Howden Joinery : Half Year Results

21 July 2022

Continued strong sales and operating performance, well ahead

of pre-COVID-19 levels

Results summary

1. The information presented relates to the 24 weeks to 11 June 2022, and the 24 weeks to 12 June 2021, unless otherwise stated. The 2022 and 2021 results are presented under IFRS 16, 2019 results have not been restated for IFRS 16.
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 included to show pre-COVID-19 financial performance.

Highlights1

• Group revenue of £913.1m was 16.3% ahead of last year and 39.9% ahead of pre-COVID levels in 2019.
• UK revenue 16.4% up on last year and 13.5% ahead on a same depot basis2. UK revenue in P7 grew by 8% against tough prior year comparatives and was 44% ahead of 2019.
• Gross margins ahead of last year at 61.9% with disciplined pricing recovering input cost increases.
• Profit before tax of £145.0m, up 21.6% on 2021 and 85.7% on 2019, outpaced revenue growth.
• Strong cash generation with cash at end of period of £249.7m.
• Continued investment in our strategic initiatives. Brought forward investment in some strategically important projects into 2022 with capex guidance for the current year increased by £20m to £130m.
• Management believes that the addressable market for UK kitchen and joinery products is larger than previous estimates at around £11bn, providing Howdens with significant future growth opportunities.
• Strong returns to shareholders. Interim dividend up 9.3% to 4.7p per share (2021:4.3p) and £139.5m of the previously announced £250m share buy back completed in the period.
• In May 2022, Howdens committed to the Science Based Targets Initiative signifying our intention to significantly reduce our emissions throughout the supply chain and to achieve net-zero by 2050.

Andrew Livingston, Chief Executive said:

"Howdens delivered a strong financial performance in the first half, well ahead of pre-COVID levels in 2019, as we continued to manage effectively ongoing inflationary and supply chain pressures. Our sector leading service and well-established and focused growth strategy ensured we continued to outperform the market. Our kitchen and joinery markets are large and attractive and we are prioritising investment in future growth through execution of our strategic initiatives.

"Howdens has good momentum going into the second half of the year which includes our all-important peak trading period. We will continue to manage inflationary pressures according to market conditions to achieve the right balance between pricing and volume. We are confident in our resilient business model while recognising that we will be trading against record revenue comparatives. While watchful of market conditions and consumer sentiment, the Group remains on track with its outlook for the full year."

21 July 2022

Operational developments

• Opened 10 new depots and revamped 34 older depots in the UK, with 7 new depots in France and 1 in the Republic of Ireland (ROI). Operating with 788 UK depots, 42 in France and Belgium and 1 in ROI.
• Launched 19 new kitchen ranges in the first half with more emphasis on higher priced kitchen ranges and ensuring our most popular styles are accessible to all budgets.
• Further investment in manufacturing with new frontal lines and a second architrave and skirting line at our Howdens factory to be operational in the second half. Continued investment in upgrading our solid surface worktop capabilities alongside greater capacity.
• Rolled out our regional cross docking centres (XDCs) which are now supporting around 530 depots providing industry leading product availability and improved stock management.
• Invested in our digital platform which amongst other things saves our trade customers time and money and supports them in optimising the procurement process for end users.

Current trading and outlook for 2022

The following table shows sales in the first four week period of the second half in absolute terms, on a same depot (LFL) basis2.

1. same depot basis (LFL) for any year excludes depots opened in that year and the prior year.
2. excludes 5 French depots which were closed in H1 2022.

We are making good progress on our strategic initiatives and will continue to invest in these and bring forward some capital investments that underpin our leading market positions and that will drive future earnings. Our capex guidance for the current year increased by £20m to £130m, including the previously announced £10m of one-off costs relating to the purchase of additional land at our Howden manufacturing site.

Howdens has good momentum going into the second half of the year which includes our all-important peak trading period. We will continue to manage inflationary pressures according to market conditions to achieve the right balance between pricing and volume. We are confident in our resilient business model while recognising that we will be trading against record revenue comparatives. While watchful of market conditions and consumer sentiment, the Group remains on track with its outlook for the full year.

21 July 2022

For further information please contact

Results presentation:

There will be an in-person analyst and investor presentation at 0830 (UK time) today at UBS, 5 Broadgate,London EC2M 2QS. A live video webcast and slide presentation of this event will be available onhttps://stream.brrmedia.co.uk/broadcast/62b99c8171203e42c1fbf58c. We recommend you register at 0815 (UK time). For more information see:www.howdenjoinerygroupplc.com.

The presentation can also be heard by dialling the phone numbers below:

Quote HOWDEN when prompted by the operator.

The webcast will be recorded and available on our website after the event at: www.howdenjoinerygroupplc.com

Notes to editors:

1. About Howden Joinery Group Plc

Howden Joinery Group Plc is the parent company of Howden Joinery (Howdens). In the UK, Howdens sells kitchens and joinery products to trade customers, primarily small local builders, through 788 depots. In 2021, the business generated revenues of around £2.1 billion and profit before tax of £390.3 million. Around one- third of the products it sells are manufactured in house at its principal factories in Runcorn, Cheshire, and Howden, East Yorkshire both of which recently achieved carbon neutral status. The business also operates a total of 43 depots in France, Belgium and the Republic of Ireland.

2. Timetable for the interim dividend

The timetable for payment of the proposed interim dividend of 4.7p per ordinary share is as follows:

3. Provisional financial calendar

21 July 2022

Financial review

Financial results for H1 20221

1. The information presented relates to the 24 weeks to 11 June 2022, and the 24 weeks to 12 June 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 3rd party sales generated by the recently acquired Sheridans' solid work surface business.
4. 5 French depots were closed in the first half.

Total Group revenue of £913.1m was ahead by 16.3% (2021: £784.9m). UK depot revenue grew 16.4% to

£889.3m (2021: £764.1m) and by 13.5% on a same depot basis2 to £866.9m (2021: £763.5m); this excludes

the additional revenue from depots opened in 2022 and 2021 of £22.4m (2021: £0.6m).

Revenue in our International depots was £23.8m (2021: £20.8m). On a local currency basis, revenue at our depots in France and Belgium increased by 18.5% on a same depot basis2.

Gross profit

Gross profit was £565.0m (2021: £481.0m). The £84m increase compared with 2021 reflected proactive price increases early in the period that contributed £75m and a positive volume and mix impact of £34m. This more than offset £25m of cost increases reflecting the impact of higher commodity prices, freight costs and a weaker sterling exchange rate. These factors contributed to an increase in gross margin of 60 basis points versus the prior year to 61.9% (2021: 61.3%).

Operating profit

Operating profit was 20.0% ahead of last year at £149.1m (2021: £124.3m) and the operating profit margin

was 16.3% (2021: 15.8%).

Selling and distribution costs and administrative expenses (SD&A) increased by £59.2m to £415.9m (2021: £356.7m) as a result of inflation alongside planned investment in specific areas to support our strategic initiatives. Compared to 2021 this included £7m on UK depots opened in 2021 and 2022 and £7m on International depots opened in the same period. We also invested £12m in warehouse and transportation initiatives which included the investment in regional XDCs that support our differentiated service levels and

21 July 2022

£4m in marketing and digital costs. £27m of additional costs were also incurred in the existing depot network as a result of the higher volumes and there was also a £2m increase in other operating costs.

Profit before and after tax

The net interest charge was £4.1m (2021: £5.1m) principally reflecting additional finance income relating to the final salary pension scheme. Profit before tax of £145.0m was 21.6% ahead of the prior year (2021: £119.2m).

The tax charge on profit before tax was £30.7m (2021: £22.1m) as a result of the higher operating profit and

represented an effective tax rate of 21.2% (2021: 18.5%). As a result, profit after tax was £114.3m (2021: £97.1m). Reflecting the above and the reduced share count following the share buy back programme, basic earnings per share were ahead by 19.5% at 19.6p (2021: 16.4p).

During 2020 we were granted a patent on a new plastic leg design which we have incorporated into our sales of c.5m of kitchen cabinet units. We applied for the patent in 2017 and there is a potential to claim tax relief under HMRC patent box rules. We are in the process of reviewing the technical aspects of any potential claim with our advisers and HMRC before deciding whether to make a claim under these rules.

Cash

The net cash inflow from operating activities was £62.8m (2021: £93.8m). Net working capital increased by £104.0m to support higher levels of business activity. Receivables at the end of the period were £14.1m higher than at the beginning of the period, with good ageing, and we are monitoring this closely. Payables were £22.3m higher and stock was £112.1m higher due to our actions to increase levels of safety stock to de- risk our in-stock business model particularly ahead of our peak trading period. Capital expenditure was £56.0m (2021: £23.8m) as we accelerated the execution of our strategic initiatives. Corporation tax payments were £42.4m (2021: £40.1m), and dividends amounted to £88.9m (2021: nil). Share buybacks totalled £139.5m (2021: nil). The interest and principal paid on lease liabilities totalled £30.9m (2021: £27.0m).

Reflecting the above, there was a net cash outflow of £265.6m (2021: inflow of £45.5m), leaving the Group

with cash at the period end of £249.7m (12 June 2021: £476.2m). The Group has access to a £140m asset backed lending facility which remained undrawn at the balance sheet date.

Capital allocation and returns to shareholders

Our approach to capital allocation continues to focus on achieving sustainable profit growth by investing in and developing our vertically integrated business. We also want to maintain and grow our ordinary dividend in line with earnings growth 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.

Our capital allocation policy is that where year end cash is in excess of £250m we expect to return surplus cash to shareholders. This provides sufficient headroom to support organic growth, our working capital requirements and ongoing investments in our strategic priorities. At this level of cash, the balance sheet will remain strong.

On this basis, the Board is recommending an interim dividend for 2022 of 4.7p per ordinary share (2021: 4.3p per share) representing an increase of 9.3%. Following the reinstatement of ordinary dividends last year, we are rebasing the split between the interim dividend and final dividend in 2022 to smooth the impact of the exceptional trading performance in the second half of 2021. This will ensure balanced dividend growth in the year while maintaining an overall dividend cover of between 2.5x and 3.0x for the year as a whole. The interim dividend will be paid on 18 November 2022 to shareholders on the register on 14 October 2022.

The Board announced a £250m share buyback programme with the Full Year results earlier this year. During the period, we bought back 19.0m shares to the value of £139.5m, at an average purchase price of 734 pence per share. We expect to complete the share buyback during the second half of 2022.