Howden Joinery Group PLC

LSE:HWDN

Earnings Call Transcript 2022-Q4

[Andrew Livingston, Chief Executive Officer]

Good morning, everyone. Lovely to be back in a room and seeing everybody face-to-face. Welcome to the Howdens 2022 Results Presentation. I'll begin by introducing our performance for the year. Paul Hayes will then review our financial results for the period. I will then share my perspective on 2022 performance and our plans for 2023, and then we'll take your questions.

2022 was a successful year for Howdens. We are reporting record sales and profits for the year. And with our continued program of investment in our key capabilities, we now have end-to-end a stronger business that we had in pre-COVID times. Group sales rose around 11% on 2021 and 46% on 2019 being the year prior to the onset of the pandemic, and our market share increased.

We consolidated the step change in profits achieved in 2021. 2022 profit versus 2019 increased 56%, a higher rate than for sales, and our gross margin was similar to last year's as we mitigated significant input cost pressures with disciplined pricing. Our builders remain busy, and we made good progress on our strategic plans, both for the U.K. and for international operations whose sales continue to increase.

The business delivered strong cash flow, and we continue to maintain a robust balance sheet. This gave us flexibility both to invest in our growth plans for the business, at the same time, provide shareholders with enhanced cash returns in the form of increased dividends for the year and a £250 million share buyback program, which was completed in the period.

You will see from the RNS announcement that we've moved on with our ESG agenda. In 2021, we achieved carbon-neutral manufacturing at our Howden and Runcorn sites. In 2022, we maintained zero waste to landfill across all manufacturing and logistics with our depots reaching 99.7%.

In October 2022, 96% of our U.K. depots switched to using renewable energy generated in the U.K. primarily from wind, solar or hydropower. And we've committed to developing our net zero targets with the science-based targets initiative, signifying our intention to reduce significantly our emission throughout our supply chain and to achieve net zero by 2050, having half our direct emissions by 2030.

The results demonstrate the strength of our local trade only in-stock model, and we believe we took market share again this year following the gains we made last year. A strong product lineup, high stock availability, industry-leading service levels, a very engaged team, have all contributed to our performance, which benefits from the ongoing investments in our customer-focused strategic initiatives.

In 2022, our customers on average spent more with us than in 2021, and we had a number -- a record number of customer accounts at the year-end. We also increased our prices, which helped us defray most of the significant rises in input costs across the year as well as protecting gross margin, the business delivered annual volumes well ahead of pre-COVID times.

Sales for our peak autumn trading period, which for us comprises periods 10 and 11 were the highest ever, with our supply operations delivering an exemplary level of service to our depots. Given prevailing macroeconomic circumstances and ongoing inflationary cost pressures, we're expecting a more challenging marketplace in 2023. However, we have prepared for this and our customers who are mainly self-employed people are adept at managing their businesses through 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 business model is the right one to deliver sustainable market share gains across changing market conditions. Our model is difficult to replicate and compete with. And we have initiatives in place to make it more so in markets where the long-term opportunities for us are larger than previously thought. We are prioritizing investments in the business on this basis.

Now I will update you on our strategic initiatives, which are key to the longer-term development of the business after Paul has taken you through our financial results for the year. So I'll hand over to Paul. Thank you.

[Paul Hayes, Chief Financial Officer]

Thank you, Andrew, and good morning, everyone. I'm pleased to be presenting Howdens' financial results for the 52 weeks ended 24th of December 2022. We delivered another strong set of results this year building on the excellent performance we achieved in 2021. Overall, group sales increased by 11% as we supported our trade customers with a market-leading product range, excellent stock availability and outstanding customer service. Sales were significantly above pre-COVID levels, and we've continued to take market share and maintain our sector-leading margins. We also successfully navigated high levels of inflation and ongoing supply chain disruption given the continued headwinds from an uncertain macroeconomic environment.

Gross profit was £122 million ahead of 2021 of £1.4 billion. The lower percentage gross margin of 60.9% was predominantly due to the successful growth of our solid work surface business given the lower gross margin percentage on these products. Despite high levels of ongoing inflation, we have continued to recover increases in commodity costs, freight and energy costs through price increases.

Operating costs of £996 million included inflationary cost increases and our ongoing strategic investments to drive growth. I will provide some more color on this little later. As a result, we generated an operating profit of £415 million, up from £402 million in 2021 and 60% ahead of our pre-pandemic levels in 2019. Our operating margins were 17.9%.

After net interest charges, profit before tax was up £16 million, at £406 million, 56% ahead of 2019. We incurred a tax charge of £31.6 million in the period. This included the impact from the previously announced patent box claim, which we submitted to the HMRC during 2022. The claim includes some catch-up and benefits relating to prior years, which significantly reduced the overall effective tax rate for 2022. I'm pleased to say that if the claim is approved by HMRC, it will also have an ongoing benefit to our effective tax rate, and I'll describe this a little later. After all these items, profit after tax was £374.2 million.

So let's look at revenue in a bit more detail. Howdens U.K. revenue increased by 10% to £2.3 billion on a total basis and was up 7.7% on a same depot basis. The U.K. results reflect both underlying growth across our depots and the benefit of new and revamped depots. The highlight was our record performance during the peak trading period in the autumn.

This showed the benefit of our vertically integrated model and the scale of our distribution and supply chain operations. We support our customers with availability levels above 99%. This was despite a busy selling period. This has been possible from our investments in inventory and cross-docking logistics that Andrew will update you on later.

During 2022, we have continued to grow sales of our entry-level and midrange kitchens, while expanding our ranges of higher-priced kitchens, where there remains a significant opportunity to take market share from independents. Our investment in our solid work surface offer and further manufacturing capacity has been an important contributor to our success this year.

In the international depots, we generated revenue of €74 million, which was a 40% increase from 2022, and that's after adjusting for the closure of five French depots. Our focus here remains on building out the successful Howdens' model in major cities, and we are making good progress with our strategy. We also opened a business in Dublin, and we're excited about the opportunity to expand our footprint in the Republic of Ireland.

Now moving on to profit before tax. Bridging from 2021 PBT of £390 on the left, you can see we grew PBT by £16 million to £406 million in 2022. Gross profit increased by £122 million with similar volumes to last year against the record prior year comparatives. The solid work surface business grew strongly following the acquisition of Sheridans last year, and the business has added significant capacity.

To remind you, solid surface products have a lower gross margin percentage, but an attractive cash margin given the higher order values. We were very effective in implementing price increases early in 2022, ahead of ongoing inflationary product cost increases. You can see on the slide that price benefits of £195 million more than offset product cost increases of £68 million.

You may recall that the first half margin benefited from the -- these early price increases ahead of cost increases. As anticipated, there was an element of catch-up of costs coming through the P&L in the second half, which resulted in the margins normalizing. Cost increases have included higher commodity costs, freight and transportation and energy costs, and these were partially offset by operational initiatives and efficiencies.

Operating costs increased by £109 million as we continue to support our ongoing investment in our strategic initiatives. We've broken this out in the next slide. We have invested significantly in driving our strategic initiatives. Bridging from left to right, the incremental cost of the 13 new U.K. depots opened in 2022 and the 31 depots opened in 2021 totaled £17 million.

Costs in older existing U.K. depots increased by £42 million over the period, about half of the increase was a result of higher inflation, which included labor, energy and other depot-related costs. We also brought forward the 2022 salary increases into the first half to support our employees. In addition, we made a one-off payment of £500 to these -- to those employees, most affected by the cost of living crisis. This investment of £7 million was the right thing to do to support our employees during a difficult time.

Warehouse and transportation costs were £31 million higher as we continue to support our in-stock model. This includes our investment in additional warehousing capacity to support growth and regional cross-docking centers or XDCs, they improve product availability across our ranges.

XDCs represent about half of the overall investment. And given the rise in energy prices, we have also incurred higher transportation costs with increased fuel prices. We also continue to make further investments in digital, helping customers with new, more flexible ways to trade with us.

We invested in our international businesses by opening 25 new depots in France this year, concentrating on the Paris metro area. We're also now are now expanding the depot network into other major cities such as Lyon and Marseille. The £8 million increase also includes the cost of the 10 depots opened in France during 2021 and our five new depots in the Republic of Ireland.

Now moving on to tax. You will recall that we made a patent box claim last year, and we can now provide some more detail. In recent years, the U.K. government has introduced the patent box tax relief scheme to encourage companies to develop and commercialize intellectual property. The scheme allows a reduction in corporation tax when a company earns profits from patented inventions.

In 2017, we submitted a patent for a multipart adjustable leg made from recycled plastic, which we now use on all of our cabinet ranges. This patent was granted in 2020, and the picture here shows a kitchen with the plinth removed so you can see the adjustable leg. The product is strong and robust, so that heavy cabinets can be moved across an uneven surface without the legs breaking when they're fitting the kitchen. They are also quick to install and easy to adjust.

Under HMRC guidelines, companies can claim tax relief the time that a patent is in force up to a maximum period of 20 years from the date of filing. We have worked with advisers and the tax authorities to determine the most appropriate structure for that claim. Now in line with the accounting guidance, IFRIC 23, we have now included the tax impact of the patent box in the financial statements.

There was a catch-up element to the claim and a total tax benefit of £36 million has been recognized for the financial periods 2017 to 2021. The success of the patent box claim and the amount set out in the 2022 financial statements will need to be accepted by the HMRC. But as we consider it more likely than not to be successful, we have accounted for the claim, which is in line with IFRIC 23.

Going forward, assuming current prevailing tax rates, we expect the patent box to reduce our effective tax rate by around 3% in future years. The cash benefit will be realized once HMRC has approved our claim, we will provide further details on the timing once this becomes clear.

Now moving on to cash flow. From an opening cash position of £55 million, we ended the period with £308 million of cash and net cash outflow of £207 million. You can see from the slide that this was mainly due to the shareholder returns of £365 million, including dividends of £115 million and the £250 million share buyback.

Overall working capital increased by £52 million to support continued high levels of business activity. Stock increased by £70 million as we continue to hold higher levels to underpin our in-stock business model. Now more than half of that increase is due to inflation. Debtors were £24 million higher than at the previous year-end, reflecting the sales growth and the ageing is in good shape. This was offset by higher creditors of £42 million.

Capital expenditure totaled £130 million and included depot expansion and revamps and investment in our supply chain and manufacturing sites. This also includes expanding our digital capabilities and new depots in France and the Republic of Ireland. You can also see the cash outflow of £25 million related to the purchase of Sheridans solid work surface business, which we completed in February 2022. This included £10 million to acquire the site. There was a cash outflow of £115 million for the 2021 final dividend and for the 2022 interim dividend.

Now turning to earnings per share. EPS in 2022 was strongly ahead at 65.8p, which compares to 53.2p in 2021. This includes the impact of the patent box claim and the reduced share count from the share buyback.

Turning to dividends. As a result of the group's strong performance in 2022 and our confidence in the outlook, the Board has proposed a final dividend of 15.9p, which brings the full year dividend to 20.6p, which is an increase of 5.6%.

Now turning to our technical advice for 2023. Firstly, as previously identified by many of the analysts, we have a 53rd week. Now this falls during the Christmas period when our depots are closed, so there are around £17 million of additional costs, but no incremental sales. The ongoing P&L impact of the patent box is worth a 3% reduction in the tax rate, and we would expect an effective tax rate of 22%.

In 2023, operating expenses will include the full year impact of inflationary cost increases and our ongoing investment in our strategic initiatives. This includes new depot openings, expanding our manufacturing and supply chain, including XDC, ongoing digital investments and new depot openings in France and the Republic of Ireland.

Foreign exchange moved against us in the second half of 2022, and you will see the potential full year impact of a $0.01 movement in the euro and the U.S. dollar that's shown on the slide. In terms of cash items, we'd expect capital expenditure to be broadly in line with last year as we continue to implement the strategy. Most of the investment is going to support the strategic initiatives.

And moving on to pensions. You'll be aware that we have a large final salary scheme, which is closed for future accrual. The scheme moved to a small deficit on a technical provisions basis at the end of 2022. Should that position continue, we will need to contribute £2.5 million per month into the scheme, up to -- which would be up to £30 million in the full year.

And finally, capital returns. In addition to the ordinary dividend, we're also today announcing a £50 million share buyback program. This is in line with our capital allocation policy, which I'll cover on the next slide.

Our capital allocation policy is unchanged. We focus on achieving sustainable profit growth by investing in and developing our business. We also want to maintain and grow our ordinary dividend in line with earnings to reward shareholders with an attractive ongoing income stream. After allowing for these uses of cash, Howdens remains committed to return any surplus capital to shareholders. Our policy is to distribute net cash in excess of £250 million to shareholders on an ongoing basis. And we are confident with this level of cash, the balance sheet will remain strong.

So in summary, we've made great progress in 2022. We've delivered strong financial results and are making good progress on our strategic initiatives. Our balance sheet and cash flow supports our continued investment in the business and growth as well as providing attractive returns to shareholders. The business enters 2023 in great shape, and we remain confident in our business model and our ability to continue to make good progress in the year ahead.

Thank you. I will now hand you back to Andrew.

[Andrew Livingston, Chief Executive Officer]

Thank you very much, Paul. As I mentioned in my opening comments, we believe the opportunity for the Howdens model are greater than previously thought, and we're investing in the business accordingly. Definitions and estimates of the size of the U.K. market vary. However, based on our proprietary research, we think a reasonable estimate for the market as we think about it, is around about €7 billion by value as of the end of 2022. This is larger than we had assumed previously and gives us plenty of room to increase our market share.

Similarly, for other product categories, which include joinery and hardware, we now think that the value of our addressable market is some £4.5 billion with our share of such categories lower than in our kitchen share. Prior to any changes in market volumes, this gives us total addressable markets of around £11.5 billion versus the €2.26 billion of U.K. sales that we achieved last year.

Turning to our 2022 performance and our plans for 2023, I will use our strategic initiatives for the business as a framework. These are fully aligned with our trade customer only focus, our entrepreneurial culture and based around our core building blocks that are providing trade service and convenience, trade value and product leadership. So these four initiatives are to evolve our depot network, improve our range and supply management, develop our digital capabilities and services and expand our international operations.

So the first strategic initiative is developing our depot network. 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 new depots. We are using our updated format for all depot openings. This enables us to provide the best depot environment in which to conduct and work businesses and to make space utilization and productivity gains in cost-effective ways by utilizing vertical racking in the warehouse sections of the depots. In 2022, we opened 30 depots, taking the total to 808 by the end of 2022. Overall, we believe there's scope for around 1,000 depots in the U.K., and we plan to open around 30 depots in this year.

These will include some of our smaller size formats that we tested in 2022, utilizing our next-day delivery distribution system, which we call XDC, to support in-depot stock holdings. The smaller version enables us to open a depot in places lacking suitable properties to accommodate a standard-sized depot or to open up an infill area to provide more local service in less densely populated areas.

We progressed our revamp program for existing depots, which continues to receive very positive feedback from depot staff and customers alike and providing such a trading environment and working environment is very important for our competitive positioning. During 2022, including relocations, we reformatted 82 depots, taking the total number of revamps to a total of 185 for the year -- for year-to-date. The revamps are budgeted to pay back in less than four years, and the depot P&Ls are charged a reformat cost, which ensures the depot teams are motivated to deliver incremental sales.

As we revamp more of our estate, we are modifying the scale and scope of the revamps at depots with relatively lower catchment areas so as to maintain the incremental returns. Including relocations, we plan to complete revamps of around 80 more depots in 2023 and to rerack warehouses to some more without concurrent modifications.

By the end of 2023, we expect to have revamped around 40% of those depots, which opened in the old format and to have around 50% of all U.K. depots trading in the updated format. The next strategic initiative is range and supply management. And we're committed to providing market-leading and competitively priced product for our customers to sell on to their customers.

New products launched in 2022 included 21 new kitchen ranges with an emphasis on higher-priced kitchens and are making our most popular styles accessible to our budgets. We innovated in other categories, for example, joinery, which also attracted footfall and can lead to increased kitchen sales.

Sales of new products made a significant contribution to our 2022 performance. Total sales of new product introduced in 2021 and 2022 represented around 22% of U.K. product sales. Sales of new products introduced last year increased by 69% in 2022 and first year sales of new products were up some 11% on first year sales of new product last year.

Higher-priced product contributed more to our kitchen mix by volume than in the same period last year, and the change in mix contributed to the increase in our average kitchen invoice value. Disciplined range management is crucial for both best availability, which is highly valued by our customers and for profitability.

In recent years, we have organized -- reorganized our range architecture, removing duplications and improving the balance between new kitchen introductions and timely discontinuations. We have also introduced a more efficient way of testing new kitchen colors and finishes, which we call Find the gap, which has enabled us to bring more proven new styles of kitchen ranges to market more quickly.

In 2023, we will have more entry and mid-priced kitchen ranges, and we are expecting the number of current ranges available to all depots to be around about 90 organized into 10 families. Value for money is always at the forefront of most purchases buying decisions and is likely to be never more so than in 2023 with some choosing to reduce their overall spend on the kitchen or to reallocate how they spend their budget, for example, between range worktops and appliances.

Entry-level kitchens have traditionally been our strongest performers and sales volumes of such kitchens are a major contributor to keeping our unit cost of manufacture low. For 2023, we are increasing the net number of ranges aimed at this and the mid-market segments, making more kitchen looks and styles accessible to all budgets. We're extending our entry ranges with more color options, including Greenwich in Reed Green, Witney in Pebble, Navy, Allendale in Dusk Blue, and we have new frontals for Greenwich and Witney to match the Croft Grey cabinet that we are introducing this year.

We are refreshing the look of our bestseller kitchen shaker family, which is -- which we have named Halesworth and we are adding a new mid-priced beaded shaker family Bridgemere initially available in three colors. Recent introductions of higher-priced kitchens have proved very popular. And in 2023, we were refreshing our offer to these market segments, but keeping to a similar range count to last year and the same number of families. New colors for 2023 include Hockley, both in black and Fir Green and Chilcomb in Marine Blue, and we have easier to fit handlers range look often associated with the High Street independents.

In February 2022, we acquired Sheridans, a long-established and leading industry specialist for the manufacture, fabrication, laser templating and installation of premium work surfaces. The acquisition has helped us accelerate our plans to develop Howdens work surfaces as a market-leading supply and fit business in a growing segment of the market in which we are underrepresented.

Bringing more of our solid surface capability in-house simplifies the delivery of the service, gives us more control over it and brings associated cost benefits. Our in-house solid surface capacity is now amongst the largest in the U.K. The number of solid surface worktop orders increased significantly in 2022. And for 2023, we're adding six more color decors to our solid surface template to fit capability.

For 2023, we've reinvigorated our offering in other categories. For example, in doors with more styles and builder with more color and builder styles at all price points. To flooring, including the launch of a new in-house brand, Oak and Grey, in appliances with further additions to our Lamona brand, which is the leading integrated appliance brand in the U.K. alongside extensions to a range of third-party branded products. And in sinks and taps, there's more styles, colors and finishes.

We are committed to providing competitively priced products for our customers, and we have reinforced our focus on price and promotions, which demonstrate the value we offer and promote footfall across the year. Howdens is an in-stock business and the trade tell us that the 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. We have long-term relationships and agreements with many of our suppliers and being a manufacturer ourself, helps us anticipate potential issues with our supplier factories.

We manage the inbound logistics for 75% of our bought-in SKUs from factory gate, which improves our visibility of how this stock is flowing through the supply chain, and we use multimodal freight routes to minimize disruption and optimize delivery times. In 2022, we continue to hold enhanced safety stock as a contingency against unexpected demand patterns and interruptions to supply with heightened emphasis and stock manufactured in-house.

As a result of improved supply chain stability, we will continue to operate with enhanced safety stocks in 2023, but at more normalized levels by volume than in recent years. We have improved in stock replenishment by supporting the depots core weekly delivery through investment in a next-day delivery service via regional cross-docking centers or XDCs and by rebalancing where we hold stock across the estate.

Feedback from depots and customers using the service has been extremely positive, and we see XDCs as an enabler to delivering the high levels of service and availability, which differentiate our offer. The improvements to stop replenishment enable depots to hold deeper stock of faster selling lines, make it simpler and more efficient for them to deliver superior service levels and availability backed by certainty over lead times.

The time spent and cost incurred in stock management, for example, on intra-depot transfers of products and exiting of discontinued products are reduced, and it helps to derisk depots ranging decisions, which if incorrect can be costly to unwind. We have developed this capability with third-party logistics partners and in the main using their facilities and infrastructure. By the end of 2022, the service is available to 711 depots, up from 400 at the end of 2021. And in January 2023, the services extended to Scotland and is now operating across all mainland regions supplied by a network of 12 XDC.

We keep under review what we believe is best to make or by balancing cost with supply chain availability, resilience and flexibility. In 2019, investment in manufacturing technology enabled us to make the doors for a popular Hockley kitchen ranges. Since then, we have invested in new lines which will enable us to make doors and panels for more of our kitchen ranges, at the same quality as we can source externally, but at a lower cost and at a reduced lead time to delivery.

The new lines, located in our Howden site, commenced manufacturing and we'll be ramping up to fuller scale production during the course of 2023. Our second architrave and skirting line is also now operational, enabling us to service in-house more of the substantial increase in demand that we've seen for these products and for which we are extending our offering in 2023.

The supply of kitchens to trade is Howdens' principal activity, and we make all the kitchen cabinets and some of the other products we sell, which is a source of competitive advantage for us in several ways. Last year, we announced our intention to extend over the next few years, the kitchen manufacturing facilities at our Howden site. We are progressing our investment plans to do this, which will enable us to increase our kitchen manufacturing capacity to make more kitchen furniture within our core competencies, including doors and more finishes and to configure some of the associated infrastructure.

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, to support the business model with new services and ways of trading with us and to deliver productivity benefits and more leads for our depot teams and our customers.

In 2022, usage of our online account facilities, which provide efficiencies and benefits for customers and depots alike has continued to increase. New registrations totaled nearly 80,000 and around 45% of customers have an online account by the year-end. Average weekly log-ins to our trade platform increased by 49%, with around 75% of users looking regularly at prices. Customers with online accounts have an average trade with us more frequently and spend significantly more than nonusers, and proportionately more of them brought across more product categories.

In 2022, we added capabilities to our trade platform, including new app-based functionality, and we'll continue to do so again in 2023. We launched our trade app, which puts more of the local depot in a builder's pocket. The app replicates core features of the online trading platform, including a user's account details and credit status and makes these readily accessible to them at any time. Users can view their open orders and new features include rapid check-in as a depot, order status updates and easy auto collection functionality. Around 20% of our regular users of the digital account traders are now using the app.

Capabilities we've added in recent times are helping end users interact with Howdens online at each stage of their decisions. Creating higher quality leads for our designers and customers. The content on real kitchens, which utilizes user-generated content to showcase Howdens' kitchens in people's homes is being used frequently by both consumers and our designers, and there are now some 3,400 images to view.

Our Kitchen visualizer is raising end user familiarity with our kitchens, our appreciation of their priorities, leading to higher-quality contact with our kitchen designers. The market-leading search functionality, we now have, enables users to find what they're looking for much more efficiently to the benefit of our teams, to their customers and end users alike.

We continue to see high levels of engagement with our web platform and growing in our social media presence, which also stimulates interest in viewing our products and services on Howdens.com. Impressions were present in 15% more organic search results a month and site visits totaling 21 million. The time that users spend looking at pages increased 51%, and the number of page viewed per session was also up.

Across social media sites, our follower base at 455,000 was up some 14% with 1.6 million users actively engaging monthly. As our digital presence grows, awareness of Howdens amongst end consumers has increased. In 2022, our unprompted brand awareness amongst end consumers was 24%. That's around twice what it was in 2019, and we see potential to raise awareness to higher levels.

In 2023, we'll be adding new service and capabilities to our trade platform, which collectively improved stock and account knowledge, promote frequency and ease of trading and reduced time-consuming manual tasks in depots, including stock allocation. These range from a new multi-list feature, which gives visibility of date saved for future projects, enabling depots to prioritize leads on a daily basis and customers to manage all their jobs and to use digitized in-stock management system to record and pick deliveries, check allocations and determine stock -- depot stock levels. We will have more digital content for end users, including kitchen trends and Howdens around the home, which feature insights from influencers, tips and tricks, makeovers and product spot lights.

The final strategic initiative is international. Our operations based in France continued to make progress in 2022. The kitchen market in France is estimated to be worth around £4.3 billion, excluding appliances, with most kitchens purchased through kitchen specialists or DIY stores. As long-term followers of Howdens will know we tested our ability to access this sizable market in several ways before adopting a city-based approach, serving solely trade customers, led and staffed by people who embrace the Howden's way of doing business. The performance of the refocused business gave us confidence to open more depots. And by the end of 2022, we doubled the depots trading in France and Belgium to 60 in a two-year period, with around half of these located around the Paris area.

We believe appreciation of the advantages of our trade-only in-stock model, our service levels and competitive pricing is growing. And in 2022, total sales in local currency increased around 24%, and we're some 90% up on 2019, with gross margins above the U.K. as our offer in France, presently is a higher kitchen content than in the U.K.

Around 90% of the product is common to our U.K. ranges, and this helps us realize scale benefits. Over the next two years, we expect to open around 30 more depots including around 10 in 2023. This will take the number of trading to around 90 by the end of 2024, including 45 or so in the Paris area.

In 2022, we also opened up for business in the Republic of Ireland. We're using a similar location strategy to that in France with the depot teams supported by our U.K. infrastructure and our digital platform. During 2022, we opened five depots clustered around Dublin. Our arrival in the Irish market has attracted much attention locally, and we're encouraged by the depot sales to date. We plan to open up more depots and expect to have around 10 trading by the end of 2023.

So for 2023, we are well planned on our interlocking strategic initiatives, which are aimed at increasing our market share profitably. High stock levels is a major contributor to our performance. And in 2023, we will continue with our safety stock policies,m but at more normalized levels. Most of our new kitchen ranges for 2023 will be in stock by the end of June, well ahead of Autumn peak trading and with more emphasis on entry and mid-price points.

We have a program of Rooster promotions in place to keep Howdens front of mind of the trade together with bang on the money price initiatives, and we will continue to make improvements to service and availability, including by utilizing XDCs efficiently, and we are increasing the range of services and functionality we offer online to the benefits of our depot teams, customers and end users alike.

We'll be making more in the U.K. as our new kitchen door and skirting lines commenced fuller scale manufacturing, and our solid surface business grows. During 2023, we plan to open around 30 depots in the U.K. and refurbish another 80 existing depots to the updated format. In France, we plan to have around 70 depots trading by the end of 2023 and to have around 10 trading in the Republic of Ireland.

So lastly, on outlook. Now while it's early days, we've made an encouraging start to 2023, and we're very confident in our business model across changing market conditions. We aim to retain a profitable balance between margin and volume, while still aligning operating costs and working with suppliers to keep product and input cost controlled. Sales in periods one and two increased versus the comparable ones last year.

And our feedback is that builders currently remain busy. We are mindful of the changing current macroeconomic conditions, including ongoing inflationary pressures. And we are trading against record prior year comparators. However, all in all, at present, we have the momentum for another successful year in 2023, and we will continue to invest in our key capabilities and grow opportunities which are pivotal to the long-term development of the business.

And finally, all of this is achieved through our 10,000 staff and thanks goes to each of them for their performance over the last year. Thank you for listening, and we will now take your questions, please.

[Christen Hjorth, Numis]

Christen Hjorth from Numis. I had three questions from me, if that's okay. First of all, just on XDC, -- could you sort of provide a little bit of color on the incremental sales that, that is generating? And what opportunity is there to potentially further widen the product range through that XDC platform?

[Andrew Livingston, Chief Executive Officer]

We introduced XDC to give the ultimate level of product service to our customers. So when Howden started off, it started off with sub-10 ranges. We've now got 90 ranges. And the depot spaces have not got any bigger. So there's a number of reasons we've chosen to take this route. First of all, we want absolute on-time in full perfect presentation of customers to product. Depots tended to do quite a lot of intra depot transfers to make up product when the sort of standard cycle time from primary to depots wasn't fast enough. So XDC reduces labor -- increases labor efficiency in the depots because the team generally have to push a button and the stock turns up.

The customer gets factory fresh product, not a product that's moved in between depots. But one of the bigger wins will be further on down the road when we're actually not putting slower moving product into the depots and it reduces sort of the exit cost of product in the future. So we'll see a future margin benefit coming down the road. It's -- there's clearly evidence that sales tick up when availability goes better on some products. And we see that in some of the day-to-day type products in depots where customers want it immediately or next day.

I think it does give us opportunities to expand ranges without causing confusion. There are related areas that we would see opportunities in, day-to-day products where we want customers to know that we're there for them on any day, and we have product for them. And we will continue to test, like we've done with find the gap in kitchens, we will do a similar program outside of that, where we will test extended ranges, and we're doing it in the business currently.

A good example would be power tool accessories, which should be a high margin, small profitable area that we put in a depot and you can make the stock turn up quickly the next day, if it's not there. So we see as lots of opportunities. We've done lots of -- it brings together the strategy very well.

When customers spend more time going online and start building baskets and multiple baskets as we talked about, the service proposition is enabled by either a very strong in-depot stock position or the next-day service offered by XDC. So when we go live and live stock later this year, customers will see a very, very clear stock proposition.

[Christen Hjorth, Numis]

Excellent. And just on France, what does success look like in France? And from the outside, how do you sort of think about the milestones of...

[Andrew Livingston, Chief Executive Officer]

Yes. Yes, that's great. We -- France -- look, I'm still confident in our plans in France, and I'm very confident in the team there. We've got a very strong French team absolutely driven to running the business. And the first milestone is to keep the team opening up depots, but to get to breakeven and then into profitability and then it's cash positive. And we see that in the coming years. And actually, if we stopped opening up depots and just run them the way the where we quite quickly get to profitability.

But we opened up 20 net depots last year. We're going to do more this year. We want to do a combination of opening up new depots and getting the business into profitability. I'm very encouraged by how builder customers are taking to us in France. And we spent a lot of time over previous years debating how different it was.

I think there's more similarities. Customers appreciate in-stock availability, confidential pricing, product there. I think we really stood out during the COVID period when all the competitors on their old sort of historic showroom type models, didn't have stocks. So you should never going tell countries if you don't think you got differentiated proposition and I think we do have differentiated proposition in France.

And I know competitors are stopping in and looking more. I can see what happen in January in Paris when some people try to -- they started seeing pricing and responded to it. So, it's -- we're not pushing the accelerator down, we're going to get it into profitability and there is always opportunities for it.

[Christen Hjorth, Numis]

And just last one for me. You went for a price increase at the start of the year. Just a little bit of color in terms of where you think you are relative in terms of pricing versus key competitors and still that sort of attractive...

[Andrew Livingston, Chief Executive Officer]

It's -- the thing I would sort of caution at this stage is, we're just at the end of the second period. And -- we've been talking to customers a lot and talking to depot teams. Before this meeting, I've been in front of every depot team across the estate, which we do through our regional boards. I think on pricing, we've gone for a price increase in January, and we'll update further on how well that's landing or not landing, but steady so far, say on it.

And relative to competitors, I don't think there's anything really to point out about. I think as the competition is probably more under pressure, if you think of the scale that Howdens has become over the last three years, we certainly put our competitors set under more pressure. And you see random stuff coming out of them in random behavior. And the brilliant thing about our model is, our managers are equipped and motivated and incentivized on the local depot margin to deal with it on a local basis.

So when we go around our regional boards, which are sort of not dislike this meeting, managers in the room, Andy Witts in the front row and myself in front of them, they'll talk about different things. But the teams are confident and they're confident in the service proposition. And price is just one part of that. Stock availability, brilliant designs, relationships of the builders, bringing the builders work if they haven't got it, some of the more junior some guys starting out in the business will need more heightens help than mature ones who have got very full order books. So that's sort of just a wee bit of color on it, but we were happy with our first two period sales, and we're warming up to get into the year, I would say.

[Geoff Lowery, Redburn]

Could we unpack your gross profit bridge a little bit? It looks like you managed to limit COGS inflation to about 8.5% and managed to price above that across the year. What does that sort of 8.5% number look like going forward given the leads and the lags and stuff in the supply chain?

[Paul Hayes, Chief Financial Officer]

Yes. Absolutely. If you look forward, you have sort of a number of things that will come through as it works through inventory and sort of will normalize during the first half of the year. So what you saw in the first half of 2022 was the benefit of getting those price increases away early, then the margin normalizing more in the second half of the year. So I think as we -- depending on the success of our price, we feel confident of them managing and maintaining our margins going forward.

The one sort of factor within that would be sort of the Howdens work surface that we talked about, which is sort of a mixed thing. When you look at actually the margins that we make put up by product that obviously we study in detail, we feel confident about that. But just sort of thinking through the sort of the moving parts, there's things like energy and labor costs that will continue to come through. We've announced a 6% pay increase. So that impacts the whole business by about £30 million. So there's factors like that, but it's the right thing to do. And then we look at other moving parts such as what we can recover from our suppliers and that's probably the major part of it.

[Geoff Lowery, Redburn]

And just going further on the mix volume point, you guide striking the mix volume was positive for top line but negative for gross profit in pound terms. And I totally understand the logic of doing hard work tops and lower contribution percentage totally get that. But is there anything else going on in mix volume that's contributed to that? Or is that really just hard work services? Because that implies something very special for what you've done in terms of sales at hard work tops year-on-year?

[Andrew Livingston, Chief Executive Officer]

When you look at all there's some more sort of modest fluctuations within things, but there's nothing significant in there in terms of the mix. So I think it shows the success of us managing to grow across the product range. So nothing significant there, Geoff.

[Geoff Lowery, Redburn]

Lovely. Final one, I promise. Just on France and international, can you help us understand that sort of bottom line impact? I totally understand you're in investment mode, it's more so we can understand what the U.K. margin is doing rather than being critical of the international one as it were. How big a P&L drag is it at the moment just so we can get at the U.K. performance bottom line a bit?

[Paul Hayes, Chief Financial Officer]

As Andrew talked to, it makes a positive margin. So on that perspective, is in good shape. The business makes us a small loss at the moment and which was sort of similar to last year. We think that will continue as -- because as we've invested significantly in 2022 and rolling out new depots as you understand, the first year, you've got the incremental costs they make a loss in the first year, but then that contributes into sales in the year after. So I would look at it that way.

[Geoff Lowery, Redburn]

And the small loss is that after distribution? Or is that four-wall box level as it were? How far down the income statement...

[Paul Hayes, Chief Financial Officer]

That's just looking at as a separate. We run it by supplying a product, charging it for the products, and we run it as a separate statutory entity. So it's all in there. We keep our feet on the ground in terms of making sure we really understand how it's performing.

[Unidentified Analyst]

Just two for me. I wondered if you could give a bit more color on the kind of recent trade in, obviously, like-for-like coverage in start to the year, but if you explain a bit more of the trend maybe going back to the back end of last year. Is it kind of as you had expected? And then secondly, just on the kind of competitive backdrop assume from what you're saying you expect to take market share again this year. Any big changes we should expect from kind of competitor reactions or difference in that backdrop?

[Andrew Livingston, Chief Executive Officer]

Yes. I think from a trading point of view, we're almost exactly where I would have expected us to be. We had a good old finish out to last year following period '21. And we've had a good start. But you're off such small data at the start of the year and some years, builders come back early, sometimes they come back later.

We -- I was mentioning earlier, we were right talking to a number of builders through builders' forums and around some London depots yesterday, Martin Putney, Battersea, you would not have been discouraged if you'd heard the conversations with the builders, who have always got their whines and moans, but they are absolutely delighted by what we're doing in terms of sort of price around stock availability, the quality of design that we're offering customers the ability to be able to do solid work surfacing the initiatives that we're bringing to them and they whine about things like [indiscernible] charges in London and so on, which probably we all do.

But I would say we feel good about it because the relationship between Howdens and its trade customers is absolutely a partnership. And the closer we work with them, the better chance you've got -- you get of winning the business from the competition. As the market tightens, we will expect customers to shop around a bit more. That just happens. And we've just got to be there on price when they come back. We've got to be able to take it at the right price to make sure that we win the business. So I mean, we can't look too far forward in the year. But as we look into the next couple of months, we feel okay.

[Unidentified Analyst]

The lead time could reflect that?

[Andrew Livingston, Chief Executive Officer]

From a sort of competition point of view, I suspect it will be more of the same in the coming year. I'm -- we do well by sticking to what we do and keeping the competition focused on playing the game in front of us. We don't worry too much about the competition.

[Emily Biddulph, Barclays]

I'm Emily Biddulph from Barclays. My first question, please. I just wanted to understand the comments you're making on the sort of scope of customers trading down in 2023. Obviously, you're also saying sort of average or invoice value and sort of product mix was positive in 2022 against the backdrop you're expecting for 2023? Do you still think that's possible that to be the case?

[Andrew Livingston, Chief Executive Officer]

Given our immaturity in the better end of the market, probably and the solid surfacing that we've got and the lineup that we've got this year, which is very compelling, I suspect we will do well on the better end of the market. What I was trying to talk about was, it's very important in good times and bad times that you've got an all-weather product portfolio. So if customers do choose to move down and want that look and still want to compete the project that you're there for them.

And I suppose in the same way as a car company would bring out all their features in the top end and then slowly wash them down the ranges. We would have a similar approach in our business where we would put colors that we know are very fashionable in the top end. And what I'm trying to say is, we brought some of those colors and made them more accessible in the bottom end of the market should customers want to do that. We haven't really got any sign of that happening just yet. So...

[Emily Biddulph, Barclays]

And then just secondly, on a similar sort of topic. Do you have everything in place now for sort of basically improving market share at that sort of higher price point. Obviously, you now have the sort of solid surface worktop capability from here, is it just about improving brand awareness and getting that sort of 24% up further are? Are there other things that you need to do to sort of improve the customer journey to...

[Andrew Livingston, Chief Executive Officer]

No, I think -- I don't think so. I -- if you think of how we've reshaped our depots to have the right environment for those customers coming in, still a very trade environment. You can see better displays out front. We've got private spaces where we take customers at the back. We just got really good at that and some of our designers are the best of the country.

I would say if you think about the construct of the kitchen, a really good cabinet, a beautiful solid wood door in the right color, good handles, a solid surface, well lit, good floor, and you are really challenging and independent. And I certainly wouldn't be buying any product from an independent when you see the offering that we've got. And I don't have that in my house that we've done it from Howdens product, and it looks absolutely exceptional.

And I think as more and more customers find this smart way of working through the builder to get the project happening in their home, you can achieve amazing results at excellent prices and leave enough margin in it for us on the builder.

[Charlie Campbell, Liberum]

It's Charlie Campbell here. I've got two, please, if I can. First of all, just coming back to Slide 21. You very kindly showed us the adjacent category to kitchens. You alluded to the fact you have a lower market share there. Just wondered if you might share with us what that share is maybe roughly? And second and sort of related to that, are the levers of market share growth in that adjacent category, the same as in kitchen. So should we expect to share your market share in that to move up? Or are there other things you need to do to address that?

[Andrew Livingston, Chief Executive Officer]

Yes. I think this is a question of priorities. In business, you go where the money is and you go there often. And for us, it's about tackling kitchens and that's what Mark and the commercial team have done, and they've prioritized leading on kitchens and so on. And we've had our accelerator on the other product areas, but we can do more. And we've acquired more new team into Howden. Matt Norris has joined us from -- who was Commercial Director at Toolstation and worked with me at Screwfix, and that is going to develop out those product areas for us.

We've got 450,000 to 500,000 customers coming through our doors regularly. And they need projects for the -- they need product for their van, product for the job and they even need products for themselves. So we would see this as a good opportunity for us, whether we take extended ranges in use of the power of XDC to make it turn up in depots or that we optimize better what stocks in the depots. So I just see opportunity around that.

What we love about it is it drives footfall into the depots. And if you think about how we've laid out our depots, we've almost -- we've taken down the walls, it's like walking into a restaurant, you can see into the kitchen now in our new depots. And you walk into our depots and you see the manager behind the counter, and you can see the development staff behind them. And customers speak to our builders, all the time they see them. They're not behind the wall anymore. They're not on the telephone, they see them and they talk to them. Our builders walk anywhere in our depots, believe you may.

So we -- I think with that, we see builders, we're talking to them, literally conversations. We're talking to them about what are you doing? And they'll say, we're doing doors, we're doing skirting, we're doing architrave, we're doing flooring, and we love that because they'll graduate up into doing kitchens. And the more we talk to our builders about what they're doing with us, the more we see them through this sort of daily footfall product that they come in to buy us for, then we've got much more chance of getting kitchen projects with them.

[Charlie Campbell, Liberum]

And then the second sort of question is unrelated. But clearly, a lot of the success probably this year and probably last year as well, '22 and '21 was stock availability. I guess, as supply chains get easier across the whole industry, maybe that competitive advantage is less valuable. I mean do you think that's a fair point that the competition will be stronger in '23 than it was in '22...

[Andrew Livingston, Chief Executive Officer]

I think there's a sort of business model construct difference here. We're in stock, deep stock in every depot and our business -- and our competitors are not. Even somebody who claims to be partly that, it's just not. So -- we've got better at it because we've got better at what is in stock, we've made, what comes next day, they're better. And yes, it's an absolute USP, and we've played to our strength on it and got even better.

During that period, and the big increase in sales we've seen over the last number of years, yes, it's partly because of that, and we played it very well. We did a number of other things at the same time. We took care of our customers. We took care of our staff, and we landed a whole load of range change. We brought our digital systems in, and we improved the look at the depot. So there's a lot of other things that came at the same time that helped us gain market share. But yes, you're right, stock is a big thing and stock will always be a primary thing is one of the first things in our agenda is an exact meeting every week.

But in Howdens, we don't talk about 99.98%. We talk about the items that we are missing, literally. And every one of my executive team will tell you which items are missing in a week. And we'll know if it's an oven or we'll know it's something else because we're all over it to that degree.

[Clyde Lewis, Peel Hunt]

Clyde Lewis at Peel Hunt. A couple again, if I may. Just going back to gross profit and I suppose the cost structure. Obviously, you're manufacturing of the doors and the architraves in particular coming on, assuming that's going to be a positive effect.

[Andrew Livingston, Chief Executive Officer]

Yes.

[Clyde Lewis, Peel Hunt]

And the second one on that was really around timber costs. If we look headline timber prices clearly come down, will that be a positive...

[Andrew Livingston, Chief Executive Officer]

We would see some movement in some categories to steels come off, draw runners that make steel. It's come off. And we're in live conversations now. Mark and the commercial team are working those through right now. We don't see the timber costs coming off quite as quick as you see it for raw timber sold in a DIY merchant or a builder's merchant because there are so many resins go into what we do, and there's so much man labor that goes into finishing what we do. So we expect to see it, but it will be in a bit of time, some of the resin chemical prices are still to come down.

[Paul Hayes, Chief Financial Officer]

And you'll see that feed through our inventory over a period of time, so there was a delay as that works through.

[Andrew Livingston, Chief Executive Officer]

So yes, we're getting more positive conversations with suppliers around cost.

[Clyde Lewis, Peel Hunt]

Okay. The second one was around admin costs. Again, there was quite a low percentage -- on admin I'm just wondering if you can give us a bit of a guidance, a bit of a help on how you'd expect to see that evolve?

[Paul Hayes, Chief Financial Officer]

So thinking more of sort of the operating costs, if we look at them, there's a number of -- if we went through the bridge of what happened in 2022. As I look -- as we look forward into '23, as you've heard, we're going to continue to roll out new depots. So there's an investment in those. There's a full year of investment in warehousing and XDC. So that builds through the year. And we're continuing to invest in both digital and in international to probably sort of similar level that you've seen there. So you will see a continuation of this strategic investments and sort of the inflationary increases I mentioned earlier around salaries and those kind of things.

On the other side, obviously, we're looking at where we can manage the costs and ensure that in the current environment, we keep everything else tight, which we managed to achieve in '22. The actual other increases were pretty modest considering the -- where we were otherwise in sales.

[Clyde Lewis, Peel Hunt]

Okay. The last one I had was around the customer base. Clearly, your customers are the builders, but the end consumer is a very different customer base in many ways. And I'm sure you track the number of leads that you get from direct consumers versus the builders. How has that evolved? And has there been, I suppose, a sort of step change on the back of sort of Sheridan in particular, sort of driving that higher price product...

[Andrew Livingston, Chief Executive Officer]

Not really because the Sheridans solid surface business is relatively immature for us still. So is that growth to come -- the lead bank looks in good condition. There's not a lot to report on it at this point in the year. We probably have more to say, I would say at the half year on it.

[Rajesh Patki, JPMorgan]

Rajesh Patki from JPMorgan. Just to go back to the current trading comments. If you were to strip out the impact of material inflation over the last couple of years, could you help us understand the exit rate of volumes compared to pre-pandemic levels at this point? And do you see that as sustainable for the rest of the year?

[Andrew Livingston, Chief Executive Officer]

I'm unwilling to be drawn in on this one just yet because it's so early in the year. We came out at the start of the year quite strong promotionally on skirting, architrave, doors, flooring, that kind of stuff, which before you see the kitchen lead bank build in the year, closed it out at the end of last year. You see that kind of volume coming through.

So we look at it, great. But actually, it's about kitchens we need to sell. So it's too early in the year to sort of even comment on that. But look, you go around our depots right now, as we've been doing over the last weeks, they're busy. Customers are in this, stands outside, they're busy. And customers want work doing in their houses.

And folk are still we've got healthy balance sheet still personally. They're still in their homes, and they're still curious about improving their homes. And there's still an awful lot of kitchens in the U.K. that need that wall taken down between the kitchen and the living space, they still got open space. There's still a lot of that still to happen. We are very well placed to support the builder and making that project work for them.

[Rajesh Patki, JPMorgan]

Another technical one. Can you update on what part of the material costs are not in pound sterling, the euro and dollar cost base?

[Andrew Livingston, Chief Executive Officer]

Yes. No, we -- if you look -- once I get the right number here, in terms of spend, we spend about $150,000 and about €280,000 in the year.

[Paul Hayes, Chief Financial Officer]

Million.

[Andrew Livingston, Chief Executive Officer]

Million even... Sorry, that would be... Apologies million just so we're clear for the recording both numbers.

[Paul Hayes, Chief Financial Officer]

That was your personal banking.

[Ami Galla, Citi]

Ami Galla from Citi. Just two questions from me. One was a follow-up from Clyde's question. As you increase your in-house production and there are gross margin savings, medium term, do you think that enhances your margin? Or is it just another competitive tool to gain more market share versus your competitors as your cost is much more...

[Andrew Livingston, Chief Executive Officer]

I think we'll see how we tactically need to trade it through the year to gain volume. It's just another tool that we've got in the coming years. I don't think we've made any calls around that volume in those production lines. There's two very large production lines we put down in Howden.

One is the length of two football pitches. It's a massive affair when you walk down and the other is the skirting and architrave line. And it's just slowly building up, and we're taking production from Italy and bringing it into the U.K. So there's that opportunity, which would largely manifest itself towards the back end of the year as we build up scale, and it will work very well for us in 2024.

But I think it's just -- it's opportunity there. I wouldn't make the call now and whether I take it to profitability where it uses to gain volume.

[Ami Galla, Citi]

And my next question was on opportunities or scope of further expansion to other European markets at what milestone should we see France achieving...

[Andrew Livingston, Chief Executive Officer]

I'd like to see our international business making -- breaking even on the other side of that, and I can see a cash positive thing before I'd call in another country. What I'm gaining confidence is that this model is starting to work elsewhere. We've landed really well in Southern Ireland really well. And in France, just confidence momentum's building, particularly when you put depots next to each other and builders start to realize as a network of these things going on, and they can see the advantages of it.

It takes time starting in another country. We've been in France for a long time, and I drew a line under it and said, right, we're starting again, put a French team in place, city strategy really hunkered down on making the business a much better business. It's completely unrecognizable from the way it was before. So I'd be confident that the ingredients of the model can work elsewhere. But I want to make sure we get this French thing right first.

[Ami Galla, Citi]

And one last follow-up on France. Is there a reason why we are just selling kitchens there and it's not expanded to the other joinery items and doors?

[Andrew Livingston, Chief Executive Officer]

Yes, that's a good question. And it's a challenge on the team right now, and they've started to develop new product categories with some success. So I think maybe there was a mindset in the past that we couldn't do doors and join in was the builder different on the rest of it. We said we're trying it some positive results. We're in the early stages. So it's important. I think when Andy Witts and I go over and visit France together, we talk about all the things that make Howdens in the U.K. such a great business and driving regular footfall in is a critical thing. And you do that with product. So yes, we're keen to see them do more of that.

[Unidentified Analyst]

[indiscernible] I'm just following up on from that in terms of the France product mix and also perhaps putting sort of relative performance to U.K. new depots. In terms of -- as you change that product mix, would the France gross margin likely to trend towards the U.K. gross margin? And then two other supplementary questions. In terms of the time for maturity or for the time for a new depot sales in France, to reach a comparable level in the U.K.? Is it a comparable amount of time?

And then thirdly, in terms of the cost per depot cost structure in France, is there much -- is it similar or just to the U.K.

[Paul Hayes, Chief Financial Officer]

The P&Ls are very -- actually very similar when you run down between the U.K. depot and a French one. They pay a bit more on rent, but then they don't have the same sort of level of rent rates of rates as well. So those two are the same. So we're finding depots that are at the price we feel it's about right, be around the [indiscernible] France. Labor is a bit more expensive, but broadly comparable from a P&L point of view. I think from a mix point of view, I think it will take us some time to take the mix down actually because it takes time to build those product areas up. It's mostly kitchens, you'll add in other things and it will be over time that it would dilute -- anything you sell outside of a kitchen generally is dilutive.

We're keen to see them do more solid surface and they're starting a trial on solid surface this coming year that will mix it down a wee bit. But they're above 60%. That's what I have in my mind for them. They need to trade and flex win market share in the short term and establish themselves that's appropriate for them to be doing that. Any part of that question, I didn't answer?

[Andrew Livingston, Chief Executive Officer]

Did we cover the maturity profile? The maturity profile, we believe is, again, similar to the U.K., making money probably after about 18 months and continuing to mature. And we sort of -- we indicate maturity by about sort of seven years, something like that. But arguably, we are still growing after that anyway. So -- and what we obviously do is track the performance of the new depots versus that and just make sure that they are delivering what we expect them to deliver.

[Sam Cullen, Peel Hunt]

Sam Cullen from Peel Hunt. I've got a couple, if possible, on online accounts and then brand awareness. On the online accounts, you said that they are kind of trading more often and spending more. Where was that 45% two or three years ago? How are you driving it forward? And for the 55% that don't want an online account, why do they all want -- is it demographics? Is it maintaining a healthy balance in cash and invoiced?

[Andrew Livingston, Chief Executive Officer]

We relate to the game on digital before I arrived, and we often joked that we couldn't spell it. We've sort of had a joke internally about that. But I would say some of the late mover advantages is meant we've put in capability now that's put us well ahead of others. So we found the route to confidential pricing online where each customer has got their own private confidential price.

And that was no mean feat managers setting their own prices, managing their margin to those prices and making them available privately to customers. And then we've had to do things like customers have said, on Amazon, you've got one basket, haven't you. Our customers want multiple baskets. And they want it because they're doing projects and they're using it to price projects. And we think this is a really cool innovation that we haven't seen, but we've seen it and then listening to our customers that said we want you to do this. We'll we're launching it very, very soon.

So in terms of moving, it was -- we were probably nowhere and now we're making a big difference. It's a key priority for the teams to get our new customers and existing customers onto the platform. There's just so many benefits for the teams in depots and for the customers because they can build, build orders, almost see profitability of a customer, that sort of thing. It just takes time. But we're very comfortable with how quickly we've got it to this level and where we go. There will be some customers, older customers who will probably not want to do. We recognize that. But if you're bringing on a newer, younger group of builders coming through, they all expect this, and they expect you to be really good at it because they've known nothing else in life.

[Sam Cullen, Peel Hunt]

And the second one on brand awareness. You say doubled over the last year or 2?

[Andrew Livingston, Chief Executive Officer]

Doubled probably since I joined. So we were running around about 12%, 13% and we're up to 24%.

[Sam Cullen, Peel Hunt]

What's the right level of brand awareness?

[Andrew Livingston, Chief Executive Officer]

That's consumer brand awareness.

[Sam Cullen, Peel Hunt]

Yes, what's the right level of brand awareness for the consumer? And how do you think about the efficacy of marketing spend to get there presumably, you don't want to go into a...

[Andrew Livingston, Chief Executive Officer]

On our five-year plan, we'll double it again. I don't know. But everything that we're doing we would sort of -- we don't want to go out and waste money and effort on creating -- and if we went on TV into a huge brand campaign, we could raise our end consumer brand awareness to no effect. For us, it's about trusted trade relationships.

So we've launched a very -- what we think is a very big deal with the FA this year building out grassroots campaigns and putting kitchens in grassroots football clubs across the U.K. That for us is a perfect way for us to connect with our builder customer because in the community around those football clubs, there will be, say 30 of our builder customers around the table and whose put the kitchen in, but Howdens the whole community is working around. That's like a really brilliant way of us raising brand awareness both -- across both.

Doing it digitally is very efficient. It's a very efficient way cheap way of us raising our brand awareness. During the game for buying a kitchen, you will absolutely consider a step. But it's the value of the unprompted stuff. If you're not in the game for doing a kitchen, our awareness amongst our builder customers is almost perfect. Everybody has heard this.

[Robert Chantry, Berenberg]

Robert Chantry, Berenberg. Just a kind of quick question on the joinery market. So you flagged a £4.5 billion opportunity. Can you just help us understand the scope and actual addressable market within that because presumably that includes very fragmented businesses, specialists, players, generalist players, new build players, a huge range of things. Should we mainly see it as a way to get volume into kitchens or should we see it as something what you might commit more time and capital to in various...

[Andrew Livingston, Chief Executive Officer]

I'd say it's footfall driving and it's all related. I think one of the things that we've done very well in Howdens is keep sticking to our knitting. We are a wood-based joinery business, kitchen and joinery business and we don't want to venture too far away from that. But we do see opportunities, significant ones in doors, in skirting, in flooring, where we think our market share is too low, in ironmongery, where we've got a very strong business, and we think we can extend it further, we can go into broader ranges of handles and so on, sealants, adhesives and glues. We're good at these things, but we can be an awful lot better. So I don't think you'll see us steering off into other areas. It's a very supportive margin developing part of the business that we see will drive footfall.

Thanks very much, everybody. Thanks for your time, and appreciate your support. Thank you.

[Paul Hayes, Chief Financial Officer]

Thank you.