Howden Joinery Group Plc · LSE:HWDN
Howden Joinery — FY2011 Earnings Presentation
50 slides from Howden Joinery's earnings presentation, Mar 1, 2012
Slide 1: 2011 Preliminary Results
2011 Preliminary Results 1 March 2012
Slide 2: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 3: Howdens has continued to outperform
Howdens has continued to outperform Sales up by 5.5% Operating profit up to £114m Gross margin steady at 59.5% Year end cash up from £35m to £57m Sustained focus on proven model Continuing investment in business development Resumption of dividend Howdens is a growing business 2011 Preliminary Result
Slide 4: Mark Robson, Chief Financial Officer
Mark Robson Chief Financial Officer
Slide 5: Context of financial results
Context of financial results • Increased turnover and profit • Cash flow finances growth of business and legacy issues • Legacy property portfolio continues to diminish 2011 Preliminary Results 5
Slide 6: Highlights
Highlights Revenue, £m Operating profit Net cash, £m HJ UK France 115 13.4% 60 875 £114.3m 50 57.1 853.8 35.0 850 110 15.1 40 13.3% 838.7 30 35.0 825 £107.4m 807.9 105 20 800 12.8 10 795.1 775 100 0 2010 2011 2010 2011 Dec-10 Dec-11 HJ UK: +5.5% Gross profit Profit before tax, £m Uses of ‘cash’, £m
Slide 7: Revenue
Revenue 2011 UK depot revenue £838.7m • total +5.5% • LFL +3.1% 2011 French depot revenue £15.1m +16.7% in €s 2011 Preliminary Results 7
Slide 8: Profit before tax (continuing operations)
Profit before tax (continuing operations) Group gross profit margin ● 2011: 59.5% ● 2010: 59.8% Profit before tax £m £m Gross profit Gross * Pension finance Price profit charge to increase 19.0 Change 25.3 by £4m in 2012 £25.3m 508.3 Change Cost £9.1m Volume pressures & mix (8.6) Interest, 14.9 etc*
Slide 9: Operating costs
Operating costs Operating costs Change £m £18.4m* *Includes one-off cost Other - Other savings of growth Older 0.3 394.0 £5m 3.4 depots 7.4 New depots 7.3 375.6 • 2010 2011 2011 Preliminary Results 9
Slide 10: Income statement (continuing operations except *)
Income statement (continuing operations except *) £m 2011 2010 Revenue 853.8 807.9 Cost of goods sold (345.5) (324.9) Gross profit 508.3 483.0 Operating costs (394.0) (375.6) Operating profit 114.3 107.4 Net interest (4.3) (6.5) Profit before tax 110.0 100.9 Tax (28.9) (34.0) Profit for the period 8
Slide 11: Earnings per share and dividend
Earnings per share and dividend £m 2011 2010 Earnings per share • from continuing operations 13.4p 11.1p • from continuing and discontinued op’s 12.1p 11.1p Dividend • last dividend paid in 2008 • final dividend of 0.5p per share recommended 2011 Preliminary Results 11
Slide 12: Net cash and cash flow
Net cash and cash flow £m 2011 2010 Opening net cash 35.0 2.4 Operating cash flows before movements in working capital 134.8 127.0 Working capital (9.4) 3.4 Capital expenditure (19.6) (18.2) Interest (net) (1.0) (1.0) Tax paid (22.5) (16.0) Legacy properties (29.4) (37.5) Pension deficit contributio
Slide 13: Working capital
Working capital • Working capital up £9.4m – stock up £13.0m – debtors up £0.3m – creditors up £3.9m 2011 Preliminary Results 13
Slide 14: Investing in growth and performance
Investing in growth and performance • Capital expenditure: £20m – depots and related areas: £8m – supply operations: £7m* *Significant increase expected in 2012 in respect of cabinet – IT: £5m production line project • Operating costs: £15m – new depots: £7m – existing depots: £4m – other (product d
Slide 15: Reducing our legacy property liabilities
Reducing our legacy property liabilities Number of properties 80 £24m Liability reduced by almost 80% in three 60 years £18m £12m 40 20 £6m £6m £3m £2m £0.2m 0 Dec-08 Dec-09 Dec-10 Feb-12 Dec-12 Dec-14 Dec-19 Dec-24 • 17 legacy property deals in 2011: £17.9m exit cost → £58m liability extinguished •
Slide 16: Pension scheme deficit
Pension scheme deficit £m Discount Finance rate & other IAS19 basis charge assumptions 3 13 Asset returns Change 18 Triennial review £1m underway – will set funding level for 136 137 three-year period Deficit from April 2012 Funding (33) • Dec Dec 2010 2011 2011 Preliminary Results 16
Slide 17: Current trading and outlook for 2012
Current trading and outlook for 2012 • Sales in first period two periods up 1.6% (LFL: +0.1%) – reflects strong comparator from 2011 – other evidence indicates no change in market conditions • Outlook for rest of year: – market to remain challenging, so cautious about outlook at this early stage of
Slide 18: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 19: Three themes for today
Three themes for today Reasons for success of the Howdens model Aims for the business Outlook for 2012 2011 Preliminary Results 19
Slide 20: Howdens is focused on serving one customer
Howdens is focused on serving one customer “To supply from • Trade only local stock, nationwide, • Offer tailored to the small builder’s needs: the small builder’s ever-changing • Well-designed range routine • Rigid cabinets, easy to fit, look good, don’t break joinery/kitchen requirements, • ‘Fitab
Slide 21: Howdens is focused on serving one customer
Howdens is focused on serving one customer “To supply from • Offer tailored to the small builder’s needs: local stock, nationwide, • All products in stock locally all the time the small builder’s ever-changing • Means builder can do the job when he is ready routine • He gets paid = we get paid joine
Slide 22: Howdens is focused on serving one customer
Howdens is focused on serving one customer “To supply from • Motivated, incentivised staff local stock, nationwide, • Depots responsible for their own sales and margin the small builder’s ever-changing • Incentivised on share of local profit less stock loss routine • Strong motivation to open new ac
Slide 23: Howdens is focused on serving one customer
Howdens is focused on serving one customer “To supply from • Large sales force that includes builders local stock, nationwide, • 509 depots the small builder’s ever-changing • 1,000 kitchen planners routine • 600 depot-based telesales staff joinery/kitchen requirements, • 700 sales reps assuri
Slide 24: Howdens is focused on serving one customer
Howdens is focused on serving one customer “To supply from • Low cost model local stock, nationwide, • High volumes the small builder’s ever-changing • Predictable sales routine • No waste joinery/kitchen requirements, • Trade depots = 10,000 sq ft @ c.£5 per sq ft assuring • On trading estates, not
Slide 25: 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 2011 Preliminary Results 25
Slide 26: Finding solutions to complexity
Finding solutions to complexity The Howdens way The other way In stock locally Home delivery, 4 – 6 weeks 509 locations 400,000 delivery addresses 5½ days a week 7 days a week 6,000 SKUs Very many permutations of SKUs Low cost warehousing Retail rent and rates EDLP Seasonal discounts Credit terms: n
Slide 27: Finding solutions to complexity
Finding solutions to complexity The Howdens way Local service recovery No lead time Accurate forecasting Keeping simplicity Long runs Exporting complexity Less pressure on purchaser No confusion 2011 Preliminary Results 27
Slide 28: A resilient and proven model
A resilient and proven model • 1995 – 2006: rapid growth • 2006 – 2008: survived restructuring, legacy and recession • Since 2008: • Markets uncertain • Kitchens constantly sophisticating • Regulation increasing • Increase in average selling price of kitchens • Shift from public to private A model w
Slide 29: What have we invested in?
What have we invested in? one customer 2011 Preliminary Results 29
Slide 30: What have we invested in? Customer awareness
What have we invested in? 1. Customer awareness • 250,000 accounts • + c.150 per day • Catalogues • DVDs • Samples • Plans • Focused advertising • 200,000 cookbooks John Topham 2011 Preliminary Results 30
Slide 31: What have we invested in? People
What have we invested in? 1. 2. People • Jobs • Dedicated sales roles • Product development • 300 new jobs • Motivation • Responsibility • Incentives 2011 Preliminary Results 31
Slide 32: What have we invested in? Product
What have we invested in? 1. 3. Product • Innovation • Quality • Range • Availability Burford Grey 2011 Preliminary Results 32
Slide 33: What have we invested in? Product
What have we invested in? 1. 3. Product • New kitchen ranges • Successful new designs Integrated handle 2011 Preliminary Results 33
Slide 34: What have we invested in? Product
What have we invested in? 1. 3. Product • Own-brand Lamona appliances • Two year warranty • 130,000 Lamona ovens sold • Basic oven pack (oven + hob + extractor) sells for £170 Conventional white Lamona oven 2011 Preliminary Results 34
Slide 35: The kitchen as the heart of our homes
The kitchen as the heart of our homes debating reading cinema teaching tv room entertaining homework computer arrivals room phone departures storage calls surgery vet 2011 Preliminary Results 35
Slide 36: What have we invested in? Product
What have we invested in? 1. 3. Product • Improved cabinet interior • Concave curves • Tall wall units • Better flooring Professional V Groove 2011 Preliminary Results 36
Slide 37: What have we invested in? Product
What have we invested in? 1. 3. Product • Joinery doors co-ordinated with our kitchen ranges • Exclusive to Howdens Burford joinery door, half glazed 2011 Preliminary Results 37
Slide 38: The sophisticating kitchen
The sophisticating kitchen Sophistication is not the same as complication • Range • Design Simple elements, efficiently • Quality made, technically advanced • Functionality Combined by the builder in the • Availability home to produce a highly • Price desirable result 2011 Preliminary Results 38
Slide 39: The importance of manufacturing to Howdens
The importance of manufacturing to Howdens Control of the manufacturing process • Greater speed to market • Bespoke machinery and tooling + specialised knowledge • Producing exclusively for Howdens • No waste • Accuracy for precision fit • Supports our reputation with builders • Supports margin • Se
Slide 40: The importance of manufacturing to Howdens
The importance of manufacturing to Howdens 2011 Preliminary Results 40
Slide 41: What have we invested in? Process
What have we invested in? 1. 4. Process • Systems that work • Manufacturing control systems, including robots • Industry-leading CAD planning tools • Tailored communications technology • Robust, large-capacity sales systems • Efficient intranet 2011 Preliminary Results 41
Slide 42: What have we invested in? Space
What have we invested in? 1. 5. Space • 509 depots • 20 opened in 2011 • 55 opened in last 3 years • New depots • Low fit-out costs • Low rent • Low breakeven point Opened in 2011 2011 Preliminary Results 42
Slide 43: Vigilance
Vigilance • Constant, close monitoring of: • Sales • Margin • Stock • Cash • Performance Flexible and responsive 43 2011 Preliminary Results 43
Slide 44: Focus and investment have driven outperformance
Focus and investment have driven outperformance • Clarity of purpose - product - fit Professional - fitter - terms 44 2011 Preliminary Results 44
Slide 45: Legacy
Legacy • Excellent progress with property portfolio • Significant pension obligations remain • Require high margins and consistent cash generation 2011 Preliminary Results 45
Slide 46: A proven model with growth opportunities
A proven model with growth opportunities • Scope for around 700 depots • No significant cannibalisation from new depots • Improved depot performance via BDP • Better service • New product development • Product innovation • Manufacturing to support and grow margin 2011 Preliminary Results 46
Slide 47: France
France • 10 test depots in France performed well in 2011: • Improved sales • Launched new product • Acquired skills • Aim to replicate success more quickly • France unlikely to be as profitable as UK, but potential for market share gains 2011 Preliminary Results 47
Slide 48: Outlook for 2012
Outlook for 2012 Sensible approach to development in uncertain times Open depots in tranches Maximise potential of best-selling product Keep slower-selling ranges under review Improve stock efficiency Keep operating and capital costs under review Flexible and responsive 2011 Preliminary Results 48
Slide 49: Howden is a growing business
Howden is a growing business Sound product offer High margins service Low cost + Cash generative efficiency Well invested A growing business with a reputation … and prospects 2011 Preliminary Results 49
Slide 50: 2011 Preliminary Results
2011 Preliminary Results 1 March 2012