2010 Preliminary Results 3 March 2011
Matthew Ingle Chief Executive Officer
2010: Howdens moves forward Sales up by 5% Gross profit margin up by 3.6 percentage points 27 new depots opened 20,000 net new accounts 12 new kitchen ranges Increased range of appliances Improved product quality Continued to invest in manufacturing and systems Created 350 new jobs 3
Mark Robson Chief Financial Officer
Context of financial results • Good performance in gross margin, operating profit and operating cash flow • Cash flow finances legacy issues • Legacy property portfolio continues to diminish • No exceptional items or discontinued operations 5
Highlights Revenue, £m Operating profit, £m Net cash/(debt), £m 35.0 HJ UK France Other 25 110 107.4 820 2008 100 2.4 807.9 0 805.7 11.1 90 800 2009 2010 11.1 12.8 11.7 795.1 -25 80 780 79.5 782.9 769.5 75.9 70 -50 12.0 760 60 756.4 (61.2) -75 740 50 2008 2009 2010 2008 2009 2010 HJ UK: +5.1% Uses of ‘cash’, £m Gross profit margin, % Profit before tax, £m Property Pension def Cap ex 62 110 100 60 100 100.9 59.8 80 58 90 8 18 60 56 80 21 25 56.2 19 40 54 70 74.3 46 25 37 68.7 20 52 53.1 60 12 50 50 0 2008 2009 2010 2008 2009 2010 2008 2009 2010 6
Howdens revenue 2010 revenue £795.1m • total +5.1% • LFL +3.6% % change 10 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 -5 -10 7
Profit before tax Group gross profit margin ● 2010: 59.8% ● 2009: 56.2% £m £m Gross Change Depot Gross profit £50.9m profit Change Margin, 50.9 £32.2m etc 483.0 27.9 Interest, etc 100.9 4.3 COGS savings Operating Volume & 9.7 costs mix (23.0) 13.3 68.7 432.1 • • 2009 2009 2010 2010 8
Operating costs Operating costs Change £m £23.0m Other 375.8 Other - 4.5 growth 7.5 Older depots 5.3 New depots 5.7 352.7 • 2009 2010 9
Income statement £m 2010 2009 Continuing operations: Profit before tax 100.9 68.7 Tax (34.0) (18.5) Profit after tax before exceptional items 66.9 50.2 Exceptional items before tax - (0.1) Tax - - Profit from continuing operations 66.9 50.1 Discontinued operations: Exceptional items before tax - (4.4) Tax - - Loss from discontinued operations - (4.4) Profit for the year 66.9 45.7 10
Net cash/borrowings and cash flow £m 2010 2009 Opening net cash/(borrowings) 2.4 (61.2) Operating cash flows before movements in working capital 127.0 97.2 Working capital 3.4 46.8 Capital expenditure (18.2) (8.1) Asset disposals 0.3 1.2 Interest (net) (1.0) (2.9) Tax paid (16.0) (5.0) Legacy properties (37.5) (46.3) Pension deficit contribution (25.4) (20.9) Other - 1.6 Closing net cash 35.0 2.4 Net cash inflow excluding legacy property and pension deficit costs: £95.5m 11
Working capital • Working capital down £3.4 m – stock up £19.2m – debtors down £0.4m – creditors up £22.2 m 12
Reducing our legacy property liabilities Number of £31m 100 properties 80 £24.5m 60 £18m £12m 40 £11m £11m £6m 20 £4.5m £0.5 m 0 Oct-06 Dec-08 Dec-09 Dec-10 Mar-11 Dec-11 Dec-14 Dec-19 Dec-24 12 legacy property deals in 2010: £19.4m exit cost - £75m liability extinguished 3 legacy property deals so far in 2011: £3.9m exit cost - £12m liability extinguished 1 Vacant and tenanted. 2 Gross rent & rates less payments by tenants. 3 Figures for Dec 2011 and beyond are before any further mitigating action that may be taken. 13
Pension scheme deficit Discount Finance £m rate & other charge assumptions 5 IAS19 basis 26 Asset returns (2) 196 Deficit funding (25) Change £60m 136 CPI (64) • Dec Dec 2009 2010 14
Current trading and outlook for 2011 • Sales in first two periods 1 of 2011 up 14.2% (LFL +11.6%) – material impact of cold weather at start of 2010 – benefit from initiative to capitalise on busy post-Xmas non-trade kitchen market – estimate underlying growth of around 5% • Plan to open 30 new depots • Hope to be able to offset input price pressures • Cash flow guidance: – capital expenditure, pension deficit contribution and tax expected to increase • Expect market to remain challenging • Will manage business prudently and take necessary actions to do 1. To 19 February 2011 15
Matthew Ingle Chief Executive Officer
Howdens’ mission “To supply from local stock, nationwide, the small builder’s ever -changing routine joinery/kitchen requirements, assuring no call back quality and best local price” 17
The key features of Howdens Cash-generative Focused Market-beating entirely A defining on the Vertically functioning culture small Low-cost builder Growth prospects 18
The importance of cash generation Over £30m net cash inflow after legacy payments 19
Successful depot openings 27 new depots opened in 2010 489 total depots Locally managed Locally staffed Locally incentivised New depots opened in 2010 20
Active management of trade accounts Focus on opening trade accounts 20,000 net new accounts 200,000 active credit accounts Accounts closed after 15 months of inactivity Limited exposure to any one customer Cost of managing accounts, including bad debts = 1.5% of sales 21
Supplying what the small builder wants Well designed Easy to sell Attractive Good quality Robust Relevant Available Credit terms Well-priced 22
The builder serves all parts of the market New build Repair Maintenance Improvement Big builders Landlords Retail 100,000 houses 8m houses 16m homes per annum Small builder Local project manager Entrepreneur Expert fitter Manufacturers & merchants Showrooms & sheds Howdens Simple but good and very well done 23
New product introduced in 2010 12 new kitchens Product families Standardised range content Improved cabinetry Waste solutions Worktops Appliances Joinery & hardware Flooring Leading and influencing the market 24
An effective operation Raw Low cost Efficient Consistent materials manufacturing distribution availability Reliable, scalable systems New manufacturing & warehouse management systems Improved stock accuracy Market-leading kitchen design software Sophisticated information systems 25
A vertically functioning business • Continuing to benefit from ownership of manufacturing – Source of competitive advantage • Monitoring further opportunities to improve access to LCP – Enhanced margin opportunities • Ensuring low cost and availability – Underpins value to builder 26
Howdens is not a retail business High Street rents National advertising Delivery costs Fitters NO 7-day working Showrooms Stock write-off Stock loss 27
The Howdens road to growth More of the same More trade accounts More depots Scope for at least 650 depots in all areas Long maturity profile offers further opportunities Sales per head Margin Accounts 28
Extending the “families” concept Matching product Joinery doors Architrave Skirting Hardware 29
Developing Lamona, our own brand Encouraging results from new appliance packs + + or 30
The Lamona roadshows Selling a competitive product with confidence Margin opportunity for the builder Chef John Topham with the basic Lamona oven 31
Extending our appliance ranges in 2011 Taps Sinks Lighting Worktops Flooring Waste 32
Principles of new product introduction Is it wanted and needed in the home? How does it help the builder? Price Is it easy for him to sell and fit? Availability Does it help him make money? Quality How does it complement our existing product? Choice Can we guarantee consistent: Knowledge Quality? Availability? Innovation Value? Can we make and sell it in volume? 33
Further opportunities to enhance value Use cash to eliminate legacy Strengthen position of business as it emerges from restructuring Continuing to invest to secure growth Understand why focus on builder has proved so successful Any other areas must possess similar margin and cash characteristics 34
Howdens’ culture is the key to continuing growth Each individual is important Everyone must be clear about the objective Everyone is motivated to achieve it Everyone is allowed to work out the best way of doing so Networks of partnerships harnessed to drive growth 35
Summary Design Quality Supply efficiencies Service Margin development Availability 36
2010 Preliminary Results 3 March 2011
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