The information presented in this document relates to the 24 weeks to 14 June 2014 and the 24 weeks to 15 June 2013, unless otherwise stated.  Figures for 2013 have been restated to reflect the implementation of IAS19 (revised) this period.

HOWDEN JOINERY GROUP PLC

2014 HALF-YEARLY REPORT

HIGHLIGHTS

Chief Executive, Matthew Ingle, said:

"Howdens has performed well, with sales and profit increasing significantly, as the improved trading conditions seen since last summer continued. 

"Feedback from our depots is positive and we've seen a good start to the second half of the year."

Financial results (continuing operations)¹

·       Howden Joinery UK depot revenue increased by 11.6% to £428.2m (up 8.7% on a same depot basis).  Group revenue was £435.4m (2013: £390.8m);

·       Gross profit margin was 63.2% (2013: 61.5%);

·       Operating profit rose to £57.6m (2013: £44.2m);

·       Profit before tax increased to £57.2m (2013: £41.6m);

·       Basic earnings per share increased to 6.6p (2013: 4.8p);

·       Net cash of £161.1m at 14 June 2014 (28 December 2013: £140.5m net cash,

      15 June 2013: £102.0m net cash);

·       Interim dividend of 1.9p per share declared (2013: 1.0p).

Business developments

·       We continue to invest in future growth across the whole business:

-    in line with our plans, 17 new UK depots opened so far in 2014, bringing total to 576;

-    capital expenditure totalled £17.2m (2013: £8.8m), reflecting increased investment in depots.

Current trading and outlook

·       Howden Joinery UK depot revenue increased by 14.0% in the first four week period of the second half of the year;

·       The Board is pleased with the good first half performance and, while we still have our important "Period 11" to come and face risks to gross margin from exchange rates and cost inflation, the Group is well placed to achieve its expectations for the full year.

1.  2013 comparatives exclude exceptional items.

Enquiries

Note for editors:

Howden Joinery Group Plc is the parent company of Howden Joinery (Howdens) and employs over 6,600 people, primarily in the UK.  Howdens is engaged in the sale of kitchens and joinery products to trade customers, primarily small local builders, through over 575 UK depots, and is the UK's leading supplier of kitchens.  Around one-third of the products it sells are manufactured in the company's own factories in Runcorn, Cheshire, and Howden, East Yorkshire.  The business also has a small operation in northern France.

SUMMARY OF GROUP RESULTS

1.   There were no exceptional items from continuing operations in the first half of 2014.  In the first half of 2013, there was an exceptional operating cost before tax of £4.5m.

In the first half of 2014, there was an exceptional profit after tax on discontinued operations of £9.8m.  There were no discontinued operations in 2013.

2.   2013 figures have been restated to reflect IAS19 (revised), which has been implemented in the current period (see Note 2).

INTERIM MANAGEMENT REPORT

FINANCIAL REVIEW

The information presented below relates to the 24 weeks to 14 June 2014 and the 24 weeks to 15 June 2013, unless otherwise stated.  Figures for 2013 have been restated to reflect the implementation of IAS19 (revised) this period.

FINANCIAL RESULTS FOR FIRST HALF OF 2014 (CONTINUING OPERATIONS BEFORE EXCEPTIONAL ITEMS UNLESS STATED¹)

The financial results of the Group during the first half of 2014 benefited from the Group's competitive position, actions taken to improve performance, ongoing investment in our people, products and service, and the continuation of the improved market conditions seen since last summer.

Total Group revenue increased by £44.6m to £435.4m.

Howden Joinery UK depots' revenue rose by 11.6%, increasing 8.7% on a same depot basis.

As well as reflecting improved market conditions, this growth has been achieved through a number of factors and is testament to the strength of our business model.  It reflects the benefit of a price increase that was implemented early in the year, as was the case in 2013.  In addition, the number of customer accounts has continued to grow.

Sales by our French depots of £7.2m increased by more than 5% in constant currency terms.

Gross profit rose by £34.8m to £275.2m.  The gross profit margin of 63.2% (2013: 61.5%) reflects the benefit of the price increase implemented early in the year.  It also includes a currency gain of £2.7m, reflecting the strengthening of the pound against the € and the US$ seen so far this year.

Selling and distribution costs, administrative expenses and other income increased by £21.4m to £217.6m.  This reflects the costs of new depots, the impact of inflation, particularly on payroll costs, and additional costs incurred to support the growth of the business.

Operating profit increased by £13.4m to £57.6m.

The net interest charge decreased by £2.2m to £0.4m, reflecting a lower finance expense in respect of pensions.  The net result was that profit before tax rose by £15.6m to £57.2m.  The tax charge on profit before tax was £14.9m, an effective rate of tax of 26.0%.

In 2014, there was an exceptional profit after tax from discontinued operations of £9.8m.  This mainly comprised an income of £11.5m arising from the release of a tax creditor, following partial resolution of a dispute with HMRC regarding the tax treatment of certain expenses relating to our legacy properties.  In addition, it included a charge of £1.8m relating to an increase in the provision for our remaining legacy properties.

Basic earnings per share were 6.6p (2013: 4.8p).

At 14 June 2014, the pension deficit shown on the balance sheet was £72.4m (28 December 2013: £54.3m).  The increase in the deficit in the period was due to higher liabilities arising from a decrease in the discount rate, which more than offset the Group's contribution to fund the deficit and better than expected returns on the scheme's assets.

There was a net cash inflow from operating activities of £35.6m.  This was after a cash contribution to the Group's pension deficit of £12.6m.

Excluding legacy property payments (£1.2m), underlying working capital increased by £6.9m.  Within this, debtors at the end of the period were £17.1m higher than at the beginning of the period and stock levels increased by £11.4m, reflecting the seasonality of sales.  Offsetting this, creditors increased by £21.6m, and included the then still to be paid 2013 final dividend.

Also included within net cash flows from operating activities was tax paid totalling £13.9m.

Payments to acquire fixed and intangible assets totalled £17.2m (2013: £8.8m), reflecting the increased number of depots opened in the first half of 2014 and investment in existing depots.

Reflecting the above, there was a £20.6m net cash inflow in the first half of the year, the Group having net cash at the end of the period of £161.1m (28 December 2013: £140.5m net cash,

15 June 2013: £102.0m net cash).  Excluding payments in respect of the contribution to the pension deficit, there was a cash inflow of £33.2m.

DIVIDEND

In our 2013 Preliminary Results, we said that the Group intended to pay an interim dividend equal to one third of the previous year's full dividend (2013: 5.5p).

Reflecting this, the Board has approved the payment of an interim dividend of 1.9p per share (2013: 1.0p).  It will be paid on 21 November 2014 to shareholders on the register at close of business on 24October 2014.

Note 1   There were no exceptional items from continuing operations in the first half of 2014.  In the first half of 2013, there was an exceptional cost before tax from continuing operations of £4.5m.

OPERATIONAL REVIEW

The business model of Howden Joinery is "To supply from local stock nationwide the small builder's ever-changing, routine, integrated kitchen and joinery requirements, assuring no-call-back quality and best local price".

Since it started in autumn 1995, the business has opened new depots and increased turnover continuously, except for a 12-month period in 2008-9.

Even today, with over 575 depots across the UK, we continue to see the opportunity to transform the scale of the business, seeing scope for at least 700 depots.  We continue to invest in all aspects of the growth and performance of the business, including new depots and depot operations, new and existing employees, product development, and manufacturing and distribution.

Depot network

17 new depots have been opened in the UK so far this year, bringing the total to 576.  A number of other depots are at various stages of the acquisition/shopfitting process, the opening programme being in line with our expectations to open 30 depots this year.

In the summer of 2012, we began trials of a 'virtual showroom' that is designed to support our 1,000 depot-based kitchen designers.  When working with our builder-customers' clients in our depots, this allows kitchen designs to be shown on a large HD television screen or projected on to a wall in the depot in a large high definition format, as well as showing other material designed to support product sales.  Often, this will be accompanied by a refurbishment of the office in which the designers work.  This project to roll-out 'virtual showrooms' across all of our depots has been completed.

To support further our builder-customers and improve our service to their clients, we are undertaking a project to install A3 printers in all of our depots.  These provide our builder-customers with a technical drawing of each kitchen design that is much more usable on-site.  They also allow more impressive visualisations of the kitchen to be provided to the builder's client.  This project will be completed by the autumn.

Product and marketing

We continue to enhance our product offering, having introduced a number of new products in the first half of the year across all of our product categories.  Notable amongst these were: eleven new kitchens - six additional gloss colour options and two more matt options in our Greenwich family, a blue option in our premium Tewkesbury family, a new ivory tongue and grooved panel kitchen called Hartwell, and our first regionally stocked kitchen, Farringdon, a new premium gloss range.  We have also introduced a collection of premium kitchen handles, a range of more contemporary stainless steel sinks, some new large print laminate worktops and expanded the backboard range into new colours and designs.  With our joinery collection, we have launched a range of grey oak laminate flooring, a collection of more contemporary external door designs and focused our hardware handle development on a range of competitively priced rose handles.

We continue to invest in our marketing communications.  As well as updating our range of marketing literature and the Howdens website (www.howdens.com), we embarked on a partnership with pottery designer and manufacturer Emma Bridgewater.  Emma designed for us a pair of Howdens mugs that were given away with every kitchen plan during April and May, the partnership being featured in our adverts and on the Howdens website.   To further raise awareness of the Howdens brand, we are attending 13 county shows and agriculture fairs throughout the UK this summer.

Manufacturing and logistics operations

We will shortly be replacing the 90 'tractor units' for our fleet of lorries.  These will be Euro 6 compliant and will be fitted with the latest technology for environmental compliance.  In addition, they will have enhanced safety features, including:

·      crash avoidance  technology that assists the driver when it detects the risk of a collision;

·      forward facing cameras for incident recording, to  help with accident investigation and insurance claims.

IT infrastructure

We have completed a project to refresh a large part of our central IBM and HP hardware infrastructure in our two datacentres.

France

In France, we have seen an improvement in the financial performance of the depots, after amending the pricing strategy.  This has given us the confidence to extend the trial in two directions.  First, we plan to open two depots in Belgium that will be the same format as our existing French depots and will allow us to learn about a slightly different market.  Second, we plan to open an outlet with a new format and name further south in France. This will be larger than existing depots, and will be open to both trade and retail customers.

GROUP DEVELOPMENTS

Legacy properties

Since the 2013 Preliminary Results, the lease of one legacy property has expired.  This means that there are now seven legacy properties remaining, with net annual rent and rates of less than £2m.

Corporate website

The Group's corporate website (www.howdenjoinerygroupplc.com) has been re-launched.  The 'About us' section now includes a number of short films that give an overview of the business, show how our depots operate and how we interact with our builder-customers, and give an insight into our supply operations.

CURRENT TRADING AND OUTLOOK

The good sales performance seen in the first half of 2014 has continued in the first four weeks of the second half of the year.  In this period, total sales of Howden Joinery UK depots rose by 14.0% on the same period in 2013, albeit at a slightly moderated rate of growth than seen recently, reflecting the increasingly challenging comparatives faced in the second half.

The Board is pleased with the good first half performance and, while we still have our important "Period 11" to come and face risks to gross margin from exchange rates and cost inflation, the Group is well placed to achieve its expectations for the full year.

GOING CONCERN

The Group meets its day to day working capital requirements through cash generated from operations, and, if required, by utilising an asset-backed lending facility of £140m which expires in July 2016. 

The Group's forecasts and projections have been stress-tested for reasonably possible adverse variations in economic conditions and trading performance.  The results of this testing show that the Group should be able to operate within the level of its current facility and covenants.  After making due enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.

RELATED PARTIES

Related Party transactions are disclosed in Note 15 to the condensed set of financial statements.  There have been no material changes to the related party transactions described in the last Annual Report & Accounts.

RISKS AND UNCERTAINTIES

The Board continually assesses and monitors the key risks of the business.  The principal risks and uncertainties that could have a material impact on the Group's performance over the remaining 28 weeks of the financial year have not changed from those which are set out in detail on pages 22 to 23 of the Group's 2013 Annual Report & Accounts, and which are summarised below:

·      Market conditions - a severe downturn in market conditions could put pressure on the Group's ability to meet sales and profit forecasts, which in turn could put pressure on cash availability and banking covenants;

·      Failure to implement the Group's business model and culture - could have an adverse effect on the Group's future financial condition and profitability;

·      Failure to maximise exploiting the growth potential of the businesses - could adversely affect the Group's ability to obtain maximum benefit from its growth potential;

·      Continuity of supply - could adversely affect the Group's ability to implement the business model;

·      Loss of key personnel - could adversely affect the Group's operations.

A copy of the Group's 2013 Annual Report & Accounts is available on the Group's website, www.howdenjoinerygroupplc.com.

CAUTIONARY STATEMENT

Certain statements in this Half-Yearly Report are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.  Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.  We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

RESPONSIBILITY STATEMENT

We confirm that, to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 24 weeks and description of principal risks and uncertainties for the remaining 28 weeks of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

The directors are responsible for the maintenance and integrity of the corporate and financial information included in the company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

By order of the Board

23 July 2014