Slide 1: 2008 Preliminary Results
2008 Preliminary Results 5 March 2009
Slide 2: Matthew Ingle, Chief Executive
Matthew Ingle Chief Executive
Slide 3: Agenda
Agenda Group results • Managing the MFI legacy Howdens • Solid underlying performance • Gaining market share • New product focussed on small builder’s needs • Lowest cost manufacture and distribution • Efficient supply chain management • Further opportunities for development A business strategic
Slide 4: Mark Robson, Finance Director
Mark Robson Finance Director
Slide 5: Context of financial results
Context of financial results Resilient performance by Howdens business seen in operating profit and operating cashflow Results continue to be impacted by legacy issues • Cash flow impact of MEP payments, supply restructuring, pension deficit funding and guaranteed properties • Earnings impact of
Slide 6: Highlights
Highlights £m * Before exceptionals 2008 2007 Revenue Howden Joinery 782.9 768.4 MFI/Hygena Cuisines 11.1 200.1 Group 805.7 976.5 Operating profit* 75.9 88.1 Profit before tax* 74.3 79.8 Exceptional charge (discont’d operations) (108.8) (11.1) 27 Dec 29 Dec £m 2008 2007 Net borrowings 61.2 3.3 after
Slide 7: Profit before tax and exceptional items
Profit before tax and exceptional items Howdens’ revenue £782.9m Group gross profit margin £m ● total +1.9% ● LFL -3.1% ● 2008: 53.1% ● 2007: 46.7% Change 79.8 £5.5m Interest, etc Purch- Gross profit asing Operating 5.9 74.3 Depot 7.6 sales costs 9.8 17.3 £m 456.2 Curr- ency Change -17.1 £28.7m 427.
Slide 8: Operating costs
Operating costs Distribution costs Change Operating Volume, 14.2m costs inflation £m Residual 3.0 10.9 369.0 MFI (27.1) 2007 2008 Change Indirect depot £17.3m 2007/2008 costs depots 3.5 Distri- 15.2 351.7 bution Other (14.2) Older (1.3) depots Supply (1.6) chain support (9.4) Corp- orate (8.7) 2007
Slide 9: Income statement
Income statement £m 2008 2007 Continuing operations: Profit before tax and exceptional items 74.3 79.8 Tax (23.3) (25.5) Profit after tax before exceptional items 51.0 54.3 Exceptional items before tax 4.8 (35.4) Tax (0.8) 34.0 Profit from continuing operations 55.0 52.9 Discontinued operations: Exc
Slide 10: 2008 exceptional charge – P&L impact
2008 exceptional charge – P&L impact £109m charge to ‘discontinued operations’ • c.£100m guaranteed properties • c.£9m other legacy issues Liability for 56 guaranteed properties when MFI sold in 2006 Crystallised when MFI failed in late 2008 46 remaining properties Covers rent, rates and o
Slide 11: 2008 exceptional charge – cash flow impact
2008 exceptional charge – cash flow impact £10.4m cash payments to landlords in 2008 • £5.8m lease exit • £4.6m rent Future cash payments to landlords spread over life of remaining leases As at Current 1 Jan 1 Jan 1 Jan 1 Jan 2012 2015 2020 2025 Guaranteed 39 34 17 11 1 properties Net annual ren
Slide 12: Borrowings and cash flow
Borrowings and cash flow £m 2008 2007 Opening net borrowings (3.3) (4.1) Operating cashflows before movements in working capital 98.5 110.3 ‘Underlying’ working capital (43.9) (54.8) MEP creditor (34.8) - Supply restructuring creditor (10.8) - (89.5) (54.8) Pension deficit contribution (24.3) (18.2)
Slide 13: Working capital
Working capital ‘Underlying’ working capital up £44m • Stock up £19m • Debtors down £22m • Trade/other creditors down £47m MEP (£35m) and restructuring (£11m) payments Reported working capital cash outflow of £89.5m 12
Slide 14: Pension scheme deficit
Pension scheme deficit £m IAS19 basis Triennial actuarial review on-going Asset returns 140 Deficit funding Change (24) £39m 122 Corporate bond rate & 83 other assumptions (77) Dec Dec 2007 2008 13
Slide 15: Reducing our property liabilities
Reducing our property liabilities 1 October 2006 1 February 2009 Net rent and Net rent and No of Floor area No of Floor area rates liability rates liability properties m ft2 properties m ft2 £m £m Guaranteed (gross) 1.8 1.2 56 25 39 18 Guaranteed (net) 1.5 1.1 Residual Vacant 15 0.5 7 0.1 4 1 Tenant
Slide 16: Legacy properties
Legacy properties 39 guaranteed properties • Net annual rent and rates c.£18m 6 home delivery centres • 1 occupied • 5 vacant • Net annual rent and rates c.£4m • £12m provision booked at time of MFI sale 18 ‘excluded’ properties (not included in MFI sale) • 11 occupied • 7 vacant • Net annual
Slide 17: Outlook for 2009
Outlook for 2009 Sales in first two periods of 2009 (total: -9.1%, LFL: -10.6%) consistent with last three periods of 2008 (Oct-Dec) Jan-May Jun-Sept Oct-Dec Jan-Feb Period 2008 2008 2008 2009 Total sales vs corresponding + 10.7% + 2.6% - 8.2% - 9.1%* period in previous year * Affected by heavy sn
Slide 18: Matthew Ingle, Chief Executive
Matthew Ingle Chief Executive
Slide 19: Agenda
Agenda Group results • Managing the MFI legacy Howdens • Solid underlying performance • Gaining market share • Lowest cost manufacture and distribution • New product focussed on small builder’s needs • Efficient supply chain management • Further opportunities for development A business strategic
Slide 20: Reducing our property liabilities
Reducing our property liabilities 1 October 2006 1 February 2009 Number of Oct-06 Feb-09 properties 60 50 56 40 39 30 33 20 18 10 15 15 12 7 6 8 0 3 Guaranteed Residual HDCs Sofa Workshop Manufacturing & distribution Total number of legacy properties reduced from 111 to 71, resulting in significan
Slide 21: Actively managing the pensions issue
Actively managing the pensions issue An issue we have been managing for over 3 years • December 2005 c.£300m; December 2008 £122m • Contributed deficit funding of c.£24m in 2008 Total pension fund valued in 2008 at c.£450m • Annual payout of c.£9m Expect to reach agreement with pension trustee
Slide 22: Howdens UK market share
Howdens UK market share A major player across all market segments 70% 12% 11% 7% 100% Potential for further market share growth 34% 34% 23% 15% 0% Owner-occupiers Private Local Social (via builders) landlords authority housing Source: Company estimates 21 housing
Slide 23: Current trends in our market
Current trends in our market A change in the rhythm of business • From move to improve: buy / sell imperative diminished Has to 2008 Want to sell Just bought happen NOW Has to 2009 Pipeline still filling happen sometime Public sector budgets maintained for 2009 • Tenants still need to be housed
Slide 24: Customer account management
Customer account management 240,000 customers • 178,000 credit accounts margin stock • 62,000 registered cash traders the Average of 400 accounts builder’s business per depot – close control cashflow credit • Opportunities to increase number and value of accounts Total cost of credit control T
Slide 25: Depot development
Depot development Further opportunities for local sales growth and cost reduction • Improve sales & margin per depot, even in mature depots • Reduce absolute stock levels • Improve stock-to-sales ratio Straightforward property model • 10,000 sq ft, £5 / sq ft • Easy to find and fit out • Depth o
Slide 26: Focused product development
Focused product development Kitchens Electrical, Sinks & Taps Improved cabinet 2 new Lamona ovens Freestanding appliances 2 new Lamona sinks 8 new kitchen ranges Renewed lighting offer 3 range extensions Flooring market review Joinery Branding More basic mouldings Quality Doors
Slide 27: New kitchen ranges: Saponetta White
New kitchen ranges: Saponetta White 26
Slide 28: Focused product development
Focused product development Kitchens Electrical, Sinks & Taps Improved cabinet 2 new Lamona ovens Freestanding appliances 2 new Lamona sinks 8 new kitchen ranges Renewed lighting offer 3 range extensions Flooring market review Joinery Branding More basic mouldings Quality Doors
Slide 29: Lowest cost manufacturing and distribution
Lowest cost manufacturing and distribution 4 million cabinets p.a. built in UK • Efficient, volume operation wholly focussed on Howdens needs Managing suppliers to ensure stock availability Exchange rate impact • Close focus on appropriate geographical sourcing End Small Depot Distribu
Slide 30: Working systems
Working systems Underpins in-stock model: must be fit for purpose Complete review of systems following MFI exit New depot IT system • More information-sharing and faster communication New warehouse management system • Shorter lead times • Better stock management • Improved depot replenishmen
Slide 31: Summary
Summary Trading well in difficult market conditions • Managing the MFI legacy • Gaining market share • New product focussed on small builder’s needs • Lowest cost manufacture and distribution • Efficient supply chain management • Further opportunities for development • Local accountability A focus
Slide 32: 2008 Preliminary Results
2008 Preliminary Results 5 March 2009