2010 Preliminary Results 3 March 2011 Matthew Ingle Chief - - PowerPoint PPT Presentation

2010 Preliminary Results

3 March 2011

Matthew Ingle

Chief Executive Officer

2010: Howdens moves forward

Sales up by 5% Gross profit margin up by 3.6 percentage points 27 new depots opened

20,000 net new accounts

12 new kitchen ranges

Increased range of appliances Improved product quality

Continued to invest in manufacturing and systems Created 350 new jobs

3

Mark Robson

Chief Financial Officer

Context of financial results

• Good performance in gross margin, operating profit

and operating cash flow

• Cash flow finances legacy issues
• Legacy property portfolio continues to diminish
• No exceptional items or discontinued operations

5

Highlights

HJ UK: +5.1% 53.1 56.2 59.8 50 52 54 56 58 60 62 2008 2009 2010

Gross profit margin, %

75.9 79.5 107.4 50 60 70 80 90 100 110 2008 2009 2010

Operating profit, £m

740 760 780 800 820 2008 2009 2010

Revenue, £m

HJ UK France Other 74.3 68.7 100.9 50 60 70 80 90 100 110 2008 2009 2010

Profit before tax, £m

12 46 37 25 21 25 19 8 18 20 40 60 80 100 2008 2009 2010

Uses of ‘cash’, £m

Property Pension def Cap ex 782.9 756.4 795.1 11.7 12.0 12.8 11.1 805.7 769.5 807.9 11.1

• 75
• 50
• 25

25 2009 2010

Net cash/(debt), £m

2008 (61.2) 2.4 35.0

6

% change

Howdens revenue

7

2010 revenue £795.1m

• total +5.1% • LFL +3.6%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 10 5

• 5
• 10

2008 2010 2009 Q1 Q2 Q3 Q4

Profit before tax

2009 2010

£m Interest, etc 4.3 Change £32.2m Gross profit 50.9

68.7

£m

432.1 Change £50.9m COGS savings 9.7 Volume & mix 13.3 483.0 2009 2010

Gross profit

Operating costs (23.0)

100.9

Depot Margin, etc 27.9

Group gross profit margin

• 2010: 59.8% ● 2009: 56.2%
• 8

Operating costs

New depots 5.7

2009 2010 Change £23.0m

Older depots 5.3

£m Operating costs

352.7 375.8

Other - growth 7.5

• Other

4.5

9

Income statement

£m 2010 2009

Continuing operations: Profit before tax 100.9 68.7 Tax (34.0) (18.5) Profit after tax before exceptional items 66.9 50.2 Exceptional items before tax

• (0.1)

Tax

• Profit from continuing operations

66.9 50.1 Discontinued operations: Exceptional items before tax

• (4.4)

Tax

• Loss from discontinued operations
• (4.4)

Profit for the year 66.9 45.7

10

Net cash/borrowings and cash flow

£m 2010 2009

Net cash inflow excluding legacy property and pension deficit costs: £95.5m

Opening net cash/(borrowings) 2.4 (61.2) Operating cash flows before movements in working capital 127.0 97.2 Working capital 3.4 46.8 Capital expenditure (18.2) (8.1) Asset disposals 0.3 1.2 Interest (net) (1.0) (2.9) Tax paid (16.0) (5.0) Legacy properties (37.5) (46.3) Pension deficit contribution (25.4) (20.9) Other

• 1.6

Closing net cash 35.0 2.4

11

Working capital

• Working capital down £3.4 m

– stock up £19.2m – debtors down £0.4m – creditors up £22.2 m

12

20 40 60 80 100

£31m £24.5m £18m £11m £6m £4.5m £0.5 m £12m

Oct-06 Dec-08 Dec-09 Number of properties

£11m

Reducing our legacy property liabilities

 12 legacy property deals in 2010: £19.4m exit cost - £75m liability extinguished  3 legacy property deals so far in 2011: £3.9m exit cost - £12m liability extinguished

1 Vacant and tenanted. 2 Gross rent & rates less payments by tenants. 3 Figures for Dec 2011 and beyond are before any further mitigating action that may be taken.

Dec-10 Dec-11 Dec-14 Dec-19 Dec-24 Mar-11 13

Pension scheme deficit

Dec 2009

196

£m Change £60m

Discount rate & other assumptions 26 Asset returns (2) Deficit funding (25)

Dec 2010

136

IAS19 basis

Finance charge 5 CPI (64)

• 14

Current trading and outlook for 2011

• Sales in first two periods1 of 2011 up 14.2% (LFL +11.6%)

– material impact of cold weather at start of 2010 – benefit from initiative to capitalise on busy post-Xmas non-trade kitchen market – estimate underlying growth of around 5%

• Plan to open 30 new depots
• Hope to be able to offset input price pressures
• Cash flow guidance:

– capital expenditure, pension deficit contribution and tax expected to increase

• Expect market to remain challenging
• Will manage business prudently and take necessary actions to do
• 1. To 19 February 2011

15

Matthew Ingle

Chief Executive Officer

Howdens’ mission

“To supply from local stock, nationwide, the small builder’s ever-changing routine joinery/kitchen requirements, assuring no call back quality and best local price”

17

The key features of Howdens

Cash-generative Market-beating Vertically functioning Low-cost Growth prospects A defining culture Focused entirely

• n the

small builder

18

The importance of cash generation

Over £30m net cash inflow after legacy payments

19

Successful depot openings

27 new depots opened in 2010 489 total depots Locally managed Locally staffed Locally incentivised

New depots opened in 2010 20

Active management of trade accounts

Focus on opening trade accounts 20,000 net new accounts 200,000 active credit accounts

Accounts closed after 15 months of inactivity Limited exposure to any one customer Cost of managing accounts, including bad debts = 1.5%

• f sales

21

Supplying what the small builder wants

Well designed Easy to sell Attractive Good quality Robust Relevant Available Credit terms Well-priced

22

The builder serves all parts of the market

New build Repair Maintenance Improvement Showrooms & sheds Manufacturers & merchants Howdens

Big builders 100,000 houses per annum Retail 16m homes

Small builder

Local project manager Entrepreneur Expert fitter

Simple but good and very well done Landlords 8m houses

23

New product introduced in 2010

12 new kitchens

Product families Standardised range content

Improved cabinetry Waste solutions Worktops Appliances Joinery & hardware Flooring Leading and influencing the market

24

An effective operation

Raw materials Low cost manufacturing Efficient distribution Consistent availability New manufacturing & warehouse management systems Improved stock accuracy Market-leading kitchen design software Sophisticated information systems Reliable, scalable systems

25

A vertically functioning business

• Continuing to benefit from ownership of manufacturing

– Source of competitive advantage

• Monitoring further opportunities to improve access to LCP

– Enhanced margin opportunities

• Ensuring low cost and availability

– Underpins value to builder

26

Howdens is not a retail business

High Street rents National advertising Delivery costs Fitters 7-day working Showrooms Stock write-off Stock loss

NO

27

The Howdens road to growth

More of the same

More trade accounts More depots Scope for at least 650 depots in all areas

Long maturity profile offers further opportunities

Sales per head Margin Accounts

28

Extending the “families” concept

Matching product

Joinery doors Architrave Skirting Hardware

29

Developing Lamona, our own brand

Encouraging results from new appliance packs

+ +

• r

30

The Lamona roadshows

Selling a competitive product with confidence Margin opportunity for the builder Chef John Topham with the basic Lamona oven

31

Extending our appliance ranges in 2011

Taps Sinks Waste Flooring Worktops Lighting

32

Principles of new product introduction

Is it wanted and needed in the home? How does it help the builder?

Is it easy for him to sell and fit? Does it help him make money?

How does it complement our existing product? Can we guarantee consistent:

Quality? Availability? Value?

Can we make and sell it in volume?

Price Availability Quality Choice Knowledge Innovation

33

Further opportunities to enhance value

Use cash to eliminate legacy Strengthen position of business as it emerges from restructuring Continuing to invest to secure growth Understand why focus on builder has proved so successful

Any other areas must possess similar margin and cash characteristics

34

Howdens’ culture is the key to continuing growth

Each individual is important Everyone must be clear about the

• bjective

Everyone is motivated to achieve it Everyone is allowed to work out the best way of doing so Networks of partnerships harnessed to drive growth

35

Summary

36

Design Quality Service Availability

Supply efficiencies Margin development

2010 Preliminary Results

3 March 2011