Earnings Transcript for HWDN.L - Q4 Fiscal Year 2021

Andrew Livingston: Good morning, everyone and welcome to the Howdens 2021 Full Year Results Presentation. I will begin by introducing our 2021 performance. Paul Hayes, our CFO will then review our financial results for the year. I will then share my perspectives on our 2021 performance and our strategic plans for the business and then we will take your questions. Howdens has delivered a very strong performance in 2021 with record sales and profits for the year during a period of exceptional trading conditions. UK sales increased significantly on 2019 and more so versus 2020 when first half trading was materially impacted by the onset of the spring lockdown at the start of the second quarter. The increase in sales versus 2019 trended upwards across the year and UK sales passed the milestone of £2 billion for the first time. Our profitability improved with group profit before tax versus 2019 increasing at a higher rate than revenues and our gross margin exceeded that reported for 2020 as we mitigated input cost pressures with disciplined pricing. We made good progress on our strategic plans both for the UK business and for our international operations, which delivered a strong performance. You will see from the RNS announcement that we have moved our ESG agenda forward and I am pleased to report that our factories in Howdens and Runcorn both achieved carbon neutral status in 2021. In respect to waste reduction, we achieved 99% depot waste avoiding landfill across all UK depots versus 60% in 2019, having reached zero waste to landfill in our manufacturing and distribution facilities in 2020. The business delivered strong cash flow and we continue to maintain a robust balance sheet. This has given us the flexibility both to invest in our growth plans for the business and at the same time provide shareholders with enhanced cash returns in the form of an increased dividend and the £250 million share buyback program announced today. These results demonstrate the strength of our local trade-only in-stock model, which has helped us to be there for our customers during a period of heightened demand. A strong product lineup, high stock availability, a very engaged team together with ongoing investments in our strategic initiatives including digital have all contributed to our record performance in 2021. As have the measures we took in 2020 to support our customers who on average have spent more with us in 2021 and we ended the year with a record number of customer accounts for that time of year. We serviced heightened demand without compromising overall service levels and benefited from the extended delivery times amongst our competitors. We believe our customers have an even greater level of trust in our own capability to have the right product available as and when they need it. The feedback we are getting from our regular builder forums also cites many examples of how we are there for customers not only on stock, but also on service generally, which helps them run their businesses. We also increased prices, which helped us defray the significant rise in input costs, which we have seen over the year. As well as protecting gross margin, we delivered a significant rise in volumes in the year. In 2020, we flexed our traditional Period 11 sale period when sales are typically more than double those of the other periods across both Periods 10 and 11 for the first time and we did so again in 2021. Sales across Periods 10 and 11 exceeded those initially targeted by the business with both periods returning record results and relatively more sales accruing earlier in the two periods combined. In the final two periods of the year, the business continued to perform very well against tough comparators and we have made an encouraging start to 2022. In 2021, we successfully navigated the dual challenges of sharp rises in demand and the well-publicized stock shortages in many markets and our product categories. I am very grateful for the efforts of everyone across the business in 2021 and very proud of what the team has delivered, including the attitude and approach to health and safety, which everyone has taken. In 2021 we moved and processed a record volume of goods in no small part thanks to the efforts of everyone in keeping safety awareness high. We are well positioned in the current marketplace for the future with our trade only in-stock local model and we have initiatives in place to further strengthen our market position. I will update you on these initiatives after Paul has taken you through our financial results. Paul?

Paul Hayes: Thank you, Andrew, and Good morning, everyone. I am pleased to be announcing Howdens 2021 full year results. 2021 has been a very successful year for Howdens and we have delivered record financial results. Overall, group revenue increased by 35% on 2020 and we believe that we gained market share as customers benefited from our trade only in-stock business model. We responded well to a period of increased demand as we traded through the summer and a particularly strong peak trading period in the autumn. Gross profit rose by £359 million to just under £1.3 billion. The percentage gross margin of 61.6% was encouraging. And as anticipated, we have successfully recovered increases in commodity costs, freight and energy costs through price increases. We believe we are getting the balance right between volume and pricing and remain alert to market conditions. As expected, operating costs of £887 million were significantly higher than 2020. This included higher variable costs to support the additional volume growth, inflationary cost increases and our ongoing strategic investments to drive future growth. I will give some more color on this later. As a result, Howdens generated an operating profit of £402 million, which compares to £196 million in 2020. Net interest charges were broadly in line. Profit before tax was up £205 million at £390 million, which is a record performance for the business. This led to a tax charge of £76 million with an effective tax rate of 19.4% and a profit after tax of £315 million. If we now look at the P&L account in more detail, first, turning to sales growth. Howdens UK revenue was just over £2 billion, an increase by 35% on a total basis and was up by 34% on a same depot basis. Compared to 2019, UK sales increased by 32% and by 27% on a same depot basis. The UK results reflect both underlying growth across our depots and the benefit of additional growth from new and revamped depots. Our peak trading period was our best ever and we again partially de-risked this by successfully smoothing demand across Periods 10 and 11. This ensured we met peak demand levels with good service levels to customers. As Andrew will touch upon in a minute, we were really pleased with the momentum across our core entry-level ranges. We are additionally targeting higher-priced kitchen ranges where this year’s sales have been encouraging. To support this opportunity, we have invested in our new bespoke solid surface worktop manufacturing facilities, including the recent acquisition of Sheridans. The products are often sold as part of higher priced projects. In the international depots, we generated revenue of €58 million, which was a 37% increase on 2020 or 33% on a same depot basis. Compared to 2019, the international depot revenue increased by 55% or 32% on a same depot basis. Our focus here remains building out the Howdens model in major cities and we’ve got good momentum now with our strategy. Given the significant impact of COVID-19 on our 2020 performance, we believe that it would be helpful to review our 2021 performance in comparison to 2019 rather than 2020. We have also included a bridge to 2020 in the appendix to this deck. PBT has increased by £129 million from £261 million in 2019 to £390 million in 2021. Gross margin increased by £303 million with the strong growth in sales volumes and mix accounting for an extra £254 million. We have achieved £91 million benefit from pricing over the last 2 years, which has more than offset the net product cost increases of £42 million. This includes the net impact of higher input costs, including commodities, freight and transportation and energy costs, partially offset by operational initiatives. There was also a small positive impact from changes in exchange rates. So overall, we achieved a healthy gross profit margin of 61.6%. Operating costs increased by £161 million and were higher in the second half to support the higher activity levels and our ongoing investment in our strategic initiatives. We have broken this out on the next slide. Again we have presented the operating cost versus 2019. In 2019 operating costs were £726 million and they have increased by £161 million over the last 2 years to £887 million. Bridging from left to right, the incremental cost to the 86 new UK depots opened over this period totaled £33 million. Costs in older UK depots increased by £50 million over the 2-year period to mainly support the additional volume growth so we’d expect these to be in the cost base going forward. This included investments in kitchen designers and higher incentive payments to depot teams in line with our proven local empowered business model. We have invested significantly in driving our strategic plan as well as supporting sales growth. This has included increased warehouse and transportation spend of £38 million to support our high levels of service and our in-stock model. This spend includes our investment in regional cross-stocking or XDCs that Andrew will review later. We have also incurred higher transportation costs with increased fuel prices and more HGV drivers to support higher sales volumes. We’ve also continued to differentiate ourselves with further investments in digital to support our customers. The impact of our international expansion totaled £22 million as we invested in 18 new depots in France. Other operating costs increased by £22 million, including 2 years’ worth of inflation. These costs were partially offset by the non-repeat benefit of the closure of our Dutch and German depots in 2019 and from the adoption of IFRS 16. Overall, we believe that we have a stronger business and have continued to invest in our clearly defined strategy despite the challenges of the pandemic. Now moving on to cash, from an opening cash position of £431 million at the end of 2020, we ended the year with cash of £515 million, a cash inflow of £84 million. Overall, working capital was broadly flat year-over-year. Stock levels increased by £47 million due to our proactive decision to increase our safety stocks. This investment in stock has allowed us to continue to provide greater customer service where there have been shortages of kitchen and joinery products in the market. This was particularly important for us ahead of the all-important peak trading period in the second half of the year. Due to the high levels of business activity, trade debtors were £39 million higher than at the end of the previous year with aging in good shape. This was offset by higher creditors of £84 million. Capital expenditure totaled £86 million and included further spend on depot expansions and revamps and investing in our supply chain and manufacturing sites. We also invested in expanding our digital capabilities and new depots in France. We expect CapEx in 2022 to be in the region of £100 million as we continue to invest in expanding our network, optimizing our supply chain and distribution, differentiating our products and digital investments to support future growth. There was also an additional one-off investment of about £10 million in land at the Howden site to support our plans to expand our manufacturing facilities. Corporation tax payments were £73 million. It’s been great to get back to paying dividends this year. The cash outflow of £134 million related to previously announced ordinary dividends and a special dividend. We also completed a £50 million share buyback program in the year. Pension contributions over and above the P&L charge in the period were £18 million, most of which was in the first half. The pension scheme has moved to a surplus for two consecutive months and therefore since the half year, pension deficit payments to the scheme have been suspended. Due to the scale of the scheme with £1.6 billion of liabilities and assets, it is possible that the scheme reverts to a deficit position on a technical provisions basis. In this case, contributions of £2.5 million per month would recommence. I wanted to summarize our approach to capital allocation. The Board has recently reviewed its capital allocation policy considering the current economic environment and ensuring it supports sustainable profit growth over the economic cycle. First and foremost, we want to continue to focus on achieving organic growth by investing in and developing our business. We believe that there are significant opportunities to invest in the Howdens model and expand our vertically integrated business through organic investment to gain market share. Our next priority is to maintain and grow our ordinary dividend progressively and to provide our shareholders with an attractive ongoing revenue stream. We aim to maintain a dividend cover of between 2.5x and 3x. Next, we do see modest opportunities for us to fund adjacencies that complement our business. Good examples include the recent investment in Howdens bespoke work surfaces and the purchase of land I mentioned earlier. Finally, after meeting these requirements, we will return any surplus capital to shareholders. We have a prudent risk appetite towards the balance sheet and we think it is appropriate for the group to be able to operate through our seasonal working capital cycle without incurring bank debt. It is worth remembering that there is seasonality in working capital balances through the year, particularly in advance of the Period 21 peak season. There is also a significant property lease exposure for the depot network and a large pension scheme that we are committed to funding. As a result, within our definition of surplus capital, we will distribute net cash in excess of £250 million to shareholders on an ongoing basis. We are confident that at this level of cash, the balance sheet will remain strong with a leverage of approximately 0.7x EBITDA after taking into account lease liabilities. Earnings per share in 2021, was strongly ahead at 53.2p, which compares with 24.9p in 2020 and earnings of 35p in 2019. Turning to dividends, as a result of the group’s strong performance in 2021 and our confidence in the outlook, the Board has proposed a final dividend of 15.2p, which brings the full year dividend to 19.5p. This is covered 2.7x by earnings. We’re also bringing forward the pay date of the proposed final dividend to the May 20 this year, which is closer to the AGM date than in prior years. Having set out our capital priorities on the previous slide, we are pleased to announce a £250 million share buyback program, which we will complete over the next 12 months. We’ve made an encouraging start to the new financial year. In the first two 4-week periods of the first half, total UK sales rose by 17.1%, up 15.6% on a same depot basis. On a local currency basis, international depot sales rose by 21.4%, up 18.9% on a same depot basis. So in summary, as you can see, we have made an encouraging start to the new financial year across the business. We have delivered record financial results and are making good progress on our strategic initiatives. Our strong balance sheet and cash flow supports our continued investment in the business as well as providing attractive returns for shareholders and the business is in great shape and we remain confident in our business model. Thank you. I will now hand you back to Andrew.

Andrew Livingston: Thank you, Paul. I will be talking about our 2021 performance and our plans for 2022 using our strategic initiatives for the business as a framework fully aligned with our trade only focus, our entrepreneurial culture and based around our core building blocks of service and convenience, trade value and product leadership. These are to evolve our depot network, improve range and supply management, develop our digital capabilities and expand our international operations. So first, depot evolution, high service levels, including local proximity and immediate availability, are very important to our customers and we continue to see opportunities to open depots. We are opening all depots in our updated format, which is designed to provide the best environment in which to do business and to make space utilization and productivity gains in a cost effective way by using vertical racking in the warehouse sections of the depots. In 2021 we have opened 31 new depots versus 16 in 2020. We are currently testing a smaller sized format using our next day XTC delivery service to supplement in-depot stock holdings. As this smaller format is around half the size of a standard one, it may for example enable us to open a depot in places lacking suitable properties to accommodate the standard one or open an infill depot to provide a more local service in less densely populated areas. Overall, we now believe there is potential for at least 950 depots in the UK, including around 25 in Northern Ireland, and we plan to open up around 25 new depots in 2022. We have progressed our revamped program for existing depots concentrating on our older estate where sales per depot were above average and where the largest incremental sales uplifts are expected. The program has received very positive feedback from depot staff and customers alike. During the year, including relocations, we reformatted 62 depots taking the total number of revamped depots to 103 at the year end. The scale and scope of the revamps has been refined with an average cost per depot of around £225,000 in today’s money going forward. The revamps are budgeted to pay back costs in less than 4 years and depot P&Ls are charged a reformat cost, which ensures depot teams are motivated to deliver incremental sales. Including relocations, we plan to reformat around 70 more depots in 2022 and to re-rack the warehouses of a further 35 without other modifications. At the end of 2021, we had 210 UK depots trading in the updated format and we expect to end 2022 with around 305, having also re-racked the warehouses of a further 133 depots without other modifications. By the end of 2022, such depots in aggregate will represent around 55% of our UK estate. Our next strategic initiative is range and supply management. As product lifecycles shorten and with our customers expecting new product from us, range renewal and development are important contributors to our competitive position. New product for 2021 featured 17 new kitchen ranges with more emphasis on higher priced kitchens and on ensuring our most popular styles are accessible to all budgets. In 2021, total sales of new products were much higher than in 2020 and 2019 with our new kitchen and appliance ranges leading the way. We are placing more emphasis on building our share of higher priced kitchens where we are underrepresented. Such kitchens contributed more to our kitchen mix by volume in 2021 in a year in which sales and volumes across all price bands increased. The change in mix contributed to a significant percentage increase in average kitchen invoice value, which also reflected improved conversion rates on some kitchen related product. Our aligned commercial depot and supply chain teams together with better planning have contributed to our range performance and improved the rhythm of product introductions during the year. In 2021 our first brochure, trade book and Periods 1 and 2 promotional materials were in depots pre-Christmas. And all our new kitchens originally slated for launch in 2021 were in stock well before our peak autumn sales period and 4 weeks earlier than in 2020. For 2022, we’ve adopted a similar strategy and we have a program of Rooster promotions across the year to keep Howdens front of the builders’ minds. Disciplined range management is crucial for both best availability, which is highly valued by our customers, and for profitability. In recent years we have reorganized our range architecture to fewer families, removed duplications and improved the balance between new kitchen introductions and timely discontinuations. In 2021 we introduced a more efficient way of testing new kitchen colors and finishes, which we call Find the Gap. We will be running this program several times a year as a way to promote more agile informed ranging decisions. Around 40 depots had exclusive access to new colors and finishes in some of our most popular ranges for a limited period. Following which, we were able to select the ones to roll out to all depots. Several of the new colors and finishes we tested in the Find the Gap program feature in our new kitchen lineup for 2022 and we’ve been able to bring these more proven kitchen styles to market more quickly. In 2022 we will be managing range introductions in clearances so that our current range count is around 80, a similar number to the 2021 year-end total organized in nine families versus 10 in 2020 and 11 in 2019. New product for 2022 features 20 new kitchens plus innovative products and other categories. Entry-level kitchens have traditionally been our strongest performers and we continue to support this market segment with new product in 2022. We have new ranges in both modern and shaker styles including the introduction of our new entry priced smooth shaker kitchen family, Witney, which is available in three nut colors. Recent introductions of higher priced kitchens have proved very popular and we are improving our offer to these market segments again this year. For the timber shaker families introduced in 2021, we’ve added new colors including Chilcomb both in reed green, the most popular color in our Find the Gap tests, and in charcoal together with Elmbridge in sage green. We have a new builder friendly in-frame solution, a look often associated with high street independence for both modern and more traditionally styled kitchens. We are also refreshing our most successful families with new market leading colors chosen from those tested in the Find the Gap program, for which we have made space by consolidating shade options within other colors. We continue to innovate in other categories with a significant number of product introductions. Doors, including new gray laminate ranges to flooring, including new herring burn colors and in appliances with further additions to our Lamona brand which is the leading integrated appliance brand in the UK, Howdens is an in-stock business and the trade tell us that a high level of stock availability is one of the key reasons that they buy from us. We protect and facilitate high stock availability in several ways. In 2020, we initiated a program to make an improvement to stock replenishment by supplementing the depots core weekly delivery order through a next day service via regional cross-docking centers or XDCs. This year we have significantly increased the number of depots serviced by XDCs and feedback from depots and customers using the service has been extremely positive. Our traditional replenishment model is based on weekly delivery, is cost effective and is particularly suited to replenishment of fast moving product and product with relatively predictable demand patterns. 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 contingent stocks of slower moving ones. This makes it simpler and more efficient for depots to deliver superior service levels and improve product availability. It also frees up time and resources spent on stock management, for example on inter-depot transfer of product, which can then be used more productively with customers. We have developed this capability with third-party logistic partners and in the main we are utilizing their existing infrastructure. By the year-end, we had six XDCs in place and the services available to around 400 depots, up from 120 depots at the year-end of 2020. We plan to make the XDC service available to depots in all regions during 2022 subject to finding the right locations to take the number of XDCs to 12 in total. In 2021 we extended our holding of safety stock as a contingency against unexpected demand patterns and interruptions to supply. We broadened the range of SKUs we protect with safety stocks and increased the number of weeks cover we have on some lines. In 2022 we will continue with our policies on safety stocks across the board, including heightened emphasis on stock manufactured in-house, and we expect to continue to utilize our disaster recovery manufacturing capability to help us maintain stock availability during peak trading. Our stock strategy also benefits from significant engagement with our supply base. We have long relationships and agreements with many of our suppliers and being a manufacturer ourselves has helped us anticipate potential issues in our supplier factories. We also operate on ex-works rather than delivery terms with the majority of our suppliers, which enable us to work directly with our shipping partners to resolve logistical issues and to provide us with earlier warning of orders that might be running late. We keep under review what we believe is best to make or buy both in terms of cost and overall supply chain availability, resilience and flexibility. In 2019 investment in manufacturing technology enabled us to make the doors for our popular Hockley kitchen ranges. Since then, the further investment we are making in new lines will enable us to make frontals for more of our kitchen ranges at the same qualities we can source externally, but at a lower cost and at a reduced lead time to delivery. We expect the new lines located at our Howden site to commence manufacturing frontals in the second half of 2022. From July 2022, our second architrave and skirting lines will also be up and running enabling us to service in-house more of the substantial increase in demand that we’ve seen for these products. We are upgrading our solid surface worktop supply and fit service, which is a growing segment of the market in which we are underrepresented and one in which there is the potential for us to develop a market-leading capability. Solid surface worktops are frequently, but not exclusively, sold with higher priced kitchens and this initiative supports our plan to increase sales of such kitchens. We first partnered with three solid surface providers to develop a design, template and fit capability and then acquired the assets of a solid surface fabricator, which we branded as Howdens Work Surfaces or HWS. The solid surface factory, which is located near our Howden site, commenced full scale manufacturing in April 2021. The level of demand has meant that we’re using all the original capacity in the factory. Our development plan for HWS envisaged a phased expansion of capacity and we expect to have this increased capacity available during quarter 2 2022. Alongside this, we recently acquired Sheridan, a long established and leading industry specialist for the manufacturer, fabrication, laser templating and installation of premium work surfaces. Located in Normanton, West Yorkshire, Sheridan was one of our original solid surface partners and we know them well. Bringing more of our solid surface capability in-house simplifies delivery of the service, gives us more control over it and we will benefit from the experience the Sheridan team will bring. It increases our manufacturing capacity and will lead to lower installation costs with associated margin benefits. The acquisition supports the rollout of HWS service to all regions, which we have recently completed. The supply of kitchens to the trade is Howdens principal activity and we make all the cabinets and some of the other products we sell, which is a source of competitive advantage for us in several ways. Given our plans and our ambitions for the business, over the next 3 years or so we plan to both expand our kitchen manufacturing capacity and capabilities and to reconfigure some of the supporting infrastructure. Firstly, we intend to increase the scale and scope of our manufacturing operations at Howden and plan to reconfigure the site so that it is dedicated primarily to manufacturing. We have acquired 5 acres of land outright and committed to a further 20 acres subject to planning, which will be available for us to extend our factories. We will use this to increase the manufacturing capacity for cabinets with new panel machining and rigid assembly lines and put in a new machining line to start making more door styles. With this investment, we have the capability to make doors for the majority of our ranges whilst retaining the benefits of sourcing from external suppliers who will continue to provide around half of our kitchen frontals by volume. We expect the new lines to start manufacturing in early 2025. Secondly, we plan to invest in a new purpose-built warehouse and distribution center for Howdens manufactured product located 5 miles from Howden in Capitol Park. Once built, both the picking and dispatch and most of the bulk storage capacity for Howdens manufactured product will migrate from the Howden site to Capitol Park. This enables the Howden site to be dedicated primarily to manufacturing, allowing the site to flow and operate more efficiently with room for further expansion if needed. As a purpose-built facility, Capitol Park enables us to improve how we use space. It will give us around 80% more bulk storage capacity than we have at the Howden site at present whilst using 30% more floor space for bulk storage. We expect to finalize the contractual arrangements for Capitol Park shortly subject to planning, the works to be completed over the next 2 years or so. These investments are included in the CapEx plans that Paul set out earlier in the presentation. Now turning to our digital platform, we use digital to reinforce our model of strong local relationships between depots and their customers by raising brand awareness, by supporting the business model with new services and ways to trade and to deliver productivity benefits for depot staff and customers. During 2020, the digital investments that we have made were particularly instrumental in supporting our model at a time when relationships and ways of doing business were disrupted. In 2021, we continued to see increased activity on our web platform and growth in our social media presence, which also stimulates interest in viewing our products and services in howdens.com. Impressions were present in 28% more organic search results a month and site visits of 24 million increased by 11% year-on-year and 69% in 2019, the time that users spent looking at pages increased by 20% and the numbers of pages viewed per session was up 11%. Across social media sites, our follower base at 400,000 was up 49% and 227% on 2019 with our monthly reach up 34% and 1.3 million users actively engaging monthly. We have added new capabilities, which help end users interact with Howdens online at each stage of their buying decision. At the turn of the year we launched real kitchens, which utilizes user generated content to showcase Howdens kitchens in people’s homes. Image views totaled 17.2 million in 2021. This content is being used both by consumers and our designers. And with it, we won the best user generated content category at the 2021 Drum Awards. In May 2021 we added a kitchen visualizer, which features multiple layout styles and configurable options. Much used by end consumers, the visualizer is raising their familiarity with our kitchens and our appreciation of their priorities leading to higher quality contact with our kitchen designers. In autumn 2021 we made new search functionality available, which both improves product search and extends search results to documents and other features. In providing easier access to documents, we have seen a reduction in the number of calls depots have made to our central product teams. On our trading platform, take-up and usage of online account facilities which enables users to self-manage their accounts and make payments at any time, continues to increase. New registrations exceeded 100,000 for the year and the service is being used across the week both in and out of hours on average twice weekly per account. The value of payments made by account holders using this service increased by 70%, with the number viewing documents up by 41%. We continue to add new capability and content to our trade platform to support the local relationships depots have with their trade customers. In February 2021 we launched Anytime Ordering, which provides efficiencies for depots and customers alike. Features of the service include bespoke pricing for each customer, which enables account holders to see their confidential pricing, order products and quote for individual jobs out of hours and a scheduler for them to select a collection depot and a pickup time of their choosing. With Anytime Ordering, we have seen average weekly log-ins to our trade platform increase by 160% with around 70% of users looking at price. During the year, customers with an online account have on average traded with us more frequently and spent significantly more than non-users and proportionately more of them bought across each of our product categories. Our trade platform is integrated with our lead management system, which assists depots in managing their local customer relationships in a digital way. The lead management system is now one of our most frequently used depot systems. In 2022 we are adding to our capabilities, including new app-based functionality, which will take our digital offering up a level. The Trade app, which puts more of the local depot in a builder’s pocket, was launched earlier this month. The app replicates core features of the online trading platform, including account details and credit status, making them readily accessible to builders whilst they are out and about. Users can view their open orders and new features include rapid check-in at any depot, order status updates and an easy order collection function. And finally, international. In 2019 we focused international operations on to a city based approach based in France serving only trade customers. International’s performance since then has given us confidence to open up more depots. In the second half of 2020, sales significantly increased year-on-year and the business has made further progress this year with sales in euro terms up 37% on 2020 and 55% up on 2019. We believe appreciation of the advantages of our trade only in-stock model, our service levels and competitive pricing is growing and our account base grew by 37% in 2021. We opened 10 depots in France in 2021 ending the year with a total of 40 in France and Belgium. By the end of 2022, we expect to have increased the number of depots trading to around 60, including 40 located in the Paris area. In 2022 we will be also opening for business in the Republic of Ireland. As in France, we will be using a city based approach which fits with the population distribution of the Republic. Initially we will have circa five depots around Dublin and we expect all of these to be trading by June 2022. The depot teams will be supported by our UK infrastructure and our group’s digital platform. For 2022, we are well planned on our strategic initiatives, which are aimed at increasing our market share profitably. High stock availability was a major contributor to our performance in 2021 and in 2022, we will continue with our policies and safety stock across the board, including heightened emphasis on manufactured product at Howdens. 20 new kitchen ranges will be on sale by mid-June and we have a program of Rooster promotions in place to keep Howdens front of the trades mind. Howden’s Work Surfaces is now available to all regions backed by recent investment. We will continue to invest in key capabilities, including improvements to service and availability by using XDCs, and we are increasing the range of services and functionality we offer online. We will be manufacturing more in the UK as our investments in our new door and skirting capabilities come on stream and as Howdens Work Surfaces is rolled out. During 2022, we plan to open up around 25 depots in the UK and refurbish another 70 existing depots to the updated format. In France, we plan to have around 60 depots trading by the end of 2022 and we are opening for business in the Republic of Ireland. Lastly, outlook. We have made an encouraging start to 2022 and we are confident in our business model across changing market conditions. To date the price increases we put through at the end of 2021 underpinned by our differentiated and service orientated offer have so far landed well. And sales continue to advance versus comparable periods in Periods 1 and 2. The number of surveys we are doing and the value of our Lead Bank suggests that our customers remain busy at present. We are expecting further rises in input costs and we faced general inflationary cost pressures. We are mindful of the challenges that these and macroeconomic uncertainties may present to our performance as the year progresses. We are up against record comparators, including for our peak trading periods. 2021 was a year of heightened demand for our products in a market characterized by shortages and extended lead times to deliver amongst our competitors. However, we have at present the momentum for another successful year in 2022 and the plans in place to deliver one. Thank you for listening and we will now take your questions.

Operator: We will take our first question today from Christen Hjorth of Numis. Please go ahead.

Christen Hjorth: Good morning, guys. Three questions from me if that’s okay. First of all just looking at the market share gains in 2021, clearly a very strong performance and perhaps slightly augmented by supply issues elsewhere in the sector. Just your view of how sticky those gains could be in 2022 and looking forward would be the first question. The second is just on digital and in particular the improved brand perception around consumers. I was just wondering if you’re seeing more consumer-led demand for Howdens kitchens rather than just from the dropping builder coming in and selling the Howdens kitchen to the consumer. And then just finally, on France, is it too early to conclude that Howdens will be successful in France at this stage? And if so, how far away are we from that conclusion that you’d need 100 depots or something like that to conclude on that? Thank you.

Andrew Livingston: Nice questions. Look, we’ve had a great year and a very encouraging start this year. I think if you’re talking about market share gains, I think our – the work that we’ve done not just last year, but the last 2 years how we’ve dealt with the pandemic, our moves on our core initiatives particularly being in stock and not stopping any of our range development or range renewal during the difficult periods, but also finding this great balance between price and volume has really I think brought a number of customers back and we finished off the year with our highest account base with more credit accounts than ever before and more cash accounts than ever before. So I’d be pretty confident that customers have grown even more in their confidence in our ability to deliver with them for them and I’d be pretty sure we will be hanging on to gain since 2021 and gaining further. Your second question around digital, we see digital as an opportunity for a number of things. Improving depot operations is key and improving how customers work with us. But yes, but yes, I think it has moved our brand perception on with end consumers and we do this for the sole purpose of helping it be easier for the builders to sell our product. So we will never cross that line of trading with end consumers. We are a dedicated builder focused trade only business and the better we do for builders, the better Howdens does. So we’ve raised our awareness not only with builders so we have an unprompted awareness that’s incredibly high in the trade space as you’d expect. But also our measures on end consumer awareness have grown as well as we have done much more online, as we have rebranded some experimental work on TV, tremendous growth on digital. And I think too our content online around helping customers find solutions through design trend advice and so on I think has all helped. Regarding France, we have joked in the past that it’s been the longest running trial. We have put in place a very strong leadership team in France and invested in that tremendously strong MD with a few new additions around his team. We are increasingly confident about what we are doing. Every depot seems to be better than the previous one. He is growing his customer base. His initiatives this year are driving into more product innovations. He has got a big range launch coming in this year. And we feel increasingly confident that builders are understanding our model. The more we have tied our French business to the principles of the Howden’s model, the stronger we have got in the market. That’s true. We are the only ones on the ground really with quality product in stock and local locations, but that is being appreciated and we see more similarities between the UK and France and how builders want to trade with us. Great product, easy to install, great prices and the whole thing is incredibly convenient. So, we are lifting all of our platform capability and putting it in France. So yes, we are pushing forward with it. We will do definitely nearly every two weeks this coming year and us going on like that. So, it’s key that we keep the city based approach in France given the nature of the country. So, we will be concentrating further on Paris, I said 40 around the area, but not border, all big regions is where our concentration will be. And we get up over a couple of hundred depots, we will see where we are at. But yes, feeling confident about it.

Christen Hjorth: Excellent. Thanks very much.

Operator: We will take our next question from Aynsley Lammin of Investec. Please go ahead.

Aynsley Lammin: Hi. Thanks very much. Good morning all. Just three questions for me. Firstly, I wondered if you could just comment. You mentioned a price rise put in at the end of 2021. If you could just tell us what that price rise was and is that kind of – do you expect that to be sufficient to maintain gross margins given the current cost inflation you have seen? Second question, on the 950 depots the increase there, I mean I think it’s around 11% increase from what you previously said you could reach the 850. Should we read into that that you therefore believe the kind of revenue base in the medium-term is 10%, 11% higher or given that some of those depots are smaller and taken some of the pressure off existing depots, it will be less than that? And then lastly, one for Paul maybe, if he has got at hand what the current number of shares are outstanding would be helpful. Thank you very much.

Andrew Livingston: Thanks Aynsley, Thanks for your question. We followed – we have been following a different pattern on price rises given the pressures we have had on costs generally in the market. So, we put in a 10% price increase just as we closed the door pre-Christmas. We used that as a close at the back end of last year to finish off the year nicely and start everybody off on the right footing for this year. Made slightly easier by market prices going up, but a very clear communication internally to get the pricing away and we are succeeding pretty well in getting that 10% away so far although it is early time in the year. We do, as I said, in the statement expect further price pressure from suppliers, which we will be pushing back as hard as we can. There are some timings on things like appliances, which may be a bit later. But we do want to keep it as simple as possible for the depots as they manage their customer base. But I would say we are pleased with how we have gone on with pricing and I think we are pleased with how our price volume mix is working between the two so far and it’s early trading. I was with about 60 managers last night, which I like to do before I come and talk to investors. The confidence is very high amongst our managers as they see the marker currently. Builders are busy and many big sites are just having full order books for the full year and we see cancels too even being busy as well where we pick up some business. But I will just make a point that the teams are as confident as I have seen them. Regarding the sort of 950 depots, it’s kind of a tricky one to answer, because we put down depots that are standard 10,000 square feet and then we end up going into other catchments be they infills or inner cities where they have the sites and we don’t see much difference revenue-wise between them. A lot of the performances – we are a depot-led manager-led business and performance can be outstanding even out of small spaces, particularly the support that we are giving these depots with XDC where we make stock turn up next day on slower moving items that complete kitchens or orders. I wouldn’t make a big distinction between big and small depots. So, in a rural catchment, it ends up taking more market share in its area and in city infill, we think it’s just got so much more to go at. Particularly somewhere in London where we are performing very well currently and the team are doing a fantastic job, so we would see opportunity for more inside London, because it is just so difficult for the trades to get around and the biggest driver of convenience is making sure there is a depot close to them with the stock available that they need. Paul?

Paul Hayes: Yes. And on the shares and after the share buyback that we completed last year, at the end of December we had 597 million shares outstanding. So, that answers that.

Aynsley Lammin: Great. Thank you very much.

Paul Hayes: Thank you.

Operator: And we will take our next question from Geoff Lowery of Redburn. Please go ahead.

Geoff Lowery: Yes. Hi, good morning team. Thanks for all the disclosure as ever. Two or three questions, please. First, can you talk about what your various initiatives in hard work surfaces bringing frontals in-house? What all of this you think really means for the business? What sort of incremental sale do you think you are missing out on? Is this about price? What’s the strategic and economic driver behind those kind of initiatives? Second question, it’s obviously right to compare your business against the 2019 baseline. If I look at your OpEx development, there are some fairly big moving lines within that. International for example, the cost appears to have risen almost as much as the revenue has. How fully costed I guess is the 2021 cost base now as we think about a bridge moving forward? And finally, when I think about your gross margin in particular, it looks like COGS inflation was 8% or so maybe in the second half of last year. Is that the right sort of modeling assumption for us with the spreadsheet for this year or is that number a bit higher, a bit lower with your crystal ball out? Thank you.

Andrew Livingston: Thanks Geoff. I will go first. We have got very strong chipboard based work surface business that primarily we are supporting what we would categorize as our lower priced kitchens not 2K category. We then moved into a modular range where we stopped solid work surfacing in depots, but it’s got significant limitations. Our move into templating and fit is a market base that’s £0.5 billion in total. If you think the kitchen market is somewhere between £5 billion and £6 billion gives you a sense of the scale of the market. We hold very, very little share of that. We did for – we are interested for a few reasons. First of all, we think it drives more cabinets and core kitchens as we get into the plus 5, plus 6 category of kitchens. We fear we lose kitchen sales if we don’t have the proposition because often end consumers through their builder want a one-stop shop for it. And outsourcing this to third-parties we get concerned about because we don’t have full control of the supply chain and the service standards have to be heightened standards because we are serving builders and if we let them down, we fear we will lose the account. So, we have taken control of it. We bought Sheridan during the lockdown period last year and we have acquired – sorry, we bought during the lockdown period and we bought Sheridan just week before last. That gives us enough capacity to take a chunky market share there and we have incentivized the depots to do so. So, I am being a little bit vague around sales, because it’s so early in the day, but you can read confidence into us that we think this will be a material part of the business given the strength of our solid wood doors at the top end of our range, which we see this mostly matching to. It will be slightly margin dilutive to the kitchen category, but we think in the mix there is quite a lot of cash there to be had. So, we will update as we develop further, but we are full steam forward on it right now.

Paul Hayes: Okay. And then, Geoff, just on the OpEx side of things. You are right. We have invested in the business this year to support growth, a couple of things as we sort of continue to look forward. We found the investment in our cross-docking service to support the good provision of service across all the depots and all of our products has been tremendously successful. So, we are going to roll that across all of our depots. Now that has incremental cost of around about £15 million as we go into the next year. Alongside the fact that with the high levels of inventory that we are carrying, which has obviously served us exceedingly well and the growth and the size of the business, we have some additional sort of warehousing cost yield of about £4 million. So, there are some investments there that support the business. And I think there is a full year costs of where we have actually invested in the business. So, for instance we have 200 more designers within our depots, which has been tremendously successful and again in driving ourselves with kitchens. So, there will be a full year of those costs when we look out across the business. In international, it’s a balance between sort of the near-term profitability versus the long-term growth prospects and growth as we roll out more depots in France. I think obviously there is a near-term impact because, as you know, it takes about 18 months for the depots to start to make a profit. So, we will continue to roll and invest in that area of the business, but that obviously gives us long-term strong growth prospects under sort of the predictable model of the maturity. So, we will keep a sort of an eye clearly on managing our cost base, but a lot of it is around strategic initiatives to drive growth. And on the gross margin side of things, you will see from the bridges, we have been successful in passing on commodity cost increases. We are confident we can continue to do that so we are focused on that. We have seen sort of high levels of freight costs that have gone up during the year and again we have passed those on as well. Looking forward, I feel comfortable that we can sort of maintain the margin at around about the 61.6% level and obviously we will look at continuing to sort of invest in the business and do what we can. But it’s all about getting, as Andrew touched on earlier, the mix right between pricing and volume.

Geoff Lowery: Understood. And can I just ask one follow-up. Clearly the competitor base across the last 18 months have been disrupted by store closures, inability to trade showroom normally out of DIY sheds and more recently by supply constraints. Have you noticed any sort of real change in the competitive intensity from those DIY sheds as they were able to trade normally, but we can’t see it because of supply disruption or would you describe the competitive environment as sort of relatively stable without wanting to put words in your mouth?

Andrew Livingston: I think it’s more the latter, Geoff. And taking the feedback from the depot teams as we do regularly, I think probably in the last 18 months, we were hearing very little because supply was quite poor in the market. And it’s given us a couple of years of really moving forward substantially on our range development program. So, I don’t think I was hearing any trouble at all last night from the depot teams.

Geoff Lowery: Understood. Thanks very much.

Andrew Livingston: We will take one more.

Operator: We will take our next question from Emily Biddulph of Credit Suisse. Please go ahead.

Emily Biddulph: Hi. Good morning guys. How are you all and thanks for taking my questions. I have got three, please. The first one is just on your comments on the increase in sort of average price point that you saw during the year. Are you confident that you can continue to replicate that again this year? I am just conscious that sort of some of those retailers that struggled have stopped particularly or sort of were not operating with showrooms open for all of last year, probably play in that sort of slightly higher price market more and therefore maybe taking share there was a bit easier this year. But do you think you can continue to sort of push that and sort of push on average price? Then secondly, following on from that, I think in the past you said the average Howden kitchen is sort of £3,000. If we think about it sort of just on a like-for-like sort of pre-inflation basis, do you have an idea in your mind sort of where that could get to if you sort of continue to chip away a bit at this sort of slightly higher priced market share? Can we sort of think about that being sort of £1,000 or £2,000 higher in the longer term? And then just thirdly, on CapEx sort of post-2022 given the plans you have outlined today, should we think about CapEx sort of continuing to tick a little bit higher? Thanks very much.

Andrew Livingston: Thanks for your questions. I think when we think of the better end of the kitchen market, we have turned up with a proposition that I think is quite distinctive versus our immediate competitor set. Our progress if I simplify it, it’s really been around a linear kitchen range, Italian style sort of kitchen range that we went in before and I think you could find that in other places as well. Our solid wood door offering, which has been substantial growth, I think is distinctive and the price position that we can hit versus typically the independents is quite distinctive. So, people can get the look and the color from us and achieve it for us at considerably less than the independents. So, I think we have got room to maneuver within that, but we are disrupting that game I would say. We think independents are about a billion of the total market and we have been growing fast there too not at the distraction of the opening and mid-price points for us. So, I think we are quite distinctive on what we are doing and I think we are showing it well. I think our teams are better able to plan it and adding the solid work surfacing, we have got quite a tight proposition there that I think people will have difficulty competing with. Not all of our competitors sell solid wood doors and that’s quite distinctive. The number two player sells no solid wood doors at all. In terms of the price, the sort of average transaction value growing, it is obviously growing as we put prices up. Our overall value has grown with the mix of better kitchens in it. But I am not going to give any guidance on what I think it is going to go forward over the coming years. We are confident with where we are at. Paul, do you want to do the third one?

Paul Hayes: Yes. And on CapEx, I think we guided to £100 million in terms of CapEx. That allows us to support our investment just into the rollout of the depots, the revamps of depots, in addition investments in manufacturing, we talked about some land transactions and be able to support our long-term growth prospects. So, I think if you are modeling in around about £100 million per year over the next few years, that’s a good place to be.

Andrew Livingston: I think we can take one more question.

Operator: We will take our last question today from Clyde Lewis of Peel Hunt. Please go ahead.

Clyde Lewis: Good morning folks. Just one to start with I suppose around sort of categories and if you can give us a little bit of help, Andrew, as to in terms of the revenue growth last year. Was there much distinction between units, appliances, the joinery sort of differences at all? And I suppose second one was really around the overlap with products in France and how are you going to sort of look at the sort of warehouse setup as that business now sort of starts to expand a bit more aggressively?

Andrew Livingston: We were pleased. I mean this business is primarily kitchens. We drive huge volumes in joinery to see frequency of the builders and then we really get into the conversation of selling kitchens is brilliant. We are – we grew tremendously well on all categories in both joinery, hardware, appliances or average kitchen. Our average appliance to kitchen proportion increased as well, particularly with driving our Lamona brand where we were very available, very innovative and we re-launched the brand and that’s now the biggest integrated brand in the UK. So, yes – and we shifted the biggest number of cabinets ever. I think the team did an unbelievable job through Runcorn and Howden at delivering over 5 million cabinets. So, that was just an extraordinary achievement. So yes, I think that all feels good. In terms of France, I actually challenged the French team to be even more innovative than the UK, because I think there are some styles and colors that the French can lead on. And Arnot and the team have pushed forward, as I mentioned earlier, quite a lot. We do see a very consistent range between France and the UK. It’s all on the same platform, which is important. And we see a wee bit of drift away from the UK ranges where it makes sense appropriately to trial stuff locally. But 90% of the range is exactly the same between the UK and France. They are getting into MATLAB and things that we don’t think will take off in the UK. That will work in areas like Paris. So, there will be some drift and we will keep it local, but we do want the economies across the piece. France again has got a more dominant kitchen business than the UK, tend not to do as much joinery and we are challenging that just be an historic thing for us. But they have a stronger flooring business.

Clyde Lewis: And in terms of the sort of warehousing and how you look to service the growing number of branches there?

Andrew Livingston: Yes. We fulfill it also in the UK currently. We had a distribution center in France, but they are too early, so we closed it the year before last and then we cordoned-off space in some of our bigger depots where we are deploying stock in them and fulfilling that too. We would be very keen to keep the cost base light as possible until we build the business up, but we won’t be talking about building cabinets in France or assembling cabinets in France until we have over 100 depots. And we feel very comfortable about using returning vehicles to Europe and filling vehicles that way. In fact we can get to France for the same price as we can get some areas of the UK. So yes, we feel okay about what we are doing there. And the important point about France is to keep the range tight and disciplined as we do in the UK. And also we are building France at a sort of counter-seasonal rate to the UK. So we peak in October – September and October and in France, they peak in July where they will take the summer off. So, we continue to do that. We are not encouraging France to do the same sort of activities we do in the UK so we can balance manufacturing.

Clyde Lewis: Okay. Thank you.

Andrew Livingston: I think I will probably close now. Thank you very much for all your questions and we look forward to seeing you soon.

Paul Hayes: Thank you.