Howden Joinery Group Plc · LSE:HWDN
Howden Joinery — H1 2023 Earnings Presentation
80 slides from Howden Joinery's earnings presentation, Jul 20, 2023
Slide 1: 2023 Half Year Results
2023 Half Year Results 20th July 2023
Slide 2: Andrew Livingston, Chief Executive Officer
Andrew Livingston Chief Executive Officer
Slide 3: Group performed well in a more challenging marketplace
Group performed well in a more challenging marketplace Sales and profit for the 24 weeks met our expectations ▪ Group Sales +1.5 % v 2022 and +42% v 2019 ▪ Gained more market share ▪ Profit lower than last year when 1st half contributed more to annual profit than usual (+86% up on 2019 v sales +40%)
Slide 4: Milestone 1: Net Zero plan submitted to SBTi
Milestone 1 : Net Zero plan submitted to SBTi, 12 months ahead of schedule Direct emissions halved by 2030 and net zero by 2050 4
Slide 5: Milestone 2: Carbon neutral accreditation at solid surface factory
Milestone 2 : Carbon neutral accreditation at solid surface factory with Howden and Runcorn recertified 5
Slide 6: Performance demonstrates strength of our in-stock model
Performance demonstrates strength of our in-stock model founded on local relationships ▪ Reflects combination of strong product line-up, high stock availability, industry leading service levels and a very engaged team ▪ Benefits of ongoing investment in customer focused strategic initiatives ▪ Recor
Slide 7: Robust business model across changing market conditions
Robust business model across changing market conditions ▪ Expected and prepared for a more challenging market 2023 ▪ Model capable of delivering sustainable market share gains across changing conditions ▪ Significant longer term growth opportunities ▪ Investing in business commensurately 7
Slide 8: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 9: Financial Review: Paul Hayes
FINANCIAL REVIEW Paul Hayes Chief Financial Officer
Slide 10: Financial highlights
Financial highlights Encouraging first half in more challenging markets ▪ Revenue growth against very strong prior year £m H1 2023 H1 2022 Change comparatives Revenue 926.9 913.1 +1.5% Gross profit 565.4 565.0 ▪ Maintained sector leading gross margins vs high % comparative Gross margin % 61.0% 61.9%
Slide 11: Revenue growth
Revenue growth Solid performance against very strong comparatives UK (£m) H1 2023 H1 2022 Growth ▪ More challenging marketplace Revenue 895.1 889.3 +0.6% Same depot basis 881.1 880.6 - ▪ Continued disciplined approach to pricing Number of depots 816 788 +28 ▪ UK market share gains International (€m)
Slide 12: Profit before tax
Profit before tax Continued investment in strategic initiatives to drive future growth ▪ Price increases more than offset lower volumes/ mix £m ▪ Expanded manufacturing capabilities including skirting, new Price Volume panel lines and solid work surfaces (revenue) / mix Product cost Change pressure
Slide 13: Operating expenses
Operating expenses Maintaining investment in our strategic initiatives through the cycle ▪ Productivity and efficiencies offset inflationary cost increases £m Change Other £32m strategic Other ▪ Strategic initiatives include: initiatives • New UK and international depots International growth New UK
Slide 14: Cashflow
Cashflow Strong cash generation supports investments and capital returns £m 2022 £m 2023 2022 ▪ £138m returned to shareholders in dividends Opening cash 308.0 515.3 and buy-backs Operating cash flows1 182.3 209.2 Working capital increase (108.9) (104.0) ▪ Working capital movements : • Stock increase
Slide 15: Earnings per share and dividends
Earnings per share and dividends Delivering sustainable dividend growth and attractive returns to shareholders H1 2023 H1 2022 Change Basic earnings per share 15.4p 19.6p (4.2p) ▪ Earnings per share of 15.4p (p per share) Share buybacks £50.0m £139.5m ▪ Continued investment in organic growth and ret
Slide 16: Technical guidance for the year ending December 2023
Technical guidance for the year ending 30 December 2023 Income statement Impact of additional 53rd week (£17m) ▪ 53rd week in December when depot network is closed Patent box impact on Group effective tax rate (ETR) 3% lower Opex: ongoing investment in strategic initiatives ▪ Expect 2023 ETR of c. 2
Slide 17: Summary
Summary ▪ Performed well in the first half in a more challenging marketplace ▪ Strong balance sheet and cash generation supports investment in strategic initiatives ▪ Ongoing productivity and efficiency savings in a challenging market ▪ Since the start of H2 overall revenue trends have been similar
Slide 18: Andrew Livingston, Chief Executive Officer
Andrew Livingston Chief Executive Officer
Slide 19: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 20: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 21: Extending the UK footprint
Extending the UK footprint High service levels valued by customers ▪ Modern working and trading environment ▪ Cost effective updated format ▪ Scope for around 1,000 depots in the UK ▪ versus the 808 trading at year-end ▪ Plan to open 33 new depots in 2023 ▪ Including some more in new smaller sized f
Slide 22: Converting more depots to the updated format
Converting more depots to the updated format ▪ Positive feedback from depot teams and customers 185 depots reformatted by end of 2022 ~41% ▪ Investment to be recouped in less than four years of depots opened in ▪ Depots motivated to deliver incremental sales (local P&L the old format charged for rev
Slide 23: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 24: Efficient range management for best availability and profitability
Efficient range management for best availability and profitability ▪ Re-organised range architecture and removed duplications in recent years ▪ Improved the balance between introductions and discontinuations ▪ More efficient NPI testing enables us to bring more proven colours and styles to market mo
Slide 25: Sales of new product make a significant contribution
Sales of new product (“NPI”) make a significant contribution to our performance ▪ Upgraded new product programme in recent years 16% of total UK 1 half sales were of new product st introduced in 2022/2023 (same value as last year) ▪ Versus around 13% in 2021 and 2020 95% increase in sales of product
Slide 26: Market leading and competitively priced product
Market leading and competitively priced product is a key feature of our model 23 new kitchen ranges for 2023 ▪ Enhanced worktops offering ▪ Reinvigorated line-up in other product categories ▪ Emphasis on value for money at all price points ▪ Increased net range of entry and mid-level kitchens • Maki
Slide 27: New colours for our entry level ranges
2023: New colours for our entry level ranges Greenwich Reed Green 27
Slide 28: New colours for our entry level ranges
2023: New colours for our entry level ranges Witney Pebble 28
Slide 29: New colours for our entry level ranges
2023: New colours for our entry level ranges Witney Navy 29
Slide 30: New colours for our entry level ranges
2023: New colours for our entry level ranges Allendale Dusk Blue 30
Slide 31: New frontals for our entry level ranges
2023: New frontals for our entry level ranges Greenwich Croft Grey Cabinet 31
Slide 32: New frontals for our entry level ranges
2023: New frontals for our entry level ranges Witney Croft Grey Cabinet 32
Slide 33: Refreshed look for best-selling shaker family
2023: Refreshed look for best- selling shaker family Halesworth Charcoal 33
Slide 34: New mid-priced beaded shaker family, Bridgemere
2023: New mid-priced beaded shaker family, Bridgemere Bridgemere Porcelain 34
Slide 35: New market leading colours for premium kitchens
2023: New market leading colours for premium kitchens Hockley Black 35
Slide 36: New market leading colours for premium kitchens
2023: New market leading colours for premium kitchens Hockley Fir Green 36
Slide 37: New market leading colours for premium kitchens
2023: New market leading colours for premium kitchens Chilcomb Marine Blue 37
Slide 38: New paint to order service for premium kitchens
New paint to order service for premium kitchens ▪ Priced at a premium to colours available from stock ▪ 15 new colour choices + 9 from stock ▪ More bespoke look, competitively priced ▪ Available on a short lead time, if this is required 38
Slide 39: Developing a market leading solid work surface capability
Developing a market leading solid work surface capability ▪ Solid worktops often associated with sales of higher priced kitchens and a growing market segment ▪ Our manufacturing capacity for these products is now amongst the largest in UK ▪ Orders have increased significantly across 2023 to date ▪ S
Slide 40: Reinvigorated line-up in other categories
2023: 2023 Reinvigorated line-up inReinvigorated other categories line-up in other categories Granite Composite Sink Herringbone Timeless Oak Dark Grey Howdens Lennox Glazed Door Lamona Built In Single Fan Oven and Grill Black/Clear Glaze Black 40
Slide 41: Reinforced focus on price and promotions
2023: Reinforced focus on price and promotions which demonstrate the value we offer and promotes footfall 41
Slide 42: Enhancing customer service levels through Daily Traders initiative
Enhancing customer service levels through “Daily Traders” initiative ▪ Daily Traders initiative trialled at the end of 2022 and subsequently rolled out to all UK depots ▪ Initiative to improve customer service levels and sales ▪ By optimising in-depot stock holdings of best-selling items and associa
Slide 43: Using XDCs to facilitate high stock availability
Using XDCs to facilitate high stock availability 43 43
Slide 44: Rebalancing stock levels and the delivery pattern of some lines
Rebalancing stock levels and the delivery pattern of some lines for best availability ▪ Depots can hold deeper stocks of faster selling lines ▪ Simpler and more efficient for depots to: ▪ deliver superior service ▪ improve availability of all products ▪ Frees up time and resources spent on stock man
Slide 45: Making more of the furniture for more of our kitchen ranges
2023: Making more of the furniture for more of our kitchen ranges ▪ Initial investment to make Hockley kitchen doors in 2019 ▪ Manufacturing capabilities then broadened with investment in new lines at the Howden site ▪ Same quality as externally sourced product ▪ Lower cost and reduced lead time to
Slide 46: New paint to order capability
2023: New “paint to order” capability ▪ Investment in two new lines ▪ Facilitates our paint to order initiative for our premium kitchens ▪ Located in purpose - built facility ▪ Industry leading capability for these products 46
Slide 47: Increased architrave and skirting capability
2023: Increased architrave and skirting capability 47
Slide 48: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 49: Increasing use of online trade account management
Increasing use of online trade account management 49
Slide 50: Online services valued by customers and depots
Online services valued by customers and depots ▪ 36,000 new account registrations so far in 2023 ▪ 45% of customers have an online account ▪ Weekly trade platform logins +7% ▪ c.70% of users looking at their confidential prices ▪ Online account holders trade more frequently ▪ and spend more across m
Slide 51: High levels of engagement with our web platform
High levels of engagement with our web platform ▪ 18 % more search impressions a month ▪ 9.5 million site visits ▪ #1 for fitted kitchen site visits ▪ Page view metrics at consistently high levels 51
Slide 52: Increasing social media presence
Increasing social media presence ▪ c.480,000 followers base by the half year end ▪ 11 % increase on 2022 in the same period ▪ 3.6m monthly engagements ▪ New on-line forum for builder community 52
Slide 53: Growing brand awareness amongst end-users
Growing brand awareness amongst end-users 53
Slide 54: Range of new services and capabilities for customers and depots
2023: Range of new services and capabilities for customers and depots Testing digitised in-depot stock management Enhanced tools for jobs and leads Further Trade App functionality Depot product queries answered instantly 54
Slide 55: Using digital to enhance our interaction with customers and end-users
Using digital to enhance our inter-action with customers and end-users Creating higher quality leads for our designers and customers ▪ “Kitchen visualiser” to raise end-user familiarity with our products ▪ Market leading search functionality L ▪ New and more visible design booking process ▪ Upgraded
Slide 56: Initiatives to increase market share and profits
Initiatives to increase market share and profits Depot Evolution Range and Supply Management Digital Development International
Slide 57: Operations based in France continued to make progress
Operations based in France continued to make progress ▪ €4.3bn kitchen market* ▪ City-based approach adopted from 2019 ▪ 60 depots trading at end of 2022 (twice the 2020 total) ▪ Increased recognition of our model’s advantages ▪ Scale benefits as 90% of range is common to the UK ▪ Flexed peak tradin
Slide 58: Opening more depots in the Republic of Ireland
Opening more depots in the Republic of Ireland 3 Locations 1. Sandyford ▪ Similar location strategy to France 2. Ballyfermot 3. Swords 4. Ballymount ▪ Supported by UK infrastructure and group digital 5 platform 5. Glasnevin 2 ▪ Opened five depots around Dublin in 2022 ▪ Two opened so far this year 4
Slide 59: Well planned on our strategic initiatives
Well planned on our strategic initiatives ▪ Continued use of stock policies to protect high availability (at more normalised levels) ▪ 23 new kitchen ranges now in stock ▪ Rooster promotional activity and other price initiatives ▪ Improvements to service and availability by utilising XDCs and throug
Slide 60: Confident of our business model across changing market conditions
2023: Confident of our business model across changing market conditions and our expectations for this year are unchanged ▪ Aim to retain a profitable balance between price and volume ▪ Maintain competitive pricing with operating costs aligned ▪ Working with suppliers to keep input costs controlled ▪
Slide 61: Questions & Answers
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Slide 62: Appendix: The UK's #1 Specialist Kitchen and Joinery Supplier
Appendix The UK’s #1 Specialist Kitchen and Joinery Supplier An introduction to Howdens (July 2023) 62
Slide 63: We are the UK's leading specialist trade-only kitchen and joinery supplier
We are the UK’s leading specialist trade-only kitchen and joinery supplier 2022 financial highlights: £2.3bn £415m 60.9% Revenue Operating profit Gross margin 65.8p 20.6p £308m EPS Total dividend Cash at end of period Attractive end markets: Residential Repair Maintenance and Improvement (RMI) 90% 9
Slide 64: Our business is about helping our trade customers achieve exceptional results
Our business is about helping our trade customers achieve exceptional results Empowered depot teams support the needs of the CORE STRENGTHS local builder ▪ Trade only focus and the best local prices. 882 ~500K Local depots Local customers ▪ Local delivery model – 85% of customers are less than 5 mil
Slide 65: A unique business model focused on long-term customer relationships
A unique business model focused on long-term customer relationships and exceptional service Market leading Kitchen Trade only: focused An empowered, depot-led business, and Joinery product ranges on our customers’ needs close to the trade Products immediately Competitive Knowledgeable depot teams to
Slide 66: We've delivered consistent revenue growth and sector leading margins
We’ve delivered consistent revenue growth and sector leading margins £2.3BN Revenue Operating profit ; return on sales (%) and margin (%) Gross margin (%) 60.9% £0.8BN £415M 56.2% 17.9% £80M 10.3% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 66
Slide 67: Our business model is resilient even in current macro-economic conditions
Our business model is resilient even in the current challenging macro-economic conditions Dynamic Anticipated duration Howdens’ advantage ▪ Vertically integrated These dynamics Supply chain constraints 6-12 months ▪ Long term supplier agreements favour Howdens’ ▪ Strong balance sheet market strength
Slide 68: Historic sales growth has been robust in previous downturns
Historic sales growth has been robust in previous downturns Year over year revenue growth (%) Howdens’ had greater resilience versus …and during peers during the the COVID-19 35% 35% GFC… pandemic 21% 19% 17% 17% 14% 14% 14% 14% 13% 13% 12% 11% 11% 11% 10% 9% 10% 8% 8% 7% 7% 8% 7% 8% 6% 5% 6% 5% 5%
Slide 69: Our markets are large and attractive with significant growth potential
Our markets are large and attractive with significant future growth potential UK market by revenue1 UK market revenue by vendor category1 Contract Trade specialists 25% specialists 9% Howdens £2.3BN 35% 31% Independents Retail Combined £11.5BN Kitchens £4.5BN Joinery £7BN + = 1 Howdens’ estimates ba
Slide 70: Long-term drivers of the kitchen and joinery market support growth
The long-term drivers of the kitchen and joinery market support continued growth Structural drivers Recent trends ▪ Population growth (by 2030 UK population will grow ▪ Post pandemic UK hybrid working up to 5 times the by 5% and will have 2m new citizens - ONS). level pre-pandemic (McKinsey) leads t
Slide 71: A well-established and ambitious strategy to achieve growth
We have a well-established and ambitious strategy to achieve growth Depot Evolution Range & Supply Management Digital Development International 71
Slide 72: Expanding and re-formatting our UK depot network
We are expanding and re-formatting our UK depot network to increase sales and productivity Depot Evolution ▪ We see scope for around 1,000 depots in total (808 in 2022) in the UK including 30 new depots during 2022. ▪ Our updated format provides the best environment for depot teams, customers and th
Slide 73: Significant opportunity to win market share in kitchens
We have a significant opportunity to win market share in kitchens Product range Howdens has a healthy market share in ‘Good’ with an opportunity to grow market share in the ‘Better’ and ‘Best’ segments. Howdens Relative Market Share in Kitchens by Price Band ‘Good’ Entry level (0-£4k) ‘Better’ Mid-r
Slide 74: Investing in manufacturing and expanding vertical integration
We are investing in manufacturing and further expanding our degree of vertical integration Supply Management ▪ Increase manufacturing volume (as % COGS) from 30% Distribution Raunds: 138k pallets 44 acres ▪ Investment in additional capacity including door frontals, 12.4k SKUs laminated worktops, ski
Slide 75: Digitally connecting people, experiences and services
We are digitally connecting people, experiences and services Digital Development Consumer Depot Trade Google specificity Howdens.com visit Choice refinement Book appointment Find a builder Job notification Lead in lead management Upload design Online presentation Add joinery to project Use search to
Slide 76: Attractive international markets with significant growth opportunities
Attractive international markets with significant growth opportunities International Growth Sales in M€ City based approach: 74 Opened in 2022* 58 43 36 22 15 2010 2015 2019 2020 2021 2022 PARIS Number of depots 65 40 Swords 30 ... Glasnevin Sandyford Ballyfermot 27 Ballymount 14 10 DUBLIN 2010 2015
Slide 77: Major steps to achieve net zero emissions
We have identified the major steps to achieve net zero emissions Scope 1 & 2 A – Distribution B – Renewable energy LPG and HVO Trials underway Switch all operations sites and depots to 100% renewable Electric vehicles where feasible – test and develop business case C – Electric fleet Engaging logist
Slide 78: Strong balance sheet and clear capital allocation priorities
We have a strong balance sheet and clear capital allocation priorities Invest in organic expansion in line Grow a progressive and sustainable with the strategy ordinary dividend through the cycle 1 2 Significant shareholder value creation 4 3 Return surplus cash to shareholders Invest selectively in
Slide 79: Strong track record of cash generation, investment and capital returns
We have a strong track record of cash generation, investment and capital returns £496m Over the past 10 years: £2.6bn £611m Generated in operating Invested in capex cashflow £645m £629m £273m Returned in ordinary Returned in buy backs and dividends special dividends £184m £187m £175m £164m £151 m £7
Slide 80: Howdens' investment case
Howdens’ investment case Sustainable growth, sector leading margins and strong cash generation A differentiated business model with benefits of scale and local customer relationships A well-established strategy to deliver profitable growth Leading positions in attractive markets with opportunities t