TIDMHWDN
RNS Number : 7706Q
Howden Joinery Group PLC
23 February 2023
Strong growth, further market share gains,
and sector leading margins
Results summary
2022(1) Change Change
GBP millions (unless stated) (unaudited) 2021(1) vs 2021 vs 2019(3)
--------------------------------------- --------------- ---------- ----------- --------------
Group revenue 2,319.0 2,093.7 +10.8% +46.4%
UK depot revenue 2,256.1 2,043.3 +10.4% +45.5%
Gross profit 1,411.2 1,289.0 +9.5% +43.1%
Gross profit margin, % 60.9% 61.6% -70bps -140bps
Operating profit 415.2 401.7 +3.4% +59.7%
Operating profit margin, % 17.9% 19.2% -130bps +150bps
Profit before tax 405.8 390.3 +4.0% +55.7%
Basic earnings per share, p 65.8p 53.2p +23.7% +88.0%
Total ordinary dividend per share, p 20.6p 19.5p +5.6%
Cash at end of period 308.0 515.3
(1) The information presented relates to the 52 weeks to 24
December 2022, the 52 weeks to 25 December 2021 and the 52 weeks to
28 December 2019, unless otherwise stated. The 2022 and 2021
results are presented under IFRS 16, 2019 results have not been
restated.
(2) Same depot basis for any year excludes depots opened in that
year and the prior year. See Financial Review on page 4.
(3) 2019 results included due to the significant impact of
COVID-19 on the 2020 results.
Highlights(1)
- Group revenue of GBP2,319.0m was 10.8% ahead of last year and
46.4% up on 2019 reflecting the strengths of our local, trade only,
in-stock business model.
- UK depot revenue was 10.4% ahead of last year and 7.7% ahead on a same depot basis(2) .
- Maintained our sector leading gross margins at 60.9%, with
disciplined pricing recovering cost increases.
- Profit before tax of GBP405.8m, was 4.0% ahead of 2021 and 55.7% ahead of 2019.
- Good cash generation and the balance sheet remains strong with
cash at end of period of GBP308.0m.
- Proposed final dividend of 15.9p, bringing the total for the
year to 20.6p, 5.6% ahead of last year.
- GBP50m share buyback announced today.
- Earnings per share of 65.8p was 23.7% ahead of 2021 benefiting
from the previously announced patent box claim, which has been
included with the 2022 results.
- Further progress on ESG. Howdens is introducing scienced-based
targets in 2023 to reduce our emissions and to achieve net-zero
carbon by 2050.
Andrew Livingston, Chief Executive said:
"Howdens delivered a strong performance in 2022, with good
progress on executing our strategic priorities and further market
share gains. During the year our teams have been adept at
navigating the challenges of high inflation and supply chain
disruption, while supporting our customers with a market leading
product range, high stock availability and outstanding customer
service.
"Our markets are large and fragmented which gives us a long-term
opportunity for growth. In response, we are continuing to expand
our depot network, improve our product range, optimise our
manufacturing and supply chain, and develop our digital
capabilities. We see potential for around 1,000 depots in the UK
and we are now selectively expanding our business model
internationally in France and the Republic of Ireland.
"Our robust financial position underpins our strategy, funding
investment in our growth initiatives, expanding our manufacturing
and supply chain capabilities, and supporting ongoing cash returns
for shareholders."
Operational developments in the year
- Achieved another record sales performance in our peak trading period in the autumn.
- Opened 30 new depots in the UK, bringing the total to 808 at
period end. Revamped 82 older UK depots during the year with around
50% of UK depots now trading in the updated format.
- Opened 25 new depots in France (and closed 5) bringing the
total to 60 at the period end. Established 5 new depots in the
Republic of Ireland.
- Further progress on new product introductions including 21 new
kitchen ranges. Sales of new products introduced in 2021 and 2022
represented 22% of UK product sales in 2022.
- Invested in upgrading our manufacturing capacity and
capabilities to support future growth. This included solid work
surfaces, architrave and skirting products.
- Largely completed the roll-out of the regional cross-docking
network (XDC) serving most of our UK mainland depots, improving
product availability.
- Invested in our digital platform which saves our trade
customers time and money and supports them in optimising the
procurement process for end users.
- Achieved 99.7% of depot waste avoiding landfill at our UK
depots and switched substantially all them to renewable energy
sources. Our top 27 suppliers comprise around 80% of all of our
carbon emissions and we are engaging directly with them to reduce
our Scope 3 emissions.
Current trading and outlook for 2023
The following table shows sales in the first two periods of the
new financial year to 18 February 2023 in absolute terms, on a same
depot (LFL) basis(1) .
Revenue growth (%) Periods 1-2
-------------------------- ---------------
% LFL%
UK depots 6.1% 4.7%
International depots(1) 19.4% 7.8%
-------------------------- ------- ------
(1) 5 depots were opened in the Republic of Ireland and 5 French
depots were closed in 2022.
We are on track with our plans for 2023 to capitalise on the
significant ongoing opportunity to gain further market share.
During 2023 we will face strong prior year comparatives and,
particularly in the first half, the full year impact of
inflationary cost increases and our ongoing investments in our
strategic initiatives. This includes 61 new UK depots opened in the
past two years, expanding our manufacturing and supply chain
capabilities including XDC, ongoing digital development to support
our customers and new depot openings in France and the Republic of
Ireland. In 2023, capital expenditure will be around GBP130m, at
similar levels to last year.
While it is still early in the new financial year, sales in the
first few weeks have been encouraging in the UK. We continue to
seek to maintain a profitable balance between pricing and volume
and have implemented a price increase from the start of the year to
recover rising input costs. We have a strong product line up and
will place considerable emphasis on new product introductions with
around 23 new kitchen ranges planned. We are increasing the number
of ranges we offer at entry-level and mid-priced kitchen ranges and
have refreshed our line-up of higher priced kitchens, a segment of
the market where we are under-represented.
While mindful of ongoing macro economic uncertainty, we are
investing in the business for the long term and the fundamentals of
our business model remain robust and attractive. Howdens is in good
shape and we are well prepared to address the opportunities and
challenges ahead in 2023.(3)
(3) As previously indicated FY 2023 has an additional 53(rd)
week in December representing around GBP17m of additional operating
costs with no
incremental sales.
For further information please contact
Howden Joinery Group Plc Media Enquiries
Paul Hayes, CFO Nina Coad, David Litterick (Brunswick)
Tel: +44 (0) 207 535 1110 Tel: +44 (0) 207 404 5959
Mark Fearon, Director of IR and Communications
Mobile: +44 (0)7711 875070
Results presentation:
There will be an in person analyst and investor presentation at 0830 today at Freshfields,
100 Bishopsgate London EC2P 2SR, with light refreshments served from 0800. A live video webcast
will be available on https://brrmedia.news/Howden_fy22results . For more information see:
www.howdenjoinerygroupplc.com . The presentation can also be heard by dialling the phone numbers
below:
Location Phone Number
United Kingdom, Local +44 (0) 33 0551 0200
United States, Local +1 786 697 3501
Confirmation code: Quote 'Howdens Full Year Results'
The webcast will be recorded and available on our website after the event has finished at:
www.howdenjoinerygroupplc.com
Note to editors:
1. About Howden Joinery Group Plc
Howdens is the UK's number one specialist kitchen and joinery
supplier. In the UK, the company sells kitchens and joinery
products to trade customers, primarily local builders, through 808
depots. In 2022, the business generated revenues of around GBP2.3
billion and profit before tax of GBP405.8 million. Around one-third
of Howdens' cost of goods sold are products manufactured in house
at its two principal factories in Runcorn, Cheshire, and Howden,
East Yorkshire both of which have achieved carbon neutral status.
At the end of 2022 Howdens operated from 60 depots in France and
Belgium and 5 depots in the Republic of Ireland.
2. Timetable for the final dividend
The timetable for payment of the proposed final dividend of 15.9
pence per ordinary share is as follows:
Ex-dividend date: 6 April 2023
Record date: 11 April 2023
Payment date: 19 May 2023
3. Provisional financial calendar for 2023
Trading update 27 April
Annual General Meeting 4 May
Half Year Report 20 July
Trading update 2 November
End of financial 30 December
year
Financial review
Financial results for 2022(1)
# of depots
at period
Revenue GBPm (unless stated) 2022 end 2021
( unaudited)
---------------------------------------- ----------------- --------------- ---------
Howden Joinery UK depots - same
depot basis(2) 2,193.3 747 2,035.8
UK depots opened in previous two
years 62.8(3) 61 7.5
----------------- --------------- ---------
Howden Joinery UK depots 2,256.1 808 2,043.3
Howden Joinery International depots 62.9 65 50.4
---------------------------------------- ----------------- --------------- ---------
Group 2,319.0 873 2,093.7
---------------------------------------- ----------------- --------------- ---------
2021
# of depots
Local currency revenue EURm (unless at period
stated) 2022 end
(unaudited)
---------------------------------------- ----------------- --------------- ---------
France and Belgium - same depot
basis(2) 59.5 30 51.8
- Depots opened in previous two
years 12.3 35 0.4
- Revenue from closed depots 0.7 (5) 6.2
Republic of Ireland (from April
2022) 1.3 5 -
International depots 73.8 65 58.4
======================================== ================= =============== =========
(1) The information presented relates to the 52 weeks to 24
December 2022 and the 52 weeks to 25 December 2021 unless otherwise
stated.
(2) Same depot basis for any year excludes depots opened in that
year and the prior year.
(3) 2022 includes additional 3(rd) party sales generated by the
Sheridans solid work surface business acquired in the period.
Group revenue of GBP2,319.0m was ahead by 10.8% (2021:
GBP2,093.7m) and 46.4% higher than the same period in 2019, with
the growth rate in the second half increasing versus 2019 at a
higher rate than the first half. UK depot revenue grew 10.4% to
GBP2,256.1m (2021: GBP2,043.3m) and increased by 7.7% on a same
depot basis(2) to GBP2,193.3m (2021: GBP2,035.8m); this excludes
the additional revenue from depots opened in 2022 and 2021 of
GBP62.8m (2021: GBP7.5m). Revenue in the international depots was
GBP62.9m (2021: GBP50.4m). On a local currency basis, revenue at
our depots in France and Belgium increased by 14.8% on a same depot
basis(2) (excluding the 35 depots opened in the last two years). In
April, we entered the Republic of Ireland market for the first
time. In all, we opened 5 new depots in the Dublin area by the end
of 2022 with good engagement from local builders.
Gross profit
We continued to maintain sector leading margins by appropriately
balancing pricing and volumes in a higher inflationary environment.
Gross profit was GBP122.2m higher at GBP1,411.2m (2021:
GBP1,289.0m). The lower gross margin percentage of 60.9% (2021:
61.6%) was predominantly due to the dilutive impact of the
successful growth of solid work surfaces, following the acquisition
of Sheridan last year. These products, which are often associated
with sales of higher priced kitchens, make an attractive cash
margin contribution but have a lower gross margin percentage than
most Howdens kitchen products.
Operating profit and profit before tax
Operating profit was ahead of last year at GBP415.2m (2021:
GBP401.7m) and 59.7% ahead of pre-COVID levels in 2019 of
GBP260.0m.
Operating expenses increased by 12.3% to GBP996.0m (2021:
GBP887.3m; 2019: GBP726.2m). As expected, costs increased due to
continued investment in our growth initiatives across the business
and input cost and energy price inflation. Compared to 2021 this
included GBP42m on existing depots, GBP17m on new UK depots opened
in 2021 and 2022 and GBP8m on international depots opened in the
period and prior year. We also invested GBP31m in warehouse and
transportation initiatives including in regional cross docking
facilities (XDCs).
The net interest charge was GBP9.4m (2021: GBP11.4m) and, as a
result, profit before tax of GBP405.8m was 4.0% ahead of the prior
year (2021: GBP390.3m) and 55.7% ahead of 2019 (2019:
GBP260.7m).
Tax, profit after tax and basic earnings per share
In recent years the UK Government has introduced the Patent Box
Tax Relief Scheme which allows companies to benefit from
investments made in intellectual property including new product
innovations. In 2017, Howdens applied for and was granted a patent
for the design of a new multi-part, adjustable cabinet leg that is
used in many of our cabinet ranges which makes them faster and
easier to adjust and fit. Discussions were opened with HMRC late in
2020, and in 2022 after seeking non-statutory clearance on some
technical matters, HMRC agreed in principle to Howdens submitting a
claim for the product.
The Group has prepared the financial statements for the year
ended 24 December 2022 to include the impact of the claim. A prior
year current tax credit of GBP36.1m has also been recognised for
the prior financial periods 2017 to 2021. The success of the claim
is subject to review and confirmation by HMRC. If successful, the
Company expects, assuming prevailing marginal tax rates, a benefit
to the underlying effective tax rate of around 3% in subsequent
years. The cash benefit will be realised following approval by
HMRC.
As a result, the tax charge on profit before tax was GBP31.6m
(2021: GBP75.8m) and represented an effective tax rate of 7.8%
(2021: 19.4%). Excluding the patent box claim the underlying
effective tax rate was 16.7% (2021: 19.4%).
Consequently, profit after tax was GBP374.2m (2021: GBP314.5m)
and, reflecting the above and the reduced share count, following
the share buyback, basic earnings per share were ahead by 23.7% at
65.8p (2021: 53.2p).
Cash
The net cash inflow from operating activities was GBP546.5m
(2021: GBP530.7m). Net working capital increased by GBP51.7m with
stock GBP70m higher as a result of cost increases and additional
safety stock to support our customers. Debtors at the end of the
period were GBP24m higher than at the end of the previous period
with ageing in good shape. Creditors were GBP42m higher. Capital
expenditure was GBP130.4m excluding the Sheridans land acquired
(2021: GBP85.9m) and the total cash outflow for the Sheridans
acquisition was GBP25m which included GBP10m to acquire the site.
Corporation tax payments were GBP101.5m (2021: GBP73.1m), and
dividends amounted to GBP115.0m (2021: GBP133.6m). Share buy backs
totalled GBP250.5m (2021: GBP50.0m) and the difference between the
cash paid and the operating charge for the Group's pension schemes
was an inflow of GBP2.0m (2021: outflow of GBP18.5m). The interest
and principal paid on lease liabilities totalled GBP79.2m (2021:
GBP85.8m).
Reflecting the above, there was a net cash outflow of GBP207.3m
(2021: cash inflow of GBP84.6m), leaving the Group with cash at the
year end of GBP308.0m (25 December 2021: GBP515.3m).
In September, the Company signed a new GBP150 million,
five-year, multi-currency revolving credit facility replacing the
previous asset backed lending facility. The new facility remains
undrawn.
Capital allocation and returns to shareholders
We have a well-established policy for capital allocation. We
focus on achieving sustainable profit growth by investing in and
developing our business. We also want to maintain and grow our
ordinary dividend in line with earnings to reward shareholders with
an attractive ongoing income stream. After allowing for these uses
of cash, Howdens remains committed to returning any surplus capital
to shareholders.
Within its definition of surplus capital, the Board's objective
is for the Group to be able to operate through the annual working
capital cycle without incurring bank debt, noting that there is
seasonality in working capital balances through the year,
particularly in advance of our peak trading period in the second
half. We also take into account that the Group has a significant
property lease exposure for the depot network, and a large defined
benefit pension scheme. Our policy remains that when year end cash
is in excess of GBP250m we expect to return surplus cash to
shareholders. This provides sufficient headroom to support organic
growth, our seasonal working capital requirements and ongoing
investments in our strategic initiatives, while maintaining a
strong balance sheet.
On this basis, the Board has decided that the Group will
undertake a further GBP50m share buyback programme. A GBP250m share
buyback programme was announced and completed last year.
Taking into account the Group's prospects and strong financial
position, in July 2022 the Board declared an interim dividend of
4.7p per ordinary share (2021: 4.3p per ordinary share). The Board
is recommending a final dividend for 2022 of 15.9p per ordinary
share (2021: 15.2p per ordinary share), resulting in a total
dividend of 20.6p per ordinary share (2021: 19.5p per ordinary
share). The total dividend represents a year-over-year increase of
5.6% and the final dividend will be paid on 19 May 2023 to
shareholders on the register on 11 April 2023.
Acquisitions
In February 2022, Howdens acquired Sheridan Fabrications Ltd,
for a total consideration of GBP25m including GBP10m for the
purchase of the site. Sheridans is a leading industry specialist
for the manufacture, fabrication, laser templating and installation
of premium worksurfaces. The acquisition supports our ambition to
develop our Howdens Work Surfaces (HWS) operations as the market
leading supply and fit business. We are continuing to invest in
expanding our capacity and we have now rolled out HWS to all
regions and solid surface worktop orders have significantly
increased on the prior period.
Pensions
At 24 December 2022, the defined benefit pension scheme was in a
deficit position of GBP42m on an IAS 19 basis compared to a surplus
of GBP141m on 25 December 2021. This movement from a surplus to a
deficit was primarily a result of an increase in the net discount
rate resulting in a decrease in asset valuations of GBP754m
partially offset by a reduction in the liabilities of GBP571m. The
extreme market volatility in September 2022 led to changes in the
Plan's investments to meet collateral requirements. The defined
benefit pension scheme is closed for future accrual.
The pension has returned to a small deficit on a technical
provisions basis from November 2022 and, as a result, deficit
contributions of GBP2.5m a month re-commenced in January 2023. It
is possible that the scheme could return to a surplus position on a
technical provisions basis. If this were the case, for more than
two consecutive months then deficit contributions would cease. The
next full triennial valuation of the scheme will be carried out as
at 31 March 2023.
Board changes
Peter Ventress joined the Board on 1 July 2022 as Chairman
Designate and a Non-Executive Director prior to assuming the role
of Chairman from 17 September 2022. The Company announced earlier
in the year that Richard Pennycook had indicated his intention to
retire. Peter is Chairman of Bunzl plc and was formerly Chairman of
Galliford Try Plc and was previously CEO of Berendsen plc from 2010
to 2016 and prior to that he held several senior executive roles at
Staples Inc. the office supplies retailer.
We are announcing today that Geoff Drabble will step down from
the Howdens Board at the end of the Annual General Meeting on 4 May
2023. On behalf of the Board, we thank Geoff for his nearly eight
years of service, in particular as Senior Independent Director and
as the Non-Executive Director Responsible for Workforce Engagement.
He has made a significant contribution to Howdens during a very
successful period of growth in the Company's history and we wish
him well in the future. The Nominations Committee has a
comprehensive succession planning process and a further
announcement on the handover of Geoff's responsibilities will be
made in due course.
Operational Review
Update on the UK kitchen and joinery markets
Howdens conducts its own research analysis into the size and
structure of the UK kitchen and joinery markets. The work
undertaken is based on existing 3rd party sources supplemented by
management estimates. The findings show that the UK kitchen and
joinery markets are large and fragmented with a significant
opportunity for Howdens to continue to grow its market share.
Management believes that based on its recent internal research the
value of the kitchen market was around GBP7bn as at the end of
2022.
The UK joinery market is also large and very fragmented at
around GBP4.5bn across the four segments that Howdens supplies;
joinery, doors, flooring and hardware.
Consequently, we believe Howdens' total addressable market in
the UK is around GBP11.5bn compared with Howdens' UK revenue of
around GBP2.3bn last year. We are investing commensurately in our
strategic initiatives as outlined below.
Strategic initiatives
Howdens has made further progress on its strategic initiatives,
and we expect to deliver profitable growth and market share gains
over the medium term. The four strategic initiatives are:
1. Evolving our depot model by using space more efficiently to
provide the best environment in which to do business.
2. Improving our range and supply management to help customers'
buying decisions, to improve service and to enhance productivity in
our manufacturing, sourcing and supply chain activities.
3. Developing our digital platforms to raise brand awareness,
support the business model and to deliver productivity gains and
leads for depots and customers.
4. Expanding our presence in attractive kitchen and joinery markets outside the UK.
Progress on each of these initiatives is reviewed below:
1. Evolving our depot model
High service levels, including local depot proximity and
immediate availability are very important to our customers and we
have continued to extend our UK depot footprint in 2022. We are
opening all new depots in our updated format which is designed to
provide the best environment in which to do business. We are also
improving space utilisation and making productivity gains in a
cost-effective way, by using vertical racking in the warehouse
section of the depot.
In 2022 we opened 30 new depots in the UK and we believe there
is potential for around 1,000 depots, including c.25 in Northern
Ireland. We plan to open around 30 new depots in 2023. We have also
continued with our revamp programme for existing depots, and the
programme is delivering additional sales and has received very
positive feedback from depots and customers.
During the year, including relocations, we reformatted 82
depots, taking the total number of revamped depots to 185 at the
year-end. The scale and scope of the revamps has been refined and,
in 2023 we will shorten the reformatting timetable in some cases,
reducing disruption to the refit and lowering, where appropriate,
costs by modifying the scope and scale of some revamps to maintain
incremental returns. Overall, we will continue to target a payback
of up to 4 years for these projects. Including relocations, we plan
to revamp around 80 more depots in 2023.
2. Improving our product range and supply management
Range management
As product lifecycles shorten, managing the number of kitchen
ranges efficiently is crucial for both our customers, who want best
availability, and for profitability. We are managing range
introductions and clearances so that our 2023 current range count
is around 90, organised in 10 families. New products for 2022
featured 21 new kitchen ranges with total sales ahead of 2021 and
2019 with more emphasis on higher priced kitchens and on ensuring
more of our most popular styles were accessible to all budgets.
Total sales of all product introduced in 2021 and 2022
represented around 22% of our UK product sales. During 2022, we
focused on building out our ranges of higher priced kitchens, where
we are under-represented. Sales in this category grew strongly in
the period and contributed to the percentage increase in average
kitchen invoice value. We also grew our market share significantly
in the solid work surface category. These products are often
associated with sales of higher priced kitchens, and the
acquisition of the Sheridans business along with additional
investments has expanded our range and manufacturing capacity to
support this significant opportunity.
Value for money consistently drives consumer buying decisions
and is likely to be more of a feature in 2023 given mounting
pressures on household budgets. We also expect some consumers to
reallocate how they spend their budget for example, between
cabinetry, worktops and appliances. As a result, in 2023 we will
increase the number of ranges aimed at entry and the mid-market
segments, making more kitchen looks and styles accessible to all
budgets. This is also important as kitchens from these segments are
a major contributor to keeping our unit costs of manufacture low.
New product introductions of around 23 new kitchen ranges are
planned this year and include:
-- Extending our entry ranges with more colour options including
Greenwich in Reed Green, Witney in Pebble and Navyand Allendale in
Dusk Blue plus new frontals for Greenwich and Witney to match the
new 'Croft Grey' kitchen cabinet we are introducing this year.
-- Refreshing the look of our bestselling shaker family, which
we have named Halesworth and adding a new mid-priced beaded shaker
family called Bridgemere, initially available in three colours.
-- Maintaining a similar range count to last year in higher
price kitchens, with the same number of families but introducing
additional new colours for 2023. We are also adding more decors to
our solid surface offering and refining the template to fit service
to ensure the best service to our customers.
-- Introducing more new products in other categories both for
everyday lines and kitchen products. This includes more colours and
bolder styles at all price points in doors, expanding our flooring
ranges and further additions to our Lamona brand, which is the
leading integrated appliance brand in the UK. We are also adding
more styles, colours and finishes in sinks and taps.
Manufacturing and supply chain
Our dedicated manufacturing and supply chain is critical to the
success of our in-stock offer. We supply all product, whether
manufactured or sourced, to all depots. Since the COVID-19 pandemic
we have continued to hold enhanced safety stock as a contingency
against unexpected demand patterns and interruptions to supply to
support our customers.
We also keep under review what we believe it is best to make or
buy, balancing cost and overall supply chain availability,
resilience and flexibility. In 2022 we made about one-third of our
products as a percentage of our cost of goods sold and we believe
there is value in extending this further in the coming years.
In 2019, we invested in manufacturing technology to enable us to
make the doors for our popular Hockley kitchen ranges. Since then,
we have invested in new lines which will enable us to make doors
for more of our kitchen ranges, at the same quality as we can
source externally but at a lower cost and at a reduced lead time.
The new lines, located at our Howden site, are now in-situ and we
will be moving up to full scale production during the course of
2023. Our second architrave and skirting line is also now
operational, enabling us to service in-house more of the
substantial increase in demand we have seen for these products.
Last year we announced our plans to expand, over the next few
years, our kitchen manufacturing capacity and capabilities and to
reconfigure some of the supporting infrastructure at our Howden
factory and we are continuing to progress the investments required
to achieve this.
Regional cross docking centre ('XDCs')
The roll out of our XDC programme was completed early in the new
financial year and the service is now available to nearly all UK
mainland depots. This approach improves stock replenishment through
regional hubs that supplement the depots' core weekly replenishment
with a next day service. XDCs also optimise the service levels our
depots can deliver to customers by rebalancing inventory and
freeing up more time and resources to focus on sales and service
while reducing the need for inter-depot stock transfers. This year
we will continue to optimise the service balancing cost and
availability with providing the best service to support our trade
customers' daily needs. By rebalancing where we hold stock and
changing the delivery pattern of some lines to depots, depots can
allocate more warehouse space to faster selling lines and can
reduce stocks of slower moving lines while providing a high level
of service across the product range. XDC is now seen as a key point
of differentiation by both customers and our depot teams versus the
best competitor offerings.
3. Developing our digital platform
Our digital strategy reinforces our model of strong local
relationships between depots and their customers by raising brand
awareness, supporting the business model with new services and ways
to trade with us and delivering productivity benefits for depot
employees and customers.
In 2022 we added to our capabilities for the builder, including
new functions which improves our digital offerings. The Trade App,
which puts more aspects of the local depot in the hands of our
customers, was launched in February last year. This replicated core
features of the online trade platform including customers' account
details and credit status making them readily accessible on the
move. Customers can also view their open orders and new features
include rapid check in at any depot, order status updates and an
easy order collection function.
We continue to see high levels of engagement with our web
platforms and growth in our social media presence which also
stimulates interest in viewing our products and services on
Howdens.com. New registrations totalled nearly 80,000 and around
45% of our customers had an online account by the end of 2022.
"Impressions" were present in 15% more organic search results a
month with site visits at 21 million. The time users spent looking
at pages increased by 51% and the number of pages viewed per
session also increased. Across our social media sites our follower
base was c.455,000, up 14%, with 1.6 million users actively
engaging monthly.
In 2023 we will be adding new services and capabilities which
collectively improve lead quality, stock and account knowledge,
promote frequency of trading and reduce time consuming manual tasks
in depots including stock allocation.
4. Expanding our international operations
Our international operations, predominantly based in France,
continue to make good progress. The business model for France is
similar to the UK with a market size in kitchens of around EUR4.3bn
(excluding appliances). The French market has low penetration rates
of integrated kitchens and most are purchased through DIY outlets
and specialist small independent businesses.
Since 2019, we have been opening depots in small clusters within
cities which benefit from word of mouth between customers and our
ability to build a local and trusted brand. Clustering also helps
to build the Howdens culture within our business teams. By the end
of 2022 we increased the number of depots trading in France and
Belgium to 60 with a significant proportion in the Paris metro
area. We are continuing to selectively invest in expanding the
business and expect to open around 30 depots in the next two years
with around 10 new depots in 2023.
We believe appreciation of the advantages of our trade-only
in-stock model, our service levels and competitive pricing is
growing, and with around 90% of product common to our UK ranges
this helps us realise scale benefits.
During 2022 we opened our first 5 depots clustered around Dublin
in the Republic of Ireland. Our arrival in the Irish market has
attracted much attention locally and we are encouraged by depot
sales to date. In 2023, we plan to have at least 10 depots trading
by the end of the year. This city-based approach fits with Irish
population distribution and the depots can be supported by the
UK.
Environment, social and governance (ESG)
We actively manage risks and identify opportunities across the
business to minimise our impact on the environment. We want to
create an inclusive workplace with a positive contribution to the
communities we serve as well as all our stakeholders, including our
customers, staff, communities, suppliers and shareholders.
In 2020 the Board conducted an ESG strategic review which
resulted in a new approach to improve our performance and inject
pace into our activities. Improvements were focused around four
main commitments, which are outlined below. It also resulted in a
number of additional targets and research projects in each of our
material areas, which we now report on in the Annual Report.
Building on our progress, in 2022 Howdens committed to the Science
Based Targets Initiative (SBTi) to set near and long-term
company-wide emission reductions. We are now working towards SBTi
approval of our roadmap, which will get us to net zero by 2050.
Howdens' four main ESG commitments are:
Zero Waste to Carbon Neutral Behavioural Reporting and
Landfill Manufacturing Health and Safety Disclosure
Leader
Maintain zero Carbon neutral Maintain international Progressive,
waste to landfill manufacturing safety standard phased implementation
in manufacturing by the end of ISO45001 in of high quality
and distribution. 2021 and maintain our manufacturing reporting.
Zero waste to that status as and distribution
landfill in depots the business grows. operations. Achieve
over time, with ISO45001 in our
target of less depot network.
than 5% by end
of 2022.
---------------------- ------------------------ ------------------------
The review also confirmed five material focus areas which
underpin our strategic commitments. These are:
1. People: Keeping our employees safe and well. Supporting their
growth, offering them great rewards for success, and opportunities
to grow with us;
2. Sustainable supply chain: Certified raw materials from
sustainable sources. Responsible purchasing, working with our
international network of over 250 main suppliers;
3. Sustainable product: Continuous research and evolution of our
products and packaging. Refining our
efficient manufacturing processes and working with our suppliers
on bought-in product;
4. Environment and operations: Reducing waste, lowering
emissions, working with the Carbon Trust to
achieve continuing improvements; and
5. Communities: Being a responsible member of over 850 local
communities in the UK and internationally. Supporting a range of
local and national charities.
Summary of 2022 performance
People
Howden's key asset is its workforce and we want to attract,
train and retain great people from the widest possible pool of
talent as well as keep them safe and healthy while at work. Howdens
is committed to embedding safety as a core value in everything we
do and we have worked hard to drive better performance. The
Company's reportable injuries per 100,000 employees under RIDDOR
(Reporting of Injuries Diseases and Dangerous Occurrences
Regulation), decreased in 2022 to 140 reportable injuries (2021:
196). This is significantly below the 2021/2022 HSE All-Industry
rate in 2022. In addition, our injury severity rate also decreased
in 2022 to 26.2 hours lost per 100,000 employees (2021: 33.4).
We also remained focused on creating an engaging place to work
with fulfilling jobs and a strong culture that supports everyone to
do their best. Listening to our employees is key and over 7,000
completed our Best Companies engagement survey in March 2022 and
Howdens was proud to receive a 'two-star' accreditation as a
company 'with an outstanding commitment to workplace engagement'.
The Company was ranked 10(th) in the top 100 UK's Best Big
Companies to Work For last year up from 14(th) in 2020.
Howdens recently agreed a partnership with the Football
Association for their Game Changer programme supporting and
enabling local communities to improve club kitchens. This new
initiative involves Howdens donating GBP1m of kitchens each year
for 3 years to grass roots football clubs. The programme will have
nationwide reach and will benefit local clubs which are so often at
the heart of their communities.
Environment
We have made further progress this year to reduce our Scope 1
and 2 emissions. In 2021 we were proud to achieve carbon neutral
manufacturing in our two major UK factory sites and this year we
have commenced the process to include our two recently acquired
solid surface worktop factories. Our ongoing focus on waste
reduction continues and we maintained our target of zero waste to
landfill in our manufacturing and distribution facilities last
year. We are now committed to reducing waste in our depot network
and during 2022 we achieved 99.7% depot waste avoiding landfill
across all 808 UK depots, which was achieved from a baseline
performance of 60% in 2019. In addition, this year we have switched
substantially all of our UK depots to a renewable energy tariff
using wind, solar and hydro-electric sources. On an annualised
basis this is expected to avoid around 10,000 tonnes of indirect
carbon emissions.
We also achieved our objective to ensure that 100% of our
kitchen door frontals are FSC or PEFC certified by the end of 2022.
This independently certifies that the wood comes from responsibly
managed forests. We have recently commenced a trial of Hydrotreated
Vegetable Oil (HVO) in our vehicle fleet as an alternative to
diesel which is a major contributor to our Scope 1 greenhouse gas
emissions. If successful, replacing diesel with HVO has the
potential to reduce our own fleet emissions significantly with no
negative impact on fuel efficiency or maintenance costs.
Scope 3 emissions from our suppliers are a major area of focus
for the business as they represent the majority of Howdens overall
carbon emissions. We recently held our first sustainability
conference to engage directly with our suppliers to work with them
to improve our ESG performance and set joint targets to reduce our
impact on the environment. Initially we are focusing on our major
suppliers, with our top 27 suppliers comprising around 80% of all
of our carbon emissions.
With respect to Howdens' carbon emissions, overall Scope 1 and 2
absolute emissions decreased by 3.5% in 2022 and our carbon
intensity ratio improved by 12.8% to 23.8 tCO(2) e per GBPm of
revenue (2021: 27.3 tCO(2) e per GBPm of revenue).
Further details of the Group's ESG strategy and performance can
be found in the 2022 Annual Report and Accounts which will be
available shortly on the Group's website
www.howdenjoinerygroupplc.com.
Going Concern
The Directors have adopted the going concern basis in preparing
the financial statements and have concluded that there are no
material uncertainties leading to significant doubt about the
Group's going concern status. The reasons for this are explained
below.
Going concern review period
This going concern review period covers the period of 12 months
after the date of approval of these financial statements. The
Directors consider that this period continues to be suitable for
the Group.
Assessment of principal risks
The Directors have reached their conclusion on going concern
after assessing the Group's principal risks, as set out in detail
in the "Principal risks and uncertainties" section, starting on
page 14.
While all the principal risks could have an impact on the
Group's performance, the specific risks which could most directly
affect going concern are the risks relating to continuity of
supply, changes in market conditions, and product relevance. The
Group is currently holding additional amounts of faster-moving
inventory as a specific mitigation against supply chain disruption,
and the Directors consider that the effects of the other risks
could result in lower sales and/or lower margins, both of which are
built into the financial scenario modelling described below.
Review of trading results, future trading forecasts and
financial scenario modelling
The Directors have reviewed trading results and financial
performance in 2022, as well as early weeks' trading in 2023. They
have reviewed the Group balance sheet at 24 December 2022, noting
that the Group is debt-free, has cash and cash equivalents of
GBP308m, and appropriate levels of working capital.
They have also considered three financial modelling scenarios
prepared by management:
1. A "base case" scenario. This is based on the final 2022 Group
forecast, prepared in November 2022 and including the actual
results of the 2022 peak sales period.
This scenario assumes future revenue and profit in line with
management and market expectations as well as investments in
capital expenditure and cash outflows for dividends and share
buybacks in accordance with our capital allocation model.
2. A "severe but plausible" downside scenario based on the worst
12-month trading period experienced in the Group's history. This is
more significant than the combined effect of COVID and Brexit on
2020 turnover.
This scenario models a reduction in most of the variable cost
base proportionate to the reduction in turnover. It includes
capital expenditure at a lower level than in the base case, but
which is still in line with our announced strategic priorities for
growth, namely: new depot openings and refurbishments; investment
in our manufacturing sites, investment in digital and expanding our
international operations. It also includes dividends and share
buybacks in line with the Group's stated capital allocation
model.
In this scenario the Board considered the current economic
conditions that the company and its customers are facing, and noted
that the downside scenario included allowances for reduced demand
and increased costs to reflect such adverse conditions.
3. A "reverse stress-test" scenario. This scenario starts with
the severe but plausible downside model and reduces sales even
further, to find the maximum reduction in sales that could occur
with the Group still having headroom over the whole going concern
period, without the need to take further mitigating actions.
Capital expenditure in this scenario has been reduced to a
"maintenance" level. Variable costs have been reduced in proportion
to the reduction in turnover on the same basis as described in the
severe but plausible downside scenario. It assumes no dividends or
share buybacks.
Borrowing facility and covenants
The Group has a five-year, committed, multi-currency revolving
credit facility of up to GBP150m which expires in September 2027
and which was not drawn at the period end.
As part of the scenario modelling described above, we have
tested the borrowing facility covenants and the facility remains
available under all of the scenarios. We have therefore included
the credit available under the facility in our assessment of
headroom.
Results of scenario modelling
In the base case and the severe but plausible downside
scenarios, the Group has significant headroom throughout the going
concern period after meeting its commitments.
In the reverse stress-test scenario, the results show that sales
would have to fall by a significant amount over and above the fall
modelled in the severe but plausible downside scenario before the
Group would have to take further mitigating actions. The likelihood
of this level of fall in sales is considered to be remote.
Conclusion on going concern
Taking all the factors above into account, the directors believe
that the Group is well placed to manage its financing and other
business risks satisfactorily and have a reasonable expectation
that the Group will have adequate resources to remain in
operational existence for the going concern review period set out
above. Accordingly, they continue to adopt the going concern basis
in preparing these financial statements.
LONG-TERM PROSPECTS AND VIABILITY
Assessment of long-term prospects
The Directors have assessed the Group's long-term prospects,
solvency and liquidity, with particular reference to the factors
below:
Current position
- History of profitable trading, with strong net profit margins.
- Cash and cash equivalents balance at 24 December 2022 of GBP308m.
- Debt-free. Consistently cash-generative. Proven ability to
maintain strong cash balances whilst also investing for growth and
returning cash to shareholders.
- GBP150m committed borrowing facility, due to expire in
September 2027. Unused, but available if needed.
- Strong relationships with suppliers and customers.
- Proven ability to flex the operating cost base in a severe economic downturn.
- Robust disaster recovery and business continuity framework.
Strategy and business model
- Proven, successful business model.
- Demonstrated agility and resilience of the business model to adverse economic conditions.
- Clear strategic direction.
Robust assessment of principal risks
- The Directors' role in the risk identification, management,
and assessment process is outlined on pages 14 to 19, together with
details of the principal risks and mitigations.
- The Directors are satisfied that they have carried out a
robust assessment of the Group's principal risks over the viability
period on the basis already described in the going concern
disclosure directly above.
Assessment of Viability
Time period and scenario modelling
The Directors' review of the Group's long-term viability used a
three-year period to December 2025. This was considered to be the
most suitable period as it aligns with the Group's strategic
planning process.
The financial modelling to support the assessment of viability
was based on the three scenarios used for the going concern
assessment and detailed above. We have tested the borrowing
facility covenants and the facility remains available under all of
the viability scenarios. We have therefore included the credit
available under the facility in our assessment of headroom.
1. The base case scenario takes the base case described in the
discussion of going concern above and extends it over the viability
assessment period. It assumes future revenue and profit in line
with management expectations, investments in capital expenditure
and cash outflows for dividends and share buybacks in accordance
with our capital allocation model.
2. The severe but plausible downside scenario takes the same
decline over the going concern period as described in the
discussion of going concern above, and then assumes a phased
recovery over the rest of the three-year period. It assumes capex
at a lower level than in the base case but which is still in line
with our announced strategic priorities for growth, and dividends
and share buybacks in line with our capital allocation model.
3. In the reverse stress-test scenario, the model assumes a
phased recovery of margin and profit on the same bases as for the
severe but plausible downturn scenario. This is then stress-tested
to find the maximum amount by which sales in the first year would
have to fall before the Group would no longer have headroom at any
point in the viability assessment period, without taking further
mitigating actions. It assumes capex at a maintenance level and no
dividends or share buybacks.
The Directors consider that the reasonably foreseeable financial
effects of any reasonably likely combination of the Group's
principal risks are unlikely to be greater than those effects which
were modelled in the severe but plausible downside and reverse
stress-test scenarios.
Results of scenario modelling
The results of the base case and plausible downside scenario
modelling showed that the Group would have sufficient headroom over
the viability assessment period.
The reverse stress-test showed that the level of fall in sales
required in the first year of the viability assessment period was
significantly more than the fall modelled in the severe but
plausible downturn scenario before the Group would have to take
further mitigating actions. The likelihood of this level of fall in
sales is considered to be remote.
Conclusion on long-term prospects and viability
Having considered the Group's current position, strategy,
business model and principal risks in their evaluation of the
prospects of the business, and having reviewed the outputs of the
scenario modelling, the Directors concluded that they have a
reasonable expectation that the Group will continue to operate and
to meet its liabilities in full and as they fall due during the
three-year period to December 2025.
Principal Risks and Uncertainties
When we look at risks, we specifically think about internal and
external drivers of operational, hazard, financial and strategic
risk areas over short, medium, and long-term timescales.
Our principal risks
The following describes our principal risks, the possible impact
arising from them, what we do to mitigate them and our risk
appetite.
1. Market conditions
Over 2022 the scoring of this risk has increased because of
continuing economic uncertainty.
Risk and impact
Our products are mostly sold to small builders and installed in
owner-occupied and private and public sector rented housing, mainly
in the repair, maintenance and improvement markets. If activity
falls in these markets, it can affect our sales.
Mitigating factors
- We have proven expertise in managing both selling prices and
costs. This continues to be a main area of focus.
- We have a good record of dealing with changes in market
conditions. We monitor activity across our supply chain and depots
closely, using the strong relationships we have to give us early
warnings of changing conditions. This enables us to take swift
mitigating action to emerging market risk factors.
Additional Actions in 2022
- Closely monitored the UK and global geopolitical environments,
the impact on the cost of living and the operation of our
business.
- Frequent scenario planning based on latest information to
ensure our plans were appropriate to changing market conditions,
including swift price action where required.
Risk Appetite
We have a low appetite for market conditions risks and maintain
close relationship with the small builder to identify movements
early to enable appropriate action to be taken.
2.Supply chain
Risk and impact
Any disruption to our relationship with key suppliers or
interruption to manufacturing and distribution operations could
affect our ability to deliver the in-stock business model and to
service our customer's needs. If this happened, we could lose
customers and sales.
We build strong relationships with our suppliers, focused on
integrity, fairness and respect, and which are worthwhile for all
concerned.
Mitigating factors
- Where appropriate we enter long-term contracts to secure
supply of key products, services and raw materials.
- Wherever possible we have multiple-sourcing strategies for our
key products, to reduce the effect of a supply failure.
- We have invested in our manufacturing operations and this
investment gives us an enhanced disaster recovery capability.
- We are also investing in new warehouse space to support our
distribution capabilities and equip them for growth.
- We closely monitor the UK and global geopolitical environments
and the impacts on our supply chain.
- We maintained our Authorised Economic Operator 'AEO' preferred
importer/exporter status to reduce potential customs delays.
Additional Actions in 2022
- Optimised our safety stocks levels, to reduce the potential risk of global supply constraints.
- Improved manufacturing planning and scheduling to ensure stock
availability ahead of demand, supporting our in-stock business
model.
Risk Appetite
Howdens is an in-stock business. Our customers expect this and
rely on it.
Because of this we have a very low appetite for Supply Chain
risks and will put extra effort in identifying them early and
putting in place appropriate mitigation to prevent stock issues at
our depots.
3. Maximising growth
Risk and impact
If we do not innovate, recognise and exploit our growth
opportunities in line with our business model and risk appetite, or
if we do not align structures and skills to meet the challenges of
growth, we won't get maximum benefit from our growth potential.
Mitigating factors
- The opportunities and challenges related to growth are a major
area of focus throughout the business, at all levels.
- We continue to invest in our depot environment, people,
services, and systems, and our manufacturing and distribution
capabilities to equip them for growth.
- Growth activities are reviewed in the light of our risk
appetite, values, business model and culture.
Additional Actions in 2022
- Converted a further 82 older UK depots to the new depot environment.
- Opened a further 30 depots in the UK.
- Opened a further 25 depots in France.
- Opened 5 depots in the Republic of Ireland.
- Further strengthening of our solid worksurface offering with
the acquisition and integration of Sheridan Fabrications into the
Howden Worksurfaces team.
Risk Appetite
We see a significant potential for growth which brings with it
both opportunities and challenges.
We have a medium appetite for risk when it comes to growth, we
are willing to accept some risk where we see a growth opportunity,
carefully balancing the risk we are taking with the potential
reward that the opportunity presents.
4. People
Risk and impact
Our operations could be adversely affected if we were unable to
attract, retain and develop our colleagues; or, if we lost a key
member of our team.
Mitigating factors
- We invested heavily in our employee value proposition, always
striving to provide the best possible working environment and
growth opportunities for all our colleagues.
- We support our colleagues with a wide variety of
apprenticeships, accreditations and development programmes across
all areas of our business.
- We use the Remuneration Committee to ensure that key team
members are appropriately compensated for their contributions and
incentivised to continue their careers with us.
- We work continuously to ensure that appropriate continuity and
succession plans are in place. We will continue to focus on
leadership development and succession planning.
- Equality, diversity & inclusion (EDI) Programme in place with specific goals established.
Additional Actions in 2022
- Wellbeing programme continued, with further training made available for all our people.
- Continued to expand our Apprenticeship offerings.
Risk Appetite
The success of our business is fundamentally driven by our
people and their unwavering customer focus. We have a low appetite
for People risk and work hard in ensuring that they feel valued,
rewarded appropriately, and have opportunities to develop and
progress in their Howdens career.
5. Health and safety
Risk and impact
Howdens is about people and relationships. We have over 850
depots, 11,000 employees, hundreds of suppliers and hundreds of
thousands of customers. If we do not ensure safe ways of working
across the business, this could compromise the safety and wellbeing
of individuals and the reputation and viability of the
business.
Mitigating factors
- Since the beginning of our business, we have invested in safe
ways of working. We have developed dedicated health and safety
teams and formalised systems that help us stay safe.
- We monitor, review and update our practices to take account of
changes in our environment or operations and in line with best
practice and changing legislation.
- Most importantly, we make sure we keep talking about health
and safety at every level of the business, led by the Executive
Committee.
Additional Actions in 2022
- Transitioned to ISO45001 standards across all Trade Operations.
- Maintained COVID-19 safe practises in line with government advice.
Risk Appetite
Care for the health and safety of employees, customers,
suppliers and everyone who comes into contact with Howdens is
integral to our values and to our behaviours. We put a great deal
of effort into identifying and managing health & safety issues
before they occur and have a very low appetite for Health &
Safety risks.
6. Cyber security
Risk and impact
If we experienced a major security breach, this could result in
a key system being unavailable causing operational difficulties,
and/or sensitive data to be unavailable or compromised. This could
also lead to breach of customer data.
Mitigating factors
- We place focus on training our people in cyber security, as we
recognise that these risks are not always technical, and awareness
is our first point of control.
- We employ complex technical IT security controls to protect
our information and our key systems. We regularly engage external
specialists to validate the effectiveness of our controls against
industry best practice.
- We have robust disaster recovery and business continuity plans, and we test them regularly.
- We adopt a continuous improvement approach to IT security and
continue to invest in the security of our systems.
Additional Actions in 2022
- We reviewed and tested our cyber security posture with
engagement of 3rd party expertise to provide insight, assurance and
guidance.
- We improved our 24/7 monitoring with the introduction of additional robust controls.
Risk Appetite
We depend on a core set of critical IT systems which are
fundamental to the day-to-day running of the business. These
systems are at risk from increasingly sophisticated security
threats. We have a very low appetite for cyber security risk and
manage IT security closely to secure the confidentiality, integrity
and availability of these systems.
7. Business model and culture
Over 2022 the likelihood of this risk has reduced because of
on-going focus of the management teams on our unique model and
culture.
Risk and impact
If we lose sight of our values, model, or culture we will not
successfully service the needs of the local small builder and their
customers, and our long-term profitability may suffer.
Mitigating factors
- Our values, business model and culture are at the centre of
our activities and decision-making processes, and they are led by
the actions of the Board, Executive Committee and senior
management.
- The Board and Executive Committee regularly visit our depots
and factories, our logistics and support locations and hold events
to reinforce the importance of our values, model and culture.
- We hold regular meetings to bring together our teams and
discuss the successes and challenges ahead.
- Worthwhile foundation in place to further develop our charitable efforts.
Additional Actions in 2022
- Continued our ESG programme enhancement, focussing on
re-enforcing our core values and further embedding our equality,
diversity and inclusion standards.
- Invested in key events for our employees and stakeholders
providing the opportunity to reinforce our core values and
recognise desired behaviours.
Risk Appetite
Our future success depends on continuing to maintain our values,
our unique business model and our locally enabled, entrepreneurial
culture. To secure this we have a very low appetite for risks that
can adversely impact on our business model and culture and put
great emphasis on identifying issues and addressing them early.
8. Product
Risk and impact
Kitchen technology and design do not stand still, and our
products must reflect that. If we do not support the builder with
new products that their customers want, we could lose their loyalty
and sales could diminish.
Mitigating factors
- Our dedicated product team regularly refresh our offerings to
meet builders' and end users' expectations for design, price,
quality, availability and sustainability.
- We work with external design & brand specialists and
attend product design fairs to monitor likely future trends.
- Our local depot staff have close relationships with their
customers' and end-users,' and we actively gather feedback from
them about changes in trends.
- We work with our suppliers, to develop new and improved
products for the future, some of which are unique to Howdens.
Several new products were introduced during the year across all
product categories.
Additional Actions in 2022
- 21 new kitchen ranges launched.
- Sheridan Fabrications solid worksurface offering acquired and
integrated into Howden Worksurfaces.
- Restructured our Product and Marketing teams, providing greater insight and resilience.
- Continued to develop our website and marketing offering to
builders' and end-users' to provide new tools to make their lives
easier.
Risk Appetite
Ensuring that we have products that meet the design, price and
quality needs of the small builder and their customer, is a key
focus of the business model and is a critical element of our future
success and growth aspirations. In meeting this, we accept that a
measured amount of risk must be taken when selecting new products
and we have a medium appetite for product risk.
9. Business Continuity and Resilience
Risk and impact
We have key business operations and locations in our
infrastructure that are critical to business continuity. They
include areas such as, our Credit Control Department, our
Manufacturing & Logistics operations and key IT systems.
Mitigating Factors
- We maintain and regularly review our understanding of what our critical operations are.
- We ensure resilience by design, building high levels of
protection into key operations and spreading risk across multiple
sites where possible.
- We ensure appropriate business continuity plans are in place
for these and have a Group wide incident management team and
procedures established.
- We regularly review our continuity plans covering our sourcing
and logistics approaches to support peak trading.
Additional actions in 2022
- Closely monitored the UK and global geopolitical environments
and the impacts to the continuity of our operations.
Risk Appetite
Our key operations are essential for ensuring our customers can
get the product and services they want when they need them. To
secure this we maintain a very low appetite for Business Continuity
risk, ensuring that critical functions are resilient and
appropriate business continuity plans are in place to protect
them.
Other Areas
Brexit risks
Any breakdown of the UK's relationship with the European Union
(EU) has the potential to bring with it some risk for all companies
operating in these territories. The main areas of potential risk
for Howdens include:
- Free Trade & Customs Risks including loss of free trade
status, exit from the customs arrangements and little or no
regulatory co-operation.
- Strategy & Business Plan Risks including consumer/Investor
uncertainty and currency and stock market volatility.
We continue to actively monitor the ongoing relationship between
the EU and UK and reconsider our mitigation plans and potential
impacts as part of our risk process.
Covid risks
Whilst the impact of COVID-19 was lower in 2022 than in previous
years we remained vigilant and promptly dealt with any issues that
arose during the year. Our learnings of what risks to expect and
how to deal with them gained over 2020-21 helped us effectively
manage these issues over 2022 and will continue to help us be
prepared going forward.
Cautionary Statement
Certain statements in this Full Year results announcement 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.
Directors' Responsibility Statement
The 2022 Annual Report and Accounts which will be issued in
March 2023, will contain a responsibility statement in compliance
with DTR 4.1.12 of the Listing Rules which sets out that as at the
date of approval of the Annual Report the directors confirm to the
best of their knowledge:
- the Group and unconsolidated Company financial statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group and Company, and
the undertakings included in the consolidation taken as a whole;
and
- the performance review contained in the Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Group and the undertakings
including the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
By order of the Board
Andrew Livingston Paul Hayes
Chief Executive Officer Chief Financial Officer
22 February 2023
Consolidated income statement
52 weeks to 52 weeks to
24 December 25 December
2022 2021
GBPm GBPm
Notes (unaudited)
------------------------------------------------------------------------- ------- -------------- --------------
Continuing operations:
Revenue 2 2,319.0 2,093.7
Cost of sales (907.8) (804.7)
------------------------------------------------------------------------- ------- -------------- --------------
Gross profit 1,411.2 1,289.0
Selling & distribution costs (870.7) (756.5)
Administrative expenses (125.3) (130.8)
------------------------------------------------------------------------- ------- -------------- --------------
Operating profit 3 415.2 401.7
Finance income 3.8 -
Finance costs (13.2) (11.4)
------------------------------------------------------------------------- ------- -------------- --------------
Profit before tax 405.8 390.3
Tax on profit 4 (31.6) (75.8)
------------------------------------------------------------------------- ------- -------------- --------------
Profit for the period attributable to the equity holders of the parent 374.2 314.5
------------------------------------------------------------------------- ------- -------------- --------------
Earnings per share:
Basic earnings per 10p share 5 65.8p 53.2p
Diluted earnings per 10p share 5 65.6p 53.0p
------------------------------------------------------------------------- ------- -------------- --------------
Consolidated statement of comprehensive income
52 weeks to 52 weeks to
24 December 2022 24 December 2021
GBPm GBPm
Notes (unaudited)
------------------------------------------------------------------- ------- ------------------- -------------------
Profit for the period 374.2 314.5
Items of other comprehensive income:
Items that will not be reclassified subsequently to profit or
loss:
Actuarial (losses)/gains on defined benefit pension scheme 7 (183.0) 170.4
Deferred tax on actuarial gains and losses on defined benefit
pension scheme 4 34.8 (33.5)
Change of tax rate on deferred tax 4 11.0 (8.5)
Items that may be reclassified subsequently to profit or loss:
Currency translation differences 2.1 (2.3)
------------------------------------------------------------------- ------- ------------------- -------------------
Other comprehensive income for the period (135.1) 126.1
------------------------------------------------------------------- ------- ------------------- -------------------
Total comprehensive income for the period attributable
to equity holders of the parent 239.1 440.6
------------------------------------------------------------------- ------- ------------------- -------------------
Consolidated balance sheet
24 December 2022 25 December 2021
GBPm GBPm
Notes (unaudited)
-------------------------------- ------- ------------------ ------------------
Non-current assets
Intangible assets 35.9 22.6
Property, plant and equipment 398.7 295.8
Lease right-of-use assets 614.3 555.8
Pension asset 7 - 140.8
Deferred tax asset 35.9 13.4
Prepaid credit facility fees 1.0 0.3
-------------------------------- ------- ------------------ ------------------
1,085.8 1,028.7
-------------------------------- ------- ------------------ ------------------
Current assets
Inventories 373.3 301.6
Corporation tax 32.3 -
Trade and other receivables 233.3 205.8
Cash and cash equivalents 308.0 515.3
-------------------------------- ------- ------------------ ------------------
946.9 1,022.7
-------------------------------- ------- ------------------ ------------------
Total assets 2,032.7 2,051.4
-------------------------------- ------- ------------------ ------------------
Current liabilities
Lease liabilities (95.3) (57.5)
Trade and other payables (433.9) (384.7)
Current tax liability - (25.9)
Provisions (12.0) -
-------------------------------- ------- ------------------ ------------------
(541.2) (468.1)
-------------------------------- ------- ------------------ ------------------
Non-current liabilities
Pension liability 7 (41.5) -
Lease liabilities (570.0) (533.7)
Deferred tax liability (3.8) (37.7)
Provisions (4.5) (20.4)
-------------------------------- ------- ------------------ ------------------
(619.8) (591.8)
-------------------------------- ------- ------------------ ------------------
Total liabilities (1,161.0) (1,059.9)
-------------------------------- ------- ------------------ ------------------
Net assets 871.7 991.5
-------------------------------- ------- ------------------ ------------------
Equity
Share capital 56.1 59.8
Capital redemption reserve 9.1 5.4
Share premium 87.5 87.5
ESOP and share-based payments 11.7 5.9
Treasury shares (25.5) (27.1)
Retained earnings 732.8 860.0
-------------------------------- ------- ------------------ ------------------
Total equity 871.7 991.5
-------------------------------- ------- ------------------ ------------------
Consolidated statement of changes in equity
Capital Share ESOP and
Share redemption premium share-based Treasury Retained
capital reserve account payments shares earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
At 26 December 2020 60.3 4.9 87.5 (3.5) (28.2) 599.8 720.8
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
Accumulated profit
for the period - - - - - 314.5 314.5
Other comprehensive
income for the
period - - - - - 126.1 126.1
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
Total comprehensive
income for the
period - - - - - 440.6 440.6
Current tax on share
schemes - - - - - (0.1) (0.1)
Deferred tax on share
schemes - - - - - 1.3 1.3
Movement in ESOP - - - 10.5 - - 10.5
Reclaim of forfeited
dividends - - - - - 0.2 0.2
Proceeds from sale of
forfeited shares - - - - - 1.8 1.8
Buyback and
cancellation of
shares (0.5) 0.5 - - - (50.0) (50.0)
Transfer of shares
from treasury into
share trust - - - (1.1) 1.1 - -
Dividends - - - - - (133.6) (133.6)
At 25 December 2021 59.8 5.4 87.5 5.9 (27.1) 860.0 991.5
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
Accumulated profit
for the period - - - - 374.2 374.2
Other comprehensive
income for the
period - - - - - (135.1) (135.1)
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
Total comprehensive
income for the
period - - - - - 239.1 239.1
Current tax on share
schemes - - - - - 0.4 0.4
Deferred tax on share
schemes - - - - - (1.3) (1.3)
Movement in ESOP - - - 7.4 - - 7.4
Buyback and
cancellation of
shares (3.7) 3.7 - - - (250.5) (250.5)
Transfer of shares
from treasury into
share trust - - - (1.6) 1.6 - -
Dividends - - - - - (115.0) (115.0)
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
At 24 December 2022 56.1 9.1 87.5 11.7 (25.5) 732.8 871.7
(unaudited)
---------------------- ------------- ------------ ------------ ------------ ------------- ------------ --------
The item "Movement in ESOP" consists of the share-based payment
charge in the year, together with any receipts of cash from
employees on exercise of share options.
At the current period end there were 5,237,907 ordinary shares
held in treasury, each with a nominal value of 10p (2021: 5,567,555
shares of 10p each).
Consolidated cash flow statement
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
Notes (unaudited)
---------------------------------------------------------------------- ------ ------------------ ------------------
Operating profit 415.2 401.7
Adjustments for:
Depreciation and amortisation of owned assets 44.0 40.6
Depreciation, impairment and loss on termination of leased assets 80.8 74.8
Share-based payments charge 7.3 10.1
(Increase)/ decrease in prepaid credit facility fees (0.7) 0.3
(Profit)/loss on disposal of property, plant and equipment and
intangible assets (0.1) 3.2
---------------------------------------------------------------------- ------ ------------------ ------------------
Operating cash flows before movements in working capital 546.5 530.7
---------------------------------------------------------------------- ------ ------------------ ------------------
Movements in working capital
Increase in inventories (69.8) (46.6)
Increase in trade and other receivables (23.7) (39.2)
Increase in trade and other payables and provisions 41.8 84.1
Difference between pensions operating charge and cash paid 2.0 (18.5)
---------------------------------------------------------------------- ------ ------------------ ------------------
(49.7) (20.2)
---------------------------------------------------------------------- ------ ------------------ ------------------
Cash generated from operations 496.8 510.5
Tax paid (101.5) (73.1)
---------------------------------------------------------------------- ------ ------------------ ------------------
Net cash flow from operating activities 395.3 437.4
---------------------------------------------------------------------- ------ ------------------ ------------------
Cash flows used in investing activities
Payments to acquire property, plant and equipment and intangible
assets (140.8) (85.9)
Receipts from sale of property, plant and equipment and intangible
assets 0.7 0.1
Acquisition of subsidiary - net of cash acquired (14.6) -
Interest received 1.1 -
---------------------------------------------------------------------- ------ ------------------ ------------------
Net cash used in investing activities (153.6) (85.8)
---------------------------------------------------------------------- ------ ------------------ ------------------
Cash flows used in financing activities
Payments to acquire own shares (250.5) (50.0)
Receipts from release of shares from share trust 0.1 0.4
Inflow from receipt of forfeited dividends - 0.2
Inflow from sale of forfeited shares - 1.8
Dividends paid to Group shareholders 6 (115.0) (133.6)
Interest paid - including on lease liabilities (13.1) (11.0)
Repayment of principal on lease liabilities (66.1) (74.8)
---------------------------------------------------------------------- ------ ------------------ ------------------
Net cash used in financing activities (444.6) (267.0)
---------------------------------------------------------------------- ------ ------------------ ------------------
Net (decrease)/increase in cash and cash equivalents (202.9) 84.6
---------------------------------------------------------------------- ------ ------------------ ------------------
Cash and cash equivalents at beginning of period 515.3 430.7
---------------------------------------------------------------------- ------ ------------------ ------------------
Effect of movements in exchange rates on cash held (4.4) -
---------------------------------------------------------------------- ------ ------------------ ------------------
Cash and cash equivalents at end of period 308.0 515.3
---------------------------------------------------------------------- ------ ------------------ ------------------
Notes to the consolidated financial statements
1 Basis of presentation and preparation
Accounting period
The Group's accounting period covers the 52 weeks to 24 December
2022. The comparative period covered the 52 weeks to 25 December
2021.
Statement of compliance and basis of preparation
The Group financial statements have been prepared in accordance
with UK-adopted international accounting standards.
The financial statements have been prepared on the historical
cost basis, modified for certain items carried at fair value, as
stated in the accounting policies.
These consolidated financial statements include the accounts of
the Company and all entities controlled by the Company (its
subsidiaries, together referred to as "the Group") from the date
control commences until the date that control ceases.
"Control" is defined as the Group having power over the
subsidiary, exposure or rights to variable returns from the
subsidiary, and the ability to use its power to affect the amount
of returns from the subsidiary. All subsidiaries are 100% owned and
the Group considers that it has control over them all.
The accounting policies, presentation methods and methods of
computation followed are the same as those detailed within the 2021
Annual Report and Accounts, which is available on the Group's
website (www.howdenjoinerygroupplc.com).
Whilst the financial information included in this preliminary
announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS.
The financial information set out above does not constitute the
company's statutory accounts for the period ended 24 December 2022.
The financial information for the period ended 25 December 2021 is
derived from the statutory accounts for 2021 which have been
delivered to the registrar of companies. The auditor has reported
on the 2021 accounts; their report was (i) unqualified, (ii) did
not include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006. The statutory accounts for 2022 will be
finalised on the basis of the financial information presented by
the directors in this preliminary announcement and will be
delivered to the registrar of companies in due course.
2 Segmental reporting
(a) Basis of segmentation, and other general information
Information reported to the Group's Executive Committee, which
is regarded as the chief operating decision maker, is focused on
one operating segment, Howden Joinery. Thus, the information
required in respect of profit or loss, assets and liabilities, can
all be found in the relevant primary statements and notes of these
consolidated financial statements.
The Howden Joinery business derives its revenue from the sale of
kitchens and joinery products, and related services.
(b) Geographical information
The Group's operations are mainly located in the UK, with a
small presence in France, Belgium and the Republic of Ireland. The
Group has depots in each of these locations, with the first depot
in the Republic of Ireland opening in 2022. The number of depots in
each location at the current and prior period ends is shown in the
five year record which is located towards the back of this Annual
Report. The Group's manufacturing and sourcing operations are
located in the UK.
The following table analyses the Group's revenues from external
customers by geographical market, irrespective of the origin of the
goods:
Revenues from external customers
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------ ------------------- -------------------
UK 2,256.1 2,043.3
France, Belgium and Republic of Ireland 62.9 50.4
------------------------------------------ ------------------- -------------------
2,319.0 2,093.7
------------------------------------------ ------------------- -------------------
The following is an analysis of the carrying amount of assets,
and additions to property, plant and equipment and intangible
assets, analysed by the geographical area in which the assets are
located.
Carrying amount of assets
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------ ------------------ ------------------
UK 1,903.1 1,991.9
France, Belgium and Republic of Ireland 129.6 59.5
------------------------------------------ ------------------ ------------------
2,032.7 2,051.4
------------------------------------------ ------------------ ------------------
Non-current assets
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------ ------------------ ------------------
UK 975.4 982.8
France, Belgium and Republic of Ireland 74.5 32.5
------------------------------------------ ------------------ ------------------
1,049.9 1,015.3
------------------------------------------ ------------------ ------------------
Additions to property plant and equipment and intangible
assets
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------ ------------------- -------------------
UK 124.4 82.8
France, Belgium and Republic of Ireland 22.8 7.0
------------------------------------------ ------------------- -------------------
147.2 89.8
------------------------------------------ ------------------- -------------------
3 Operating profit
Operating profit has been arrived at after
(charging)/crediting:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------------------------------ ------------------- -------------------
Net foreign exchange (loss)/gain (0.7) 5.2
Depreciation of property plant and equipment (36.5) (31.5)
Amortisation of intangible assets (7.5) (9.1)
Depreciation and impairment of lease right-of-use assets (80.8) (74.8)
Cost of inventories recognised as an expense (893.1) (789.9)
Write down of inventories (14.0) (20.0)
Profit/(loss) on disposal of fixed assets 0.1 (3.2)
Increase in allowance for expected credit losses on trade debts (2.0) (2.9)
Staff costs (624.1) (553.3)
------------------------------------------------------------------ ------------------- -------------------
All of the items above relate to continuing operations.
4 Current tax
(a) Tax in the income statement
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
------------------------------------------------ ------------------- -------------------
Current tax:
Current year 77.2 77.3
Adjustments in respect of previous periods(*) (33.6) (0.5)
------------------------------------------------ ------------------- -------------------
Total current tax 43.6 76.8
------------------------------------------------ ------------------- -------------------
Deferred tax:
Current year 2.1 0.4
Adjustments in respect of previous periods(*) (14.7) (1.7)
Effect of changes in tax rate 0.6 0.3
Total deferred tax (12.0) (1.0)
------------------------------------------------ ------------------- -------------------
Total tax charged in the income statement 31.6 75.8
------------------------------------------------ ------------------- -------------------
UK Corporation tax is calculated at 19% (2021: 19%) of the
estimated assessable profit for the period. Tax for other countries
is calculated at the rates prevailing in the respective
jurisdictions.
(*) The adjustments in respect of previous periods are primarily
driven by two items:
As a result of a patent granted in 2021, a tax deduction was
taken in relation to the Patent Box legislation for the periods
from 2017 to 2021 by resubmitting the relevant tax computations
accordingly. This legislation allows the income directly
attributable to patented items to be taxed at 10% instead of 19%
and the resubmission resulted in a prior year current tax credit of
GBP36.1m.
As a result of the change of the tax rate from 19% to 25%, it
was decided that the group would not claim capital allowances other
than the deductions available under the capital allowance super
deduction regime. This was to preserve the tax benefit available to
be realised at a higher tax rate. This adjustment gave rise to a
GBP10.4m debit to current tax and a corresponding GBP10.4m credit
to deferred tax.
(b) Tax relating to items of other comprehensive income or
changes in equity
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
-------------------------------------------------------------------------- ------------------- -------------------
Deferred tax (credit)/charge to other comprehensive
income on actuarial difference on pension scheme (34.8) 33.5
Change of rate effect on deferred tax (11.0) 8.5
Deferred tax charge/(credit) to equity on share schemes 1.3 (1.3)
Current tax (credit)/charge to equity on share schemes (0.4) 0.1
-------------------------------------------------------------------------- ------------------- -------------------
Total(credit)/charge to other comprehensive income or changes in equity (44.9) 40.8
-------------------------------------------------------------------------- ------------------- -------------------
(c) Reconciliation of the total tax charge
The total tax charge for the period can be reconciled to the
result per the income statement as follows:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
Profit before tax 405.8 390.3
Tax at the UK corporation tax rate of 19% (2021: 19%) 77.1 74.1
IFRS2 share scheme charge 0.3 (0.3)
Expenses not deductible for tax purposes 1.0 1.7
Overseas losses not utilised 2.7 2.2
Non-qualifying depreciation 1.6 0.6
Super deduction - capital allowances (2.4) (0.6)
Rate change 0.6 (1.7)
Patent box claim (note 4(a) above) (9.0)
Other tax adjustments in respect of previous years (40.3) (0.2)
-------------------------------------------------------- ------------------- -------------------
Total tax charged in the income statement 31.6 75.8
-------------------------------------------------------- ------------------- -------------------
The Group's effective rate of tax is 7.7% (2021: 19.4%). The
lower effective tax rate is largely driven by the effect of the
Patent Box deduction which was realised during the period as
discussed in section 4a.
5 Earnings per share
52 weeks to 24 December 2022 52 weeks to 25 December 2021
(unaudited)
----------------------
Weighted average Earnings Weighted average Earnings
From continuing Earnings number of shares per share Earnings number of shares per share
operations GBPm m p GBPm m p
---------------------- ---------- -------------------- ------------ ---------- -------------------- ------------
Basic earnings per
share 374.2 568.6 65.8 314.5 591.2 53.2
Effect of dilutive
share options - 2.1 (0.2) - 2.1 (0.2)
---------------------- ---------- -------------------- ------------ ---------- -------------------- ------------
Diluted earnings per
share 374.2 570.7 65.6 314.5 593.3 53.0
---------------------- ---------- -------------------- ------------ ---------- -------------------- ------------
6 Dividends
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
----------------------------------------------------------------------- ------------------- -------------------
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the 52 weeks to 25 December 2021 - 4.3p/share - 25.3
Final dividend for the 52 weeks to 26 December 2020 - 9.1p/share - 54.2
Special dividend for the 52 weeks to 26 December 2020 - 9.1p/share - 54.1
Final dividend for the 52 weeks to 25 December 2021 - 15.2p/share 88.9
Interim dividend for the 52 weeks to 24 December 2022 - 4.7p/share 26.1
----------------------------------------------------------------------- ------------------- -------------------
115.0 133.6
----------------------------------------------------------------------- ------------------- -------------------
52 weeks to
24 December 2022
GBPm
----------------------------------------------------------------------------------- -------------------
Dividends proposed at the end of the period (but not recognised in the period):
Proposed final dividend for the 52 weeks to 24 December 2022 - (15.9p per share) 87.9
----------------------------------------------------------------------------------- -------------------
87.9
----------------------------------------------------------------------------------- -------------------
The Directors propose a final dividend in respect of the 52
weeks to 24 December 2022 of 15.9p per share, payable to ordinary
shareholders who are on the register of shareholders at 11 April
2023, and payable on 19 May 2023. The proposed final dividend for
the current period is subject to the approval of the shareholders
at the 2023 Annual General Meeting, and have not been included as a
liability in these financial statements. Dividends have been waived
indefinitely on all shares held by the Group's employee share
trusts which have not yet been awarded to employees.
7 Retirement benefit obligations
The Group operates a funded pension plan which provides benefits
based on the career average pensionable pay of participating
employees. This plan was closed to new entrants from April 2013,
and closed to future accrual on 31 March 2021.
(a) Total amounts charged in respect of pensions in the
period
52 weeks to 52 weeks to
24 December 2022 24 December 2021
GBPm GBPm
(unaudited)
Charged to the income statement:
Defined benefit plan - current service cost - 4.8
Defined benefit plan - administration cost 2.4 2.0
------------------------------------------------------ ------------------- -------------------
Defined benefit plan - total service cost 2.4 6.8
Defined benefit plan - net finance (credit)/charge (2.7) 0.4
Defined contribution plans - total operating charge 37.6 27.2
------------------------------------------------------ ------------------- -------------------
Total net amount charged to profit before tax 37.3 34.4
------------------------------------------------------ ------------------- -------------------
Charged to equity:
Defined benefit plan - actuarial losses/(gains) 183.0 (170.4)
====================================================== =================== ===================
Total charge/(credit) 220.3 (136.0)
------------------------------------------------------ ------------------- -------------------
(b) Other information - defined benefit pension plan
Key assumptions used in the valuation of the plan 52 weeks to 52 weeks to
24 December 2022 25 December 2021
(unaudited)
Rate of increase of pensions in deferment capped at lower of CPI and 5% 2.70% 2.85%
Rate of CARE revaluation capped at lower of RPI and 3% 2.45% 2.55%
Rate of increase of pensions in payment:
- pensions with increases capped at lower of CPI and 5% 2.65% 2.80%
- pensions with increases capped at lower of CPI and 5%, with a
3% minimum 3.45% 3.50%
- pensions with increases capped at the lower of LPI and 2.5% 2.15% 2.20%
Inflation assumption - RPI 3.15% 3.30%
Inflation assumption - CPI 2.70% 2.85%
Discount rate 4.70% 1.90%
Life expectancy (yrs): pensioner aged 65
- male 86.6 86.6
- female 88.4 88.4
Life expectancy (yrs): non-pensioner aged 45
- male 87.6 87.6
- female 90.2 90.3
-------------------------------------------------------------------------- -------------------- --------------------
Sensitivities
Projected 2023 pension cost
------------------------------------------ ------------------------
Present value of Total service Net interest Net pension
scheme liabilities at cost (credit)/cost (credit)/
24 December 2022 GBPm GBPm expense
(unaudited) GBPm
------------------------------------------ ------------------------ --------------- ---------------- -------------
Assumption
Current valuation, using the assumptions
above 931 2.6 1.3 3.9
0.5% decrease in discount rate 1,007 2.6 4.4 7.0
0.5% increase in inflation 968 2.6 3.1 5.7
1 year increase in longevity 963 2.6 2.8 5.4
------------------------------------------ ------------------------ --------------- ---------------- -------------
The sensitivities above are applied to the defined benefit
obligation at the end of the reporting period, and the projected
total service cost for 2023. Whilst the analysis does not take
account of the full distribution of cash flows expected under the
scheme, it does provide a reasonable approximation. The same amount
of movement in the opposite direction would produce a broadly equal
and opposite effect. To address the requirements of both IAS 1 and
IAS 19, we note that the effect on the discount rate and inflation
sensitivities of flexing them down to 0.25% or up to 1% in a linear
manner would give materially correct results.
Balance sheet
The amount included in the balance sheet arising from the
Group's obligations in respect of defined benefit retirement
benefit plan is as follows:
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
Present value of defined benefit obligations (930.5) (1,512.5)
Fair value of scheme assets 889.0 1,653.3
-------------------------------------------------------------------- ------------------ -------------------
(Deficit)/ surplus in the scheme, recognised in the balance sheet (41.5) 140.8
-------------------------------------------------------------------- ------------------ -------------------
Movements in the present value of defined benefit obligations
were as follows:
52 weeks to 52 weeks to
25 December 2022 26 December 2021
GBPm GBPm
(unaudited)
Present value at start of period 1,512.5 1,641.0
Current service cost - 4.8
Administration cost 2.4 2.0
Interest on obligation 28.3 21.1
Actuarial losses/(gains):
- changes in financial assumptions (622.8) (127.7)
- changes in demographic assumptions (3.5) (5.2)
- experience 55.8 20.5
Benefits paid, including expenses (42.2) (44.0)
---------------------------------------- ------------------- -------------------
Present value at end of period 930.5 1,512.5
---------------------------------------- ------------------- -------------------
Movements in the fair value of the plan's assets is as
follows:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
Fair value at start of period 1,653.3 1,593.3
Interest income on plan assets 31.0 20.7
Contributions from the Group 0.4 25.3
(Loss)/return on assets excluding amounts included in net interest (753.5) 58.0
Benefits paid, including expenses (42.2) (44.0)
--------------------------------------------------------------------- ------------------- -------------------
Fair value at end of period 889.0 1,653.3
--------------------------------------------------------------------- ------------------- -------------------
Movements in the deficit during the period are as follows:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
Deficit at start of period 140.8 (47.7)
Current service cost - (4.8)
Administration cost (2.4) (2.0)
Employer contributions 0.4 25.3
Other finance income/(charge) 2.7 (0.4)
Total remeasurements recognised in other comprehensive income (183.0) 170.4
Deficit at end of period (41.5) 140.8
---------------------------------------------------------------- ------------------- -------------------
Income statement
Amounts recognised in the income statement arising from the
Group's obligations in respect of the defined benefit plan are
shown below.
Amount charged to operating profit:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
----------------------- ------------------- -------------------
Current service cost - 4.8
Administration cost 2.4 2.0
Total service cost 2.4 6.8
----------------------- ------------------- -------------------
The total service cost is included in the financial statement
heading Staff Costs.
Amount credited to other finance charges:
52 weeks to 52 weeks to
24 December 2022 25 December 2021
GBPm GBPm
(unaudited)
---------------------------------------------- ------------------- -------------------
Interest income on plan assets (31.0) (20.7)
Interest cost on defined benefit obligation 28.3 21.1
---------------------------------------------- ------------------- -------------------
Net charge (2.7) 0.4
---------------------------------------------- ------------------- -------------------
The actual return on plan assets was a loss of GBP(722.5)m (52
weeks to 25 December 2021: increase of GBP78.7m).
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FR TTMLTMTATBFJ
(END) Dow Jones Newswires
February 23, 2023 02:00 ET (07:00 GMT)
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