Howden Joinery Group Plc · LSE:HWDN
Howden Joinery — FY2013 Earnings Presentation
42 slides from Howden Joinery's earnings presentation, Feb 27, 2014
Slide 1: 2013 Preliminary Results
2013 Preliminary Results 27 February 2014
Slide 2: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 3: A proven strategy underpins our success
A proven strategy underpins our success The Howdens model works: • Highly profitable • Cash-generative Focus on what we do well: • Local service and value • Consistently delivered • By individuals 2013 Preliminary Results 3
Slide 4: Our mission is our model
Our mission is our model “To supply from local stock, nationwide, the small builder’s ever-changing, routine, integrated joinery/kitchen requirements, assuring no call back quality and best local price” 2013 Preliminary Results 4
Slide 5: Mark Robson, Chief Financial Officer
Mark Robson Chief Financial Officer
Slide 6: Highlights
Highlights Revenue, £m Operating profit Net cash, £m 975 HJ UK France 145 150 956.5 14.9% 950 15.8 140 35.0 £142.5m 140.5 925 135 125 940.7 900 887.1 130 875 14.6 125 100 850 872.5 13.5% 120 96.4 825 119.8m 115 75 800 110 Dec-12 Dec-13 2012 2013 2012 2013 HJ UK: +7.8% Gross profit Profit before tax,
Slide 7: Revenue
Revenue 2013 UK depot revenue £940.7m • total +7.8% • LFL +5.6% 2013 French depot revenue £15.8m • +0.7% LFL in €s 2013 Preliminary Results 7
Slide 8: Profit before tax (continuing operations)
Profit before tax (continuing operations) Group gross profit margin • 2013: 61.7% • 2012: 61.5% Profit before tax £m Gross £m Volume profit & mix Gross profit (revenue) 44.9 45 Change £26.3m Currency Cost Change Interest, £44.9m (5) savings, etc etc. 3.6 138.4 (net) 590.2 4 Other Operating Price Vol
Slide 9: Operating costs
Operating costs Operating costs Change £m £22.2m Other Growth 4 447.7 related 14 Older New depots depots 1 8 425.5 420.5 Wk 53 2012 (5) • 20121 20122 Notes: 1 Reported 2 Underlying 2013 2013 Preliminary Results 9
Slide 10: Income statement (continuing operations, pre exceptionals)
Income statement (continuing operations, pre exceptionals1 2) £m 2013 2012 Revenue 956.5 887.1 Cost of goods sold (366.3) (341.8) Gross profit 590.2 545.3 Operating costs (447.7) (425.5) Operating profit 142.5 119.8 Net interest (4.1) (7.7) Profit before tax 138.4 112.1 Tax (34.6) (24.1) Profit for
Slide 11: Earnings per share and dividend
Earnings per share and dividend £m 2013 2012 Earnings per share before exceptional items • from continuing operations 16.3p 14.0p Dividend • 2.5x to 3x eps cover • final (recommended) 4.5p 2.7p full year 5.5p 3.0p • 2013 final dividend costing £28m 2013 Preliminary Results 11
Slide 12: Net cash and cash flow
Net cash and cash flow £m 2013 2012 Opening net cash 96.4 57.1 Operating cash flows before movements in working capital 169.6 138.3 Working capital (11.8) 2.1 Capital expenditure (24.7) (24.2) Tax paid (21.0) (16.9) Dividends (23.3) (5.0) Legacy properties (10.4) (16.4) Pension deficit contribution
Slide 13: Working capital
Working capital Working capital up £11.8m • stock up £7.5m • debtors up £26.4m • creditors up £22.1m 2013 Preliminary Results 13
Slide 14: Reducing our legacy property liabilities
Reducing our legacy property liabilities Six leases terminated in 2013 • £7.5m cost One lease expired in 2013 + one expired in 2014 Eight properties remain • <£2m net annual rent and rates 2013 Preliminary Results 14
Slide 15: Pension scheme deficit
Pension scheme deficit £m Finance charge 154 4 IAS19 basis Net discount rate 47 Asset Change returns £100m 22 54 Deficit funding (35) • Dec Dec 2012 2013 2013 Preliminary Results 15
Slide 16: Current trading and outlook for 2014
Current trading and outlook for 2014 Sales in first period two periods up 7.3% Outlook for rest of year: • improvement in market conditions continues • expectations for the year unchanged Continue to invest in growth • up to 30 new depots Will take timely actions 2013 Preliminary Results 16
Slide 17: Matthew Ingle, Chief Executive Officer
Matthew Ingle Chief Executive Officer
Slide 18: Life happens in the kitchen
Life happens in the kitchen • Cooking… • Eating… • Washing up… • Rubbish… • Laundry… • Mending… • Decorating… • Teaching… • Reading… 2013 Preliminary Results 18
Slide 19: Life happens in the kitchen
Life happens in the kitchen • Computer… • Shopping… • Plans… • Tickets… • TV… • Music… • Discussion… • Decisions… 2013 Preliminary Results 19
Slide 20: Focused on the needs of small, local builders
Focused on the needs of small, local builders Very local depots • Saving time and money • Trade environment • Familiar faces • Everything in stock all the time • Rigid cabinets • Good design and quality at all price points Time is money 2013 Preliminary Results 20
Slide 21: Expert kitchen planning service
Expert kitchen planning service Differentiated by quality • Over 1,000 experienced designers • Industry-leading CAD planning software • Detailed visualisation of kitchen • Accessible to builder and end-user 2013 Preliminary Results 21
Slide 22: Reliable, local service
Reliable, local service Fitting advice Individual service Help with delivery Can swap items Discount = margin Credit = cashflow Serving customers in St. Helen’s depot 2013 Preliminary Results 22
Slide 23: Local autonomy is the key to depot success
Local autonomy is the key to depot success Managers run their own businesses • Highly incentivised • Profit-sharing for depot teams, plus targeted initiatives Focused incentives throughout Howdens Incentives aligned with overall business objectives The Blyth depot team 2013 Preliminary Results 23
Slide 24: The typical Howdens depot
The typical Howdens depot 10,000 sq ft • 80% warehousing, plus: – Displays – Trade counter – Planning office Newly fitted CAD offices • HD projectors • Large screens • A3 printers New CAD planning office in St. Helen’s depot 2013 Preliminary Results 24
Slide 25: The importance of customer accounts
The importance of customer accounts 290,000 credit accounts • 20,000 net new accounts opened in 2013 Actively managed • Accounts closed after 15 months of inactivity Tight credit control • Total cost of credit control (including bad debts) = 1% of sales At the counter in Kettering depot 2013 Prelimi
Slide 26: Our growing network of local depots
Our growing network of local depots 559 depots • 30 opened in 2013 • Up to 30 more planned for 2014 Low-cost model • Average rent c. £5.50 per sq.ft • One-off fit-out, c. £180k - £300k, now including: – Mezzanine level – Better racking – New CAD office • Depots break even at sales of c.£650,000 p.a.
Slide 27: Howdens King's Cross depot
Howdens King’s Cross depot • Opened late 2013 • Complex site • One-off fit-out cost £400k 2013 Preliminary Results 27
Slide 28: The value of best demonstrated practice (BDP)
The value of best demonstrated practice (BDP) Opportunities for growth within each depot’s P&L account • Sales • Profit • Sales per head • Sales per account • Appliance penetration • Cost recovery • Etc… Performance comparison across similar size catchment areas Staying focused on what works 2013 Pr
Slide 29: Tapping into latent, local demand
Tapping into latent, local demand More depots = more sales and profits from one area B • E.g. Watford (1995), plus North Watford (2011) • After two full years of trading: – Sales + 54% – Profit contribution + 45% Continuing to invest in local A service A: Howdens Watford B: Howdens North Watford 201
Slide 30: Test depots in France progressing well
Test depots in France progressing well 11 depots in the Paris region and the North East • Profitable at depot level • Monitoring effects of new price / discount structure Continuing to learn more about the French market 30
Slide 31: A constant flow of new product
A constant flow of new product Relevant = will sell • 17% of 2013 sales came from product launched since the start of 2012 Product roadshows • 1,000 designers • 559 depot managers • Direct feedback Howdens product roadshow, January 2014 2013 Preliminary Results 31
Slide 32: Increasing popularity of gloss finishes
Increasing popularity of gloss finishes 40% of sales by value • New, lower-cost gloss technologies • Success of our competitively priced Greenwich Gloss – Sustaining margin growth – Trend to solid colours (75% of all kitchen sales) – Rollout of more gloss colours in H1 2014 Greenwich Gloss Cream 201
Slide 33: Joinery doors at all price points
Joinery doors at all price points Genoa door rolled out to all depots in April 2013 • Immediately popular • Complements our best-selling Dordogne model • Ensures the builder can continue to serve all parts of the market Dordogne Genoa Slab door, 35 kg Stile and rail door, 25 kg 10mm deep grooves 4mm
Slide 34: Building on Lamona's strong position
Building on Lamona’s strong position Full range of appliances • 2-year warranty as standard No.1 UK sellers: • Single oven Stainless steel extractor (70,000 sold in 2013) • Dishwasher • Fridge-freezer • Built-under fridge Stainless steel oven Stainless steel hob 2013 Preliminary Results 34
Slide 35: Increasing brand awareness
Increasing brand awareness Lamona / Howdens cookbooks • 637,000 copies of 7 books distributed since May 2011 • Popular with builders and end-users • New series for 2014 Our own cookbooks Brand associations • E.g. Emma Bridgewater Emma Bridgewater for Howdens 2013 Preliminary Results 35
Slide 36: An efficient, low-cost supply operation
An efficient, low-cost supply operation Sourcing raw materials and bought-in product Product design and development Manufacturing A growing Logistics Make andinbuy business a in large volumes complex and = Warehousing lowest cost sophisticating supply and market Distribution to 559 depots service Th
Slide 37: The benefits of our £20m manufacturing investment
The benefits of our £20m manufacturing investment New lines fully commissioned Control of our own manufacturing at significant scale • Capacity • Low cost • Availability • Quality • Margin • Service Runcorn 2013 Preliminary Results 37
Slide 38: Continuing investment to support growth
Continuing investment to support growth Long term supplier agreements Robust, scalable, flexible systems Product Property Continuing to invest in: Processes People Managing complexity at scale in a sophisticating market 2013 Preliminary Results 38
Slide 39: Managing stock as Howdens grows
Managing stock as Howdens grows Invest in the right stock to support Howdens service proposition Making arrangements for new national distribution capacity beyond 2019 • Expect to remain in Northampton area – reflecting weighting to South rather than North • Major infrastructure project – careful pl
Slide 40: Further investment in people
Further investment in people Local service is a powerful source of competitive advantage Continuing to invest in: • Recruitment • Talent development “As good as done!” • Understanding • Incentivisation “As good as it ever was…” – an innovative concept Worthwhile for all concerned 2013 Preliminary Re
Slide 41: Howdens is growing because its strategy works
Howdens is growing because its strategy works Clear strategy Proven model Prepared for further Value of local service growth Profitable and cash-generative Doing what we do well, and doing it even better 2013 Preliminary Results 41
Slide 42: 2013 Preliminary Results
2013 Preliminary Results 27 February 2014