December
2016 2015
Notes GBPm GBPm
----------------------------------- ----- --------------- ------------
Revenue - sale of goods 1,307.3 1,220.2
Cost of sales (467.4) (435.8)
----------------------------------- ----- --------------- ------------
Gross profit 839.9 784.4
Selling & distribution costs (513.5) (475.0)
Administrative expenses (89.2) (87.5)
Operating profit 237.2 221.9
Finance income 3 0.8 1.8
Other finance expense - pensions (1.0) (4.1)
----------------------------------- ----- --------------- ------------
Profit before tax 237.0 219.6
Tax on profit 4 (51.4) (44.2)
----------------------------------- ----- --------------- ------------
Profit for the period attributable
to the equity holders of the
parent 185.6 175.4
----------------------------------- ----- --------------- ------------
Earnings per share:
Basic earnings per 10p share 5 29.5P 27.3p
Diluted earnings per 10p share 5 29.4P 27.2p
----------------------------------- ----- --------------- ------------
Consolidated statement of comprehensive income
52 weeks 52 weeks
to to
24 December 26 December
2016 2015
GBPm GBPm
---------------------------------------------- ------------ ------------
Profit for the period 185.6 175.4
Items of other comprehensive income
Items that will not be reclassified
subsequently to profit or loss:
Actuarial (losses)/gains on defined
benefit pension scheme (86.4) 58.4
Deferred tax on actuarial losses/gains
on defined benefit pension scheme 16.3 (11.7)
Items that may be reclassified subsequently
to profit or loss:
Currency translation differences 0.8 (0.9)
---------------------------------------------- ------------ ------------
Other comprehensive income for the
period (69.3) 45.8
---------------------------------------------- ------------ ------------
Total comprehensive income for the
period attributable to equity holders
of the parent 116.3 221.2
---------------------------------------------- ------------ ------------
Consolidated balance sheet
26 December
24 December 2016 2015
Notes GBPm GBPm
------------------------------ ----- ---------------- -----------
Non-current assets
Intangible assets 7.3 4.6
Property, plant and equipment 167.9 129.2
Deferred tax asset 26.0 18.6
Long-term prepayments 0.4 0.6
------------------------------ ----- ---------------- -----------
201.6 153.0
------------------------------ ----- ---------------- -----------
Current assets
Inventories 183.7 177.1
Trade and other receivables 135.9 129.5
Investments 87.3 60.0
Cash at bank and in hand 139.3 166.1
------------------------------ ----- ---------------- -----------
546.2 532.7
------------------------------ ----- ---------------- -----------
Total assets 747.8 685.7
------------------------------ ----- ---------------- -----------
Current liabilities
Trade and other payables (214.2) (197.7)
Current tax liability (19.8) (5.2)
(234.0) (202.9)
------------------------------ ----- ---------------- -----------
Non-current liabilities
Pension liability (106.0) (49.2)
Deferred tax liability (1.8) (2.0)
Provisions 7 (9.0) (9.9)
------------------------------ ----- ---------------- -----------
(116.8) (61.1)
------------------------------ ----- ---------------- -----------
Total liabilities (350.8) (264.0)
------------------------------ ----- ---------------- -----------
Net assets 397.0 421.7
------------------------------ ----- ---------------- -----------
Equity
------------------------------ ----- ---------------- -----------
Share capital 63.9 65.2
Share premium account 87.5 87.5
ESOP reserve (0.2) 11.0
Treasury shares (52.8) (45.3)
Other reserves - 28.1
Retained earnings 298.6 275.2
------------------------------ ----- ---------------- -----------
Total equity 397.0 421.7
------------------------------ ----- ---------------- -----------
The financial statements were approved by the Board and
authorised for issue on 22 February 2017, and were signed on its
behalf by Mark Robson - Deputy Chief Executive and Chief Financial
Officer.
Consolidated statement of changes in equity
Called Share
up share premium ESOP Treasury Other Retained
capital account reserve shares reserve profit Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- -------- -------- -------- -------- -------- --------
At 27 December
2014 64.7 87.5 2.4 - 28.1 112.2 294.9
Accumulated profit
for the period - - - - - 175.4 175.4
Net actuarial
gain on defined
benefit scheme - - - - - 46.7 46.7
Current tax on
share schemes - - - - - 3.8 3.8
Deferred tax on
share schemes - - - - - (1.6) (1.6)
Currency translation
differences - - - - - (0.9) (0.9)
Net movement in
ESOP - - 8.6 - - - 8.6
Issue of new shares 0.5 - - - - (0.5) -
Buyback of shares
into treasury - - - (45.3) - - (45.3)
Dividends declared
and paid - - - - - (59.9) (59.9)
-------------------------- --------- -------- -------- -------- -------- -------- --------
At 26 December
2015 65.2 87.5 11.0 (45.3) 28.1 275.2 421.7
Accumulated profit
for the period - - - - - 185.6 185.6
Net actuarial
loss on defined
benefit scheme - - - - - (70.1) (70.1)
Current tax on
share schemes - - - - - 1.5 1.5
Deferred tax on
share schemes - - - - - (2.1) (2.1)
Currency translation
differences - - - - - 0.8 0.8
Net movement in
ESOP - - 5.0 - - - 5.0
Buyback and cancellation
of shares (1.3) - - - - (55.0) (56.3)
Buyback of shares
into treasury - - - (23.7) - - (23.7)
Transfer of shares
from treasury
into share trust - - (16.2) 16.2 - - -
Dividends declared
and paid - - - - - (65.4) (65.4)
Transfer of distributable
other reserve
into retained
earnings - - - - (28.1) 28.1 -
-------------------------- --------- -------- -------- -------- -------- -------- --------
At 24 December
2016 63.9 87.5 (0.2) (52.8) - 298.6 397.0
-------------------------- --------- -------- -------- -------- -------- -------- --------
The ESOP Reserve includes shares in Howden Joinery Group plc
with a market value on the balance sheet date of GBP20.8m (2015:
GBP29.2m), 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. It has been moved to retained
earnings in the current period in order to simplify disclosure.
Consolidated cash flow statement
52 weeks
52 weeks to
to 24 December 26 December
2016 2015
Notes GBPm GBPm
------------------------------------------ ----- --------------- ------------
Group operating profit before tax
and interest 237.2 221.9
Adjustments for:
Depreciation and amortisation included
in operating profit 24.0 21.6
Share-based payments charge 4.0 7.5
(Profit)/loss on disposal of property,
plant and equipment, and intangible
assets (0.1) 0.9
------------------------------------------ ----- --------------- ------------
Operating cash flows before movements
in working capital 265.1 251.9
Movements in working capital
Increase in stock (6.6) (34.0)
(Increase)/decrease in trade and
other receivables (6.4) 3.6
Increase in trade and other payables,
and provisions 14.5 11.2
Difference between pensions operating
charge and cash paid (30.6) (39.1)
(29.1) (58.3)
------------------------------------------ ----- --------------- ------------
Cash generated from operations 236.0 193.6
Tax paid (41.5) (35.3)
Tax refund received 12.7 -
------------------------------------------ ----- --------------- ------------
Net cash flow from operating activities 207.2 158.3
------------------------------------------ ----- --------------- ------------
Cash flows used in investing activities
Payments to acquire property, plant
and equipment, and intangible assets (63.5) (45.9)
Receipts from sale of property,
plant and equipment, and intangible 0.2 -
assets
Interest received 0.8 0.7
------------------------------------------ ----- --------------- ------------
Net cash used in investing activities (62.5) (45.2)
------------------------------------------ ----- --------------- ------------
Cash flows used in financing activities
Payments to acquire own shares (80.0) (45.3)
Receipts from release of shares
from share trust 1.0 1.1
Decrease in prepaid loan fees &
loans - 0.9
Decrease/(increase) in long term
prepayments 0.2 (0.6)
Repayment of capital element of
obligations under finance leases - (0.1)
Dividends paid to Group shareholders (65.4) (59.9)
------------------------------------------ ----- --------------- ------------
Net cash used in financing activities (144.2) (103.9)
------------------------------------------ ----- --------------- ------------
Net increase in cash and cash equivalents 0.5 9.2
Cash and cash equivalents at beginning
of period 226.1 216.9
------------------------------------------ ----- --------------- ------------
Cash and cash equivalents at end
of period 8 226.6 226.1
------------------------------------------ ----- --------------- ------------
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of presentation and preparation
The Group's accounting period covers the 52 weeks to 24 December
2016. The comparative period covered the
52 weeks to 26 December 2015.
The preliminary results for the year ended 24 December 2016 have
been prepared in accordance with the International Financial
Reporting Standards ("IFRS") adopted for use in the European Union
and International Financial Reporting Interpretations Committee
interpretations and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. They therefore comply
with Article 4 of the EU IAS Regulation.
The accounting policies, presentation methods and methods of
computation followed are the same as those detailed within the 2015
Annual Report and Accounts, which is available on the Group's
website (www.howdenjoinerygroupplc.com).
Whilst the financial information included in this preliminary
announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS.
The financial information set out in this announcement does not
constitute the statutory accounts for the Group within the meaning
of Section 435 of the Companies Act 2006. The statutory accounts
for the 52 weeks to
26 December 2015 have been filed with the Registrar of
Companies. The statutory accounts for the 52 weeks ended 24
December 2016 will be filed in due course. The auditors' report on
these accounts was not qualified or modified and did not contain
any statement under sections 498(2) or (3) of the Companies Act
2006 or any preceding legislation.
2 Segmental reports
(a) Basis of segmentation
Information reported to the Group's Executive Committee is
focused on one operating segment, Howden Joinery. Thus, the
information required in respect of profit or loss, and assets and
liabilities can all be found in the consolidated income statement
and consolidated balance sheet.
The Howden Joinery business derives its revenue from the sale of
kitchens and joinery products.
(b) Other information
52 weeks 52 weeks
to 24 to
December 26 December
2016 2015
GBPm GBPm
------------------------------- ---------- -------------
Capital additions 66.7 45.9
Depreciation and amortisation (24.0) (21.6)
------------------------------- ---------- -------------
3 Finance income
52 weeks
52 weeks to
to 24 December 26 December
2016 2015
GBPm GBPm
--------------------------- ---------------- -------------
Bank interest receivable 0.5 0.8
Other interest receivable 0.3 1.0
--------------------------- ---------------- -------------
Total finance income 0.8 1.8
--------------------------- ---------------- -------------
4 Tax
(a) Tax in the income statement
52 weeks 52 weeks
to to
24 December 26 December
2016 2015
GBPm GBPm
---------------------------- ------------- -------------
Current tax:
Current year 44.9 41.1
Adjustments in respect
of previous years (0.1) (4.6)
---------------------------- ------------- -------------
Total current tax 44.8 36.5
---------------------------- ------------- -------------
Deferred tax:
Current year 7.2 7.3
Adjustments in respect
of previous years (0.6) 0.4
---------------------------- ------------- -------------
Total deferred tax 6.6 7.7
---------------------------- ------------- -------------
Total tax charged in the
income statement 51.4 44.2
---------------------------- ------------- -------------
UK corporation tax is calculated at 20% (2015: 20.25%) of the
estimated assessable profit for the period. Tax for other countries
is calculated at the rates prevailing in the respective
jurisdictions.
(b) Tax relating to items credited to equity
52 weeks 52 weeks
to to
24 December 26 December
2016 2015
GBPm GBPm
------------------------------------ ------------- -------------
Deferred tax (credit)/charge
to other comprehensive income
on actuarial gain/loss on pension
scheme (16.3) 11.7
Deferred tax charge to equity
on share schemes 2.1 1.6
Current tax credit to equity
on share schemes (1.5) (3.8)
(15.7) 9.5
------------------------------------ ------------- -------------
(c) Reconciliation of the total tax charge
The total tax charge for the year can be reconciled to the
result per the income statement as follows:
52 weeks 52 weeks
to to
26 December 26 December
2016 2015
GBPm GBPm
--------------------------------- ------------- -------------
Profit before tax 237.0 219.6
Tax at the UK Corporation tax
rate of 20% (2015: 20.25%) 47.4 44.5
IFRS2 share scheme charge (0.4) (0.3)
Expenses not deductible for
tax purposes 2.2 1.5
Overseas losses not utilised 1.6 1.1
Change of tax rate* 0.4 0.7
Non-qualifying depreciation 0.9 0.9
Other tax adjustment in respect
of previous years (0.7) (4.2)
--------------------------------- ------------- -------------
Total tax charged in the income
statement 51.4 44.2
--------------------------------- ------------- -------------
The Group's effective rate of tax is 21.7% (2015: 20.1%)
* In September 2016, Parliament approved the Finance Bill which
reduces the UK standard rate of Corporation Tax from 20% to 19%
with effect from 1 April 2017 and 19% to 17% from 1 April 2020. All
deferred tax assets and liabilities have been recognised at 17%
with the exception of items expected to reverse before the rate
reduces to 17%.
5 Earnings per share
52 weeks to 24 December 52 weeks to 26 December
2016 2015
------------------- -------------------------------- --------------------------------
Weighted Weighted
average average
number Earnings number Earnings
Earnings of shares per share Earnings of shares per share
GBPm m p GBPm m p
------------------- -------- ---------- ---------- -------- ---------- ----------
Basic earnings
per share 185.6 629.6 29.5 175.4 642.8 27.3
Effect of dilutive
share options - 1.9 (0.1) - 1.6 (0.1)
------------------- -------- ---------- ---------- -------- ---------- ----------
Diluted earnings
per share 185.6 631.5 29.4 175.4 644.4 27.2
------------------- -------- ---------- ---------- -------- ---------- ----------
6 Dividends
52 weeks 52 weeks
to to
24 December 26 December
2016 2015
GBPm GBPm
------------------------------------------- ------------- -------------
Amounts recognised as distributions
to equity holders in the period
Interim dividend for the 52 weeks 20.6 -
to 24 December 2016 - 3.3p/share
Final dividend for the 52 weeks to 44.8 -
26 December 2015 - 7.1p/share
Interim dividend for the 52 weeks
to 26 December 2015 - 2.8p/share - 17.9
Final dividend for the 52 weeks to
27 December 2014 - 6.5p/share - 42.0
------------------------------------------- ------------- -------------
65.4 59.9
------------------------------------------- ------------- -------------
Dividends proposed at the end of the period (but
not recognised in the period)
Proposed final dividend for the 52
weeks to 24 December 2016 - (7.4p/share) 46.1
Proposed final dividend for the 52
weeks to 26 December 2015 - (7.1p/share) 45.2
------------------------------------------- ------------- -------------
The directors propose a final dividend in respect of the 52
weeks to 24 December 2016 of 7.4p per share, payable to ordinary
shareholders who are on the register of shareholders at 19 May 2017
and payable on 16 June 2017.
Dividends have been waived indefinitely on all shares held by
the Group's employee share trusts, which have not yet been awarded
to employees.
The proposed final dividend for the current period is subject to
the approval of the shareholders at the 2017 Annual General Meeting
and has not been included as a liability in these financial
statements.
7 Provisions
Property Warranty Other Total
GBPm GBPm GBPm GBPm
---------------------- --------- --------- ------ ------
At 27 December
2014 6.8 3.6 0.2 10.6
Additional provision
in the period 2.4 4.1 - 6.5
Provision released
in the period (1.9) - - (1.9)
Utilisation of
provision in the
period (1.8) (3.5) - (5.3)
---------------------- --------- --------- ------ ------
At 26 December
2015 5.5 4.2 0.2 9.9
Additional provision
in the period 3.8 3.6 0.1 7.5
Provision released
in the period (0.4) - - (0.4)
Utilisation of
provision in the
period (4.2) (3.8) - (8.0)
---------------------- --------- --------- ------ ------
At 24 December
2016 4.7 4.0 0.3 9.0
---------------------- --------- --------- ------ ------
Property provision
The property provision covers two main area: (i) onerous leases
on any non-trading leased properties, and
(ii) obligations to make dilapidations payments to landlords of
leased properties.
The timing of outflows from the provision is variable and is
dependent on property lease expiry dates, on opportunities to
surrender leases, and on the timing of dilapidations assessments
and works.
Warranty provision
The warranty provision relates to amounts due in respect of
product warranties. As products are sold, the Group makes provision
for claims under warranties. As claims are made, the Group utilises
the provision and then uses this historical data to periodically
revise the basis on which it makes further provision.
8 Notes to the cash flow statement
Analysis of net cash
Cash Cash and
at Short cash equivalents,
bank term and net
and investments(*) cash
in GBPm GBPm
hand
GBPm
------------------- ------- ----------------- -------------------
As at 26 December
2015 166.1 60.0 226.1
Cash flow (26.8) 27.3 0.5
------------------- ------- ----------------- -------------------
As at 24 December
2016 139.3 87.3 226.6
------------------- ------- ----------------- -------------------
* The short term investments have a maturity of less than three
months and, as such, are considered to be cash equivalents for the
purposes of the cash flow statement.
FINANCIAL CALENDAR
2017
Trading update 27 April
Half Yearly Report 20 July
Trading update 2 November
End of financial 30 December
year (53-week)
------------------- ------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR TTMLTMBMTBRR
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February 23, 2017 02:00 ET (07:00 GMT)
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