Howden Joinery Group Plc · LSE:HWDN
Howden Joinery — H1 2011 Earnings Presentation
50 slides from Howden Joinery's earnings presentation, Jul 21, 2011
Slide 1: 2011 Interim Results
2011 Interim Results 21 July 2011
Slide 2: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 3: Strong performance sustained in H1 2011
Strong performance sustained in H1 2011 Sales up p by y 5% Operating profit up to £25.5m Gross margin up to 59 59.3% 3% £20m investment in supply base announced Increased efficiencies Greater speed p to market Morale high throughout the business 3
Slide 4: Mark Robson, Chief Financial Officer
Mark Robson Chief Financial Officer
Slide 5: Context of financial results
Context of financial results • Good p performance in turnover,, gross g margin g and p profit • Cash flow finances growth of business and legacy issues • Legacy property portfolio continues to diminish 2011 Half Yearly Report 5
Slide 6: Highlights
Highlights Revenue, £m Operating profit, £m Net cash/(debt), £m HJ UK France 40 350 26 341.7 30 35.0 11.1 340 6.8 25.5 20 11.7 24 24.5 330 324.7 5.5 334.9 10 320 22 Jun-10 Jun 10 5.1 319.2 0 310 756.4 (2.7) Dec-10 Jun-11 300 20 -10 2010 2011 2010 2011 HJ UK: +4.9% Uses of ‘cash’, £m Gross profit mar
Slide 7: Howdens revenue
Howdens revenue H1 2011 revenue £334.9m • total +4.9% • LFL +2.4% Growth in total sales: • 2010 fyr: y +5.1% • 2011 Q1: +6% • 2011 Q2: +4% - no year-on-year benefit from Mar 2010 price increase 2011 Half Yearly Report 7
Slide 8: Profit before tax
Profit before tax Group gross profit margin ● H1 2011: 59.3% ● H1 2010: 58.1% Profit before tax £m Gross £m profit Gross profit 14.0 COGS savings, other Change margin i £14 0m £14.0m 5.9 202.8 Change Volume Price £1.9m & mix 2.1 Cost Interest, 9.0 pressures 3.0 etc 0.9 23.5 21 6 21.6 Operating 188 8
Slide 9: Operating costs
Operating costs Operating costs £m Change £13.0m Other Other - growth 2.8 177.3 Older depots 2.3 4.3 New depots 3.6 164 3 164.3 • H1 2010 H1 2011 2011 Half Yearly Report 9
Slide 10: Income statement
Income statement £m H1 2011 H1 2010 Revenue 341.7 324.7 Cost of goods sold (138.9) (135.9) Gross profit 202 8 202.8 188 8 188.8 Operating costs (177.3) (164.3) O Operating ti profit fit 25 5 25.5 24 5 24.5 Net interest (2.0) (2.9) Profit before tax 23.5 21.6 Tax (6.5) (7.4) Profit for the period 17.
Slide 11: Net cash/borrowings and cash flow
Net cash/borrowings and cash flow £m H1 2011 H1 2010 Opening net cash 35.0 2.4 Operating cash flows before movements in working capital 35.9 33.8 Working capital (10 7) (10.7) 84 8.4 Capital expenditure (7.9) (6.7) Interest (net) (0.5) (0.5) Tax paid (11 6) (11.6) (5 2) (5.2) Legacy properties (17.2
Slide 12: Working capital
Working capital • Working capital up £10.7m – stock up £5.5m – debtors up £17 £17.3m 3m – creditors up £12.1m 2011 Half Yearly Report 12
Slide 13: Reducing our legacy property liabilities
Reducing our legacy property liabilities £31m Number of 100 properties 80 £24.5m 60 £18m £12m 40 £9m £9m 20 £5m £4m £0.5m 0 Oct-06 Dec-08 Dec-09 Dec-10 Jul-11 Dec-11 Dec-14 Dec-19 Dec-24 12 legacy g yp property p y deals so far in 2011: £11.4m exit cost - £37m liabilityy extinguished g 1 Vacant and
Slide 14: Pension scheme deficit
Pension scheme deficit £m Finance charge/asset IAS19 basis returns 2 136 Triennial review underway – will set Discount funding level for rate (9) three-year period Change from April 2012 £25m 111 Deficit funding (18) • Dec Jun 2010 2011 2011 Half Yearly Report 14
Slide 15: Outlook for remainder of 2011
Outlook for remainder of 2011 • Sales in first period of second half up 10.5% – price rise initiated + pull pull-through through of sales • Outlook for rest of year: – sales performance YTD consistent with expectations for full year – aiming to offset continuing input price pressures – continue ti t
Slide 16: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 17: Two critical questions
Two critical questions 1. What is it that makes Howdens capable of consistent, strong performance across economic cycles? 2. Where will Howdens continuing growth come from? 17
Slide 18: Howdens' mission
Howdens’ mission “To supply “T l ffrom llocall stock, t k nationwide, ti id the small builder’s ever-changing routine joinery/kitchen / requirements, assuring no call back quality and best local price” 18
Slide 19: The key features of the Howdens model
The key features of the Howdens model Model • Whollyy focused on the small builder • No conflicts of interest in respect of • Product • Pricing • Service 19
Slide 20: The key features of the Howdens model
The key features of the Howdens model Model • Considered p product range g • Helps the builder sell to all parts of the market • Easy to understand “families” families platform • Rigid, not flatpack • Designed to be easy to fit • Robust – “no call back” quality • Saves S th the b builder ild titime
Slide 21: The key features of the Howdens model
The key features of the Howdens model Model • Available from local stock • All products • All the time • Builder can plan his week • Schedule S h d l the h work k • Complete the job • Get paid by his customer • Payy Howdens 21
Slide 22: The key features of the Howdens model
The key features of the Howdens model Model • Business p proposition p for account holders • Confidential discount • Margin opportunity • Nett monthly terms • Cash C h flflow opportunity i 22
Slide 23: The key features of the Howdens model
The key features of the Howdens model Model • Local accounts,, local relationships p • No national accounts • Limits exposure to any one customer • Highly efficient credit control • Cost C t off managing i accounts t = 1.5% 1 5% off sales l • Includes debt recovery & bad debts 23
Slide 24: The key features of the Howdens model
The key features of the Howdens model Model • An inherentlyy low-cost model • High volumes • Long runs • Low-cost sourcing • Optimised O i i d llogistics i i • Scalable systems • Low-cost trade depots • Always y lower cost than retail 24
Slide 25: Implementation requires trust
Implementation requires trust • Individual,, local accountabilityy • Depot managers empowered to: • Run their own P&L Trust • Hire local staff • Refine R fi stock k and d pricing i i Motivation Moti ation • Drive local marketing Action • Incentive model maximises profit opportunity for all • Minimis
Slide 26: Trusted individuals repay trust
Trusted individuals repay trust • Progress is personally driven • Ideas can be acted on immediately • Optimised quickly • …or stopped right away • Risk is limited • No blame blame, but no hiding place 26
Slide 27: A further key benefit of focus
A further key benefit of focus Raw materials Manufacturing Sourcing The abilityy to mitigate g cost pressures Property Energy p Development 27
Slide 28: Disciplined implementation of the model
Disciplined implementation of the model Terms Low-cost Service All of the elements Local Complete of the Howdens model are non-negotiable Stock Quality Range g 28 28 28
Slide 29: 2006: Rough Diamond
2006: Rough Diamond Identifying the gems present within the business Retaining and investing in what was precious to drive value “Let’s focus on what we know works… and build it to scale” 29
Slide 30: Focus on what works, and build it to scale
Focus on what works, and build it to scale Investment • Product development p • Experimentation • Customer needs • Build quality • Materials M i l • Product “families” Knowledge and relationships 30
Slide 31: Focus on what works, and build it to scale
Focus on what works, and build it to scale Investment • Systems y to g guarantee availability y of stock • Manufacturing control systems • Warehousing g & logistics g • Transport & distribution • Depot p systems y • Product information • POS • CAD planning • Management information Knowledge and rela
Slide 32: Focus on what works, and build it to scale
Focus on what works, and build it to scale Investment • Manufacturing g capability p y • Runcorn • Howden • Distribution centre in Northampton • New production lines • Ongoing benefits of restructuring • Improved I d flexibility, fl ibilit quality, lit speed d • Access to best global suppliers Knowl
Slide 33: Focus on what works, and build it to scale
Focus on what works, and build it to scale Investment • Margin g incentive • Getting people together • Meetings • Dinners • Conferences • Roadshows • Sports, S t social i l events, t etc. t • Health & Safety Knowledge and relationships 33
Slide 34: Focus on what works, and build it to scale
Focus on what works, and build it to scale Investment • Extensive depot p network • 14 500 depots • 0 230,000 230 000 credit accounts • 28 4,400 depot staff • Better service for the builder • Trustworthy brand • Reputation R t ti Knowledge and relationships 34
Slide 35: A cash-generating business
A cash-generating business Enabled extensive investment in all areas AND Allowed us to manage the MFI legacy, legacy including: Properties Failure of MFI business Pension deficit Creating g value in Howdens 35
Slide 36: Depot development
Depot development Growth • New depots p • Further opportunities to open depots • Potential for 650+ depots • Existing depots • Opportunities to: • Extend E t d c.40 40 d depots t • Increase sales and margin • Open more accounts • Develop new sales techniques 36
Slide 37: Depot development
Depot development Growth Building knowledgeg and relationships Worcester manager g Lisa Palmer with salesman David Gregg gg and hardware van 37
Slide 38: Product development
Product development Growth • Constantlyy sophisticating p g market • New challenges • Space • Time • Safety S f • Regulation • Cost • Ecological g soundness 38
Slide 39: Product development
Product development Growth • Rapidly p y evolving g routes to market,, including the internet • About more than price • More information on more topics • More comparison • More investigation • Knowledge spreading at an gp accelerating pace 39
Slide 40: Product development
Product development Growth Evolving routes to market L Less cash h P l llook People kh d harder Ri i costs Rising t Sophisticating market 40
Slide 41: New product introductions
New product introductions Growth • Building g further knowledge g • Joinery Lab • Kitchen Lab • Worktops • Splashbacks S l hb k 41
Slide 42: New product introductions
New product introductions Growth • Building g on the success of the p product “families” • 4 new ranges launched • Complementary joinery doors • Hardware 42
Slide 43: Appliance development
Appliance development Growth • Extending g the Lamona franchise • 500,000 Lamona appliances sold p.a. • Britain’s biggest integrated brand • Two-year warranty as standard from S t b September 43
Slide 44: Appliance development
Appliance development Growth • Extending g the Lamona franchise • 500,000 Lamona appliances sold p.a. • Britain’s biggest integrated brand • Two-year warranty as standard from S t b September The Lamona cookbook 44
Slide 45: Supply base development
Supply base development Growth • Focused on the need to g guarantee,, at scale,, control over: • Manufacturing • Design • Quality A commercial approach to • Availability A il bili make vs. buy • Range • Price • Knowledge g … and greater speed to market 45
Slide 46: Summary of growth drivers
Summary of growth drivers Growth • New depots • Depot performance • More accounts • Building g relationships p A market-beating g • New product proposition • Product innovation • Improving efficiency • Enhancing g supply pp y base 46
Slide 47: "More of the same" means…
“More of the same” means… Doing things in the same way NOT Doing the same things 47
Slide 48: The consideration is…
The consideration is… What is the appropriate pace of growth? 48
Slide 49: Harnessing the power of individuals to drive growth
Harnessing the power of individuals to drive growth Each individual is important Trusted Motivated Allowed to act D i tto fface challenges Daring h ll The best way to drive growth 49
Slide 50: 2011 Interim Results
2011 Interim Results 21 July 2011