Howden Joinery Group Plc · LSE:HWDN
Howden Joinery — H1 2008 Earnings Presentation
33 slides from Howden Joinery's earnings presentation, Jul 23, 2008
Slide 1: 2008 Interim Results
2008 Interim Results 23 July 2008
Slide 2: Mark Robson, Finance Director
Mark Robson Finance Director
Slide 3: Highlights
Highlights H1 H1 £m * Before exceptionals 2008 2007 Revenue Howden Joinery 342.6 314.5 MFI/Hygena Cuisines 7.1 111.1 Group 354.6 429.0 Gross profit* 186.8 190.0 Operating profit* 20.8 29.5 Profit before tax* 20.1 24.8 14 Jun 29 Dec £m 2008 2007 Net borrowings 40.9 3.3 after one-off payments and cont
Slide 4: Profit before tax and exceptional items
Profit before tax and exceptional items* Howdens’ revenue £342.6m Group gross profit margin £m ● total +9.6%* ● LFL +4.3%* ● 2008: 52.7% ● 2007: 44.3% 24.8 Change £4.7m Gross profit Interest, Purch- etc Depot asing Gross 3.9 20.1 sales 2.8 profit £m 15.5 (3.2) Curr- ency Change -5.9 £3.2m Operating
Slide 5: Operating costs
Operating costs Distribution costs Change Operating Volume, 4.5m costs inflation £m Residual 2.9 5.9 MFI Change (13.2) +£5.4m Indirect depot Other costs 1.6 166.1 2007 2008 Older 2.8 depots 160.7 2007/2008 3.4 depots 7.5 Distri- bution (4.5) Supply chain Corp- support orate (3.6) (1.8) 2007 2008 3
Slide 6: Income statement
Income statement H1 H1 £m 2008 2007 Profit before tax and exceptional items 20.1 24.8 Tax * (7.5) (8.4) Profit after tax before exceptional items 12.6 16.4 Exceptional items before tax 1.5 (0.7) Exceptional tax credit - 26.0 Profit for the period 14.1 41.7 Basic eps -excluding exceptionals 2.1p 2.7p
Slide 7: Borrowings and cash flow
Borrowings and cash flow H1 H1 £m 2008 2007 Opening net borrowings (3.3) (4.1) Operating cashflows before movements in working capital 32.3 37.8 MEP creditor (26.8) - Supply restructuring creditor (7.4) - ‘Underlying’ working capital (6.5) (20.6) (40.7) (20.6) Capital expenditure (10.0) (6.6) Asset
Slide 8: Working capital
Working capital ‘Underlying’ working capital up £6.5m • stock up £15.2m • debtors down £6.2m • trade creditors up £2.5m Reported working capital up £40.7m incl. MEP and restructuring payments (£34.2m) 6
Slide 9: Pension scheme deficit
Pension scheme deficit £m IAS19 basis Triennial actuarial review underway Asset Change returns £29m 46 112 Deficit funding Corporate (13) bond rate & other 83 assumptions (4) Dec June 2007 2008 7
Slide 10: Remainder of 2008
Remainder of 2008 Exchange rate still weak vs. last year Residual logistics costs Sales in first period of H2 on a par with last period of H1 • rate of growth (3.3%) reflects strong performance in same period last year No improvement in market conditions in short term Continue to manage business in
Slide 11: Cost structure
Cost structure Cost base in excess of £700m Major elements: • Finished products c. 40% • Payroll >20% • Manufactured goods >10% (more than half raw materials) • Property <10% • Vehicle fuel and energy < £20m 9
Slide 12: Residual costs
Residual costs Initial residual cost almost halved to c. £15m by logistics restructuring Legacy of unused warehouse space and transport fleet Traffic sharing agreement - £3m annualised benefit Significant reduction expected over time: • Other initiatives • Howdens growth 10
Slide 13: Bank facility
Bank facility Originally arranged in February 2006 • to May 2009 • £150m ceiling increased to £175m Extended and renegotiated in early 2008 • to May 2011 • available ceiling significantly increased 11
Slide 14: MEP claim
MEP claim Unlikely to reach Court until spring / summer 2009 Reduced to £53 million 88 individual items • each one individually assessed Some items entirely without merit Now conceded that offsetting items should be considered 12
Slide 15: Matthew Ingle, Chief Executive
Matthew Ingle Chief Executive
Slide 16: Overview
Overview  The Howdens business model is delivering results: • Good performance in difficult economic environment • Effective account management • Local control enables clear focus on costs • New product development opportunities • Demographic potential • Reliable supply chain • Proactive, growing b
Slide 17: Howdens UK market share
Howdens UK market share Very limited exposure to new build – Sales to top 10 house builders only £1.4m in 07, £0.7m in H1 08 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: Compan
Slide 18: A clear purpose
A clear purpose Howdens is a focussed business supplying small builders with kitchen & joinery it’s based on relationships and service and on a reliable supply chain 15
Slide 19: What we're good at…
What we’re good at…  Being entrepreneurial  Sophisticated account management  Focussed product development  Effective credit management The Howdens business model is an integrated whole, developed over time and with experience 16
Slide 20: Being entrepreneurial means… (1)
Being entrepreneurial means… (1)  Being very important to our customers • 54% don’t buy kitchen cabinetry elsewhere* • 94% say they would recommend us* • Most are regular visitors  Delivering much more than price • Builders are business people – their time is money • They value the service we offe
Slide 21: Being entrepreneurial means… (2)
Being entrepreneurial means… (2) Â Having powerful margin and market share drivers • Price • Advertising • Local delivery Margin • Local costs Market share • Credit control Costs • Staffing • Stock control 18
Slide 22: Sophisticated account management…
Sophisticated account management…  234,000 registered account holders • 182,000 credit accounts  Sustained frequency of spend • 69% traded in H1 08 (H1 07: 69%)  Average spend per account increasing • H1 08 + 4% vs. H1 07 • 2008 + 7% (MAT) on kitchens only  Growth of spend underpinned by model •
Slide 23: Visits per customer
Visits per customer 5% • 70% of customers visit a depot at least once a 27% 26% month • Over a quarter of them visit a depot at least 18% 24% once a week At least once a week A couple of times a month Once a month Every couple of months or less Don't know / not sure A good opportunity to grow sales
Slide 24: Spend per customer
Spend per customer 1% 2% 3% 4% 2% 3% £ / year • Many customers buy 0-25k joinery and hardware 25k-50k from us before they buy 10% 50k-75k complete kitchens 75k-100k 100k-200k • Only 10% spend more 75% 200k-300k than £100k p.a. 300k-500k >500k Strong potential for further growth in average spend Sour
Slide 25: Our product sales in the UK marketplace
Our product sales in the UK marketplace Joinery (£m) Kitchens (£m) 2,541 1,782 2,115 1,412 899 1,405 845 1,218 800 500 479 700 415 620 600 400 500 300 400 318 205 331 300 200 200 100 100 1% 8% 9% 1% 0% 0% 0% 22% 18% 12% 3% 1% 3% 2% 0 0 Joinery Doors Hardware Flooring Garage Paint / Lofting Cabinets
Slide 26: Continuing depot growth
Continuing depot growth 800 700 Depots Sales £m 600 500 436 400 382 320 342 300 300 269 228 200 171 116 100 56 86 14 24 0 95 96 97 98 99 00 01 02 03 04 05 06 07 • Sales per mature depot c.£2m p.a. • 7-year depot maturity curve 23
Slide 27: A local business with further market opportunities
A local business with further market opportunities • Scope for at least 600 depots • Easy to find and fit out • Rollout programme adapted to market conditions • Limiting 08 openings to c.20 • Increasing benefits of 109 depots opened since Jan 06 current projected 24
Slide 28: Effective credit management means…
Effective credit management means…  More scope for growth • Over 180,000 credit accounts • Combined credit availability £1.6bn  Monthly terms, tightly enforced • Total cost of credit control, including write-offs and bad debts = 1% of sales • Debt profile as % of sales unchanged since 07  Our loc
Slide 29: Managing the legacy of restructuring
Managing the legacy of restructuring  Restructuring allowed a clearly focused business to emerge  Successfully managing reduction of MFI residual costs  Opportunity to transform spare capacity  Strong logistics and property management skills  Legal claim: • 88 separate items (originally 94) • O
Slide 30: In summary…
In summary…  Good performance driven by sound business model  Operating successfully at scale  Well-financed and cash-generative  Successfully managing legacy of restructuring  Taking appropriate actions in economic environment  Significant further opportunities ahead A focussed business built
Slide 31: Appendix
Appendix 23 July 2008
Slide 32: Our product sales in the UK marketplace
Our product sales in the UK marketplace Category Sales 2007, £m As a % of total market Total market 2007, £m (e) Cabinets and frontals 390 22 1,782 Worktops 51 12 415 Cooking appliances 48 3 1,412 Sinks & taps 37 18 205 Kitchens Cooling / storage 18 2 1,218 Dishwashing 14 3 479 Laundry 11 1 1,405 Li
Slide 33: 2008 Interim Results
2008 Interim Results 23 July 2008