Earnings Transcript for HWDN.L - Q4 Fiscal Year 2023

William Livingston: Good morning, everyone, and welcome to the Howden's 2023 results presentation. So I'll begin with an introduction of our performance for the year. And then Paul Hayes, CFO, will then review our financial results for the period. And then I'll share my perspective on our 2023 performance and outline our plans for 2024 and then we'll take your questions. The group delivered a resilient performance in 2023 against record prior comparatives and in, as we anticipated, a more challenging marketplace. Sales and profits met expectations and we continued with our investment program, which is focused on our key capabilities, which gives us end-to-end a stronger business. Group sales were in line with those of 2023 and were 46% up on 2019 being the year prior to the onset of the pandemic. In the UK, we believe we gained market share by volume in 2023, which helped us mitigate the impact of a decline in overall size of the kitchen market. Entry-level kitchens represented a higher proportion of kitchens we sold with sales of products in our joinery categories representing more of the sales mix. We maintained an industry-leading gross margin with gross profits at around the same level as last year as we balanced recovery of significant input cost prices raises with our commitment to providing competitive pricing across the board for our customers. Excluding investment in strategic initiatives, active containment of operating costs kept those to 2022 levels, despite ongoing inflationary pressures. Profit before tax was lower than 2022, in line with market expectations and 26% higher than in 2019. Our builders remain busy. We made good progress on our strategic plans for the UK business and sales in our international operations increased. The business delivered strong operating cash flows and we maintained a robust balance sheet. This gave us the flexibility to continue to invest in the growth plans for the business, provide shareholders with enhanced cash returns in the form of increased dividend payouts in 2023. We also completed a £50 million share buyback program during the year. Now you'll see from the RNS announcement that we've moved forward our ESG agenda, but I just wanted to highlight one major milestone here on this point. We submitted our net 0 plan in 2023 and the SBTi has now approved Howden's 2030 emission reduction target. We've also committed to setting long-term emission reduction targets consistent with our intention of reaching net 0 by 2050. The results demonstrate the strength of our local trade-only and in-stock model and we believe our increased market share by volume consolidated the gains made in 2022. A strong product lineup, high stock availability, industry-leading service levels, a very engaged team have all committed -- have all contributed to our performance, which benefits from the ongoing investments in our customer focus strategic initiatives. We had a record number of customer accounts as at year end with a similar number of trading in the years in the previous year. We also increased some prices, which helped us defray most of the impact of significant rises in annual input costs and sharpened our prices elsewhere. As well as maintaining industry leading gross margin, the business continued to deliver KPI volumes, which in aggregate are well ahead of those in pre-COVID times. As compared with 2023, sales so far in this year have increased in all countries from which we operate. In the UK, these periods last year were amongst the best performing ones. And whilst it's early days, we are encouraged by sales performance to date. In 2024, we expect market conditions to be broadly unchanged from those seen in 2023 and we are well-prepared for this and our customers, mainly self-employed people, are adept at managing their businesses in such times. Delivered by our highly entrepreneurial and well-incentivized teams across the business, I believe that our service orientated trade-only in-stock local model is the right one to deliver sustainable market share gains. Our model is hard to replicate, difficult to compete with and we have initiatives in place to make it even more so. The addressable market value in the UK in which we have an established presence is some £12 billion and there are significant longer term growth opportunities for us. We continue to prioritize cross-cycle investments in the business on this basis. So I'll update you on our strategic initiatives which are key to the long-term development of the business after Paul has taken you through our financial results for the year. Paul?

Paul Hayes: Thank you, Andrew, and good morning, everyone. I'm pleased to be presenting Howden's full year results. Now we've performed well in 2023 in a challenging market. Overall, group sales were consistent with last year as we supported our trade customers with a strong product lineup, high stock availability and outstanding customer service. We are pleased to report that we've made further market share gains in the year. Gross profit was similar to the prior year at £1.4 billion as we continue to recover increases in commodity, freight and energy costs through price increases and productivity improvements. The slightly lower gross margin percentage included the dilutive impact of growing the sales of everyday joinery products and solid work surfaces which both performed strongly. These products make an attractive cash margin contribution, but have a lower gross margin percentage, the most of Howden's products. Operating costs were £68 million higher at £1.1 billion with productivity and efficiency actions taken throughout the year more than offsetting inflationary costs increases that totaled around £50 million. This protected our ability to continue to invest in future growth. We invested £53 million in our strategic initiatives, including new depots and revamps, XDC to support our sector leading service levels, new product introductions and international openings. I'll cover this in a bit more detail shortly. As a result, we generated an operating profit of £340 million. This included £17 million of costs arising from the addition of an extra 53rd week. This was a non-trading week as the depots remained closed during this period and there was no revenue benefit. Excluding this one-off cost, the underlying operating margin was 15.5%. After net interest charges, profit before tax was £328 million. We incurred a tax charge of £73 million in the period and the effective tax rate was 22.3%. This included the higher corporation tax rate introduced in the UK last April and the lower tax rate in 2022 reflected a backdated tax credit relating to the patent box claim, which we included in our financial statements last year. After all these items, profit after tax was £255 million. So looking at revenue in a bit more detail. Howden's UK revenue was broadly level on the same depot basis after excluding £14 million of non-recurring sales. We face more challenging macroeconomic conditions in the year and we were careful to balance price and volumes to support our trade customers. And as a consequence, we have continued to outperform the market. The major driver of our strong relative performance has been the ongoing investments in our strategic initiatives. Once again, we prioritized our investments in new depots and we now have 840 depots in the UK, and we also revamped 89 older format depots into the new format. Product innovation has been a key focus and we introduced 23 new kitchen ranges in the year, which were well received by our customers. We also grow our joinery and solid work surface categories, as I mentioned earlier. To support our premium kitchen ranges, we also launched our new paint to order service during the year. And we opened a dedicated factory in the second half, which is fully operational. Finally, our digital investments seek to make it easier for our customers to do business with us through our Trade app. And we've made further progress this year. We're also investing in tools to help grow awareness of the Howden's brand amongst end users. Andrew is going to take you through these initiatives in more detail shortly. The international depots, which includes 65 depots based in France and 10 in Ireland generated revenue of EUR 80 million, a 9% increase. Our focus remains on building out the successful housings model in major cities and we're making good progress with our strategy. Now moving on to profit before tax. Bridging from PBT of £406 million in 2022 to £328 million in 2023. As I explained earlier, gross profit was similar to last year as we successfully balanced pricing and volumes in a higher inflationary environment. In particular, we were effective in implementing price increases early in the year that benefited the business by £91 million and which more than offset lower volumes and mix of £67 million. The main impact is from the strong growth of everyday joinery products and solid work surface that I covered earlier. Importantly, we have delivered a number of productivity improvements in our manufacturing operations, which partially offset increases in commodities, wage inflation, and energy costs. Being vertically integrated is a key differentiator and we continue to increase the amount we manufacture ourselves to capture more of the profit pool, while giving our customers greater choice and quality. In the year, we continue to invest in our manufacturing facilities. We added new kitchen furniture production lines and a second architraves and skirting line, which are now fully operational. This is in addition to the new paint plant -- paint to order factory opened in the year. Operating costs increased by £68 million as a result of managing our cost tightly while continuing to invest in our strategic initiatives to drive growth. Now we've broken this down on the next slide. So bridging from left to right, you can see the £53 million investment made to support our ongoing strategic initiatives. The incremental cost of the 63 new depots, including the 30 new depots opened in 2022, totaled £16 million. Other strategic investments included the full year impact of our 12 regional XDCs that further strengthen our in-stock offer for our depots and our customers. In addition, we rolled out the Howden's work surface range to the whole depot network, having upgraded and optimized our capabilities. We invested £12 million in our international businesses with a continued focus on a city-based strategy. We also expanded our newest business in the Republic of Ireland, and we now have 10 depots trading in that region. As I mentioned earlier, we fully offset around £50 million of wage inflation, energy and other inflationary pressures in the existing depot network and other parts of the business through productivity gains and efficiencies. And finally, there was £14 million of operating costs from the impact of that 53rd week. Now moving on to cash flow. From an opening cash position of £308 million, we ended the period with £283 million of cash, a net cash outflow of £25 million. You can see from the slide that this was after shareholder returns of £164 million, including dividends of £114 million and the £50 million share back, which we completed in the first half. Overall, working capital has increased by £35 million. Stock was higher by £10 million, including inflationary increases. And we continue to optimize the [indiscernible] safety stock to ensure that we remained in stock for our customers. In light of developments in the Red Sea, we have recently increased safety stock levels on some lines as a precaution to ensure that we remain in stock across the range. Debtors were £39 million lower than at the previous year-end. This included the benefit of the later close to the year and ageing is in good shape. Creditors were £64 million lower, which had a negative impact on working capital. The cash outflow from capital expenditure was £119 million as we continue to focus on the execution of our strategic initiatives. Now turning to earnings per share and dividends. EPS was £0.465, which compares with £0.658 in 2022. The board has proposed a final dividend of £0.162 per share, bringing the total dividend to £0.21 for the year. This represents an increase of 1.9%. And the final dividend will be paid on the 24th of May to shareholders on the register on the 11th of April. Turning to our technical guidance for 2024. First, starting with P&L guidance. We expect our effective tax rate to be around 23% in 2024, including the patent box benefit. Although always subject to review by HMRC, the group remains confident that the patent box claim will proceed with an ongoing reduction of around 3% to Howdens effective tax rate. With respect to foreign exchange sensitivity within cost of goods sold, we have set out the potential full year impact of a 0.01 movement in the euro and the U.S. dollar, and that's on the slide. I mentioned earlier that events in the Middle East have increased freight costs, and we are already rerouting a significant proportion of our Far East freight, and we anticipate additional costs in the region of £5 million this year at current rates. In 2024, we will continue to carefully manage the cost base while making ongoing investments in our strategic initiatives. We expect overall investment levels will be at a lower level than last year given the successful completion of the XDC rollout. Now, in terms of cash flow items, we expect capital expenditure to be broadly in line with last year at £125 million as we continue to invest for growth. Working capital is expected to increase this year impacted by higher debtors as a result of the timing of our peak trading period, period 21. This year, the last two days of the period 21 fall into November, which means that a significant proportion of peak trading customer payments won't be due until after the year-end. We expect the overall impact at the year-end date is likely to be around £50 million. This is simply a timing issue, and overall working capital remains very well controlled. Finally, on pensions, you recall that Howdens' final salary pension scheme is closed for future accrual. At the end of March, the tri-annual valuation of the scheme was conducted and we have agreed a new deficit recovery plan with the trustees. This recognizes the improvement in the pension scheme since the previous review in 2020. Under this agreement, deficit contributions of £1 million a month will be made if the scheme moves into a deficit position on a technical basis for more than two consecutive months. This new recovery plan will run until May 2026 and compares to the previous rate of £2.5 million per month. Now the scheme is now running with a small surplus and we're currently not making any contributions. So in summary, we have performed well in 2023 in a more challenging marketplace. Our strategic initiatives remain a priority as we support our differentiated business model. This is helping us capitalize on the significant growth opportunity in our markets and is underpinned by our strong balance sheet and cash flow. We have been proactive in delivering productivity and efficiency savings, fully offsetting inflationary cost increases. And we are confident in our plans for the business and the group is on track with this outlook for 2024. Thank you. I'll now hand you back to Andrew.

William Livingston: Thank you, Paul. In reviewing our 2023 performance and plans for this year, I will use our strategic initiatives for the business as a framework. Fully aligned with our trade customer-only focus, our entrepreneurial culture and based around our core building blocks of trade service and convenience, product leadership and trade value, these are to evolve our depot model to improve our range and supply management, develop our digital capabilities and services and expand our international operations. So I'll go through each of these in turn. The first is depot evolution. High service levels, including local proximity and immediate availability are very important to our customers, and we continue to see profitable opportunities to open up depots. We are using our updated format in all depot openings. The format enables us to provide the best depot environment in which to work and conduct business and to make space utilizations and productivity gains in a cost-effective way. We opened 33 new depots during the year with a total of 840 trading at the end of 2023. Overall, we continue to believe there is scope for around 1,000 depots in the U.K., and we plan to open around a further 30 in this year. We have progressed our revamp program for existing depots. This continues to receive very positive feedback from depot staff and customers alike. And providing a trading and working environment is important to our competitive position. In 2023, we completed a further 89 revamps, that was 9 more than we initially targeted, taking the total revamp, including relocations up to 274. The revamps are budgeted to pay back costs in less than 4 years and the depot P&Ls are charged a reform at cost, which ensures depot teams are motivated to deliver the incremental sales. In 2024, including relocations, we plan to revamp around 85 more depots, which means by the end of 2024, we expect to have revamped around 54% of the 670 depots, which were opened in the old format and to have around 64% of all UK depots trading in the updated format. Secondly, I want to go on to range and supply management. We're committed to providing market-leading and competitively priced product to our customers to sell on to theirs. In 2023, we introduced 23 new kitchen ranges with a focus on making more looks and styles accessible to all budgets and continue to develop our higher-priced kitchen portfolio, including through a new paint to order service for customers buying our solid wood doors, Chilcomb and Elmbridge ranges in which the top end -- it represents the top end of our offering. We enhanced our worktop proposition with new products and industry-leading service improvements and freshened up our lineup in other product categories. Sales of new products make a significant contribution to our performance. The total of new products introduced in 2022 and 2023 represented around 22% of UK product sales and new products introduced in 2023 and the prior 2 years represented 32% of UK product sales. Sales of new products introduced during 2022 alone increased by some 34% in 2023. As in 2022, higher-priced kitchens continued to contribute more to our kitchen mix by volume than previously, which is a positive impact on our average order kitchen value. Managing our portfolio of kitchen range efficiently is crucial for both availability, which is highly valued by our customers and also for profitability. In recent years, we've reorganized our range architecture, removing duplications and improving the balance between new kitchen introductions and timely discontinuations. The more efficient ways of testing new kitchen colors and finishes we now have are enabling us to bring more proven kitchen styles to market more quickly and our new paint to order service is also informing our -- from stock ranging decisions. At the end of the year, around 60% of the kitchens available from stock comprised ranges brought to market between 2021 and 2023. And consequently, for 2024, we have a lower number of new kitchen introductions and fewer discontinuations than in recent years. We have 9 new kitchen ranges confirmed for 2024 as compared to 23 last year, and with our entire kitchen offering organized into 10 families the same as last year. Value for money is a consistent feature of purchasers buying decisions. Price featured predominantly in 2023. And given prevailing pressures on household budgets, we expected to do so again this year. Our offering is enhanced by our 2024 new product introduction program, NPI program, is well-positioned to take advantage of this. With an emphasis on value for money and choice at all price points, our NPI for 2024 includes our new kitchen ranges, which are aimed at entry and mid-price segments. We have also introduced clear and more delineated pricing within kitchen ranges and across families. And we are innovating in other product categories and have added bedrooms to our overall depot offering. In 2024, we brought to market seven new entry-level kitchen ranges, adding new frontal options, and this year adding two more Greenwich in Marine Blue and Witney in Reed Green. We are also refreshing the look of our best-selling Shaker family, which we named Halesworth and launching new mid-price Shaker family, Bridgemere. For these families, we have 6 new colors in 2024, including Halesworth in two of the best-selling paint to order colors, which are anti-gloss seafoam and in Bridgemere, in Linen and in Sage Green. In 2023, we are also continuing to develop our higher-priced kitchen portfolio, which is a large segment of the market and one in which we are underrepresented. The paint to order service for customers buying our Chilcomb and Elmbridge ranges, which we commenced offering in the second half of 2023, has been very favorably received by customers and depots alike. Priced at a premium to the 9 range colors available from stock for 2024, we're offering 15 paint to order choices from which customers can opt either to have all or just part of their kitchen furniture. For buyers looking for a more bespoke look, we believe the paint to order service is very competitively priced. And with by market standards, a short lead time between orders being placed and the kitchens being ready for delivery. A strategic priority for us is the development of a market-leading supply and fit capability for premium work surfaces. Solid surface worktops are often but not exclusively associated with the sale of higher-priced kitchens. And this product category is one with significant opportunity for us. Following the acquisition of Sheridan's work surface business and other investments in our in-house solid surface manufacturing capability, we're now amongst the largest in this in the UK The number of solid surface worktop orders taken by depots increased significantly in 2023 as we continue to improve our offer. In the second half, with the integration of Sheridan's complete, we introduced the time -- we reduced the time between template to fit at a national scale to an industry-leading 5 days. We added 9 more decors to our solid surface template and fit service. And for 2024, we have a comprehensive offering of 48 decors to suit all budgets. In 2023, we also reinvigorated our offering in other categories and innovated again in 2024. In doors, we've added more colors and bolder styles at all price points. Our new on-label flooring brand, Oak and Grey is performing very well. A new product, new flooring product for 2024 includes a leading third-party premium-priced brand, Karndean. In appliances, we further additions to our Lamona brand, which is the leading integrated appliance brand in the U.K., alongside extensions to our range of third-party branded product. And in sinks and taps, more styles, more colors and more finishes. In the later part -- in the latter part of 2023, we tested demand for new fitted bedroom ranges. And for 2024, we have bedrooms displayed and available for sale in every UK depot. Installing fitted bedroom suits the skills of our customers who fit kitchens and they have a high cabinetry content, which matches our manufacturing capability. The ranges were developed in-house, utilizing our existing manufacturing and supply infrastructure. We are offering 16 new bedroom ranges in 4 leading family designs drawn from our kitchen portfolio matched with internal accessories, including pull-down rail's internal storage. We are committed to providing competitively priced product for our customers and we've reinforced our focus on price and promotions and demonstrate the value we offer and promote footfall across the year. Howdens is an in-stock business and the trade tell us that high levels of stock availability is one of the key reasons that they buy from us. In 2023, our service level from primary to depots reached an astonishing 99.96%, a world-class performance by any standard. In 2023, facilitated by our new stock management system, which we call TED, we rolled out our Daily Traders initiative to all UK depots. Daily Traders is a means of improving customer service and increasing sales by optimizing in-stock holdings of best-selling SKUs and associated range completers. Sales of these are outperforming non-daily trader SKUs and we have seen improvements in other key metrics, including a higher proportion of stock being replenished via depot's core weekly delivery cycle. And this gives us efficiencies as it reduces utilization of our XDC service, which I'll talk about next. In recent times, we have improved stock replenishment by supplementing depot's core weekly delivery orders with investment in the next-day service via a network of 12 regional docking centers or XDCs as we call them, combined with a rebalancing of where we held stock. XDCs are a key enabler in delivering the levels of high service and availability, which differentiate our offer. The improvements to stop replenishment enable depots to hold deeper stocks of fast-selling lines, for example, Daily Traders and make it simpler and more efficient for them to deliver superior levels of service and availability and backed by certainty over lead time delivery for items that may not be held in the depot. The time spent and the cost incurred on stock management, for example, on inter-depot transfers of product or exiting discontinued stock could be reduced. And it helps to derisk depot ranging decisions, which, if you can correct, can be costly to unwind. With mainland coverage in place, our focus is now on using these assets most efficiently. The improved stock mix following the introduction of the new reorder system and the Daily Traders initiative have enabled us to optimize annualized XDC capacity. We make all the kitchen cabinets and some of the other products we sell, which is the source of a competitive advantage for us. We keep under review what we believe is best to make and by -- balanced by cost, overall supply chain availability, resilience and flexibility. In 2023, several major investments came to fruition. Production of the new furniture lines at the Howdens site, which are amongst the most advanced of their type in Europe totaled around 600,000 pieces in 2023 with a full capacity of around 2 million pieces going forward. This gives us the ability to make a variety of kitchen furniture, principally frontals and panels for more of our ranges at the same quality as we can source externally, but at a lower cost and had a reduced lead time to delivery. Our second architrave and skirting line became operational. The new line increases our capacity and broadens the range of such products that we can manufacture, enabling us to continue to service in-house, substantially all of the growing demand we see for these products. Separately, we've also invested in 2 lines to facilitate our paint to order initiative, located in a purpose-based facility near our Howdens site and the line gives us an industry-leading production capability in this area. Now thirdly, I want to turn to our digital platform. So we use digital to reinforce our model of strong local relationships between the depots and their customers by raising brand awareness to support the business model with new services and ways to trade at this and to deliver productivity benefits and more leads for our depot teams and our customers. In 2023, usage of our online account facilities, which provide efficiencies and benefits for our customers and depots alike has continued to increase. New registrations totaled some 75,000 and around 48% of our customers have an online account at the year-end. Following a substantial increase in 2022, total users viewing our platform increased by 7%, with around 75% of users regularly looking at their confidential prices. Customers with an online account on average have continued to trade with us more frequently and spend significantly more than non-users and proportionally more of them bought across our product categories. We saw high levels of engagement with our web platform and growth in our social media presence, which also stimulates interest in viewing our products and services on howdens.com. Site visits totaled 19.6 million in the year. We continue to have the highest number of fitted kitchen site visits in the UK and the time spent viewing pages and the number of pages viewed per visit were consistently high levels. Across social media, our follower base at around 554,000 was up 16% with around 5.4 million monthly engagements. As our digital presence has grown, awareness of Howdens among end consumers has increased. In 2023, our unprompted brand awareness amongst end consumers is now 31%, which is approaching 3x what it was in 2019, and we see potential for this to rise and awareness amongst end customers, too. In 2023, amongst other initiatives, we tested a digitized in-depot stock management system, which we call Live-Stock to deliver, to record delivery and picking to check allocations and to determine depot stock levels. Amongst other benefits, the systems frees up time for the depot teams to use more productively. And the system is now being rolled out to all UK depots very successfully. The stock surety live-stock system brings and other initiatives such as Daily Traders provide now enables us to offer a leading Click and Collect service to our trade customers. Completed in the coming months, online account customers for all our UK depots will be able to check real-time availability of stock on a depot-by-depot basis, place orders for collection at a time of their choosing, and in two clicks, elect to pay either when placing for the orders or simply put it on their account. Our initiatives to help end users interact with us at each stage of their buying decisions are contributing to an increase in digitally store -- sourced contacts for depots. Online sourced depot contacts on the metrics we use increased by 22% in 2023. These are a source of high-quality leads for depots and customers, including for kitchens. These are our source of high-quality leads for depots and customers, including for kitchens, a significant portion convert to kitchen sales with above average order values. And in 2024, we are looking to promote higher levels of lead generation online. And finally, international. In 2023, our operations based in France returned increased sales in a market at least as challenging as the one in the UK The kitchen market in France is worth -- is estimated to be worth around EUR 4 billion, excluding appliances, with most kitchens pressures through kitchen specialists or DIY chains. As long-term followers of Howdens will know, we tested our ability to access this sizable market in several ways before adopting the city-based approach, serving solely trade customers, led by staff and staffed by people who embrace the Howdens' way of doing business. By the end of 2022, we doubled the depots in France and Belgium to 60 in a 2-year period, and we opened a further 5 at the end of 2023. And consequently, as compared with their UK counterparts, some of the depot managers in France have fewer years of experience in nurturing trusted trade relationships. For 2024, we are focused on team development to foster these, and we're also expecting to open around another 5 depots this year. And we are investing elsewhere in the business through enhanced offerings of footfall promoting products. And in 2024, we will see regular trade days with all depots with aligned promotional activity and an increased level of supplier support. In 2023, we opened more depots in the Republic of Ireland, and we will do so again in 2024. We commenced trading in the Republic of Ireland in 2022 using a similar depot strategy to that in France with the depot teams they are supported by our UK infrastructure and our digital platform. During 2022, we opened 5 depots clustered around Dublin, and our arrival in the Irish market has attracted much attention locally. We opened 5 depots in 2023, 3 around Dublin, 2 serving Cork, taking the total to around 10 for the year-end. We're encouraged by the depot sales performance to date. And in 2024, we plan to open around 5 more depots, which had increased the total number to 15 by the year-end. So for 2024, we are well-planned as we ever have been, including on our strategic initiatives, and these are aimed at increasing our market share profitably as we deliver value to customers across all price points. High stock availability is a major contributor to our performance. And in 2024, we will continue with our safety stock policies for the most part at the end -- at the levels by volume we deployed in 2023. All of our confirmed new kitchen ranges for 2024 will be in stock by the end of June, well ahead of autumn peak trading, with an emphasis in entry and mid price points with our very competitively priced premium priced kitchens offering. We have a program of Rooster promotions in place to help Howdens to be at the front of the trades mind together with other pricing initiatives. And we will continue to make improvements to service and availability by utilizing XDCs and through our Daily Traders, live-stock and Click and Collect initiatives. We are increasing the range of services and functionality we offer online to the benefit of our depot teams, customers and end users alike. And we'll be making more product in the UK as our new production lines at Howdens move up towards full scale production, our solid surface business grows and our bedroom volumes increase. During 2024, we plan to open around 30 depots in the UK and refurbish around another 85 depots to the updated format. And by the end of 2024, we expect to have around about 70 depots trading in France and Belgium and around 15 trading in the Republic of Ireland. Lastly, outlook. Whilst it's still early days, we have made an encouraging start to 2024, as I mentioned earlier, and we are on track to meet our expectations for the business in 2024. We expect the market conditions to be broadly unchanged from those in 2023, and we are well-prepared for the challenges and opportunities that such market conditions may present. We aim to retain a profitable balance between margin and volume, and we continue to maintain competitive pricing whilst aligning operating costs and working with suppliers to keep product and input costs controlled. We are confident that the business model is the right one to address the opportunities in our market. And in summary, we're well-placed to outperform our competitors in 2024 as we continue to invest in our key capabilities and initiatives, which are pivotal to the long-term development of the business. And finally, before we take questions, I'd like to take this opportunity to thank everyone who works at Howdens, whether it's in the depots, the factories, our commercial operations, our support functions for their extraordinary commitment to providing exceptional service to our customers, which is a key component that sets us apart from so many others. Thank you.

Q - Robert Chantry: Rob Chantry from Berenberg. Three questions from me, two on the depot network and one on international. So on the depot network, could you just kind of give us an indication of the variance of contribution around the mean average from the mature depots and how that compares to history? Secondly, how do we think about the depot economics accounting for the joinery market opportunity and bedroom, et cetera? Is it effectively additive to the reported depot revenue? Or will you break it out in the future, so we can see what the contribution is? And then thirdly, I suppose you said that the French market is roughly a EUR 4 billion market ex appliances. The European revenue at the moment is about £80 million, about [Southern Ireland] in there as well, but roughly 2%. If you had to say today, what you see the medium-term scope for international depots to be based on what you know now, how would you kind of scope and size that for the medium term?

William Livingston: You can take the first, Paul.

Paul Hayes: So I was just trying to understand the first question. You're looking for the variance of the contributions across the --

Robert Chantry: Sorry. Yes. If you look at, was it 840 depots at the year-end as well, 800-or-so mature and the average revenue per depot £3 million or so. What is the kind of the range of that?

Paul Hayes: Okay. So really, you have a sort of a certain portfolio where we have new depots, maturing depots that will take. We say 7 years to mature, but actually, they continue to grow after that. So we take that time to get up to more of an average rate. And then obviously, on the mature depots, we do have some that are sort of larger that do have a higher level of sales and then many others are sort of in a tighter sort of more average range. So I think that's sort of the best way of looking at it and then just looking at how we continue to invest in new depots and how those mature over that period.

William Livingston: Regarding your second question, look, we do two jobs in depots. One is to sell kitchens, and it's our primary focus. But we are very strong joinery, flooring, skirting type business. And it's very important that we put a lot of energy into that. It drives footfall. We see customers repeating. And it gives us the ultimate opportunity to sell customers what we really want to, which is kitchen. So I don't think we will break it out. We will talk to how we progress with bedrooms. We see it as a good market for us relevant type of activity for our builders to get busy with. We're working on awareness with our builders now telling them that we've got the product. But that takes time, and we'll build it over time. We like the category because we can make it. It's the right type of work. We saw examples where builders were adding on bedrooms to kitchen orders during period 21. There's energy around the depots on it, yes, but our job is sort of day-to-day trading with builders and then taking as much as possible of the kitchen market share. Regarding international, we are excited about bringing the Howdens brand overseas. And you should never go anywhere where you haven't got a competitive advantage. And if you go and talk to our depot managers in France or Ireland, and they talk about the depth of stock that we keep in depots. It is a complete market differentiator. The market in France is quite a traditional one. It's showrooms, long lead manufacturing times, all that stuff that used to be in the UK before Howdens turned up and we think we can make a difference. So yes, your figures aren't too wrong on our international business, but we would have our sights on at least 250 depots in France should it all go to plan. I'll remind you that we've made a change in the UK, Stuart Livingstone has joined to run our UK operations, and Andy Witts become Chairman of our international business. And Andy's out there right now on the ground, working with the teams and bringing the strong operating skills he brings to bear on that business. So we'll keep going with it. Southern Ireland very exciting. I think the brand was known better in Southern Ireland because of the work we're doing in the UK We always pushed a bit over to Southern Ireland from Wales depots. But yes, we're being warmly received there, I should say.

Aynsley Lammin: Aynsley Lammin from Investec. I think I've got two, please. Just wondered if you could comment a bit on price and expectations for the full year. Have you put through a price increase this year already? Any color around there would be helpful. And then just on the comment around the outlook again, I guess, the market conditions remaining broadly similar. Are you essentially saying you expect market volumes to be flat? And I just wondered or interested to hear your thoughts around the competitive landscape. Does that get a little bit more difficult to take share? And any kind of input you could put that would be useful.

William Livingston: Yes. So I think one of the things we've done well this year is the confidence that we've got into the depots and the pricing that we've put in. So it seems to be going well. But as we always say at this point in the year, it's early stages. But I've been out across the majority of the regional board meetings that we run across the UK And we've taken live feedback from depots and prices not coming up as a concern as we compete. And as we measure our price positioning and the markets come out at one of the strongest levels we can see since we've started recording sort of price perception on us. So we feel well placed. It's early days to be saying how much of it's going to stick, not stick, but we're feeling confident about what we've done versus our competitors. And we're pleased with sort of where margins starting to place out at this early point in the year. The outlook on market conditions, it's always a tricky one after the first 2 periods. We haven't quoted our absolute figures for Periods 1 and 2 because we want the business to be profitably driving volume and pricing getting the margin in the right place for the start of the year, but we're pleased with where we stand. And confidence is high in the business. We did an event sort of Managers Conference, if you like, then in Wales and we had 1,300 people there. It was just an electric event. Our teams are absolutely on fire because I think we're pointing towards a very interesting inflection point in the market where Howdens has got its foot on the throat of many of the competitors, and we are pressing very hard at all levels, be it opening price, mid-price or offering incredible value at the top end. And we see a significant growth opportunity. So we have communicated clearly -- very clearly with our incentivized depot managers about the opportunity that exists. But -- and I'll remind you that our depot managers take 5% of our depot profit, the teams take 5% of the gross profit, and that keeps them highly aligned to what we want as a business opportunity. The teams are also very excited about the investment opportunities that we're making and what it means for their businesses. So whether it's availability of stock or they're getting a refitted depot or whether they've seen the benefits of XDC that's available to them, Click and Collect just landing now, new product coming in, add on top of that bedrooms, and they're in a very positive place. So no matter what the landscape offers, we're going to make grand this year.

Christen Hjorth: Christen Hjorth from Numis. Three questions for me. So just first of all, on the UK kitchen market. I know you've been doing a lot more work on this internally and with third parties. But could you help us put it in context of where the market is perhaps versus previous cyclical lows or versus 2019? Just a bit of a sense in terms of where we are in that cycle. And secondly, in terms of OpEx and CapEx, obviously, that's moved up quite meaningfully over recent years as you invest in initiatives. Just a bit of color about how you think about returns there? Because some of those, I suppose, returns are almost multiyear. So just how you measure progress with that investment? And then just finally, on the bedroom furniture point, just a bit of color on the market, the competition, why you think Howden is well placed because I suppose it's maybe a bit different from the kitchen market in terms of competitors that are out there.

William Livingston: Yes. Paul, do you want to go with #1?

Paul Hayes: So returns on capital and operating investment. One of the things is we track all those very closely. So all the individual initiatives or the capital investments, we focus on those. So if we're making sort of larger investments from a capital perspective, we normally expect to return in the order of sort of 20% ROCE on those sort of return on those kind of investments or pay back in the order of 5 years. But that's -- I'm talking about big plant investments, equipment that will last 20 years plus. So we feel comfortable, and it's around technologies that we understand and we can benefit from in terms of that return. If we're then looking at operating investments and strategic initiatives, I think you're very familiar with the return that we get on sort of new depots. On the revamps, we look for a 4-year payback and we're seeing that. And we track that very closely by looking at the performance of the revamped depots versus the mature depots. To put it into context, you probably need an increase in sales of sort of 3% or 4% to actually return that investment over 4 years. So that works very well. And again, we look very carefully at digital and how that's performing in terms of new customers, opportunities, and we track that in terms of our customers and that part of the thing. So I think I just want to reassure you that when we're looking at investment in the business, we can see good returns on all those investments.

William Livingston: Yes. I think just talking about the kitchen market, which is your first question, maybe picking up on an earlier question around competitors, we probably didn't answer well enough. Look, I do not hear a lot coming back from our regional boards on the competitor landscape. I hear depots citing things like I haven't seen an order coming through from X or Y competitor in a very long time. And I think it points to the strength of what we're doing, the proposition, the in-stock model. So I think we're incredibly well set with a group of competitors that are either maybe not as strongly lined up with us, if I'm being polite or very dependent on finance, which will, you know, as well as I do, the cost of doing that type of business. I would say the market -- we're looking for no help from the market this year. It's going to be self-help for us this year. It's not that well tracked, but it certainly come off since its post-peak COVID cycle. But we do not get distracted by that. We play within our framework and we think there's a lot of market share for us to take and I think it will be a year where that will happen quite significantly. Bedrooms, look, it's about a £1.2 billion-ish market. There's 1/3 of it, we're just not interested in at all. That's sort of freestanding, cheaper end. And there are businesses out there doing a good job. I'd say IKEA does a good job, but it's not at the end for the trade when it get involved. So what attracts it to us is high-quality trade products sold at fair value where builders can make a margin out of the product. So -- and we would see the competitor set us ripe for challenging. And if you're in stock with immediately available product, the fitters know the quality of the product that we do, the quality of our bedroom furniture is very strong. Yes, we'll keep on developing the story. But this bedroom furniture opportunity for us is enabled by other capabilities that we've built in the business. So we wouldn't have been able to do this without XDC.

Benjamin Pfannes-Varrow: Ben Varrow from RBC. Just first, probably on '24 in terms of OpEx inflation versus cost savings. How do you see that playing out? Next one on more short-term as well just in terms of -- I know you mentioned the like-for-likes. Is there any -- can you give any color how that compares to the last trading update? And then the third, longer term, coming back to some of the first questions in terms of depot maturities or revenue per depot. Can you give some color where you see that potentially getting to in the UK and Europe conscious of also some of the inflation that you've seen in the last couple of years as well?

Paul Hayes: So I'll do the first on OpEx inflation. As you appreciated, we've done a very good job in 2023 and offsetting that £50 million of inflation fully. As we look forward, we see sort of lower levels of inflation as a business that turns to more sort of normality. We will see some of that come through in things like salary increases, but obviously, we put a sort of a price increase that covers that. We will continue to look at sort of productivity improvements and getting the returns that we sort of touched on earlier in terms of the new initiatives. So that will remain a focus. So we will see some operation inflation sort of at a relatively modest level. I think also just while I'm talking about sort of the outlook, obviously, we invested £53 million in strategic initiatives that we sort of bridged out there. What you will appreciate as we look forward, part of that included investments in XDC, which has given us an absolutely sector-leading service sort of differentiator as we go forward. Now that's in the business. The incremental strategic investments will be more around new depot rollouts, including international and then probably around some digital. So you'll see that at a lower level, which might be in the order of £15 million lower than the £53 million that we saw in 2023.

William Livingston: Yes. Look, I suppose the comment on the LFL versus last trading update is there is a swing in the first couple of periods where positive LFL wise, we're encouraged by what's going on. When as Stuart has started taking over the reins or has taken over the reins on the 840 depots in the UK and Northern Ireland, we've been very clear on the priorities that we've set for the business, and you go to any one of our depots right up and down the country and Stuart's 3 priorities, which are the business priorities are absolutely clear. And it's about driving mature depot performance, increasing the net account base and keeping your margin in the right place for the year, and we are measuring those right up and down the business in a very forensic way and very encouraging results from that. Revenue per depot. Look, we -- I think I was out with Matthew Ingle for dinner the other night, and I don't quite believe what we're doing on a per depot basis now that we're on when you talk about some of the depots is doing the numbers that they're doing. And we talk about some depots that are still maturing, even though they were opened up about 27 years ago. And in fact, our top performing depot last year was one of the earliest actually. So we don't sort of limit ourselves by what's possible here. And again, you add in the extra services that we're doing, getting brilliant on our in-stock proposition, XDC, Click and Collect, expanding ranges, moving up into the mid and the better end of the market, we feel in a good place with that. Our builders are telling us that they are busy. That is the feedback that we get from the depots as we go around the country. And they're trusting us, I think, even more and more to do to help support their businesses to help them make money into the level of service the builders get from us, whether it's XDC providing all of the product available in full for a complete -- it is transformational when they're being served by us versus a competitor. So I've not answered your question at all, but give you some color on it.

Emily Biddulph: Emily Biddulph from Barclays. I've got 3, please. The first one, obviously, you've been sort of big beneficiaries of your own product line innovation in the last few years, and it's clearly helped you out form the market. Like do you worry that the competitors eventually catch up with you there and the sort of big step changes that you made sort of everybody else wants to come along and copy? And secondly, you talked about sort of the increase on in-house manufacturing this year. Can you remind us where you think that gets to? And sort of how we should think about that from a gross margin perspective over the next few years? And then thirdly, just coming back on flooring, I was interested that you added that branded line this year. I think in the past, you've said that you think you could be bigger than you are in flooring and you think it's quite a big opportunity. I just thought -- I just wondered if you could give us some sort of numbers around that or the rationale of adding in that branded line.

William Livingston: Look, I've always, throughout my career, talked about NPI as a percentage of sales and leaders innovate and every other person follows. So we will continue to test and innovate as we go. And for sure, people will see what we do. I've heard people say when they're going to review the ranges they look at the Howdens template, I find that a compliment. But it's one thing to try and copy and keep up versus keeping up. And we've got our Find the Gap program that we're out there all the time. We are obsessively looking at kitchens day-in day-out, whether it's trade shows, competitors, talking to our customers through builder forums, talking to our staff, and we're out there testing products all the time. So for somebody to keep up with us, I find it difficult for them to be able to do it. With the introduction of XDC, we're able to put products in depots without putting the stock associated with it. So we're so fleet of foot to be able to see that with the volume of interest that we get online, we can see where people are attracted and not attracted to our offering. So we've got proprietary information. And for what's right for our customers, it's going to be what's right for our customers and for others in the market, they have to do what's right for them. Yes, but we'll keep up the pressure on innovation. And it's very interesting when you look at one of the -- if you're one of the 5,000 independents across the UK and your business probably starts £30,000, it might go up to £100,000 on a kitchen. Well, Howdens turns up and offers solid surface, solid wood doors from [Italy 6358], paint to order, the quality of service that we offer and it's in stock and you're taking away the volume from the independents, which is an uncomfortable place for others to be. On in-house manufacturing, look, we're creating jobs in the U.K., bringing manufacturing back to the U.K., doing it for all the right reasons, is close to my heart and I know the Board as well. We are -- you go to our manufacturing and you call down the corridor, you get 40 or 45 years experience coming back at you. We are very good at this. But we've got to do it right for us. And it's a combination of sticking to our knitting and doing what we're really capable at. But we do see volumes getting up to about 50%. And we do see that as having a positive impact on gross margin. And in some of those benefits we will choose to share with customers, some we choose to keep ourselves, but it's all in a positive direction. We're increasingly doing more and more for France, where there might be some bespoke some slight differences, skirting and architrave and so on being supplied from the UK and we can do it with flex and speed far faster than others can. Flooring, I think it was one of our fastest-growing categories last year. And yes, we have a focus on it this year. It carries a lower gross margin, but we think of it as attachment to kitchen ranges. We still think there's a lot of people who have not yet taken the wall down between the kitchen and the living space. So even if the market feels like it's coming off, our builders are well placed to take down and reshape homes. And we're all spending more time at home. We're working more at home. We're interested in entertainment solutions in our living spaces and smaller office spaces. And a lot of our product ends up in rooms outside of the kitchen. And flooring, of course, goes underneath all of that. So yes, we see it as a nicely tied up opportunity. And I think we may have denied ourselves a little bit the opportunity of moving up into the better end of the market, hence, we've launched Karndean. So yes, we're #1 in kitchens. We're #1 in doors. We're very big on joinery. We're big on hardware. We slightly lack on flooring, we're probably fourth or fifth in the market. So we see an opportunity there, yes.

Clyde Lewis: Clyde Lewis at Peel Hunt. Two areas, I suppose, in terms of questions. One on the international side of the business. I think there was -- I think it was nearly a 13% drop in like-for-like, and that's obviously sort of quite a bit worse in the UK It would just be interesting to just explore the differences there and what was going on in France and Ireland last year. Second area really was around, I suppose, cash and capital returns. Paul, I will be really interested to get a sort of figure on your average monthly cash, again, sort of thinking ahead to that £50 million working capital swing and also where your thoughts are around share buybacks, sort of possible specials, just again sort of what you're currently sort of thinking, I suppose, on that line. And be partly attached to that would also be CapEx plans beyond '24. Does it step down in '25, '26 to closer to depreciation levels?

William Livingston: I'll cover off the international point. You're right. We were disappointed with our like-for-like performance in the mature depots in France. There's a very simple explanation for it. Coming out of COVID, we were growing our French business with great momentum, and we put 25 new depots on top of a base of around 40. And in retrospect, that was probably too fast. And to do that, you're moving managers around and you're promoting people to area managers and so on. And I think we took our eye off some of the mature depots. I've taken all corrective action. I've put my best operator that was -- no disrespect, Stuart. I've put Andy Witts into France who understands our -- the Howdens' way of doing things and boy, he's doing fantastic work there as Stuart did in the UK. Thank you, Stuart. And we've also put one of our area directors who is running London [Alex] out there working with the teams over there, and we're bringing -- and it's all changed. So yes, watch this space. So it's disappointing for us, but we're back in and we're stabilizing it. We'll do another roughly five depots this year and get the momentum back.

Paul Hayes: And I think on sort of the cash, cash generation, capital allocation, we generate strong cash, as you well know. And we have -- we're very committed in terms of our capital allocation policy and returning cash to shareholders not only through our progressive dividend but also through share buybacks. And just to remind you, over the last 2 years, we've done £300 million of buybacks, so pretty significant stuff. When we looked at the year-end, we're slight -- cash is slightly stronger than the £250 million that we balance things around. But as you've picked up, we were flattered slightly by that 53rd week that just gave us another week to collect receivables. So actually, that then balances out as we go into next year. So strong there and very much committed to our capital allocation policy. And as we generate cash, we will then look at that and whether we'll make more buybacks depending on the performance of the business going forward. But I feel that the business is strong. It's got a good balance sheet, allows us to invest in the company and in the initiatives. In terms of more specifically, capital, CapEx, we've guided to £125 million this year as we look forward. I anticipate sort of CapEx in that order as we go forward. And I think that sort of represents a couple of things. I think it's just the scale of the business and that's sort of a sensible level of investment for this business. And we will also look at again, investing in growth that also could be affected by opportunities around vertical integration where we might look at items that might move the cash -- the CapEx up for a period, if there was something specific that we felt would give a good return. And as I said earlier, it's quite low risk. But I think for the benefit of the model, looking forward at about £125 million, and we'll give more color as we progress year-by-year in terms of those specific levels.

Ami Galla: Ami Galla from Citi. Just 2 questions from me. The first one was on COGS inflation into '24. If you could give us some color in terms of what you're seeing across different moving parts in that? And the second one was on the sort of fitted bedroom furniture. How does the gross margin in that business compare to the average in the group? Is it going to be dilutive as we kind of grow into that market?

William Livingston: Yes. Well, the second one is easier because we manufacture quite a lot of the bedroom furniture. It's accretive margin-wise. And we'll see where we balance out from a market competitive position, but we're encouraged by early gross margins on bedroom furniture. It looks attractive. And I think some of the pricing in the market is actually very high. So yes, we'll see how we get on with that. I would say on sort of COGS inflation, it's easing a wee bit but not everywhere. We're still in the middle of buying vendor agreements. We've got a suppliers conference that we will do later on this year, but not anything like the same level of pressure on price, but it's not in every commodity. Do you want to add some color?

Paul Hayes: Yes. And I'll just have a little bit more color on that. I think things like metals coming down, that's helping us a bit. But an important thing it seems like chipboard, MDF, that's sort of moving the other way as is paper, hardwood, again, on doors is coming down. So you see a sort of a blend of movements there. But I think we're seeing these at much lower levels than we saw over the last couple of years, and I feel comfortable where we are in terms of margin, in terms of the pricing we're putting through and how we're managing that with very, very strong relationships with our suppliers.

William Livingston: And I'd add to that a number of the suppliers in Europe where we would buy product from are faced with quite a challenging European market, somewhere like Germany not doing well. So they're chasing after volume. And when you're looking across Europe and you see Howdens growing, investing, taking share, they want to support us. So there's that dynamic too.

Samuel Dindol: Sam Dindol from Stifel. A couple from me, please. Firstly, on digital, are you able to give a sense of how lead conversion is trending now in the last couple of years and how that would compare to the traditional channel? And then secondly, on paint to order. Are you able to give a sense of sort of the price differential using now service versus not and if the design is incentivized to get people to do that route?

William Livingston: Yes. So look, the best way we can convert a kitchen lead is when a builder brings an order into a depot, it's prescreened. It's almost in the bag, if you know what that means. It's sort of an 80% conversion rate. When we harvest digital leads online, which David and the team have done a fantastic job on. So there's an increasing number of leads coming in online, we look at ways of refining them and how much detail we get before we enter into conversation with the builder. But a guide would be something like half that in terms of conversion leads online. So the depots get very excited about the amount of leads coming in online. I was in three depots yesterday, Woolwich, Sidcup and Bromley and Bromley took me aside to try and tell me what a difference it was making online and could the team continue to do it. And that's probably the asset. Truth, you do not want to waste our depots teams on tire kickers, if you like, and they're reporting far less tire kickers in the market this year. On paint to order, it does offer a premium price, then it's around about 10%, 15% on price and customers willing to do that. They tend to add color into the kitchen. They'll do an island or a larger unit in a different color. So yes, we're happy that the margin covers the investment, and we think that investment looks pretty strong. And again, it's an activity that we've had to build capability in because we're an in-stock business, and this is not ex-stock. So when Julian was running this through peak last year and demand is quite high in period 21, we were able to predict and spray ahead of time items that we knew would be high volume to take pressure off the factory. But we're learning as we get along and service levels to depots are fantastic. I think we'll call it a day there. You've given us a lot of your time. Thank you very much indeed.

Paul Hayes: Thank you.