Howden Joinery Group Plc Annual Report and Accounts 2015 Annual Report and Accounts 2015 …that has remained unchanged in good times Howden Joinery Group Plc Annual Report & Accounts 2015 and bad since we started the business in 1995: 01 The strategic report, directors’ report 02 and governance statements The strategic report Chairman’s statement 04 Chief Executive’s statement – our business model, market and strategy 06 Review of operations and finance 12 Going Concern, Viability Statement and other Statements of the Directors in connection with this Annual Report and Accounts 17 Principal risks and uncertainties 19 Corporate social responsibility 23 Directors’ report Board of Directors 36 Directors’ report 39 Governance statements Corporate Governance Report 41 Report of the Remuneration Committee 47 Audit Committee Report 67 Nominations Committee Report 73 The financial statements Consolidated income statement 78 Consolidated statement of comprehensive income 79 Consolidated balance sheet 80 Consolidated statement of changes in equity 81 Consolidated cash flow statement 82 Notes to the consolidated financial statements 83 Independent auditor’s report to the members of Howden Joinery Group Plc 123 Company balance sheet 127 Notes to the Company balance sheet 128 Parent company and subsidiary undertakings 132 Five year record 133 Shareholder ranges 134 Advisors and committees 135 Corporate timetable 136 Howden Joinery Group Plc Annual Report & Accounts 2015 REVENUE OPERATING GROSS 03 (UK) PROFIT MARGIN £1,203.8m £221.9m 64.3% (2014: £1,075.5m) (2014: £189.8m) (2014: 63.7%) YEAR END EARNINGS FULL YEAR CASH PER SHARE DIVIDEND £226.1m 27.3p 9.9p (2014: £217.7m) PER SHARE PER SHARE (2014: 24.6p) (2014: 8.4p) Chairman’s statement CONTINUING STRONG PERFORMANCE This is in addition to the £70m share repurchase programme 04 Over the last two decades Howdens has evolved and grown announced in February 2015, which has already returned to become the leading supplier of kitchens in the UK, focused £45m to shareholders. on providing good service to small builders and value to all concerned. By following the precepts of a sound business THE IMPORTANCE OF HOWDENS’ CULTURE model the company has survived and thrived in widely varying The principal reason for Howdens’ continuing success is its market conditions and created an excellent platform for unwavering adherence to its fundamental values of integrity, further growth. fairness and respect for others. The business has a strong and distinctive culture – local, personal and entrepreneurial – that I am pleased to report that your company had another very allows the individual to flourish and encourages exceptional good year. Following an outstanding performance in 2014, performance. This culture of service and opportunity has we reported a sales increase of 12%, together with a further stood Howdens in good stead and will continue to do so as increase in gross margin to 64.3% and continuing strong the business grows. cash generation. Howdens’ character and culture, which set the business apart Our goal as a Board has always been to make the right from its competitors, have been ably nurtured by a strong decisions based on the long-term opportunities for the executive management team under the leadership of Matthew business. We are clear that, in order to fulfil its considerable Ingle. Their stewardship of Matthew’s original vision and their potential, Howdens must continue to invest in both capacity collective commitment to the continuing evolution of the and capability through the economic cycle. A programme of business mean that Howdens is well placed to go forward ongoing investment is under way across the Group, including with confidence. in manufacturing, warehousing, distribution, depot operations and organisational development. While the phasing of BOARD CHANGES this programme will take into account prevailing economic After nearly ten years as Chairman of Howdens I will be retiring conditions, we view it as an essential strategic undertaking from the Board in May 2016. It has been a great privilege to that will support sustained growth and value creation in the chair the Board of this unique business and to be involved in years ahead. its remarkable story. In light of our performance and of our confidence in the In Richard Pennycook the Board has chosen an extremely prospects of the business, the Board is recommending a final able and experienced Chairman as my successor. Richard dividend of 7.1p, bringing the dividend for the year to 9.9p already knows Howdens and its culture, and shares both (2014: 8.4p). This is in line with our stated dividend policy, the commercial acuity and the values that underpin its past, which is set out in detail in the Review of Operations and present and future performance. I wish him every success in Finance on page 13. his new role. In addition, we have decided to return a further £55m of cash In July 2015 we were pleased to welcome Geoff Drabble to the to shareholders by way of a share repurchase programme Board as a Non-Executive Director. Geoff is Chief Executive to be implemented over the course of the next two years. Officer of the international equipment rental company Ashtead Howden Joinery Group Plc Annual Report & Accounts 2015 Group plc, and his experience of a business where local, The generosity of spirit they display beyond the workplace timely, personal service is of prime importance brings a makes a tremendous difference to the lives of many people. 05 directly relevant perspective to the Board. In 2015 our employees across the business were responsible for over 3,600 donations, in cash and in kind, amounting to a In December 2015 we were also pleased to appoint Andrew value of £1.9 million. The full extent of our involvement in local Cripps as a Non-Executive Director. Andrew is a Non-Executive communities is detailed in the Corporate Social Responsibility Director of Booker plc, and Chairman of its Audit Committee. Report, beginning on page 23. His extensive Board experience, and audit committee expertise in particular, will make a strong contribution to In the same Report we describe what we have done and are Howdens as it grows in reach and scale. Andrew will take over doing to fulfil our responsibilities as corporate citizens in the as Chairman of the Audit Committee from Richard Pennycook broadest sense. Howdens aims to promote safety, energy- at the Annual General Meeting in May 2016. efficiency and environmental awareness, and recognises the importance of training, development and opportunities for Michael Wemms, who has given over nine years of unstinting young people, because all of these things directly reflect our service to the Board, has overseen the process of the own values. appointment of a new Chairman. Given the extent of changes to the Board, and in the interests of continuity, he has agreed LOOKING AHEAD to serve as a Non-Executive Director for one more year. We will Howdens is facing the future from a position of stability and endeavour to use the opportunity of Michael’s retirement from strength. It has a capable and experienced management the Board to increase the diversity of our membership and team who are implementing a proven strategy that will deliver further enhance the mix and balance of background, skills further growth. We remain watchful, given the increased and experience that are represented. uncertainty surrounding the economic outlook. The path Howdens is following is one which allows both continuity and GOVERNANCE change. The business has the resources, the culture, the skills We aim to uphold high standards of governance in a and the strategic flexibility to allow it to take advantage of the constantly changing environment where perceptions, as well many opportunities that lie ahead. as regulations, continue to evolve. Our Corporate Governance Report on page 41 sets out our procedures and reports on our compliance record throughout the year. Will Samuel Chairman PEOPLE AND RESPONSIBILITY Howdens’ people embody the idea of local service, both 24 February 2016 for our customers and for the wider community. They have maintained this ethos under pressure and in the context of a rapidly growing business that makes more demands on individuals, and confers more responsibility on them, than ever before. On behalf of you all I would like to thank them for their outstanding efforts on all fronts in 2015. Chief Executive’s statement OUR MODEL 06 Wanting everyone to do well We’re always ready Howdens is a highly successful business, with 623 local Howdens is a trade-only business, offering nearly 60 depots, over 360,000 active customer accounts and over kitchen ranges from local stock, together with accessories, 8,000 employees who are looking forward to a future of appliances, sinks and taps, worktops, flooring, lighting and opportunities for themselves and their families as well as hardware, and a range of joinery including internal and for the business. external doors, skirting and stair parts. Howdens is always in stock locally, and everything can be picked up from our Looking back, it may appear that Howdens was always local depot – there’s no waiting for items to be ordered, or destined to get to this point and beyond. But in 1995, when replaced, or swapped, or brought back. the business started, nothing was predetermined. Howdens’ success did not happen by accident, and it was neither We help builders make money obvious nor easy. Howdens’ in-stock model allows the small builder to plan and sell a kitchen and fit it when he wants to do so. Our skilled The growth and development of Howdens have been driven planners help the builder to secure the job in the first place. by its model, culture and values, which remain as relevant as An expert, accurate plan ensures that everything will look good they have always been.