Howden Joinery Group PLC

LSE:HWDN

Good morning. And welcome to the Howdens 2023 Interim Results Presentation. I will begin by introducing our first half performance. Paul Hayes will then review our financial results for the period. I will then share my perspective on our 2023 performance to date and our plans for the remainder of the year. And then we'll take your questions.

The group performed well in the first half of 2023 against record prior comparators and in, as we anticipated, a more challenging marketplace. Sales and profits bettered expectations for the period, and we are on track for 2023. And we are progressing with our investment program, which is focused on our key capabilities and giving us end to end a stronger business.

Group sales rose by around 1.5% on 2022 and increased 42% on 2019, being the year prior to the onset of the pandemic, and we believe we gained market share in the period. Profit in the first half was lower than in 2022 when, by historical standards, the first half contributed a significantly higher proportion of annual profit than usual, with first half profits increasing by 86% on 2019 versus a 40% increase in sales. First half profit this year increased by 43% on 2019, around the same rate as sales.

We maintained an industry-leading gross margin, with gross profit levels with last year's as we balanced recovery of significant input cost rises with our commitment to provide competitive pricing across the board for our customers. Excluding investment in strategic initiatives, active containment of operating costs kept these levels to 2022 despite ongoing inflationary pressures.

Our builders remain busy, and we made good progress on strategic plans, both for the UK and for our international operations whose sales continued to increase.

The business delivered strong operating cash flow, and we maintained a robust balance sheet. This gives us the flexibility to continue to invest in our growth plans for the business and, at the same time, provide shareholders with enhanced cash returns in the form of an increased interim dividend for this year, and a further £50 million share buyback program, which followed on from the previous £250 million program completed last year.

You will see from the RNS announcement that we have moved our ESG agenda forward. Our focus remains on direct emissions reduction in our own manufacturing, and working closely with suppliers to reduce emissions across our external supply chain, together with accelerating our product and packaging sustainability program.

Two significant milestones were reached in the period. We aim to achieve net zero by 2050, having halved our direct emissions by 2030, and we've submitted our net zero plan to SBTI for their approval 12 months ahead of schedule.

We have also received carbon neutral accreditation for the solid surface factory we acquired in Spaldington and our factories at Howden and Runcorn have also been recertified.

The interim results demonstrate the strength of our local trade only in stock model, and we believe we increased our market share, consolidating the gains we made last year.

A strong product lineup, high stock availability, industry-leading service levels, and a very engaged team have all contributed to our performance, which benefits from the ongoing investments in our customer focused strategic initiatives.

In the period, average customer spend match last year's and we had a record number of customer accounts as at the half year end. We also increased some prices, which helped us defray most of the impact of significant rises in annualized input costs seen in the period and to sharpen our prices elsewhere.

As well as maintaining an industry leading gross margin, the business continued to deliver KPI volumes, which in aggregate were well ahead of pre-COVID times. And in the second half to date, overall sales trends have been similar to those in the first half.

Given the prevailing macroeconomic circumstances, we're expecting more challenging marketplace in 2023. And this has proved to be the case so far this year. However, we're prepared for this and our customers, 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 and local model is the right one to deliver sustainable market share gains across changing conditions. Our model is hard to replicate and difficult to compete with. And we have initiatives in place to make it more so in markets with significant longer term growth opportunity for us. We continue to prioritize investments in the business on this basis.

I will update you on our strategic initiatives, which are key to our long term development of the business after Paul has taken you through our financial results in the first half. Paul?

Thank you, Andrew. And good morning, everyone. I'm pleased to be presenting Howdens' financial results for the period ended 10th of June 2023.

We've performed well in the first half against record comparators in 2022. Overall, group sales increased by 1.5% as we supported our trade customers with a market-leading product range, excellent stock availability, and outstanding customer service. We believe that we've made further market share gains in the period.

Gross profit was similar to the prior year at £565 million against a particularly high margin percentage in 2022. You may recall that the first half margin last year benefited from early price rises ahead of cost increases.

Despite high levels of ongoing inflation, we have continued to recover increases in commodity, freight and energy costs through price increases and productivity improvements.

Operating costs were £448 million, with the increase entirely due to ongoing investments in our strategic initiatives to drive growth. We took action in the first half to fully offset inflationary costs increases in the order of £23 million with productivity and efficiency gains. I will cover this in more detail later.

As a result, we generated an operating profit of £117 million, and our operating margins were 12.6%. After net interest charges, profit before tax was £112 million, which was 43% ahead of 2019. We incurred a tax charge of £27 million in the period. So after all these items, profit after tax was £85 million pounds.

So looking at revenue in a bit more detail. We faced much more challenging macroeconomic conditions in the first half. Over the past 12 months, household budgets have been under far more pressure, and we've continued to balance price and volume to support our trade customers. As a consequence, we have outperformed the market in the first half, which we believe is significantly down in volume terms.

Our UK revenue increased by 0.6% to £895 million and was similar to last year on a same depo basis. As you know, part of our strategy is to focus on leading the market with range innovation. We have accelerated new product introductions that Andrew will describe later, and these give our customers greater choice at every price point. Our in-stock model is the foundation of our business and, even with this range expansion, we continue to provide our customers with availability levels in excess of 99.7%. This has been possible from our investments in inventory, and our cross docking logistics network, or XDCs.

The international depots include 60 depots based in France and 6 in Ireland. We generated revenue of €36 million, which was a 31.8% increase on 2022. That's excluding the impact of five depots closed last year. Our focus remains on building out the successful Howdens model in major cities and we are making good progress with our strategy.

Now moving on to profit before tax. Bridging from 2022, PBT of £145 million on the left, you can see that PBT was £33 million lower at £112 million in 2023. Gross profit in was similar to the record achieved last year. We were effective in implementing price increases early in 2023 that benefited the business by £47 million.

We have continued to invest in expanding our manufacturing capabilities with new kitchen lines and a second architraves and skirting line now fully operational at our Howden factory. We're also making good progress in upgrading and optimizing our solid work surface capabilities to support increased demand, which I'll talk about in a moment.

In addition, we have delivered a number of productivity improvements in our manufacturing operations, which helped partially offset increases in commodities, wage inflation and energy costs.

Overall, we have managed the business effectively on lower volumes in the first half, including the changing mix. This includes successful sales growth of our everyday walk-in joinery business and further growth of solid work surfaces.

On solid work surfaces, since the acquisition of the market leader, Sheridans, last year, the business has grown strongly as we rolled the service out across our depo network. We have added capacity, and we are making improvements to our service model to match the best independent players, but at scale. To remind you, solid surface products have a lower gross margin percentage, but an attractive cash margin.

Operating costs increased by £32 million as a net result of managing our costs tightly, while continuing to invest in our strategic initiatives. We've broken this out on the next slide.

The rise in operating costs in the first half was entirely related to our investment in our strategic priorities. Overall, inflationary cost increases in the first half of around £23 million were fully offset by productivity gains and efficiencies.

Bridging from left to right, the incremental costs of the new UK depots, including 30 new depots opened in 2022, totaled £6 million. We invested in our international businesses with a continued focus on a city-based strategy. We're developing our business in Paris and also now expanding the depo network into other major cities, such as Lyon and Marseille. The £8 million increase includes the costs of the 30 depots opened in France and 5 new depots opened in the Republic of Ireland in 2022.

Other strategic investments include the full year impact of our investment in additional warehousing and our 12 regional XDCs that improve product availability across our ranges.

Other actions include the rollout of work surfaces I mentioned earlier and further investments in digital, helping customers with new, more flexible ways to trade with us.

Now moving on to cash flow. From an opening cash position of £308 million, we ended the period with £118 million of cash, and net cash outflow of £190 million. You will see from the slide that this was after shareholder returns of £138 million, including dividends of £88 million and £50 million of share buybacks, which we completed in the first half. Overall working capital increased by £109 million.

Stock increased by £40 million due to the normal seasonal stock build ahead of our peak trading period and ongoing inflation. We continue to reduce the levels of safety stock which were necessary during the pandemic, and we are carefully managing stock levels given the level of new product introductions.

In the first half, we also launched a daily traders initiative, which will fully optimize availability of our faster moving SKUs in our depots. Andrew will cover this later in his presentation.

Debtors were £6 million higher than at the previous year-end, with ageing in good shape. Creditors £63 million higher. Capital expenditure totaled £47 million as we continue to focus on the execution of our strategic initiatives. Just under half of the investment was in depot expansion and revamps. Other initiatives included investments in our supply chain and manufacturing sites and expanding our digital capabilities.

Now turning to earnings per share and dividends. EPS in 2023 was £0.154, which compares with £0.196. Our dividend policy is unchanged. The board has declared an interim dividend of £0.048, an increase of 2.1%. This will be paid on the 17th of November to shareholders on the register on the 13th of October.

Now moving on to our technical guidance for the rest of 2023. Firstly, as previously indicated, this year, we have a 53rd week. This falls during the Christmas period when our depots are closed. So there are around £17 million of additional costs, but no incremental sales. We expect our effective tax rate to be around 23% in 2023, which includes the benefit of the Patent Box claim. The ongoing P&L impact of the Patent Box is worth around a 3% reduction in the tax rate. And the success of the claim is subject to review and confirmation by HMRC, which we anticipate before the end of the year.

In 2023, we will continue to offset higher inflationary costs with productivity and efficiency actions where possible. This will underpin our ongoing investments in our strategic initiatives.

With respect to foreign exchange sensitivity within our cost of goods sold, we have set out the potential full year impact of a €0.01 movement in the euro and the US dollar on the slide.

In terms of cash items, we'd expect capital expenditure at £130 million to be broadly in line with last year as we continue to implement the strategy.

And on 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 but deficit on a technical provisions basis at the end of 2022, and the level of the deficit has reduced by £27 million to £15 million on an IAS 19 basis. We're in the process of completing the triennial valuation of the scheme and we'll agree a level of contributions going forward. In the first half, we contributed £2.5 million a month, or £12.5 million in total into the scheme.

So in summary, we have performed well in the first half of 2023 in a more challenging marketplace. Our balance sheet and cash flow remain very strong and supports our continued investment in the business. We have invested in our strategic initiatives in the first half and we plan to continue this in the second half of the year.

We've been proactive in delivering productivity and efficiency savings, fully offsetting inflationary cost increases. The business is in good shape. And since the start of the second half, overall revenue trends have been similar to the first half. And we are on track with our plans for the business and our expectations for 2023 are unchanged.

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

Thank you, Paul. In reviewing our first half performance and our plans for the second, I will use our strategic initiatives for the business as a framework, fully aligned with our trade customer focus and entrepreneurial culture and based around our core building blocks of service and convenience, trade value, and product leadership.

These are to evolve our depot model, improve range and supply management, develop our digital capabilities and services, and expand our international operations.

So first, depot evolution. High service levels, including local proximity and immediate availability, are very important to our customers, and we continue to see profitable opportunities to open depots. We are using our updated format in all depot openings. This enables us to provide the best depot environment in which to work and conduct business and to make space utilization and productivity gains in a cost effective way by using vertical racking in the warehouse sections of the depot.

Overall, we believe there's scope for around 1000 depots in the UK versus the 808 trading at the end of 2022. We are well planned on depo openings. And we now expect to open around 33 new depots in 2023, having opened 8 so far this year, and our pipeline for 2024 is also progressing well.

These will include some more in the smaller format size we tested in 2022 using our next day SDC delivery service to supplement in-depot stock holdings. The smaller version enables us to open a depot in places lacking suitable properties to accommodate the standard one or open an infill depot to provide a more local service in less densely populated areas.

We have progressed our revamp program for existing depots. This continues to receive very positive feedback from depot staff and customers alike and providing such trading and working environment is important to our competitive position.

By the end of 2022, including relocations, we had revamped 185 depots. The revamps are budgeted to pay back costs in less than four years. And depot P&Ls are charged a reformat cost, which ensures depot teams are motivated to deliver incremental sales.

As we revamp more of our estate, we are modifying the scale and scope of the revamp of depots with relatively lower catchment areas, so as to maintain incremental returns. In the first half, including relocations, we revamped 28 of the 90 or so depots we are now planning to complete in 2023, 10 more than our previous guidance for the year. By the end of 2023, we expect to have revamped around 41% of the 671 depots which opened in the old format, and to have around 53% of all UK depots trading in the updated one.

Next, range and supply management. Managing the number of kitchen ranges efficiently is crucial for both best availability, which is highly valued by our customers, and for profitability. In recent years, we've reorganized our kitchen architecture, removing duplications and improving the balance between new kitchen introductions and timely discontinuations.

We've 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 kitchen styles to market more quickly. This year, we have around 90 current ranges in stock and available to UK depots, organized into 10 families.

In recent years, we've upgraded our new product program and sales of new product making a significant contribution to our performance. Total sales of new product introduced in the current and the prior year were at the same levels as in the first half last year, representing around 16% of total UK sales as compared to around 13% in 2021 and 2020.

Sales of new product introduced the first half of 2022 alone increased by some 95% in 2023. And as in 2022, higher price kitchens have continued to contribute more of our kitchen mix by volume than previously, which has a positive impact on our average kitchen invoice value.

We are committed to providing market leading and competitively priced product for our customers to sell to theirs. For 2023, we have 23 new kitchen ranges, an enhanced worktop offering and a reinvigorated lineup with other product categories.

Value for money is a consistent feature of purchasers' buying decisions and is likely to be never more so in 2023, given prevailing pressures in household budgets, and we believe we are well positioned to take advantage of this.

For 2023, we've increased the net number of ranges aimed at the entry and the mid-market segments, making more kitchen looks and styles accessible to all budgets. Sales volumes of such kitchens are also a major contributor to keeping our unit costs of manufacture low.

We continue to develop our higher priced kitchen offering, which now includes a new paint to order service. This is a large segment of the market, representing 30% plus of total market sales, where we are underrepresented.

For our entry ranges, we have added more color options, including Greenwich and Reed Green, Witney in Pebble and Navy and Allendale in Dusk Blue, and we have new frontals for Greenwich and Witney to match the Croft Grey cabinet that we've introduced this year.

We have refreshed the look of our bestselling shaker family, which we have named Halesworth, and added a new mid-priced beaded shaker family, Bridgemere, initially available in three colous.

In recent years, introductions of higher priced kitchens have proved very popular. And in 2023, we've refreshed our offer to these segments, but kept to a similar in-stock range count to last year and the same number of families.

New colors for our 2023 include Hockley, both in black and fur green, and Chilcomb in marine blue. And we have easier-to-fit handleless ranges, a look often associated with the high street independence.

For the second half, we've introduced a new paint to order service for customers buying our Chilcomb and Elmbridge timber ranges, which represent the top end of our offering. Priced at a premium to the nine range colors available from stock, we are initially offering 15 new paint to order color choices from which customers can opt to have for either all or just part of their kitchen furniture.

For buyers looking for a more bespoke look, we believe that paint to order service is very competitively priced, with, by market standards, a short lead time between the order being placed and the kitchen 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 a growing segment of the market with a significant opportunity for us.

Following the acquisition of the Sheridans worktop business and our other investments in high solid surface manufacturing capability is amongst the largest in the UK. The number of solid surface orders taken by depots has increased significantly in 2023, and we continue to improve our offer. In 2023, we added six more entry level decors to our solid surface template and fit service. And with the integration of Sheridan largely complete, we are now reducing the time between template and fit to an industry leading five days.

For 2023, we have also reinvigorated our offering in other categories. For example, in doors with more color and bolder styles at all price points to flooring including the launch of our new inhouse brand, Oake & Gray. In appliances, with the further additions to our Lamona brand, which is the leading integrated appliance brand in the UK, alongside extensions to our range of third-party branded product. And in sinks and taps with more styles, colors and finishes.

We are committed to providing competitively priced product 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 tells us that he level of stock availability is one of the key reasons they buy from us. At the end of 2022, in tandem with our new stock management system, TED, we trialed a new initiative, Daily Traders, which we have subsequently rolled out to all UK depots. Daily Traders is an initiative to improve customer service levels and increase sales by optimizing in-depot stock holding of best-selling SKUs and associated range completers.

Sales of these are outperforming those of our non-daily trader SKUs, and we are seeing improvements to other key metrics, including a reduction in customer back orders and a higher proportion of stock being replenished via depots' core weekly delivery order. This gives us efficiencies as it reduces utilization of our XDC service, which I'll talk about next.

In recent times, we've improved stock replenishment by supplementing the depots' core weekly delivery order with investments in the next day service via a regional cross docking center or XDC, combined with a rebalance of where we hold stock. XDC is now a key enabler to delivering the levels of high service and availability, which differentiate our offer.

The improvements to stock replenishment enabled depots to hold deeper stocks of faster selling lines, for example, Daily Traders, and makes it simpler and more efficient for them to deliver superior service levels and availability, backed by certainty over lead time to delivery for items not held at depot. Time spent and cost incurred on depot stock management, for example, an intra-depot transfer of product or exiting discontinued stock can be reduced. And it helps to derisk depot ranging decisions, which if incorrect can be costly to unwind. We've developed this capability with third party logistics partners, and in the main are utilizing their existing infrastructure.

The service is now operating across all mainland regions supplied by a network of 12 XDCs, and our focus is now on using these assets most efficiently. The improved depot stock mixed, following the introduction of a new reordering system and the Daily Traders initiative, have enabled us to reduce annualized XDC capacity, leading to lower operating costs.

We make all the kitchen cabinets and some of our other kitchen product we sell, which is the source of competitive advantage for us in several ways. We keep under review what we believe is best to make or by balancing the overall supply chain availability, resilience and flexibility.

In 2019, investment in manufacturing technology enabled us to make the doors of our popular Hockley kitchen ranges. Since then, we have invested in new lines at our Howden site, which are amongst the most advanced of their type in Europe. These give 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 at a reduced lead time to delivery.

Production on the new lines are scaling up and we expect them to manufacture around 750,000 pieces in 2023 with a full scale capacity of around 2 million pieces in subsequent years.

Separately, we've also invested in two lines to facilitate our paint to order initiative, located in a purpose built facility near our Howden site. The lines give us an industry-leading production capability in this area.

Lastly, our second architraves 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.

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 to trade with us and to deliver productivity benefits and more leads for our depot teams and our customers.

In the first six periods of 2023, using our online account facilities which provide efficiencies and benefits to customers and depots alike, has continued to increase. New registrations totaled some 36,000 and around 45% of customers had an online account by the half year-end. Following a substantial increase in 2023, average weekly logins to our trade platform increased by 7%, with around 70% of users regularly looking at their confidential prices.

Customers with an online account have, on average, continued to trade with us more frequently and spent more significantly than non-users and proportionately more of them bought across our product categories.

We continue to see 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. Impressions in the first half were present in 18% more organic search results per month, and site visits totaled 9.5 million. Our share of fitted kitchen site visits, for which we are the market leader, increased and the time spent viewing pages and the number of pages viewed per visit were at consistently high levels.

Across social media sites, our follower base is at 480,000 and was up 11%, with around 3.6 million monthly engagements. We've recently added a new trade YouTube channel for our account holders to share know-how and experiences.

As our digital presence has grown, awareness of Howdens amongst end consumers has increased. In the period, our unprompted brand awareness amongst end consumers at 25% was more than twice what it was across 2019 and we see the potential to raise awareness to higher levels.

In 2023, we are adding new services and capabilities to our platform, which collectively improve stock and account management, promote frequency and ease of trading and reduce time consuming manual tasks in depots, including stock allocation. These include 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 further trade up functionality to support credit management and payment.

We have commenced the first phase of testing of a digitized in-depot stock management system to record and pick deliveries, check allocations and determine depot stock levels. We've also started using AI to support depot efficiency in several areas, including dealing with product queries.

Capabilities we have added in recent times including our kitchen visualizer and market leading search functionality help users interact with Howdens online at each stage of their buying decision.

To facilitate more high quality leads for depots, we've launched a new process for booking design appointments and increasing the visibility of the booking system on our website. We've also equipped our kitchen designers with an upgraded CAD tool which features faster rendering, photorealistic imagery, and is easier to use than the previous version.

We have more digital content for end users including kitchen trends and Howdens Around the Home. Features include insights from influencers and product spotlights, and we have given such content more prominence on our website.

And finally, international. Our operations based in France have continued to make progress in 2023. The kitchen market in France is estimated to be worth around €4.3 billion excluding appliances, with most kitchens purchased through kitchen specialists and DIY stores.

As long term followers of Howdens will know, we tested our ability to access the sizable market in several ways before adopting a city based approach, serving solely trade customers, led and staffed by people who embrace the Howdens way of doing business.

The performance of the refocused business gave us the confidence to open more depots. And by the end of 2022, we had doubled the depots trading in France and Belgium to 60 in the two year period, with around half of these located in the Paris area.

We believe appreciation of the advantages of our trade-only, in-stock model, our service levels and our competitive pricing is growing. And as around 90% of the product is common to our UK ranges, this helps us realize scale benefits.

This year, we flagged peak trading, which in France is in the summer, over eight weeks, adding period six to the traditional period seven to the benefit of the sales in the first half. Having doubled the number of depots trading by the end of 2022, we now expect to open around 20 more depots over the next 18 months, including 5 or so in the second half of 2023. This would take the number trading to around 80 by the end of 2024, with some 35 located in the Paris area.

In 2023, we are opening more depots in the Republic of Ireland. We commenced trading in the Republic of Ireland in 2022 using a similar debit location strategy to that in France, with the depot teams there supported by our UK infrastructure and our digital platform.

During 2022, we opened five depots clustered around Dublin, and our arrival in the Irish market has attracted much attention locally. And we are encouraged by depot sales to date. We've opened two depots so far this year, including our first serve in the Cork area 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 as we deliver value to customers across all price points. High stock availability is a major contributor to our performance. And in 2023, we will continue with our safety stock policies, but at more normalized levels by volume.

23 new kitchen ranges are now in stock, well ahead of peak autumn trading, with more emphasis on entry and mid-price ranges, together with an enhanced, very competitively priced premium kitchen offering.

We have a program of Rooster promotions in place to keep Howdens at the front of the trades' mind, together with other price initiatives.

We will continue to make improvements to service and availability, including by utilizing XDCs efficiently and through our daily traders initiative. We are increasing the range of services and functionality we offer online to the benefit of our depot teams customers and end users alike.

We will be making more in the UK as our new lines at Howdens move up to fuller scale manufacturing and our solid surface business grows. During 2023, we plan to open around 33 depots in the UK and refurbish around another 90 existing depots to the updated format.

In France, we plan to have around 65 depots trading by the end of 2023 and to have around 10 trading in the Republic of Ireland.

Lastly, outlook. Howdens has performed well in the first half in, as anticipated, more challenging marketplace. Whilst we have peak trading ahead of us, we are confident of our business model across changing market conditions and our expectations for this year are unchanged.

We aim to retain a profitable balance between margin and volume as we continue to maintain competitive pricing, whilst aligning operating costs and working with suppliers to keep product and input costs controlled.

We are mindful of the challenges current macroeconomic conditions including ongoing inflationary cost pressures present and we are trading against record prior year comparators in a market whose overall size, as measured by kitchen volumes, may well see a decline this year. Our customers, mainly self-employed people, are adept at managing their businesses through such times.

And in summary, we are well placed to outperform our competitors again in 2023 as we continue to invest in our key capabilities and growth opportunities, which are vital to the long term development of the business.

Thank you for listening. We will now take your questions

[Operator Instructions]. We will now take our first question comes from Christen Hjorth at Numis.

Three questions from me if that's okay. The first one, just on the outlook statement, Andrew, that you just gave there. Just a bit more color on how you're feeling it about H2 and P21, particularly given the high level of macro noise that is out there.

The second one, you point to having taken market share in the first half. Just any sort of color on what you think the UK kitchen market did in H1.

And then third, just sort of specifically on XDC, I think mostly that as investment has now gone in. How should we think about increased sales or incremental sales from XDC there [Technical Difficulty].

Sorry, Christen, you broke up there, but I've got your three questions. Look, there's work out there. Builders are busy. We've just completed an internal roadshow around every single manager in the business at the first half. Morale is really high in Howdens. We're on the front foot. We're well prepared for period 21.

Our managers understand what we're doing around investing in growth. You pointed towards XDC there, and they take those costs on their P&L, understanding the benefits that it brings to them.

We talked about, it's almost – the market, it's certainly harder than it was last year. And it's a bit like cycling uphill. And we talk about the gains that we're making versus our competitors, and there's much more distance between us and them. And I think our builders really appreciate working with a trusted brand like Howdens and see us and quoted regularly through our builder forums that we are far, and by far the best in the UK market around product offering, availability and on value.

I think people need to remember the strength of our business model as we go into period 21. Being in stock, being local, our competitors can't compete in getting kitchens available to customers in time for a fit pre-Christmas. So that's a sort of a strength that we've got versus our competitors. But our strong sense is the market is down somewhere between 10% and 15% in volume in the first half. It's not a well recorded market, but we take a strong sense from what our key suppliers are doing with us and others in the market. And we get a sense from our manager where we're at. That's our best guess, around 10% to 15%. So we are definitely picking up significant market share versus our competitors.

But suppose, as I look into the second half and I think about period 21, we are absolutely unformed for it, the lead banks where it needs to be as we build into the second half. But our product offering and our offering in general is in an excellent place. We've made a position that I spoke about in the update around making available our top end look at mid end prices.

Customers may choose to do different things and go for mid-priced doors with – and invest in solid surface work surface, which we'd see is a theme. Our non-kitchen business, our day to day business, flooring, joinery, architraves, all strong with some good volumes coming through.

So we feel the first half, we've put in another range, we're well positioned on price having had adjusted a few, the team morale is in excellent place. And we're just really confident in in the business model.

XDC has been a significant investment for us. But it distinguishes this business from everybody else in the market by a considerable degree. And it gives us capability around introducing new product areas, maybe even new categories. It brings an on-time and full availability for our builders that enables them to get jobs done, get paid, and the cycle continues as they pay us.

It also in time will reduce the discontinued product in the business because we're not putting stock in that you've got less probability of clearing through. But we've done this for availability and excellent service for our customers and also the range extensions that will bring in time.

We'll now take our next question from Dave O'Brien from Goodbody.

A few from me, please. Firstly, just on volume trends, I guess, because of pricing and the timing of Easter in the comparative periods, the volume trends are a little lumpier than usual. But if we step away from that, can you give us a sense that, we look at period one to three relative to four to seven, do you feel like the volume environment is still deteriorating? Or are we kind of more stable at a lower level? If you could just give us a sense around this?

The market share gains are exceptional. And I think could you maybe give us a little more color? Is this the new product lines? Is it the higher pricing points? Or where specifically I think you're taking share or is it simply across the board?

And last one for me just on pricing. Consumer environment clearly difficult and pricing competition is manifesting itself everywhere. I just wonder if you guys have had to adjust your pricing strategy at all, either reduced pricing, forego increases you anticipated or have to up promotional activity or anything you can give us a sense around that pricing dynamic?

On your first question around volumes, I think we will see more leveling of volumes versus last year as we go into the second half, partly driven by how the product offering and the business momentum going into the second half and comparables last year, so I expect it to be better than the first half from that point of view.

On product, our emphasis has been on mid-range in kitchens. At the top end, we've introduced our paint to order which really will be quite distinctive, but our emphasis and our big value has been on mid-range shaker and upgrading that look, so customers can get a top end look at mid-price cost. That we feel very strongly about.

Our open value not to 2k, buy to let, council housing, all that kind of stuff is very stable. I would say from a share point of view, yeah, we're pleased with what we're doing. We want more and more all the time. And we think that will come in the second half. We don't think the competitors are as organized as we are currently.

On price, we're always adjusting. We put in for 10%, we got sort of 5%. That sort of felt back to normal levels of what would happen on a price increase. We protected the bottom end on value. On mid, we adjusted. On the top, we adjusted wee bit. We do that all the time. And remember how it works in Howdens, our depot managers are the ones empowered to set prices locally for customers. So when I'm going through my regional board meetings through the year, I'm always testing for confidence around price through our builder forums, we're testing where we're at with customers. But I think the pricing implementation is we feel we're really well set up.

And when I mentioned that I went round and did roadshows, we saw every depot manager over the last three weeks, and we're in our process of regional boards. Price is not being raised. When it is, we deal with it, but it's not being raised. We think we're well placed. In fact, one of the managers summarized it beautifully. When we got to the roadshow, the final end of the roadshow and they said, Andrew, we've done everything we need to do now business wise, we've got this for the second half.

We'll now move on to our next question from Emily Biddulph at Barclays.

I've got three please. On the efficiencies that you drove in OpEx in H1 that's offset inflation, am I right to think that's largely around the sort of better use of XDC driving efficiencies in the depot, sort of in combination with a reduction in XDC capacity? or were there other things driving that as well that we need to bear in mind going forward? Is there more that you can do and sort of how should we think about OpEx for the full year.

On gross margin, it's obviously better than you delivered in the second half of last year. Is there sort of scope to sort of see that drift up again due to sort of increase in in-house manufacturing and potentially sort of lower timber and steel price feeding through or are there sort of offsets against that that we need to think about? And then thirdly, on the XDC and sort of Daily Traders initiatives that you've sort of pushed through in H1, do you think that you've sort of effectively done all that you would ever want to do there and this sort of scheme is as big as it could be, or is a more of a sort of rebalancing that you might look at and the sort of success of it might inspire you to look at other things?

I'll get Paul to do one and two, and I'll do part three.

Okay, so I'll kick off on one. In terms of the operating costs, you're right to have picked up on XDC. That does offer some efficiencies for us in the depots. And if we look at really the people within the depots and how we're now operating, that reduces the amount of sort of any inter-depot transfers of product, and therefore, there's an efficiency and we see that in terms of the labor within our depots, looking at it before we put in XDC of roundabout a 5% improvement. So that's one positive from XDC as well as Andrew had already explained in terms of the revenue advantages in terms of level of service.

In terms of other activities we're doing is we're keeping a tight eye on managing the costs across the business. So that's just also looking at support functions and what we're doing, exploring efficiencies within the factory in terms of how we manufacture product, which obviously improves and helps in the gross margin. So it's, again, a focus across that and the way of doing business. And we anticipate maintaining that through the remainder of the year. And as you pointed out, that's helped us offset inflationary increases, particularly in the operating costs.

In terms of the margin, you're right, the margin in the first half last year was particularly high. As you recall, we put in price increases ahead of commodity increases as they hit the business. So that helped us significantly in the first half of last year. This year, we have a more normalized position. And as a result of that, we see a margin that has improved on the second half of last year. And I think we're in good shape for the second half of the year.

Often, there is a slight benefit in the second half because of period 21 and the higher mix of kitchens, which can offer some small variability in the margin. But you're right, there were other activities in terms of efficiency, what we manufacture in the factories, where we've invested on that that will start to assist us.

In terms of commodity costs, yes, we see some more sort of stabilization as we come into the second half. As we carry inventory, it takes a while to work through the cost of goods sold. But I think what it does is it reassures us that we're in the right place in terms of pricing, and well positioned for margin for the second half of the year. And I'll hand it back to Andrew to cover the Daily Traders.

On XDC, XDC will be a feature of Howdens going forward. Our managers think it's one of the best things that we've done for customer service and availability, but it also has improved productivity of staff.

To give you a sense, to complete kitchen orders, we've moved quite a lot of product internally between depots, around about 8 million pieces that we have nearly extinguished. We're down to 1 million pieces moved between depots that completes the offer.

So factory fresh product is another feature of XDC, meaning that complete orders, unmoved product between depots, customers getting exactly what they want. It does offer the opportunity around range extensions, which are in the early journey of and potentially new categories. But we've done it for efficiency reasons and customer availability reasons.

We'll now move on to our next question from Geoff Lowery at Redburn.

I have two questions really. The first is, when you look at your business sort of holistically, you've been through periods of very significant step change investments, as you've outlined today. When you look forward in your medium term plans, are there things of similar scale ahead of us, or should we think about those step change costs coming to an end and some of the benefits being more visible? I'm not really talking about this year, I mean more the direction of travel.

And second question just about France and Ireland, can you add a little bit more about what you're seeing because, obviously, we can see some big sales growth numbers. But it's quite hard to disaggregate what's going on in existing depots, what sort of trends you're seeing in terms of maturity curve and so on. Any color you could add around that would be very kind.

We've had a revenue cost this year in the first half, particularly around XDC that I think will normalize into next year. And we will continue to push forward with new depot openings. So I think what we've got in our five year plans, XDC was a big part of it. I think where you'll see us investing further will be about bringing more manufacturing back to the UK and bringing our capabilities there.

You remember, Geoff, we've now acquired and got planning for 20 acres or so in the back of the factory and another three or four acres on the left hand side of the Howden factory that gives us options, which we're working through right now, but we believe the competency is there to make more in the mix. We'd like to see ourselves getting up to more of sort of 45% to 50% of our offering being made in the UK because of the opportunities that exist there. I suppose that is the amount of color I'd add to that one.

In France and Ireland. In France, the new depots, we're pleased with the new depot openings in terms of their plans and their maturity growth. We did a chunky number last year of 25 that we opened and have guided to another 20 over the next two periods and it's just operationally making sure that the team can cope with that amount of growth which they're doing well with. We're pleased particularly around the cities where depots are working close to each other. They seem to be doing better than when our depots are out on their own.

Ireland too, we're in early stages of being there. But we are absolutely delighted with the property strategy that we've had. We think our new recent depot opening in Cork is one of the best we've done, full stop. The team very strong in Southern Ireland and I think we'll have a good business there. It was 10 depots and we'll keep continue to press on into next.

The competition's not what it is in the UK and Ireland. And people haven't been able to buy rigid cabinets for quite a long time actually. So being in stock of three colors, 100 sizes, it's a pretty unique proposition for them.

Just one quick follow-up on Ireland. Have you ever been rash enough to offer a view on how many depots in Southern Ireland? I've always been quite struck by how many you have in Scotland, for example. Is Ireland a similar sized opportunity if all went well?

I don't know, Geoff. We would have in target to do. We've got over 80 depots in Scotland. We're targeting 100. Population similar. I think we don't know. We sort of said around about 40 to 50 in Southern Ireland. It could well be more, Geoff. And I think as we continue to roll out, we'll get a good sense of that.

When we've gone to Cork, we've not just put one depot down on its own. We're putting two together, so they can work in tandem. We like that. They can support each other stock wise. We haven't got XDC in Southern Ireland.

So my sense is, we've got a lot of work to do in Dublin. We've got more work to do in Cork. We're putting one in Waterford. And we're only touching the surface of it at the minute. So lots to go at.

We'll now move on to our next question from Aynsley Lammin at Investec.

Just a few left for me. I think just interested if you could give a little bit more color around cost inflation both at the COGS line and the operating cost line, what you're seeing there and the trends.

Just on I guess more balance sheet, capital allocation wise, given you're kind of on track for the full year, what can you say anything about guidance of where you expect net cash to end up at the end of the year?

And on the dividend, obviously, that increased despite the fall in earnings. Should we read from that a similar kind of message for the full year that you'd aim to at least maintain, if not slightly lift, the kind of full-year dividend, even if earnings are down as expected?

I'll probably pick up those. In terms of the cost inflation trends, yes, you're right, we've seen those and offset those in the first half of the year. Part of the inflationary trends into the second half of the year will be sort of the full year of the salary increases that we gave early in the year, and I think that's probably an area that we'll continue to review to make sure we remain competitive as we go forward.

In terms of cost inflation otherwise, I think things like commodity prices and those sorts of areas, energy seemed to be sort of now stabilizing, albeit the commodities at higher rates, but we do see some more stabilization there. So I think that's probably the main observations in terms of where we are in terms of costs. And we're obviously carefully managing those.

In terms of the balance sheet, as you see, the balance sheet is in good shape. We remain cash generative. And in terms of outlook for cash, that will be quite positive with a cash balance probably in the order of £250 million or something like that for the full year, depending on timing. The bit that's slightly difficult to judge is, as we've added the additional 53rd week, that affects timing on things like settlements of creditors and those sorts of things that can that can move that sort of balance around. But I think I can reassure you that the business remains strongly cash, generative, and anything around that balance will be the timing.

And yeah, we're very clear on our capital allocation policy as we'll look at that cash balance and then we'll make appropriate distributions as we feel appropriate.

In terms of the dividend, we're a progressive dividend payer. We increased the dividend by 2.1% in the first half. If you look at where consensus is and if we were to have a sort of a similar trend for the full year of a modest increase, then you would see that the dividend cover would be roundabout 2.5 times, which is consistent with our dividend policy. So we are aware of our policy in terms of dividends.

We'll now move on to our next question from Clyde Lewis from Peel Hunt.

I think I've got three questions as well, I'm afraid. Andrew, it would be useful to get an update on your thoughts around sort of French manufacturing and when you might be looking to establish a presence in France, given the confidence in in the operations there, obviously, continues to increase.

The second one was on number of active accounts that you've got mainly in the UK. I suppose really just thinking around how that's evolved over the first half of the year.

And the third one was on sort of competitors. And I know you want to focus on your business, but it's always good to understand what the competitors might be doing, particularly around pricing or other strategy changes that you might have noticed from where you sit.

I'll start there on number three. Actually, I think it's the more interesting one and I've mentioned that we're taking share and we're hoping to keep continued pressure up on our competitor set.

As we move into peak trading, we will normally increase staffing levels, and the teams have been out amongst competitors. And I would say there, you can sort of see pretty apparently that they are suffering/. I think of your big ticket and your finance, that's probably a place you might not want to be right now. We don't lean on the crutch of finance, it's never been part of our model. Obviously, we supply credit to our trades. But I think cautious consumers might be more interested in our root and with our trusted brands.

I'd just add a bit more color. I've been seeing quite a lot of suppliers, getting three or four them strategic ones together and just having time with them and spend time with EGGER and Kronospan, two big Austrian private family businesses who actually described the UK as – it was down for them, but stable. And France, they described similarly, with other markets down really quite considerably worldwide. And they pointed to how well we were doing and how much market share we were taking.

And I think this point about active accounts, our account base at the half year, it's at a very strong level. And actually, we've been recruiting more credit accounts than cash accounts. Credit accounts tend to spend more with us. So we're happy with where we're at from an account point of view with a real focus on it for the teams of growing accounts because it lays the foundation for future years. And we look for good relationships and building trusted relationships with trades that work over time.

Your first question was about French manufacturing. It's not on our radar. And I think it's really about math. If we do need to do something, we'll probably assemble rigid cabinets somewhere. But think small operation, few people, highly automated. The last thing we'd want is a manufacturing operation in France, so we're not there. And I don't think that question really needs to be answered for a period of time, maybe until we get to double what we've got depot wise.

A final point on France was because it's peak trading, is it an alternative to UK peak trading. So, they peak in period six and seven. That's going to be their period 21. And our period 21 is obviously 10 and 11. We're picking up volume in France, but time in the factory is less busy.

We'll now move on to our next question from Rajesh Patki at J.P. Morgan.

I've got three questions, please. The first one is on market shares. You mentioned gaining market share during the first half of this year. Just wondering if this was more in your core segment? Or was it on the premium segment? And if you could provide some color on the difference in market development for each of the segments?

The second one is if you could quantify the like-for-like trend in period seven this year, any particular reason you haven't put a number in the release?

And lastly, do you expect normalized seasonality in pre-tax profits, 30/70, first half, second half this year?

I didn't hear your third question. I'm sorry. Could you repeat your third question?

Just wondering if you expect a normalized 30/70 seasonality for pre-tax profits for first half, second half this year?

I think the short answer on that is yes on the third. Look, on market share, and this is a guide, cross good and better and best, we would dominate the good segment of the market where medium, mid-market is very important. But with the introduction of solid doors, solid work surfacing, our biggest market share gain would probably be at the better end of the market where you're talking about kitchens in the sort of £8,000 plus category. In the mid-market, it's £4,000 to £8,000 kitchens, and then we consider good anything below £4,000. So, yeah, the simple high level answer is we've been taking more share at the better end as I think people have been looking to seek better value. It's a lot in it for the trade. When they buy product for us, they can put their markup on it. We do the solid work surface that we're now – you're going to be down to five days template and fit, which is industry leading. So I think I think that's where we're at.

Period seven, from a like-for-like point of view, there, thereabouts on period seven, the trend was very similar as year-to-date. Period seven isolated on its own as a figure isn't really a good indicator for the balance of the year, having looked over the last five. It's probably one of the worst indicators for what happens in the balance of the year. So, yeah, I think we will continue to – with our range introductions, we'll continue to put pressure on the market around all segments in kitchens. But with the volumes that we're now selling in skirting, flooring, and architraves, we will certainly be taking share in joinery products as well.

And we'll take our last question from Sam Dindol at Stifel.

Two questions from me, please. Given the pressures on UK household budgets, are you seeing more people trade down once they're in the process and they get a sort of indicative prices and they sort of consider options?

And secondly, on digital, can you give a sense of how conversion is on for that channel versus the traditional channel? And have there been any learnings in that space in the past few years in terms of how to improve that?

I think it's not dramatic. Really, do we need to pull it out dramatically. There is some trade down. But I think customers are doing or being smarter by taking sort of mid-price doors, solid surfacing, and working on solutions that hit their budget. So our design consultants are really excellent at understanding where the customer's budget is and then working through our range to maximize the offer that we can make for them. So I think you probably are seeing a little bit of trade down, but it's not material. Our average kitchen values are going up. And I think it'd be interesting to see what happens as we put these mid-price ranges that look a little bit like the top end ranges where customers go. I suspect we'll get growth in both to be honest. But that mid-price range, that looks like the best end of the market is really, really unique in the UK market.

Digital, we're still on our journey. And I'm very pleased with the level of leads that we're picking up online. The teams have been working very hard over the last four or five weeks generating online leads that bring their way into depots. And we're at our highest levels ever on that.

We do it in support for our trade customers to bring business in. We don't think the conversion rate on a lead like that is as good as a customer bringing a lead. When a customer brings a lead, we think we converted around about 80%. Online, it might be half that, might be slightly less than half that, but it's still opportunity and it's still work.

Interestingly, just as an aside, we built an expo, 20,000 square foot space up at our factory in Yorkshire and we built it to bring our staff through and understand the new product ranges for the second half. So, we've put 2,500 people through and trained them. And then we decided that we would open it up to depots and let depots bring customers up to see this really excellent display space. And we did it over a Thursday and a Friday. And we literally had hundreds of customers coming through, all of them trading up as they could see the ranges. So we're looking to see what kind of conversion rates we've had out of that. But it's just a small experiment, I thought I'd just let you know that.

On digital, our big piece of work is in the second half when we get through period 21 is landing livestock. We've been in test in six depots, that completes the shopping journey for our builders where they can go online, see the private pricing and understand when they can get stock through the different fulfillment routes, including XDC. We will start in earnest on that work post period 21. And we want that ready for 2024 because I think that's going to be a very compelling proposition for our trade customers and really kick on our digital offering quite considerably.

Thank you to all of you for your questions. Have a good day.