Howden Joinery Group Plc

Good morning and welcome to Haydn's 2024 results presentation. I will start by introducing our performance for the year. Paul Hayes will then review our financial results for the period. I will then share my perspective on our performance and outline our plans for this year and then we'll look forward to taking your questions. The business performed well in, as we anticipated, a challenging marketplace. The results met our expectations as we continued with our investment programme, which is focused on our key capabilities, which gives us end-to-end a stronger business. Group sales were ahead of those in 2023 and were 47% up on 2019, being the year prior to the onset of the COVID. In the UK, we believe we gained market share, which helped us mitigate a significant single-digit 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 collectively outperforming those of other established categories. We maintained an industry-leading gross margin with gross profit ahead of last year. We balanced recovery of cost rises with our commitment to providing competitive pricing across the board for our customers. Reported profit was in line with the previous year. We progressed with our strategic initiatives and plans for the UK business, which ended the year with 869 depots trading. Total sales of our international operations increased with a total of 78 depots trading at the year end. 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 provide shareholders with increased dividends for the year. Today, we have also announced a new £100 million share buyback programme. The results demonstrate the strength of our local trade-only in-stock model. A strong product line-up, high stock availability, industry-leading service levels, and a very engaged team have all contributed to our performance, which benefits from the ongoing improvement in our strategic initiatives. We had a record number of customer accounts, as at the year end, with more accounts trading than last year. As well as managing an industry-leading gross margin, which benefits from purchasing and manufacturing efficiencies, the business continued to deliver KPI volumes well ahead of pre-COVID times. Given the prevailing macroeconomic environment, we expect market conditions to remain challenging. We are well prepared for this and our customers, mainly self-employed builders, are adept at managing their businesses in such times. Delivered by our highly entrepreneurial, well-incentivised teams across the business, I believe our differentiated model is the right one to deliver sustainable market share gains. Our model is hard to replicate, it's difficult to compete with, and we have initiatives in place to make it even more so. The addressable UK markets in which we have an established presence total some 11 billion, and there are significant long-term growth opportunities for us. We continue to prioritise investments in the business on this basis. So I will update you on our strategic initiatives, which are key to the long-term development of the business, after Paul has taken you through our financial results for the year. Paul, thank you.

Thank you, Andrew, and good morning, everyone. I'm pleased to present Howden's financial results for the year ended 28 December 2024. Howden's performed well in challenging markets. Group sales were in line with the prior year at £2.3 billion as we supported our trade customers with our differentiated, in-stock, trade-only model and made further market share gains in the year. Gross profit was ahead of last year at £1.4 billion with a gross margin percentage of 61.6%. This is sector leading and shows a year-on-year improvement. Operating costs were £28 million higher at £1.1 billion, predominantly due to ongoing investments in our strategic initiatives. We protected the P&L with further productivity and efficiency actions to mostly offset the impact of inflation. And I'll cover this in more detail shortly. As a result, we generated an operating profit of £339 million, which was broadly in line with last year. After net interest charges, profit before tax was £328 million. So let's look at revenue in a bit more detail. First turn into the UK business. We continue to face challenging macroeconomic conditions in the year. However, despite a declining kitchen market, we held revenue in line with last year. We again maintained a disciplined approach to balancing price and volume to support our trade customers. Revenue on the same depot basis was down 1.2%. We are confident that the major driver of our consistent above-market revenue growth has been the ongoing investments in our strategic initiatives, and these reinforce our differentiated business model. We again prioritised opening new depots and we revamped 76 older depots into the new format, which drives incremental revenue. At the end of the period, we had 869 depots in the UK, and around 60% of those are in the new format. In the international depots, where we operate from 78 sites, we generated revenue of €88 million, which was 9.7% ahead. In France, we are pleased to have significantly outperformed the market with a strong improvement in the same depot sales in the year. Our Irish despots also traded well in the year and we will continue to expand our depot footprint there. Now moving on to profit before tax. This slide bridges the movement in PBT from 2023 to 2024. Starting with 2023 PBT of 328 million pounds on the left of the slide. Gross profit was £27 million ahead of last year. We were effective in implementing price increases early in the year that benefited the business by £35 million. This more than offset the negative impact of volumes and mix of £19 million. Looking at costs. Within gross profit, we benefited from sourcing and manufacturing efficiencies as we maintained a tight control on input costs. These productivity improvements more than offset the increases in freight, commodities and wage inflation. We're continuing to increase the proportion of what we manufacture versus buy-in, as returns are attractive and we retain greater control of the supply chain. We now manufacture 36% of our cost of goods sold versus 28% three years ago. In the coming year, we have announced our intention to expand our rigid cabinet manufacturing facilities based at our factory in Runcorn. This is to ensure that as we grow the business, we have sufficient capacity to meet demand. Operating costs increased by £28 million, which I'll cover in more detail in a moment. The focus on optimising margin and tightly managing our costs has enabled us to hold PBT at £328 million. This slide shows how we continued to manage our cost base while funding our growth initiatives. Again, bridging from left to right, the incremental costs of the new UK depots totaled £16 million. The other strategic initiatives spend of £12 million included our investments in the depot revamps in the UK, which drives revenue growth in the mature depots. We're also continuing to accelerate our digital strategy to support our trade customers to save them time when they're on the move. For example, this year we launched a depot-based click and collect service which is now live in all of our UK depots. This means that our customers can now see live depot inventory and make purchases through the trade app. We also continue to invest in our international business with a focus on the city-based strategy. The £4 million increase in our costs includes the incremental costs of the 10 depots we opened in 2023 and the three depots opened this year. The existing depot cost increase of £6 million related to higher inflationary costs, principally in property and labour. Other costs were tightly controlled, with the majority of inflationary cost increases being offset by productivity and efficiencies. we continued to face higher levels of property costs and depreciation. Finally, we benefited from the non-repeat of the additional costs relating to the 53rd week in 2023. So let's review our cash flow performance. From an opening cash position of £328 million, we ended the period with £344 million of cash, a net inflow of £61 million. You can see from the slide that this was after paying dividends of £116 million. Overall working capital increased by £65 million, stock increased by £8 million due to depot openings and new product introductions, and we are carefully managing stock levels given ongoing disruptions to global supply chains and shipping routes. Trade debt has increased by £58 million as a result of the later calendar end of our peak trading period in 2024. This cash has now been collected and overall ageing remains in great shape. Creditors were £13 million higher, which also reflects timings. Capital expenditure totalled £122 million as we continue 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. Tax paid was lower than the P&L expense and reflected the collection of the previously announced backdated tax credit relating to the patent box claim. Now turning to uses of cash. Now, strong cash generation remains a hallmark of Howden's business model, and this was the case again this year. The group has an established capital allocation policy, which has been in place for many years. This slide shows how, over many years, Howden's has both reinvested cash into the business to fund future growth, while rewarding shareholders with progressive dividends and returning surplus cash through share buybacks. In line with this, I am pleased to announce that the Board has declared a final dividend of 16.3 pence. Added to the interim dividend declared at the half year, this gives a total dividend of 21.2 pence, which is an increase of 1%. In fact, our progressive dividend policy has meant that over the past 12 years, Housens has increased its ordinary dividend every year. The board considered the group's balance sheet possession in line with its capital allocation policy at the start of this financial year. As a result, we are also announcing today a £100 million share buyback, which we expect to complete over the next 12 months. Now I'm going to provide some technical guidance for the year ahead. First P&L guidance, as we indicated at the trading update last November, the annualised impact of higher contributions to employers, national insurance, and the increase in the national minimum wage is around 18 million. With respect to foreign exchange sensitivity within gross profit, we have set out the impact on a full year of a one cent movement, both the Euro and the US dollar, and they're shown on the slide. Our effective tax rate is expected to be around 24%. And in 2025, the amount of cash tax will be more in line with the P&L rate. As in 2024, we received that backdated tax credit relating to the patent box claim. In the first half of 2024, we benefited from an additional two trading days. though this won't be repeated in the first half of this financial year, and is worth around £10 million worth of sales. In terms of cash flow items, we'd expect capital expenditure to be broadly in line with last year at £125 million, as we continue to invest for growth. As we mentioned in the statement, we may also purchase the freehold of our Runcorn site, which results in an additional outflow of cash, and we'll keep you posted on progress. Overall, working capital is in great shape and the balance sheet remains strong to fund both investment but also to continue to return surplus capital to shareholders. So in summary, we have performed well in a challenging marketplace and taken market share. We have been proactive in delivering productivity and efficiency savings to protect profitability. Our balance sheet and cash flow remain very strong and support our continued investment in the business. And we remain confident of delivering growth ahead of our markets while generating strong cash flow and attractive returns for shareholders. Thank you. Now I'd like to hand you back to Andrew.

Thanks, Paul. Well done.