Howden Joinery Group Plc

Welcome to the Haydn's 2024 interim results presentation. I'll begin by introducing our performance for the first half. Paul Hayes will then review our financial results for the period and then share my perspectives on our 2024 performance to date and our plans for the remainder of the year. And then we'll take your questions. The group delivered an encouraging first half performance in, as we anticipated, a challenging marketplace. The results met our expectations for the period and we are on track for 2024. We continued with our investment program, which is focused on our key capabilities and which gives us end-to-end a stronger business. Group sales in the first half, which included an extra week's trading in January, were 4.3% ahead of those in 2023 and were 48% up on 2019, being the year prior to the onset of the pandemic. In the UK, we believe we gained kitchen market share, which helped us mitigate a decline in the overall size of the kitchen market. Entry-level kitchens represented a higher proportion of the kitchens we sold with sales of product in our kitchen categories increasing at a higher rate than in our joinery categories. We maintained an industry-leading gross margin with gross profit ahead of last year as we balanced recovery of cost rises with our commitment to providing competitive pricing across the board for our customers. Reported first half profit was in line with last year's and 44% up on 2019. Excluding net spend on strategic investments above last year's level, first half profit increased at a similar rate to sales. Our builders remained busy and we made good progress in our strategic initiatives for the UK and total sales of our international operations increased. The business delivered strong operating cash flow and we maintained a robust balance sheet. This gives us the flexibility to continue to invest in our growth plans for the business and to provide shareholders with an increased interim dividend for this year. The interim results demonstrate the strength of our local trade-only in-stock model. A strong product lineup, high stock availability, industry-leading service levels, and a very engaged team have all contributed to our performance, which benefits from the ongoing investment in our customer-focused strategic initiatives. We had a record number of customer accounts in the half year, with a similar proportion trading as last year. As well as maintaining an industry-leading gross margin, the business continued to deliver KPI volumes, which in aggregate were well ahead of pre-COVID times. So far in the second half, our performance has been in line with our expectations. And whilst we have peak trading ahead of us, we're encouraged by our sales performance in the year to date. In 2024, we expect market conditions and trends to be broadly unchanged from those seen in 2023. And this has proved to be the case so far this year. We are well prepared for this and our customers, mainly self-employed people, are adept at managing their businesses in such times. Delivered by our highly entrepreneurial and well-incentivized teams across the business, I believe that our service-orientated, trade-only, in-stock, local model is the right one to deliver sustainable market share gains. Our model is hard to replicate, difficult to compete with, and we have initiatives in place to make it more so. The addressable value of the UK markets in which we have an established presence is some £12 billion. and there are significant long-term growth opportunities for us. We continue to prioritise investment in the business on this basis. I will update you on our strategic initiatives, which are key to the long-term development of the business, after Paul Hayes has taken you through our financial results for the first half. Paul.

Thank you, Andrew, and good morning, everyone. I'm pleased to be presenting Howden's financial results for the period ending 15 June 2024. Howden's performed well in the first half in a challenging market. Group sales increased by 4.3%, £966 million, as we supported our trade customers with a strong product line-up, high stock availability and outstanding customer service. We also made further market share gains. Gross profit was ahead of last year at 587 million pounds. And we've continued to recover increases in commodity and energy costs through price increases and productivity improvements. The gross margin percentage is sector leading and included the dilutive impact of growing sales of our solid work surface category. Operating costs were £22 million higher at £470 million, predominantly due to £16 million of investments in our strategic initiatives. During the period, we took further productivity and efficiency actions to broadly offset around £12 million of higher inflationary costs. Now I'm going to cover that in more detail shortly. As a result, we generated an operating profit of £117 million, and after net interest charges, profit before tax was at £112 million. So let's look at revenue growth in a bit more detail. We continue to face challenging macroeconomic conditions in the first half, but we have maintained a disciplined approach to balancing price and volume to support our trade customers. As a result, UK revenue increased by 4.3%, £934 million, and was 2.8% ahead on the same depot basis. As I've mentioned, the major driver of our strong performance has been the ongoing investment in our strategic initiatives. We prioritised opening new depots, and we also revamped 26 older depots into the new format, which drives incremental revenue growth. At the half year, we had 850 depots in the UK, 480 of those are in the new format. In 2024, new products have been a key focus with infills to our existing kitchen ranges and new joinery categories. We've also refreshed our painter order covers and introduced new decors in our solid workset ranges at all price points. All these new products will be available ahead of our peak trading period. We're also continuing to prioritise digital investments to make it easier for our customers to trade with us. In the international depots, where we operate from 76 sites, we generated revenue of €38 million, which was 4.7% ahead of 2023. After a period of significant depot rollout in France, we are building out the existing depot team's capabilities. We're also expanding our joining ranges in France and Ireland to drive depot footfall, including higher quality doors, new skirting and architrave lines to supplement our kitchen ranges. Our Irish depots have continued to trade well since we set up there around two years ago, and we will continue to expand our depot footprint there this year. Now, Andrew is going to take you through these initiatives in more detail shortly. So now let me move to profit before tax. Written from 2023 PBT of £112 million on the left, Gross profit was £22 million higher versus last year. We were effective in implementing price increases early in 2024 that benefited the business by £10 million. The positive impact of volumes and mix was £14 million, which was encouraging as this was net of the dilutive effect from stronger sales of solid work surfaces. To remind you, these products have a lower gross margin percentage, but an attractive cash margin. Kitchen sales were encouraging in the first half. And while we remained remain focused on expanding our leadership positions in entry level and mid price kitchens, we continue to develop our offering in the higher price kitchen segment where we are underrepresented across these kitchen segments. margin percentage is broadly consistent and this remains an excellent opportunity for future green we've delivered further productivity improvements in our manufacturing operations which almost offset the increases in freight commodities wage inflation and energy costs these costs are still inflating although not at the levels of the past two years and there is a lag in the p l account as the impact is only realized as these items are sold We keep under review what we believe is best to make or buy, balancing cost and overall supply chain availability, resilience and flexibility. Recent investments have included new panel and lamination lines at our Howden factory. We've expanded capacity of our two solid work surface factories in the north of England and two new lines to facilitate our painter order initiative. All these investments are providing good returns. Operating costs increased by £22 million as a net result of managing our costs tightly while continuing to invest in our strategic initiatives. This discipline supported us in delivering PBT of £112 million in the period. Now, this slide here shows how we've managed our operating costs. Bridging from left to right, the incremental costs of the new UK depots totaled £7 million. We invested in our international businesses with a continued focus on the city-based strategy. The £2 million increase includes the incremental costs of the 10 depots that we opened in 2023. Other strategic initiatives included our investments in depot revamps, work surfaces, painter order and digital. The existing depot increases of £4 million related to higher inflationary costs, principally in property and labour. Other cost increases were tightly controlled, with the majority of inflationary cost increases being offset by productivity and efficiency actions taken in the first half. So now let's move on to the cash flow. From an opening cash position of 283 million, we ended the period with 166 million pounds of cash, a net outflow of 117 million pounds. Now, you can see from the slide that this was after paying dividends of 89 million. Overall, working capital increased by 107 million in line with our normal seasonal phasing. Stock increased by 27 million pounds due to the usual stock build ahead of our peak trading period and ongoing inflation. And we are carefully managing stock levels given the number of new product introductions and the continued geopolitical uncertainty. Debt has increased by £62 million since the year end, with ageing in good shape, and creditors were £17 million lower. Both these balances were impacted by the late finish to the prior year due to the 53rd week. Capital expenditure totaled £40 million as we continued to focus on the execution of our strategic initiatives. Just under half of the investment was in depot expansion and revamps. Other initiatives included investments in our supply chain and manufacturing sites, as well as expanding our digital capabilities. Now turning to earnings per share and dividends. EPS in the first half was 15.4 pence, which was level with the prior year. And our progressive dividend policy remains unchanged today. And I'm pleased to announce that the board has declared an interim dividend of 4.9 pence, an increase of 2.1%. So let's turn to technical guidance for the rest of 2024. Now, first looking at P&L guidance. As I've mentioned already, there is an earlier start to trading this year with our depots open in the first week. of our financial year when they were closed in 2023 and this reverses in the second half of the year there is also a benefit in the second half from the non-repeat of the additional 53rd week in 2023 which was worth around 17 million pounds we expect a continuation of higher container costs which have risen in the first half now at current pricing we expect around 5 million pounds of additional costs in the second half as inventory procured and shipped in the first half is sold. With respect to foreign exchange sensitivity within cost of goods sold, we've set out the impact on a full year of a one cent movement in both the Euro and US dollar shown on the slide. Now, in terms of cash flow items, we'd expect capital expenditure to be broadly in line with last year at 125 million pounds as we continue to invest the growth. Working capital is expected to increase this year, impacted by the higher debtors as a result of the timing of our peak trading period, period 21. This year, the last two days of period 21 fall into November, which means that a significant proportion of customer payments won't be due until after the year end. Now, we expect that overall impact of the year end date will be around £50 million. But I just want to be clear that that is simply a timing issue. The cash will come through early next year. And overall, our working capital remains in great shape. So in summary, we have performed well in the first half in a more challenging marketplace. We have been proactive in delivering productivity and efficiency savings to protect the P&L account. Our balance sheet and cash flow remain very strong and support our continued investment in the business. And we expect to maintain this at the current pace in the second half. Since the start of the second half, our performance has been in line with our expectations. And despite the ongoing macroeconomic hit wins, we are on track with our guidance for the full year. We remain confident of delivering growth ahead of our markets while generating strong cash flow and attractive returns for our shareholders. Thank you. And I'll now pass it back to Andrew.

Thank you, Paul. In reviewing our first half performance and plans for this year, I will use our strategic initiatives for the business as a framework. Fully aligned with our trade customer only focus and entrepreneurial culture and based around our core building blocks of service and convenience, trade value and product leadership. These are to evolve our depot network to improve our range and supply management, to develop our digital capabilities and services, and to expand our international operations. So first, depot evolution. High service levels, including local proximity and immediate availability, are very important to our customers, and we continue to see profitable opportunities to open depots. We are using our updated format for all depot openings, Deployed in several forms, the format enables us to provide the best depot environment in which to work and conduct business and to make space utilization and productivity gains in a cost-effective way. Overall, we can continue to believe there is scope for around 1,000 depots in the UK versus 840 trading at the end of 2023. We plan to open around a further 30 depots in 2024, of which 10 were opened in the first half. We have progressed our revamp program for existing depots. This continues to receive very positive feedback from depot staff and customers alike, and providing such a trading and working environment is important to our competitive position. By the end of 2023, including relocations, we had revamped 274 depots. In 2024, including relocations, we plan to revamp around a further 85 depots and completed 26 of these in the first half. And by the end of 2024, we expect to have revamped around 54% of the 670 depots, which were opened in the old format and have around 64% of all UK depots trading the updated one. Next, range and supply management. Sales of new products make a significant contribution to our performance. and we have upgraded our MPI programme in recent years. Total sales of new product introduced in the last 18 months or so represent around 17% of total UK product sales, with new product introduced so far in 2024 and the two prior years representing 28% of UK product sales. Sales of new product introduced in the first half of last year alone increased by some 52% this year. As in 2022 and 2023, our higher priced kitchens continue to contribute more to the kitchen mix by volume than previously, which is a positive impact on our average kitchen invoice value. Managing our portfolio of kitchen ranges efficiently is crucial for both best availability, which is highly valued by our customers, and for profitability. In recent years, we've reorganized our range architecture, removing duplications and improving the balance between new kitchen introductions and timely discontinuations. The more efficient ways of testing new kitchen colors and finishes is enabling us to bring more proven kitchen styles to market more quickly. And our new pay-to-order service is also informing our from-stock ranging decisions. At the end of 2023, around 60% of the kitchens available from stock comprise ranges brought to market between 2021 and 2023. And we have a further 11 new ranges confirmed for 2024. With our entire kitchen offering organized into 10 families, the same number as 2023. We are committed to providing market leading and competitively priced products for our customers to sell to theirs and value for money is a constant feature of purchasers buying decisions. Given pressures and household budgets, price featured predominantly in 2023 and as we expected is going to do so again this year. Our offering as enhanced by our 2024 MPI programme is well positioned to take advantage of this. With an emphasis on value for money and choice at all price points, our MPI for 2024 includes 10 new kitchen ranges aimed at the entry and mid price segments. We have also introduced clearer and more delineated pricing within ranges and across families. And we are innovating in other product categories and have added bedrooms to our overall depot offering. In 2023, we brought to market seven new kitchen entry kitchen ranges, adding new frontal options. And this year, we have added two more. Greenwich in Marine Blue and Whitney in Reed Green. Last year, we also refreshed the look of our best-selling Shaker family, and we renamed Halesworth and launched a new mid-priced Shaker family called Bridgemere. For these families, we have six new colours for 2024, including Halesworth in two of the best-selling paint-to-order colours, which are Antique Rose and Seafoam, and Bridgemere in Linen and also in Sage Green. Our best-selling mid-priced family, Clerkenwell, we're adding two new colors, super matte black and gloss reed green. We also continue to develop our high-priced kitchen portfolio, which is a large segment of the market in which we are underrepresented. The paint-to-order service for customers buying our top-end Chilcombe and Elmbridge ranges which we introduced in the second half of 2023, continues to be very favourably received by customers and depot teams alike. Priced at the premium to the nine range colours, which are available from stock for 2024, we are offering 15 paint-to-order colour choices from which customers can opt to have either or all or just part of their kitchen furniture. And we are about to refresh the paint-to-order palette with five new colours. For customers looking for a bespoke look, we believe the paint-to-order service is very competitively priced, with by market standards a short lead time between order being placed and the kitchen being ready for delivery. A strategic priority for us is the development of the market-leading supply and fit capability for premium work surfaces. Solid surface worktops are often but not exclusively associated with the sale of higher-priced kitchens. And this product category is one with significant opportunity for us. Following the acquisition of the Sheridan's worktop business and other investments in our in-house solid surface manufacturing capability, we're now amongst the largest in the UK. The number of solid surface worktop orders taken by depots increased significantly in 2023, and we continue to improve our offering and orders have increased again this year. In the second half of 2023, we reduced the time between template to fit at national scale, an industry leading five days. And this year, we've also reduced the time between order and template to fit five days. So far in 2024, we've added 14 more decors to our solid surface template and fit service, with eight more to come in the early part of the second half. In total, we have a comprehensive offering of 58 decors to suit all budgets in place well ahead of peak autumn trading during which kitchen sales represent an above average proportion of our sales megs. In 2023, we've also reinvigorated our offering in other categories and are innovating again in 2024. Indoors, we've added more color and bolder styles at all price points. Our new own label flooring brand, Oak and Gray, is performing very well. And new flooring product for 2024 includes a market-leading third-party premium price brand called Carndine. In appliances, we've added further additions to our Lamona brand, which is the leading integrated appliance brand in the UK, alongside extensions to our range of third-party branded product. And in sinks and taps, we've added more styles, colors, and finishes. In the latter part of 2023, we tested demand for new fitted bedroom ranges supplied by us. And by the end of the year, all depots were able to sell them. Installing fitted bedroom suites suits the skills of customers who fit kitchens. And they have a high cabinetry content, which matches our manufacturing capabilities. The ranges were developed in-house, utilising our existing manufacturing supply infrastructure. The first half are offering comprised of 16 new bedroom ranges in four leading family designs drawn from our kitchen range portfolio, matched with new internal accessories, including pull-down rails, mirrors and internal storage solutions. For the second half, we are adding three more comprising of our entry-level Greenwich range. in gloss white and in natural oak and in hockley and textured oak. We are committed to providing competitively priced product for our customers, and we have reinforced our focus on price and promotions, which demonstrate the value we offer to promote footfall across the year. Howdens is an in-stock business, and the trade tell us that the high level of stock availability is one of the key reasons that they buy from us. And the first half of 2024, our service level from primary to depots was 99.97%, a world-class performance by any standard. In 2023, facilitated by our new stock management system, which we call TED, we rolled out our daily traders initiative to all UK depots, which has benefited for us in a number of areas. Daily Traders is a means to improving customer service levels and promoting footfall and increasing sales by optimizing in-depot stock holding of best-selling SKUs and associated range completers. We are also using the insights from the Daily Traders to help optimize new depot opening stock and to provide stock guidance for depot revamps and relocations so that these are configured to hold the right stock in the right depth. This year, we have maintained improvements in key metrics, including at a higher proportion of stock being replenished by a depot's core weekly delivery order than previously. And this gives us efficiencies as it helps optimize the utilization of our XDC service, which I'm going to talk about next. In recent times, we've improved stock replenishment by supplementing a depot's core weekly delivery order with investments in next day service by a network of 12 regional cross-stocking centers or XDCs combined with a rebalancing of where we hold stock. XDCs are a key enabler to deliver the levels of high service and availability which differentiate our offer. And with mainland coverage in place, our focus is now on using these assets more efficiently. The improved depot stock mix following the introduction of a new reordering system and the daily traders initiative have enabled us to reduce annualized XDC capacity, leading to lower operating costs. We can also utilize XDC to bring new products such as bedroom to market quickly and more efficiently, and we can build stock as demand increases rather than being fully stocked for a full rollout at launch. We make all of our kitchen cabinets and some of our other product as well, which is a source of competitive advantage for us in several ways. We keep under review what we believe is best to make or buy, balancing cost and overall supply chain availability, resilience and flexibility. In 2023, several major investments came to fruition. Production of the new furniture lines at our Haydn site, which are amongst the most advanced of their type in Europe, totaled around 600,000 pieces in 2023, with a full year capacity of around 2 million pieces for 2024 and subsequent years. These give us the ability to make a variety of kitchen furniture, principally frontals and panels, and more of our ranges at the same time as we can source externally, 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 lines also commenced manufacturing in 2023, and the performance levels of the new line are now ahead of those of the original one. The line increases our full year capacity to some 10 million pieces. and also broadens the range of such product we can manufacture, enabling us to continue to service in-house substantially all of the growing demand we see for these products. Separately, we have also invested in two lines to facilitate our paint-to-order initiative. Located in a purpose-built facility near our Huyden site, these lines give us an industry-leading production capability in this area. We are achieving the order turnaround times that we set ourselves, and we have capacity to supply some 5,000 kitchens a year. So turning to our digital platform, we use digital to reinforce our model of strong local relationships between customers, depots, and their customers by raising brand awareness, to support the business model with new services and ways to trade with us and to deliver productivity benefits and more leads for our depot teams and for our customers. Usage of our online account facilities, which provide efficiencies and benefits to depots and customers alike, has continued to increase. New registrations totaling some 44,000 and around 50% of our customers had an online account by the half year. Total users viewing our trade platform increased by 17%, with around 80% of users regularly looking at their individual confidential pricing. Customers with an online account have on average continued to trade more with us more frequently and spent more significantly than non-users, and proportionally more of them bought across product categories. We saw high levels of engagement with our web platform and growth of our social media presence, which also stimulates interest in doing our products and services on howdens.com. Site visits totaled 11.6 million in the period, Amongst kitchen specialists, we continue to have the highest number of fitted kitchen site visits in the UK. And the time spent viewing pages and the number of pages viewed per visit were consistently at high levels. Across social media sites, our follower base is now 669,000. That's up some 21%, with around 5.5 million monthly engagements. In 2023, amongst other initiatives, we tested a digitized in-depot stock management system or live stock, as we call it, to record and pick deliveries, check allocations and determine depot stock levels. Amongst other benefits, the system frees up time for depots to use productively and the system now operates in all UK depots. It also enables us to have complete visibility of our locations of stock by SKU holding across our factories, primary warehouses and depots. The stock surety livestock and other initiatives such as Daily Traders provide have enabled us to offer an upgraded click and collect service to our trade customers. Rollout of the service was completed during the first half, which enables online account customers for all our UK depots. to check real-time availability of stock on a depot-by-depot basis, review their individual confidential prices at their selected depot, place orders for collection at a time of their choosing. Click & Collect is available for all of our products except those for which a survey or a CAD planning is generally required prior to placing an order, such as a kitchen range. Our initiatives are contributing to an increase in digitally sourced leads for depots. Digitally sourced depot lead contacts on the metrics that we use have more than doubled in the first half, albeit from a low base. These represent high quality leads for depots and customers, including for kitchens. A significant proportion converts to kitchen sales with above average order values, and we are looking to promote higher levels of lead generation online. And finally, international. Versus the first half of 2023, the first half performance of our operations based in France progressed significantly in a market at least as challenged as the one in the UK. The business is on track to deliver a material increase in sales in the year. The kitchen market in France is estimated to be worth around €4 billion, excluding appliances, with most kitchens purchased through kitchen specialists and DIY stores. As long-term followers of Howden's will know, we tested our ability to access this sizeable market in several ways before adopting a city-based approach, serving solely trade customers to be led and staffed by people who embrace the Howden's way of doing business. By the end of 22, we had doubled our depots in France and Belgium to 60 in a two-year period and opened a further five at the end of 2023. Consequently, when compared with their UK counterparts, many of our depot managers in France are less experienced in nurturing trusted trade relationships. For 2024, we're focusing on team development to foster these, and we may open a few more depots towards the end of the year. We are investing elsewhere in the business through enhanced offerings of footfall promoting products. We've introduced a regular schedule of trade days at all depots with aligned promotional activity and more supplier support. Sales in the Republic of Ireland continue to be encouraging and we are opening more depots there in 2024. We identified the Republic of Ireland as a market which suits our differentiated model and one which sets us apart from the incumbents. We commenced trading in the Republic in 2022 using a similar depot strategy to that in France, with the depot team supported by our UK infrastructure and our digital platform. During 2022, we opened five depot clusters around Dublin, and our arrival in the Irish market has attracted much attention. We opened five depots in 2023, three more around Dublin, two serving Cork, and we are taking the total traded to 10 year end. The first half of this year we added one more depot serving Waterford and the total we could open up to around five in 2024 and we'd increase the total trading to around about 15 by the year end. So for 2024 we are as well planned as we've ever been including on our strategic initiatives These are aimed at increasing our market share profitably as we deliver value to our customers across all price points. High stock availability is a major contributor to our performance. And in 2024, we are maintaining our safety stock policies for the most part at the levels by volume we deployed in 2023. We will have all of our new kitchen ranges for 2024 in stock well ahead of our peak autumn trading, with an emphasis on entry and mid-price ranges, together with our very competitively priced premium kitchen offering. We have a program of rooster promotions in place to keep Houdens at the front of the trades mind, together with other price initiatives. And we will continue to make improvements to service and availability, for example, by utilizing XDCs efficiently and through our daily traders, livestock, and click and collect initiatives. We are increasing the range of services and functionality we offer online to the benefit of our depot teams, customers, and end users alike. And we'll be making more in the UK as our new lines at Hidens move up towards full production capacity and solid surface business continues to grow and bedroom volumes increase. During 2024, we plan to open around 30 depots in the UK and refurbish around 85 existing depots to the updated format. By the end of 2024, we expect to have around 65 depots trading in France and Belgium and up to 15 trading in the Republic of Ireland. Lastly, Outlook. Whilst we have peak trading ahead of us, we have made an encouraging start to the year. Our plans for the business are on track and our expectations for the full year remain unchanged. We expect market conditions and trends to continue to be broadly unchanged from those in 2023, and we are well prepared for the challenges and opportunities that such market conditions may present. We aim to retain a profitable balance between margin and volume, as we continue to maintain competitive pricing whilst aligning operating costs and working with our suppliers to keep product and input costs controlled. We are that confident in our business model being the right one to address opportunities in our markets. And in summary, we are well-placed to outperform our competitors in 2024 as we continue to invest in our capabilities and grow opportunities which are pivotal to the long-term development of the business. And finally, I would like to take this opportunity to thank everyone who works for Howden's, many listening in now, whether in depots, our factories, our commercial operations, our support functions for their extraordinary commitment to providing exceptional service for our customers, which is a key component that sets us apart from so many others. So thank you for listening. and we'll now take your questions.