Howden Joinery Group Annual Report 2019

FY2019 Annual Report · Howden Joinery Group

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What Howdens stands for
To help our trade customers achieve exceptional results for their
customers and to profit from doing so. When our customers succeed,
we succeed.

Our Mission
To supply from local stock nationwide the small builder’s ever-
changing, routine, integrated kitchen and joinery requirements,
assuring best local price, no-call-back quality and confidential
trade terms...

...and to provide the builder’s customer with enough choice,
advice and aftersales to make a home to be proud of.

Our Culture
Howdens is worthwhile for all concerned.

FURTHER READING

See my introduction to our Governance Report

See our Sustainability Report

See our Board of Directors

Page 66

Page 48

Page 68

Howden Joinery Group Plc Annual Report & Accounts 2019

GovernanceFinancial statementsAdditional Information

Chairman’s statement continued

The Board believes there are many opportunities ahead, and the
strength of the Company will allow us to look through the economic
cycle and to deliver relative outperformance in any downturn.

GOVERNANCE AND SUSTAINABILITY

Howdens has a clear governance framework
and we strive to operate with integrity in all we
do. It is vital to maintain the trust of investors,
customers, our colleagues and other stakeholders
in an environment where expectations, as well
as regulations, continue to grow. Our corporate
governance framework and a summary of the
work of the Board during 2019 can be found in our
Corporate Governance Report, starting on page
66. Our Sustainability Report, which begins on
page 48, talks to our aim of being a good corporate
citizen and living our ethos of being worthwhile to
all concerned. Fundamentally, each of our depots
represents a place in a local community and our
people are encouraged to participate in community
life. In 2019, the Group donated around £2.25m to
good causes.

We are pleased to report that the Company applied
all the Principles of the UK Corporate Governance
Code (the ‘Code’) throughout the period and we
have reported how we have done so in summary
starting on page 80. We are also pleased to
report that, in the first year in which the new Code
applied, we were compliant with all Code Provisions
except for Provision 38. Provision 38 provides
that Executive Director pension contribution rates
(or payments in lieu) should be in line with those
available to the workforce. Our Remuneration
Policy (‘Policy’), which was approved by
shareholders in 2019, stipulates that Executive
Director new joiners’ pension contribution rates
must match that available to the wider workforce.
Our incumbent Executive Directors’ pension

provision rates, while in line with Policy for existing
Directors, do not yet match the wider workforce.
This is because the reduction of fixed, contractual
remuneration must be done carefully and
proportionally over time. Both Andrew and Mark,
our two Executive Directors, are fully supportive of
their respective rates tapering as set out on page
93 of the Remuneration Committee Report and the
Board confirms that existing Executive Director
pension provision rates will be in line with the wider
workforce by the AGM in 2022.

Board meetings conducted in 2019 were structured,
as normal, to address the Board’s collective
responsibilities in relation to strategy, performance
and governance. In our Corporate Governance
report this year, we have set out the highlights
of the matters the Board considered during the
year. Inevitably, time was also spent considering
mitigating actions that may be required in the event
of a disruptive period following the UK’s exit from
the European Union.

MARKET ENVIRONMENT AND RISKS

Howdens has a strong track record of dealing with
change and facing the challenges of the evolving
marketplace. The Board is mindful of the challenges
that lie ahead and we continue to evaluate the
potential and emerging risks that could impact the
Group. We address these matters in more detail on
pages 40 to 47. As in previous years, we monitor our
market situation closely, in order to ensure timely
responses to changing conditions.

LOOKING AHEAD

The Board believes there are many opportunities
ahead, and the strength of the Company will allow
us to look through the economic cycle and to
deliver relative outperformance in any downturn.

These opportunities to grow our business represent
a further step change in our ambition. The
implementation of new generation depot designs,
the ability to rollout smaller depots, as well as the
potential for international growth, will, I expect,
provide Howdens with strong opportunities to
create value in the coming years. We expect to be
able to grow to around 850 depots in the UK, and
will be opening around five new depots in France
during 2020.

Following 39 UK depot openings in 2019, we
anticipate around 30 in 2020.

At the same time as we see good opportunities for
expansion and creating value, I note that there
is continuing uncertainty surrounding the UK
consumer and the economic outlook, as the UK
moves into a post-Brexit world. We remain confident
in the Group’s potential and believe that the
business has the financial capability, the culture
and the skills to enable us to plan for the future
from a position of stability and strength. Above all
else, Howdens is a people business and it gives me
great pleasure on behalf of the Board to thank our
colleagues for delivering another fine performance
in 2019.

Richard Pennycook
Chairman

26 February 2020

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional InformationWhat Howdens stands for

To help our trade customers achieve
exceptional results for their customers
and to profit from doing so.

When our customers
succeed, we succeed

Our culture

We don’t get paid
until a job is complete
and satisfactory and
that means it looks
good, is available locally
when required, meets
standards, is easy to fit
and doesn’t break

Howdens is worthwhile for all concerned

Creating the conditions
that allow everyone
to succeed

It's about fitting into
builders' environment and
not letting them down

What Howdens stands for
“To help our trade customers achieve exceptional results
for their customers and to profit from doing so.
When our customers succeed, we succeed.”

Howdens’ focus on serving our trade customers underpins
everything we do. We believe the best way to source and install
a kitchen is to work with your local tradesperson, and we are
clear that the purpose and future success of our business lies
in serving the trade market to the highest standards.

Our relationship with our trade customers has three key
facets, each supported by our entrepreneurial culture:

Trade Service and Convenience: Depots located where our
customers need them; monthly account facilities; product in
stock to get the job done including appliances, joinery, flooring
and hardware. A design service to help customers choose and
plan kitchens.

Product Leadership: Product design and testing facilities
ensure that we offer the right product styles that are attractive
to consumers; designed to be trade quality and easy to fit with
the builders in mind (‘fit and forget quality’).

Trade Value: Best local trade prices enabled by in-house
manufacturing, long-term key supplier agreements and a
low-cost depot operating model.

Andrew Livingston
Chief Executive Officer

Our Culture

Howdens was founded on the principle that the business should be worthwhile for all
concerned – customers, prospective customers, homeowners, tenants, local communities,
our suppliers, our investors, our staff and their families.

This founding principle has shaped our business model and our strategic decisions for more
than 20 years, and it continues to be at the heart of what we do.

WORTHWHILE FOR OUR TRADE CUSTOMERS

WORTHWHILE FOR OUR SUPPLIERS

• Profitability, convenience, service, support

• Strong and enduring relationships based on trust

• Great product range

• Outstanding service

• Trusted personal relationships – we do what we say

• Trade accounts and confidential discounts

• Design, planning and marketing support

WORTHWHILE FOR OUR STAFF

• A good living wage, plus local profit-sharing and incentives

• Excellent rewards and recognition for outstanding

performance

• An entrepreneurial culture, with central support

• A growing company with opportunities to progress

• Working together to develop new products and deliver

best service

• Scale – good opportunities for them to build a profitable

business

WORTHWHILE FOR OUR OTHER STAKEHOLDERS

• Delivering consistent long-term value for shareholders

• A growing dividend

• Surplus cash returned in share buybacks

•

Important local employer and good neighbour in over
750 communities

• Giving back to local and national charities

• Responsible purchasing and environmental policies

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional InformationOur market

million homes
in the UK
18m owned, 11m rented

All kinds of
kitchens

All sorts
of uses

All types
of budget

Home is the centre
of our lives, and the
kitchen is the heart
of the home

Increasingly, we live
in the kitchen

End-
users
demand
more complex
kitchens.
Builders value
our advice

If today’s kitchens are to
meet expectations and
standards, they must be
installed by professionals

New technology means more
choice and better finishes at
entry-level prices

THE UK
MARKET

HOWDENS’ PLACE IN
THE UK MARKET

TREND: CHANGING
LIFESTYLES

CONSUMER EXPECTATIONS
AND HOW WE ARE RESPONDING

BUILDER EXPECTATIONS AND
HOW WE ARE RESPONDING

OUR FRENCH AND
BELGIAN MARKETS

In the UK there are approximately
29 million homes; 18 million owned and
11 million rented. For many years now we
have seen the market move from DIY to
‘done-for-you’. If people want a modern
kitchen, they increasingly look to a small
builder to fit it.

The consumer environment has been
mixed over the last few years. Increases
to stamp duty in 2016 affected
purchases of 2nd homes, and the
potential impact of Brexit led to subdued
consumer confidence over the last two
years. However we continue to see a
good level of investment in new house
builds and customers have continued to
invest in kitchen refurbishments. With a
more settled political environment we do
not expect the market to worsen over the
next 18 months.

We are the biggest seller of kitchens in the
UK, with a market share of around 30%.

We primarily sell to small builders
who work across many sectors of the
market. Our kitchens are fitted in a wide
range of end-uses, including private
rentals and social housing, as well as
all kinds of owner-occupied homes. Our
contracts division, which was started
in 2017, is continuing to grow rapidly,
creating opportunities to expand our
presence in the new-build contract
market, a growing area of the UK
housing landscape.

We also supply a wide range of doors,
joinery, appliances and everyday
hardware products used by joiners
meaning that our customers have a
one-stop shop for everything they need
to complete the kitchen job.

In 2019, Howdens sold over 4 million
kitchen cabinets, along with 800,000
appliances, around 700,000 sinks and
taps, over 2.5 million doors and close to
3 million square metres of flooring.

The kitchen is at the heart of every
home. Whether our homes have small or
grand kitchens they play an important
part in our everyday lives. They need
to be highly functional as the pace of
life increases, but also be that social
place, the centre of the family, where
life happens.

There are two significant trends
affecting kitchen design. Firstly, open
plan living continues to increase in
popularity so not only are our kitchens
required to be the heart of the home,
but on display as a statement of our
personal style. Secondly, with the
increase in the build of smaller homes,
and therefore the increased pressure on
space, kitchens need to excel in function
and form in compact places.

As our way of life changes, we need
our kitchens to change. We expect
increased functionality, complexity and
design. As a result, the choice of design,
styles and colours can feel endless
which is why having the help and advice
of an expert designer coupled with the
knowledge of a trade professional is the
best option to create the dream kitchen.

As end-users demand greater
complexity in their kitchens, so
builders want sound advice to meet
those demands. As kitchens become
more complex, we are increasing our
investment in people with specific skills,
such as kitchen designers.

Our designers support the builder by
visiting the end-user’s home to carry
out a survey, plan and create a kitchen
design which captures everything that
the end-user wants from their kitchen.
They will then present the design to the
builder and end-user in the comfort of
one of our depot presentation rooms.

Builders benefit from us being there with
expert knowledge to support both them
and their customer all the way through
the design and planning process. Both
builders and end-users need to deal
with people who are knowledgeable
about kitchens – and we offer that
important service.

At the end of 2019 we had 25 depots in
France and two in Belgium – managed
within the French structure. During 2019
we added five depots in France, mainly
around our cluster of existing Paris
depots. This allows us to capitalise on
the brand presence and customer base
which we have built in that area, as well
as to draw on the pool of staff from the
existing depots who understand the
benefits that the Howdens model offers
to builders.

Compared to the UK, we have found that
these markets have a lower proportion
of integrated kitchens and a higher
proportion of kitchens that are sold
through retail, DIY and specialist shops.
This was what the UK market was like
when we first entered it with our trade-
only model. Experience in our depots
shows us that trade and end-users
appreciate buying a kitchen in our way.

Expectations about what the kitchen
can do, and what we can do in it,
have changed significantly in the
last few years. This pace of change
has accelerated with the changes in
digital and the role which social media
plays in influencing and inspiring our
customers. The early work we are doing
on our digital platform and website to
develop inspirational content is proving
very successful, and customers are
also reacting well to the engaging
content we’ve published on social media
following some great collaborations with
influencers throughout 2019.

Customers are demanding more
functionality, more choice and more
sophistication from their kitchens,
whatever their budget. Whether they
are looking for an open plan kitchen
to entertain in or a compact highly
functional space we need to make sure
we are able to offer kitchens to meet all
these needs, whilst still making things
as easy as possible for our depots, trade
customers and end-users. The linear
kitchens we are launching in early 2020
will help fulfil these demands. They
take a number of common parts from
existing ranges, a dedicated factory-
built cabinet, and create a completely
new look.

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Strategic reportGovernanceFinancial statementsAdditional Information18

Our business model

Trade only

From local stock nationwide

Dedicated manufacturing sourcing and distribution

Yes. It’s all
in stock

Great! I can start
the job today

Our own manufacturing
gives us a cost
advantage

Our business model is:

• Trade only. Completely focused on our trade customers. When they succeed, we succeed

• From stock, in local depots. Nationwide coverage with best local pricing

• Entrepreneurial, low-cost depots who understand their customers

• Supported by our own UK manufacturing sourcing and distribution operations

• Low cost and scalable. Flexible and proven. Generating cash for investment and returns

TRADE ONLY. TRADE FOCUSED.

• The best way to source and install a modern kitchen

is to work with a skilled local tradesperson.

• Our business model is completely focused on serving

those trade customers.

• We provide quality products and excellent levels of
service and support to help our customers succeed.

• When our customers succeed, we succeed.

FROM STOCK, IN LOCAL DEPOTS WITH
NATIONWIDE COVERAGE

• Time is money for a small builder. They have to react quickly.

• End-users delay the start of jobs, so builders need to

bring forward the next job and start immediately or they
lose money.

• End-users change their mind part-way through a job, so the
builder needs to change something or buy something extra.

• Trade accounts give builders up to eight weeks before

• Our in-stock proposition and our nationwide network of

they need to pay us.

• Builders can complete the job and get paid by their

customer before their debt to us is due.

• We collect our debts. Total cost of credit control, bad

debts and write-offs is less than 1% of sales.

• Our 1,600 specialist kitchen designers support the

builder and help their profitability.

• Product website and catalogues help the builder

local depots mean that builders can save time and make
more money by choosing Howdens.

• 85% of our UK customers are less than 5 miles from a depot.

ENTREPRENEURIAL, LOW COST DEPOTS WHO
UNDERSTAND THEIR CUSTOMERS

• A new Howdens depot opens with a manager and a small

number of staff.

sell to the end-user.

• We don’t have the high costs associated with selling

• Trade book and enhanced digital capability puts the

kitchens to retail customers.

depot in the builder’s pocket.

• A typical Howdens depot is 10,000 square feet or less, is in

an edge-of-town location which is cheaper to rent and more
convenient for our trade customers, has a low fit-out cost,
and breaks even in its second year.

• Depot manager and staff are responsible for growing their
account base and their sales, and for managing their own
depot margin.

• Profit-sharing is calculated locally, not centrally. Everyone
is strongly incentivised to understand their customers’
needs and to grow a profitable local business.

• The depot manager’s autonomy is a key element of the
Howdens’ business model. Depot managers hire their
own staff, do their own local marketing, set local pricing,
manage the level of discount applicable to their account
holders and manage their own stock levels to suit their own
local customers.

• We attract and develop exceptional, entrepreneurial depot
managers and staff who set us apart from the competition.

• We also make some of our cabinet frontals and worktops,

as well as painted skirting boards. Other products are made
to our specifications and bought in from suppliers with
whom we have built long-standing relationships.

• We make what it makes sense to make, and we buy what it

makes sense to buy.

• We continue to invest in our manufacturing, giving us the
capacity to grow and the flexibility make product rather
than to buy it in when appropriate.

• Both of our factories serve only one customer – Howdens.
Their working practices and scheduling exactly match
the requirements of our depots. The result is an efficient
system with no unnecessary waste.

• Our in-house distribution operation provides excellent

• The retail kitchen market typically sells to a customer

service to over 750 different depots.

once every 15 years or so. Our business is built on repeat
purchases and long-lasting relationships with our trade
customers. Our depots know that they have to deliver
exceptional service every time, and our customers trust us
to do this.

• No two deliveries are alike, and each one must be correct,
complete and on time. We’ve continued to invest in our
warehousing and transport fleet to keep up with our growth
and maintain our high depot service levels.

UK MANUFACTURING. EFFICIENT SOURCING
AND DISTRIBUTION

• We design and manufacture all our own cabinets in our
own factories in Yorkshire and Cheshire – over 4 million
cabinets per year.

• Making our own cabinets gives us a significant cost

advantage.

LOW COST AND SCALABLE. FLEXIBLE
AND CASH-GENERATIVE

• The Howdens model is low-cost, efficient, flexible and

scalable.

• We consistently generate high levels of cash which
allows us to invest for growth and to return surplus
cash to shareholders.

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Strategic reportGovernanceFinancial statementsAdditional Information20

Our strategy

We continue to see
scope for around 850
depots in the UK

Customer
service

We do
what we say

Investing in UK
manufacturing

Investing in
new products

Maintain cash balances
that allow us to meet
the requirements of the
working capital cycle

Return surplus
cash to shareholders

EXPAND OUR DEPOT NETWORK

Our strategy is to expand our depot
network as a means to increase our
share of the total addressable market.

We continue to see untapped
requirement by builders for a local and
convenient service. When we add a new
depot near to an existing one, we see
overall sales increase in the area within
a short time.

We believe that there is some way to
go before we have full coverage of
the UK market and we continue to see
significant opportunities to grow our
business, with scope for up to 850
depots, some of which will utilise a
smaller depot footprint. We discuss our
expansion plans in more detail in our
CEO’s report, beginning on page 22.

DEVELOP OUR PEOPLE
– MAINTAIN EXCELLENT
CUSTOMER SERVICE

Our strategy is to develop our people
to keep on offering even better service
to our customers. Howdens’ success is
based on customer service: we do what
we say and say what we mean. We
invest to increase our empoyees’ skills
and to reinforce our culture, purpose
and business model. All of this directly
benefits our trade customers.

We look to attract the best people from
outside the company and to retain the
best people who are already with us.
When we invest in the right people, we
can grow our own leaders, who already
understand the Howdens business
model and culture.

INVEST FOR GROWTH.
INVEST IN NEW PRODUCT

Our strategy is to invest for future
growth. In order to deliver the potential
we see in our market and ensure stock
availability in depots as we expand,
we have invested around £260
million in the last five years. We’ve
used this investment to expand our
depot network, to improve efficiency,
provide for disaster recovery, increase
manufacturing and distribution capacity,
and to upgrade of our digital capabilities.

Investing in new product ensures that
we stay relevant and can offer the
latest styles and colours, which is what
our customers and end-users want.
We are always working on the new
product pipeline.

USING DIGITAL TO REINFORCE
OUR BUSINESS MODEL

PRUDENT FINANCIAL
MANAGEMENT

We look at digital in a different way.
We are investing in our digital capability
as a means of further strengthening the
human relationship between the builder,
their customers and the depot.

Our three objectives for digital are:
to increase builder and consumer
awareness of the Howdens brand,
making it easier for our customers
to sell Howdens product; to improve
communications between us, our trade
customers and their customers, and
to streamline and improve operating
processes, freeing up staff and builder
time for more productive interactions.

Our strategy is to be financially prudent.
We maintain sufficient cash balances
to allow us to meet the requirements of
the working capital cycle, taking into
account the marked seasonality of the
business and returning surplus cash
to shareholders as appropriate, which
has been via share repurchases and
dividend payments.

We discuss our uses of cash and our
dividend policy in more detail on page 36.

RESULTS OF OUR STRATEGY IN
2019 AND STRATEGIC PRIORITIES
FOR 2020

These are discussed in detail in our
CEO’s report, beginning on page 22,
and are in the areas of:

• Expanding our depot network. 39

new depots in the UK, including 5 in
Northern Ireland. 5 new depots in
France.

• Evolving our depot model. Making

more efficient use of space to better
support our customers

• Range and supply management. New
product, supply chain benefits and
productivity gains.

• Digital. Brand awareness, process
efficiency, putting the depot in the
builder’s pocket.

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Strategic reportGovernanceFinancial statementsAdditional Information22

Chief Executive’s statement

ANDREW LIVINGSTON
Chief Executive Officer

To help our trade customers achieve exceptional
results for their customers and to profit from doing so.

Sales per customer increased, as total transactions
and total spend grew, with our core customers
buying more often and spending more with us.

With a similar number of new credit accounts
being opened as last year, new customer spend
increased significantly as did profit per new
account, reflecting the higher level of sales and
lower acquisition costs.

WHAT HOWDENS STANDS FOR

I believe these results show that Howdens
knows what it stands for:

To help our trade customers achieve
exceptional results for their customers
and to profit from doing so. When our
customers succeed, we succeed.

OUR BUSINESS MODEL

Revenues,
margin and
sales per
customer all
increased.

Strategic
initiatives
aimed at
growing
volumes
and profits.

PERSPECTIVES ON 2019

2019 was a year of progress for Howdens
and I am pleased with how the business has
performed.

Both revenue and gross margin increased, and
profitability improved, with operating profit
increasing at a higher rate than revenues.

This in part reflects the timing of the price increase,
which in 2019 was implemented in January, as
compared with April in 2018, and maintenance of
the improved depot margin discipline we exhibited
in the second half of 2018.

In the first half of 2019 we found a more profitable
balance between volume and price as compared
with the first half of 2018, when a significant
increase in volumes came at some cost to margin.
This trend continued in the second half, against a
stronger margin comparator.

In 2020, we will continue to evaluate how best
to balance volume and price, to the benefit of
overall profitability, in the light of prevailing market
conditions as we see them.

Trading in the peak Period 11 weeks has set a
new benchmark for us. Our depot teams were
well incentivised and achieved record sales in
the period, underpinned by the level of stock
availability delivered by our supply chain and an IT
infrastructure which performed without incident.

At the same time we continued to make investments
in a number of strategic initiatives during the year.
I will talk about these later, but first I would like to
talk about our customers.

Our overall customer base in 2019 was stable and
ended the year at around 470,000 credit and cash
accounts. Two areas of focus were to improve
our customer loyalty and the returns from our
customer acquisition programme.

Our ‘trade only’ model is a powerful combination
of locally empowered depot management teams
served by a dedicated supply chain, which is both
cost effective and critical to the success of our
in-stock offer.

Depot managers hire their own staff, manage
their own local relationships, set local pricing and
manage their own stock levels to suit their own local
customers. Profit-sharing is calculated locally, not
centrally. Everyone is strongly incentivised to grow
a profitable, local business.

Whilst the Supply operation serves only Howdens,
it has more than 700 depot customers, each with
individual and changing day to day requirements.
Our Supply operation has scale, space and flexibility
to respond to these needs, and meet demand in our
peak weeks of ‘Period 11’ trading, when sales are
typically more than double the level in other periods.

STRATEGIC INITIATIVES

We introduced a number of initiatives with potential
to increase volumes and profits across the
business, based around our core building blocks
of Trade Service & Convenience, Trade Value and
Product Leadership. These were:

Evolving our depot model to use space
more efficiently and to create the best depot
environment in which to do business and to support
our customers.

Improving range and supply management to help
customers’ buying decisions, to access supply
chain benefits and to make productivity gains.

Using digital to raise brand awareness, to support
the business model and to free up time for depot
staff and customers to use more productively.

Together with the development our operation in
France by way of a City-based approach.

Listening to our customers –
builder forums

A key feature of Howdens success is that we’re
trade-only. Building trusted relationships with
trade customers is central to everything we do.

We hold regular feedback sessions with our trade
customers so that we can identify any areas where
we need to improve our offer.

These sessions are always fully subscribed, which
shows that our builders appreciate that we’re
listening to them.

They view our relationship as a business
partnership, so it’s in their interests to invest their
time to help us make it even easier for them to serve
their customers.

We take builder feedback very seriously and we have
used it to make specific improvements to products
and service levels.

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Strategic reportGovernanceFinancial statementsAdditional Information24

We have been sufficiently encouraged by their
performance to date and the expectations of Depot
Teams for them in 2020, to extend the test. We
intend to convert around 30 more depots across
the country so that we can continue to learn how
best to apply this opportunity within the existing
depot estate.

In 2020 we are budgeting for an average re-format
spend of £225,000, as we apply the learnings
from depots converted to date. We also plan to
re-rack around a further 50 depots without other
modifications in 2020.

At the end of 2019, we had a total of 71 new
format depots, comprising 60 new ones and 11
refurbished ones, and we had re-racked a further
62 depots without other modifications.

By the end of 2020, assuming our depot plans for
2020 are implemented as I have described, we will
have a total of 131 new format depots, comprising
90 opened in the new format plus 41 refurbished
ones. We will also have re-racked a further 112
without other modifications.

Chief Executive’s statement continued

Better
customer
environment.
Increased
efficiency.

DEPOT EVOLUTION

During 2019 we progressed our testing of a new
depot format, aimed at creating the best depot
environment in which to do business with our
customers, at no material change to the fit-out
costs of a new depot.

We initially converted three older depots, and
these have now been trading in the updated format
for eight months or so. These depots continue
to show signs of improved performance relative
to depots of similar vintage, type and location
since conversion.

We then converted a further eight older depots
prior to the start of our peak trading period, using
variations of the format.

Managing the disruption a reformat causes to a
depot’s day to day operations and trading patterns
is a key part of the process and our experiences
with these depots have helped us improve our
skill base, our planning for a reformat and our
understanding of when in the year to implement
them. They have also helped us to develop our
thinking about how to scope, structure and execute
a reformat, which we are now able to complete in
eight weeks. We have also refined the reformat to
incorporate a smaller hardware area, reducing
refurbishment and ongoing running costs.

We are pleased with the feedback we have received
from both depot teams and customers at the
converted depots.

Around

new UK depots
planned for
2020.

By racking product vertically in the warehouse
section of the depot, we believe there are ways
to make space utilisation improvements, with the
potential to make productivity gains from reduced
picking times.

By reallocating space, in the new format we can
provide a more open front area to bring depot staff
closer to customers, improve both the visibility
and the standard of our design facilities and nearly
double the space available to display a wider range
of kitchen designs.

There is also room for a small items picking area
behind the counter with an improved range of
everyday essential products, including hardware
and ironmongery, to add incremental profit and
as a way of encouraging footfall and incremental
kitchen sales.

We are confident that this format is an
improvement, at the same cost, on the traditional
one. It was adopted for all UK depots opened in
2019, and all UK depots opened in 2020 will also be
formatted in this way.

The improved densities offered by re-racking
vertically have also enabled us to put our full
offering into a smaller space.

We opened 8 smaller footage depots this year and
intend opening more such depots in 2020. With the
smaller size depots, we continue to believe there is
potential for around 850 depots in the UK.

In 2019 we opened a total of 39 UK depots, including
five in Northern Ireland, with openings weighted
towards the latter part of the year. This represents
an increase in the number of openings as
compared an average of 25 per year in the previous
three years.

In 2020 we plan to open around 30 more UK depots.

As I explained last year, we put in place a test to
understand the rollback opportunity of the updated
format in the existing depot estate.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information26

Chief Executive’s statement continued

new kitchen
ranges.

new Lamona
appliances.

RANGE AND SUPPLY MANAGEMENT

• Strengthened the Lamona brand through the

New kitchen ranges each year represent
a significant portion of sales as product
lifecycles shorten.

During the year we introduced 12 new kitchen
ranges to all depots, with average sales per
range above those of 2018.

These ranges are characteristic of the trends we
are seeing for straight lines in modern kitchens,
which accentuate the sense of space, contrasting
colours and a cleaner look in shaker-style kitchens,
and matt textures that benefit from the latest
industrial technology advances that prevent
finger marks.

During 2019 we:

introduction of a three year warranty.

• Selected around 250 of the fastest sellers from
the new hardware lines we trialled, for roll-out
across the estate.

• Continued to support our customers by

introducing pre-finished internal doors across
the different styles, helping them save fitting
time.

•

Introduced three new flooring decors,
manufactured with new technology which
makes vinyl flooring quicker and easier for
builders to fit.

In 2020, we plan to introduce 13 new kitchen
ranges of which 11 have been launched to date.
Features include:

• Updated our light oak cabinet to a more natural

Two new styles:

oak tone.

• Led the mass market roll-out of anthracite-

coloured storage systems which help define
our mid and premium ranges.

• Extended our worktop range by 11 laminate

worktops, and seven solid surface worktops.

• Added 25 appliances to our Lamona range,
introducing new technologies in cooking,
laundry and dishwashing products, while
strengthening our core Lamona oven choice
with the introduction of a new low-price-
point fan oven.

• A modern slab range, offering a trade up from
our popular entry-priced Greenwich Gloss
range. The new door has seamless edges and
is available in three colours with a mirror gloss
finish and two colours with super matt finishes
featuring anti-fingerprint technology.

• An updated painted timber shaker range, which
is a versatile design that can be dressed to
achieve both modern and traditional looks,
available in two new colours from January 2020,
with an additional colour to follow in April.

More colours in more ranges:

• A new Green in our successful mid-priced

Fairford shaker range.

• Pebble and Navy colours extended across

three kitchen families, including the addition
of Pebble to the Greenwich Gloss family,
strengthening our entry price point offer.

New handleless cabinet:

• We have developed a new handleless cabinet
platform to meet demand for a ‘Linear’ look.
The cabinet can be used with our current
ranges, which enables us to increase customer
choice without a commensurate rise in our
range count.

• We now offer 27 styles, and we have the

flexibility to change the number of styles on
offer in response to customer demand.

• With the handleless cabinet we can now provide
a more affordable way for our customers to
achieve the straight-line look, including in our
entry price point Greenwich family.

Clearer choice:

•

Introduction of the new cabinet also enabled
us to redefine our range architecture into
‘Modern’, ‘Linear’ and ‘Shaker’, making it easier
for customers to choose the kitchen that suits
them best.

• New worktops for this year focus on lighter

shades and thinner profiles, which in particular
complement our new Linear kitchen range.

• We are extending the range of Lamona new

technology appliances, including self-cleaning
ovens, to lower price points. Design-led
refrigeration is also being introduced at what we
think are very affordable prices.

Managing the number of kitchen ranges
efficiently is crucial for both best availability,
which is highly valued by our customers, and
profitability. We have made progress in getting
back to the discipline of fewer deeply-stocked
higher-performing ranges in the depots.

A key part of range discipline is the timely
discontinuation of underperforming ranges and the
management of clearance stock from the business.

• During the year, 19 ranges were cleared from the
business, and by the end of 2019, we had around
67 current kitchen ranges, including initial stock
of some of the ranges scheduled for launch in
2020.

• We believe about 65 current ranges is the right

number for the market at present.

•

In 2020 we are aiming to remove at least the
number of ranges we add.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information28

Chief Executive’s statement continued

New structure
increases
efficiency
and customer
value.

Use of digital
to reinforce
the Howdens
model.

NEW COMMERCIAL TEAM

UK MANUFACTURING

During 2019, as part of our focus on range
management, we combined the divisional
commercial functions into a single commercial
team, organised in categories. This structure
provides clearer accountabilities for ranging
decisions and accessing supply chain benefits.

The changes remove duplication of effort,
easing communication and bringing our
commercial team closer to depot managers.

We have seen the benefit of clearer
accountabilities and closer working
practices between Trade, Commercial
and Supply which enabled:

• Our new kitchen brochure and Trade Book to

be launched in week three of 2020 (the first of
three editions during the year, synchronised
with our promotional ‘Rooster’ offers).

• The stock for all new kitchens to be in depots
before the Trade Book and brochure were
published.

Through this structure, we also aimed to ensure
that the business is well planned at least 18 months
out with our suppliers, that we are being offered
innovative product first and that we are offering
the best value to our customers.

We have benefitted from significant engagement
with our supply base in support of our 2020 plans
for improved product range, availability and price.

We keep under review what we believe it is best
to make or to buy.

In 2019 investment in manufacturing technology
enabled us to make the doors for five of our new
kitchen ranges, reducing the cost of these doors
and increasing supply chain flexibility.

We also installed a small batch line to make low
volume but important items which third party
vendors cannot supply at competitive prices.

In December we were awarded the Manufacturing
Guild Mark, a reflection of the excellence in our
manufacturing operations, and we were delighted
to be re-awarded the Royal Warrant during the year.

Our Supply operation achieved certification under
the new International Health and Safety Standard,
ISO45001, which replaces the certification we held
under the incumbent UK standard (OHSAS18001).

As well as recognising the effectiveness of our
formal safety management systems, the audit
process for certification demonstrated that
we have a leadership and workforce positively
engaged and committed to getting everyone home
safe, every day.

USE OF DIGITAL

We see digital as a means to reinforce the
Howdens model of strong local relationships
between depots and their customers. We are
building a digital capability with three objectives:

Around 80% of visitors are now entering the site
via pages relating to specific search queries or
terms, underpinned by search engine optimisation
improvements targeting search terms most
relevant to our products.

•

Increase builder and consumer awareness of
Howdens to help our customers sell Howdens
product.

Improve the communications between
Howdens, tradespeople and their customers.

• Streamline and improve operating processes,

freeing up time for depot staff and customers to
use more productively.

Our new web platform offers customers improved
product search and information, and has moved
Howdens.com into more prominent positions,
raising brand awareness with consumers.

Since June 2019:

• Howdens.com ‘impressions’ present in
1.5 million more search results a month.

• Visits to the site have seen growth of 22% year
on year, exceeding an average of 3,000,000
visitors a week for the first time.

• Contacting of depots through the website has

increased by 35%.

We also completed a programme to restructure
and digitise our content. A new hierarchy,
enriched product content and new advisory and
editorial material make it easier and quicker for
the user to find the information they want to view.

Views of product categories have increased both
in kitchens, where visits to kitchen pages have
risen by 43%, and in under-represented product
categories such as hardware (up 76%) and doors
(up 77%).

Refining style and product selections is now easier
as we have provided the capability for each user
to tailor these to their own requirements, enabling
a more focussed discussion of consumers’ needs
with their builders and our designers.

In the second half of 2019, we tested ways of
developing our digital offering further, in line
with our aim to ‘put a tradespersons’ local depot
in their pocket’.

• Working with account holders to understand

their key requirements we developed and tested
a secure trade-customer-only area of the
website where they can manage their accounts
and interface more efficiently with Howdens and
their chosen depot in particular.

• Customers, behind a secure login, can view

their credit details, make payments and access
account details and download invoices and
information at any time.

• During the test period 44% logged in outside of
depot hours, 60% made a payment, and half
downloaded documents. Average payments
per customer were also well above the average
company level.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information30

We also have a well-planned programme of second
and third phase product introductions in place for
later in the year, together with a series of Rooster
promotions to encourage further footfall.

With respect to coronavirus, we are monitoring our
supply chain closely and have increased forward
stock levels for product sourced from China, whilst
reviewing alternative sources and means of supply.

This year we will be making more of the product we
sell in our UK factories.

Our new online trade account facilities are now
available to all customers and in 2020 we will
continue to improve content and add more
capabilities to our digital platform.

Whilst we are aware of the economic uncertainties
that we face, we remain confident in our business
model through changing economic conditions
and of the benefits our initiatives will bring to our
performance.

We remain cautious on market conditions given
economic uncertainties, including the UK’s exit
from the EU, the impact that forthcoming trade
negotiations may have, and the consequences of
Coronavirus outbreaks in a number of countries.

Andrew Livingston
Chief Executive Officer

26 February 2020

Chief Executive’s statement continued

new depots in
France in 2019

Around

new French
depots planned
for 2020.

In January 2020 we instituted full roll-out of
these trade account facilities which are now
available to all customers. User feedback has
been favourable, with usage rates rising.

We will be supporting our depots with on-boarding
their customers to our new Trade platform,
which we believe will enhance the strong
local relationships the depots have with their
builder customers.

In 2020 we will continue to improve content and
add more capabilities to our platform. We aim to
develop further account and project management
features together with functionality which assists
local communications between depots and
their customers.

We aim to test a new more efficient on-line account
opening process for new customers. Having
‘digitised’ our product and marketing content in
2019 we can deploy these cost effectively across
multiple channels and programmes and add fresh
content efficiently.

INTERNATIONAL

Last year I explained why we believe there is
potential for a viable city-based business in
France. In 2019 we:

• Opened five new depots, four around Paris and

one in Lille.

• Completed the rebranding of our international

business from Houdan to Howdens which should
enable the business to gain advantage from the
UK brand equity, online search reputation and
business efficiencies.

• Appointed a French national to lead our City

based business in France, who has been in post
since Autumn 2019.

• Completed the closure of our operations in
Germany and the Netherlands with closure
costs being in line with our expectations.

• The 22 depots opened before 2019 are now

sufficiently profitable to cover all central costs,
which are scaled for a larger business. Total
sales of the depots opened in 2019 are in line
with expectations.

We have identified further sites which would
enable us to open more depots in France in 2020.
Consistent with our policy of staffing new depots
with ‘Howden trained’ teams, and assuming our
business in France continues to perform in line
with our expectations, we are targeting around
five depot openings in 2020.

TURNING TO 2020

We aim to retain a profitable balance, in the light
of prevailing market conditions, between price
and volume , whilst working with suppliers to keep
product and input costs down.

We plan to open around 30 depots in the UK, five in
France and intend to convert around 30 existing
depots to the new format.

We have a right-sized line up of new product for the
first half which has been launched and is in-stock
earlier than in 2019, which we believe will benefit
sales across this year.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information32

Key performance indicators

FINANCIAL

NON-FINANCIAL

Strategy

Risk

Remuneration

Sales growth

Why we measure it

We believe that there are considerable opportunities to grow
sales. As sales grow, we believe there are economies of
scale which will also allow us to grow long-term profitability.

Links to strategy, risks and remuneration

Failure to maximise growth potential.
Depot staff bonuses are directly
linked to their depot’s sales.

Profit before tax

Why we measure it

Profit before tax is a simple and widely understood
measure. We consider that it gives a complete picture
of our performance as it includes all of our operating,
selling and distribution, admin and financing expenses.

Links to strategy, risks and remuneration

Failure to maximise growth potential.

Deterioration of model & culture.
Executive Committee and senior management
bonuses are directly linked to PBT.

Cash

Why we measure it

We aim to generate sufficient cash throughout the operating
cycle to cover our investment needs, to retain at least one
year’s working capital requirement and to pay a dividend in
line with our stated dividend policy (detailed on page 36).

Links to strategy, risks and remuneration

Prudent financial management.

Invest in our people & infrastructure.

Return surplus cash to shareholders.
Executive Committee and senior management
bonuses are directly linked to cash generation targets.

Progress

We are pleased with our progress. We saw total
UK sales of £1.6bn in 2019, representing annual
growth of 4.8%.

.
1

2015

2016

2017

2018

2019

Progress

We are pleased with our progress. Profits
before tax grew faster than revenues at 9.4%,
from £238.5m in 2018 to £260.7m in 2019.

m
0
.
7
3
2
£

m
2

2
3
2
£

m
5

8
3
2
£

m
7
.
0
6
2
£

m
6
9
1
2
2
£

2015

2016

2017

2018

2019

Progress

We are pleased with our progress.

£267m
cash

£61m
capex

£126m
returned to
shareholders

Depot openings

Why we measure it

We believe that there is some way to go before the UK
market is saturated. We continue to identify possible sites
for new depots over the medium term whilst at the same
time keeping our model flexible, and allowing us to take
account of economic conditions and phase the speed of
our growth accordingly.

Links to strategy, risks and remuneration

Expand our UK depot network.

Failure to maximise growth potential.

Deterioration of model & culture.

Health & Safety

Why we measure it

We have around 10,000 employees working in our factories,
our logistics operation, our support sites and our depots
and we need to keep them all safe at work.

Links to strategy, risks and remuneration

Our people.

Health & Safety.

Progress

In line with our target, we opened 39 new UK
depots in 2019, and five in France. We expect to
open around 30 UK depots in 2020, plus up to
five in France.

6
3

7
2

9
1

9
3

3
3

2015

2016

2017

2018

2019

Progress

We are pleased with our progress. See page 54
for more details.

p54

Use of FSC® or PEFC certified materials

Why we measure it

We use over a quarter of a million cubic metres of chipboard
and MDF in our factories. FSC® and PEFC are the two main
certification bodies, so ensuring that all our MDF and
chipboard is certified by them gives us assurance over
their provenance.

Links to strategy, risks and remuneration

Product relevance.

Continuity of Supply.

KPI

100% of wood-based
material used in
our manufacturing
processes from FSC® or
PEFC certified sources
for the last 5 years

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information35

t
r
o
p
e
r
c
i
g
e
t
a
r
t
S

Key performance indicators continued

Financial review

NON-FINANCIAL

Production waste recycling

Why we measure it

One of the pillars of our business model is our efficient
production, which gives us a significant cost advantage.
Recycling as much of our waste as we can reduces our costs
and helps us to deliver long-term sustainable returns.

Progress

We are pleased with our progress. 99.8% of our
production waste was recycled or reused. See
page 58 for more details.

Links to strategy, risks and remuneration

Prudent financial management.

100

8
7
9

7
7
9

3
7
9

5
8
9

8
9
9

2015

2016

2017

2018

2019

Strategy

Risk

Remuneration

MARK ROBSON
Deputy Chief Executive and Chief Financial Officer

FINANCIAL RESULTS FOR 2019

Revenue

Total Group revenue increased £72.3m to £1,583.6m. Howden Joinery UK depot revenue rose 4.9%
to £1,550.3m (2018: £1,477.3m). UK revenue increased by 2.5% on a same depot basis to £1,507.1m
(2018: £1,470.9m); this excludes the additional revenue from depots opened in 2018 and 2019 of
£43.2m (2018: £6.4m).

Revenue £m

Group:

Howden Joinery UK depots – same depot basis

UK depots opened in previous two years

Howden Joinery UK depots – total sales

Howden Joinery Continental European depots

Revenue €m

France and Belgium –same depot basis

Depots opened in previous two years

France and Belgium – total sales

2019

1,583.6

1,507.1

43.2

1,550.3

33.3

2019

37.4

0.3

37.7

2018

1,511.3

1,470.9

6.4

1,477.3

34.0

2018

36.3

–

36.3

Depot revenue in Continental Europe was £33.3m
(2018: £34.0m), reflecting the closure of our depots
in the Netherlands and Germany in January 2019.
On a local currency basis, sales at our depots in
France and Belgium increased by 3.8% and by 3.1%
on a same depot basis. The profit earned by the
depots opened before 2019 covered all European
central costs in the year.

Gross Profit

Gross profit increased to £986.2m (2018:
£932.2m). The gross profit margin of 62.3% (2018:
61.7%) reflected the impact of a price increase in
January 2019. This resulted in an improved balance
between price and volume.

Operating Profit

Operating profit rose to £260.0m (2018: £240.1m),
giving an operating profit margin of 16.4% (2018:
15.9%).

Selling and distribution costs and administrative
expenses were £726.2m (2018: £692.1m).
Costs increased, as expected, due to continued
investments in areas across the business, including
new depots, digital upgrades and the additional
depreciation arising from recent investments.
There were also the one-time costs associated
with the closure of our depots in Germany and
the Netherlands of £5.8m, and the absence of the
£3.8m GMP equalisation charge, incurred in the
prior year.

Profit before and after tax

Net interest income was £0.7m (2018: charge of
£1.6m), reflecting the lower finance expense in
respect of pensions of £0.4m (2018: £2.3m). Profit
before tax was £260.7m (2018: £238.5m).

The tax charge on profit before tax was £51.7m
(2018: £48.1m), representing an effective rate of
tax of 19.8% (2018: 20.2%). As a result, profit after
tax was £209.0m (2018: £190.4m).

4.8%

Increase in
revenue

8.3%

Increase in
operating profit

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information
36

Financial review continued

SOURCE AND USES OF CASH

Net cash and cash flow

£600

£500

£400

m
£

£300

£200

£100

m
3

.
1
3
2
£

+£300.8m

-£6.3m

-£26.9m

-£46.2m

-£61.1m

-£70.6m

+£1.6m

+£36.1m

-£55.2m

m
4
.
7
6
2
£

Closing
net cash

Opening
net cash

Operating
cash flows

Working
capital changes

Pension
contribution

Tax
paid

Capital
expenditure

Dividends
paid

Shares re-
purchased

Other

Uses of cash

2018

£27.5m

£44.3m

£68.3m

£62.2m

2019

£30.0m

£61.1m

£70.6m

£55.2m

Pension deficit
Cap ex

Dividend
Share Repurchase

Earnings per share

Reflecting the above and the
reduced share count following share
repurchases, basic earnings per share
were 35.0p (2018: 31.3p).

The final dividend payment of 9.1p per
share will, if approved by shareholders,
be paid on 19 June 2020, with an ex-
dividend date of 21 May 2020 and a
record date of 22 May 2020.

Dividend policy and dividend

The Group’s dividend policy is to target
a dividend cover of between 2.5x and
3.0x, with one third of the previous
year’s dividend being paid as an interim
dividend each year.

The Board has recommended to
shareholders a final dividend of 9.1p
(2018: 7.9p), giving a total dividend
for the year of 13.0p (2018: 11.6p), an
increase of 12.1%. This equates to a
dividend cover of 2.7x (2018: 2.7x).

Cash flows

There was a net cash inflow from
operating activities of £221.4m
(2018: £163.2m).

Net working capital increased by
£6.3m, mainly due to debtors that were
up by £7.1m. This was due to Period
11 trading ending in early November,
allowing payments to fall into the
2020 financial year, which started on
29 December 2019. Stock increased
£5.5m due to depot openings, offset by
creditors, up £6.3m.

Capital expenditure on assets including
new depots, digital upgrades and
investment in the next phase of our
Raunds distribution centre, totalled
£61.1m (2018: £44.3m). Net tax paid
was £46.2m (2018: £45.4m), dividends
paid were £70.6m (2018: £68.3m) and
share repurchases totalled £55.2m
(2018: £62.2m).

Overall, there was a net cash inflow
of £36.1m, leaving the Group with
net cash of £267.4m at year end (29
December 2018: £231.3m net cash).

Capital structure

The Board targets a capital structure
that is both prudent and recognises the
benefits of operational and financial
leverage, and that, after considering
our capital requirements, will return
surplus cash to shareholders as
appropriate. The Group has significant
property leases for the depot network
and continues to have a material deficit
in the Group pension fund. Taking into
account this underlying level of gearing,
the Board believes it is appropriate for
the Group to be able to operate through
the annual working capital cycle without
incurring bank debt.

The Board regularly reviews the
Group’s cash balances considering
future investment opportunities,
expected peak working capital
requirements, trading outlook and
dividend payments.

The Group will adopt IFRS 16 in 2020
which will bring leases onto the
balance sheet for the first time. Note
2 to the Financial Statements gives
details of the effect.

SHARE REPURCHASE

In March 2018, we announced a £60m
share repurchase programme, of which
£30.0m was remaining at the start of
2019. In February 2019, we announced
a further share buyback programme
of £50m to be completed during the
following two years.

During 2019, the Group acquired
10.8m shares for a consideration of
£55.2m. This completed the 2018 share
repurchase programme and £25.0m of
the February 2019 programme remains.
Shares that were bought in the market
during 2019 were cancelled.

Following the Board’s recent review,
it has been decided to complete the
remaining £25.0m of the £50m 2019
share buyback programme in 2020 and
return a further £85m to shareholders
through another share purchase
programme over the next two years.

Pensions

At 28 December 2019, the pension
deficit shown on the balance sheet was
£56.6m (29 December 2018: £36.0m).
The increase in the deficit was due to
a £196.9m increase in liabilities (the
main elements of which are a £244.8m
increase in liabilities primarily due to
a reduction in the net discount rate,
and a £47.9m decrease in liabilities
due to adopting updated longevity
assumptions), partly offset by an
increase in asset returns of £149.8m
and a £46.9m cash contribution.

On 28 June 2018, we announced
that, following the triennial actuarial
valuation of the scheme as at 5 April
2017, we had reached agreement with
the Trustees of the defined benefit
pension scheme in relation to the
schedule of payments required to fund
the scheme deficit. We agreed to make
annual deficit contributions of £30m
per annum for up to five years until
June 2023.

The funding position will be monitored
on an ongoing basis, and deficit
contributions will be suspended should
the scheme’s funding position improve
to at least 100 percent of the scheme’s
funding basis for two consecutive
months and resumed if the funding
position subsequently falls back below
100 percent.

The contribution to the pension deficit in
the financial year ended 28 December
2019 was £30.0m (2018: £27.5m).

Revenue £m

Howden Joinery UK depots

Howden Joinery continental Europe depots

98%98%
2%

1,477

1,550

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information38

Financial review continued

CURRENT TRADING AND
OUTLOOK FOR 2020

Current trading

Howden Joinery UK depots sales in the
first two periods of the new financial
year (to 22 February), increased by
1.6% (-0.2% on a same depot basis),
with one fewer trading day than in
2019. Excluding the first week of
trading (which this year had 2.5 trading
days, one fewer than in 2019), sales in
2020 were up 3.5% (1.6% on a same
depot basis.

Outlook for 2020

In 2020, we expect additional operating
costs of £20m to be incurred in respect
of: the one-year impact of running the
old National Distribution Centre whilst
also incurring the costs of the second
phase of our new Raunds distribution
facility; digital upgrades; increased
pension charges; and additional
depreciation. These are in addition
to the impact of ongoing growth in
the business, inflationary pressures,
new depots and any impact of foreign
exchange rates. Compared to 2019,
we will benefit from not bearing the
£5.8m costs of closing our operations
in the Netherlands and Germany.
Capital expenditure of around £80m is
expected, including the final phase of
the Raunds distribution centre, together
with further investment in digital and
new depots.

The Group will adopt IFRS 16 for the year
to 26 December 2020. The first report
under IFRS 16 will be the June 2020 half-
year report, released on 23 July 2020.
Further details can be found in Note 2 to
the Financial Statements on page 128.

With respect to coronavirus, we are
monitoring our supply chain closely and
have increased forward stock levels
for product sourced from China, whilst
reviewing alternative sources and
means of supply.

Whilst we are aware of the economic
uncertainties that we face, we remain
confident in our business model for
the future.

USE AND MANAGEMENT OF
FINANCIAL INSTRUMENTS, AND
EXPOSURE TO FINANCIAL RISK

The Group holds financial instruments
for one principal purpose: to finance its
operations. The Group does not currently
use derivative financial instruments
to reduce its exposure to interest or
exchange rate movements.

The Group finances its operations by
using cash flows from operations, and
it has access to an asset-backed loan
facility if additional financing is required.
Treasury operations are managed within
policies and procedures approved by
the Board. The main potential risks
arising from the Group’s financial
instruments are foreign currency risk,
counterparty risk, funding and liquidity
risk and interest rate risk, which are
discussed below.

No speculative use of derivatives,
currency or other instruments is
permitted. The Treasury function
does not operate as a profit centre
and transacts only in relation to the
underlying business requirements.

Foreign currency risk

The most significant currencies for
the Group are the US dollar and the
Euro. It is the Group’s current policy
that routine transactional conversion
between currencies is completed at the
relevant spot exchange rate. This policy
is reviewed on a regular basis.

The net adverse impact of exchange
rates on currency transactions in the
year was £2.5m. The principal exchange
rates affecting the profits of the Group
are set out in the following table.

Principal exchange rates
versus UK pound (£)

1.50

1.25

1.00

0.75

0.50

1.34

7
2

.
1

1.27

1
3

.
1

1.13

1
1
.
1

1.14

7
1
.
1

United States
dollar (US$)

Euro (€)

Average
2019 Year-end
2018 Year-end

Counterparty risk

Group Treasury policy on investment
restricts counterparties to those with
a short-term credit rating at least
equivalent to Standard and Poor’s A-1
or Moody’s P-1. It also places limits on
the maximum amount which can be
invested with a single counterparty. The
Group continuously reviews the credit
quality of counterparties, the limits
placed on individual credit exposures
and categories of investments.

Funding and liquidity

The Group’s objective with respect
to managing capital is to maintain a
balance sheet structure that is both
efficient in terms of providing long-term
returns to shareholders and safeguards
the Group’s ability to continue as a going
concern. As appropriate, the Group can
choose to adjust its capital structure by
varying the amount of dividends paid
to shareholders, the returns of capital
to shareholders, the level of capital
expenditure, or by issuing new shares.

NEW ACCOUNTING STANDARDS

None of the new accounting standards
that came into effect during 2019 had a
material implication for the Group.

CAUTIONARY STATEMENT

Certain statements in this Annual Report
are forward-looking. Although the
Group believes that the expectations
reflected in these forward-looking
statements are reasonable, we
can give no assurance that these
expectations will prove to have been
correct. Because these statements
contain risks and uncertainties, actual
results may differ materially from those
expressed or implied by these forward-
looking statements. We undertake no
obligation to update any forward-looking
statements whether as a result of new
information, future events or otherwise.

By order of the Board

Mark Robson
Deputy Chief Executive
and Chief Financial Officer

26 February 2020

The Group has a committed, asset-
backed, bank facility which allows
borrowing of up to a maximum of
£140m, dependent on the actual levels
of stock and trade debtors held at any
time. The facility was not used at any
point during 2019 and is in place until
December 2023.

The Group’s committed borrowing
facility contains certain financial
covenants which have been met
throughout 2019. The covenants are
tested every four weeks and are based
around: (i) fixed charges; (ii) tangible net
worth; and (iii) earnings before interest,
tax, depreciation and amortisation
(EBITDA) for Howden Joinery Limited.

In addition, our pension trustees, who
carry a charge over the share capital
of Howden Joinery Limited, have a
separate covenant test around the
EBITDA of Howden Joinery Limited.

The Group’s latest forecasts and
projections have been stress-tested for
reasonably possible adverse variations
in trading performance and show that
the Group will operate within the terms of
its borrowing facility and covenants for
the foreseeable future.

At the 2019 year end, the Group had
£267m of net cash and £138m of funds
available to borrow under the committed
borrowing facility.

Interest rate risk

The Group has not had any borrowings
during 2019 and does not consider
interest rate risk to be significant
at present.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information40

Principal risks and uncertainties

What’s changed in 2019?

• No new principal risks
• No changes to risk scores
• Biggest influences on risks over the year have been

– Brexit uncertainty
– Preparations to exploit growth opportunities

Our approach to risk

When we look at risks, we specifically
consider the effects they could have on
our business model, our culture and
our long-term strategic objectives.
These are set out on pages 14 to 21,
and we encourage you to refer to them
as you read this section. We consider
both short and long-term risks within a
timeframe of up to three years.

CLIMATE, ENVIRONMENTAL,
SOCIAL AND GOVERNANCE RISKS

Our approach to identifying risks
considers a wide spectrum of exposure
areas that includes environmental
and climate risks as well as social and
governance issues.

RISK APPETITE

EMERGING RISKS

‘Risk appetite’ describes the amount of
risk we are willing to tolerate, accept or
seek. Our risk appetite is determined by
the nature of the risk and how that risk
could affect us.

We have a higher appetite for risks that
present us with a clear opportunity for
reward, and we actively seek out those
that provide the greatest opportunities.

We have some appetite for risks with a
possible opportunity for reward. With
these risks, we carefully balance our
mitigation efforts with our view of the
possible rewards.

We have a very low appetite or
tolerance for risks that only have
negative consequences, particularly
when they could adversely impact
health & safety, our values, culture or
business model. We aim to eliminate
these risks with our mitigation efforts.

Our process considers both our current
and emerging risks. Emerging risks are
considered by the business and the risk
management team as a part of every
risk review. Both internal expertise and
external resources are used to identify
emerging issues and the potential
impact of these could have on our
business. Where appropriate, these are
escalated to the Executive Committee
and Board as part of our regular
risk reporting.

With the World Health Organisation
declaring the coronavirus outbreak a
public health emergency of international
concern, citing worries about its spread,
we are identifying potential risks across
our business, taking appropriate
mitigation action as necessary and
ensuring we keep up to date with the
rapidly developing situation.

The risk management process
The main steps in the process are set out below:

RISK DEPARTMENT: FACILITATE IDENTIFICATION & EVALUATION OF RISK

Operational Management

Executive Committee

Board

Top-down
risk assessment

Assess risk profile
Identify Group risks

Challenge risks,
agree appetite &
mitigation plans

OPERATIONAL
RISK REGISTERS

GROUP KEY RISK REGISTER

Bottom-up
risk assessment

Determine
risk appetite
& mitigation plans

DETERMINE
PRINCIPAL RISKS

Operational Management

Executive Committee

Board

RISK DEPARTMENT: PROVIDE INDEPENDENT APPRAISAL & GUIDANCE

• Operational Management review
their risks regularly, to update their
Operational Risk Register. They
assess the likelihood and impact
each risk could have on the business
if not managed, identify what
mitigations are in place to establish
how much risk remains and discuss
future mitigation strategies, where
appropriate. They do this on both a
top-down and a bottom-up basis.

• The Group Key Risk Register is

• The Board challenge and agree

formed of our most significant risks
from across the entire business and
gives an overview of how our risk
profile is changing, how risks are
being managed currently and future
mitigation plans for review.

• The Executive Committee then

review the Group Key Risk Register
to assess any changes to our risk
profiles. They also identify the
risks that they are managing at a
Group level. They then determine
risk appetites and future mitigation
plans for the Board to review.

the Group key risks, appetites and
mitigation strategies twice yearly
and use this information to determine
the Group’s principal risks.

• The Group Risk Department

facilitates the identification and
evaluation of risks, providing
independent appraisal and guidance
across the Group.

The principal risks are also taken into
account in the Board’s consideration of
Long-Term Viability, as described in the
Group Viability Statement on page 62.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information

Principal risks and uncertainties continued

Principal risks

• No new principal risks
• No changes to risk scores
• Brexit remains a key risk influence
• 2019 Updates to mitigation actions

RISK HEAT MAP

To help visualise our principal risks, we have plotted them on the heat map below.
The individual risks are described in more detail on the following pages.

Risk movement in 2019

Increased

Stayed the same

Decreased

Likelihood

Risk
1

Failure to maximise growth potential

Deterioration of business model
and culture

3 Changes in market conditions

Interruption to continuity of supply

5 Loss of key personnel

6 Health and Safety

7 Cyber security incident

8 Product design relevance

Credit control failure

BREXIT RISKS

In line with the way we manage risks within the business, we have not presented a separate principal risk relating to Brexit.
Brexit will impact a number of our existing risks, with the severity and timeframes varying significantly, depending on the
nature of the UK’s withdrawal from the EU.

The following table summarises some of the key risk areas. It also shows which of our principal risks these elements are
managed under, and gives examples of key mitigating actions.

What are the
Brexit risks

What this could
mean to us

What we are
doing about this

Managed within
principal risks

Trade & Customs Risks

No longer inside the EU Single
Market/Free Trade Area

Exit from the EU Customs
Union

No agreed regulatory
co-operation

Tariffs could lead to higher
prices for product and raw
materials sourced from EU

Supply chain delays as goods
sourced from outside the UK
come through a new customs
regime

Regulatory uncertainty as
recognition of UK standards
and regulations ceases across
the EU

People & Immigration Risks

No free movement between
the UK & EU

Possible shortage of migrant
labour for us

Labour shortages for our
stakeholders, particularly in
the supply chain

Our customers could also be
affected

Modelling the challenges and
opportunities across the supply chain

1, 2, 3, 4

Reviewing whether the way in which
we obtain our products is the most
cost effective after Brexit

Obtained preferred importer/exporter
status to reduce potential customs
delays

Carefully monitoring our stock
position to make sure that it remains
optimum for most likely Brexit
scenarios

Reviewing contracts to ensure
product supply remains sustainable
after Brexit

Evaluating our workforce composition
both internally and externally with
suppliers

1, 4

Reviewing how we can help migrant
workers to understand their rights and
with working visa applications

Strategy & Business Plan Risks

Consumer uncertainty

Investor uncertainty

Currency and Stock
Market volatility

Consumer uncertainty may
impact on our sales and future
strategic growth decisions

Increased costs due to currency
fluctuations

Modelling the challenges and
opportunities across the entire
business, to ensure we optimise
strategic plans given the various
scenarios

1, 2, 3, 4

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information44

Principal risks and uncertainties continued

2019 Principal Risks
The arrows alongside each risk show the year on year change

1. FAILURE TO MAXIMISE THE GROWTH POTENTIAL OF THE BUSINESS

3. CHANGES IN MARKET CONDITIONS

Risk and impact

Mitigating factors

Risk and impact

Mitigating factors

Links to strategic areas

Growth

Depots

People

Finance

Digital

• We see a significant potential for growth. This
brings both opportunities and challenges.

• The opportunities and challenges related to growth are a
major area of focus throughout the business, at all levels.

• If we don’t innovate, recognise and exploit our
growth opportunities in line with our business
model and risk appetite, or if we don’t align
structures and skills to meet the challenges of
growth, we won’t get maximum benefit from our
growth potential.

• We continue to invest in our depot environment, people, services,
and systems, and our manufacturing and distribution capabilities
to equip them for growth.

• Growth activities are reviewed in the light of our risk appetite, values,

business model and culture.

Mitigation actions in 2019

• Rooster Depots; creating the best environment for our staff and

customers to do business with us.

• Howdens.com; improved digital interface between customers and
depots, to enhance those relationships and streamline operating
processes to free up time in the depot.

2. DETERIORATION OF BUSINESS MODEL AND CULTURE

Risk and impact

Mitigating factors

• Our future success depends on continuing to

• Our values, business model and culture are at the centre of our

maintain our values, our unique business model
and our locally-enabled, entrepreneurial culture
(see pages 15 and 18 to 19).

• If we lose sight of our values, model or culture

we will not successfully service the needs of the
local small builder and their customers, and our
long-term profitability may suffer.

activities and decision-making processes, and they are led by the
actions of the Board, Executive Committee and senior management.

• The Board and Executive Committee regularly visit our depots and
factories, our logistics and support locations and hold events to
reinforce the importance of our values, model and culture.

Mitigation actions in 2019

• Regular Board and Executive Committee events with staff

across the business to emphasise Business Model and Culture.

• 2019 ‘Rooster Awards’ event, bringing together almost 1,000 managers

from across the business to discuss our Model and Culture.

• We buy a significant proportion of raw materials
and finished products in euros and US dollars. If
sterling weakens, our input costs increase.

• Our products are mostly sold to small builders
and installed in owner-occupied and private
and public sector rented housing, mainly in the
repair, maintenance and improvement markets.
If activity falls in these markets, it can affect
our sales.

• We have proven expertise in managing both selling prices and costs.

This continues to be a main area of focus.

• We have a good track record of dealing with changes in market
conditions. We monitor activity across our supply-chain and
depots closely, using the good relationships we have to give us
early warnings of changing conditions. This enables us to take swift
mitigating action, such as those discussed on the previous page in
relation to Brexit.

Mitigation actions in 2019

• Brexit preparations and investment in contingency stock.

• New Commercial function with customer focused market

place insight.

4. INTERRUPTION TO CONTINUITY OF SUPPLY

Risk and impact

Mitigating factors

• Howdens is an in-stock business. Our customers

expect this, and rely on it.

• We build strong relationships with our suppliers, focused on integrity,
fairness and respect, and which are worthwhile for all concerned.

• Any disruption to our relationship with key

• Where appropriate we enter into long-term contracts to

suppliers or interruption to manufacturing and
distribution operations could affect our ability
to deliver the in-stock business model and to
service our customer’s needs. If this happened,
we could lose customers and sales.

secure supply of key products, services and raw materials.

• Wherever possible we have multiple-sourcing strategies for our

key products, to reduce the effect of a supply failure.

• We have invested heavily in our manufacturing operations

and this investment gives us an enhanced disaster
recovery capability.

• We are also investing in new warehouse space to support
our distribution capabilities and equip them for growth.

• Brexit uncertainty has also driven us to increase stock holding

of at-risk products to help ensure the continuity of supply.

Mitigation actions in 2019

• New Commercial structure to provide clearer accountabilities and
closer working practices between Supply, Commercial and Trade
teams.

• Obtained ‘AEO’ preferred importer/exporter status to reduce potential

Customs delays.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information46

Principal risks and uncertainties continued

2019 Principal Risks continued
The arrows alongside each risk show the year on year change

5. LOSS OF KEY PERSONNEL

8. PRODUCT DESIGN RELEVANCE

Risk and impact

Mitigating factors

Risk and impact

Mitigating factors

Links to strategic areas

Growth

Depots

People

Finance

Digital

• The skills, experience and performance of

• We use the Remuneration Committee to ensure that key team

key members of our management team make
a major contribution to the success of the
business.

• The loss of a key member of the Group’s

management team could adversely affect
the Group’s operations.

members are appropriately compensated for their contributions
and incentivised to continue their careers with us.

• Work is ongoing to ensure that appropriate continuity and succession

plans are in place. We will also continue to focus on leadership
development and succession planning.

Mitigation actions in 2019

• Focus on Executive succession planning by Nomination Committee.

6. HEALTH AND SAFETY

Risk and impact

Mitigating factors

• Howdens is about people and relationships.
We have over 750 depots, around 10,000
employees, hundreds of suppliers and hundreds
of thousands of customers.

• Care for the health & safety of employees,

customers, suppliers and everyone who comes
into contact with Howdens is integral to our
values and to our behaviour.

• If we don’t ensure safe ways of working across
the business, this could compromise the safety
and wellbeing of individuals and the reputation
and viability of the business.

• Since the beginning of our business, we have invested in safe ways of

working. We have developed dedicated health & safety teams
and formalised systems that help us stay safe.

• We monitor, review and update our practices to take account of
changes in our environment or operations and in line with best
practice and changing legislation.

• Most importantly, we make sure we keep talking about health & safety

at every level of the business. See page 54 for our related
KPI and discussion of our performance in recent years.

Mitigation actions in 2019

• Continued focus on H&S leadership & behavioural safety

programmes across the business.

• Commenced phased enhancement from ISO18001 to ISO45001

standards across the entire business.

7. CYBER SECURITY INCIDENT

Risk and impact
• We depend on a core set of critical IT systems
which are fundamental to the day-to-day
running of the business. These systems are at
risk from increasingly sophisticated security
threats.

• If we experienced a major security breach, this
could result in a key system being unavailable
causing operational difficulties, and/or sensitive
data to be unavailable or compromised. This
could also lead to breach of customer data.

Mitigating factors
• We place focus on training our people about cyber security risks,
as we recognise that these risks are not always technical and
awareness is our first point of control.

• We employ complex technical IT security controls to protect

our information and our key systems. We regularly engage external
specialists to validate the effectiveness of our controls against
industry best practice.

• We have robust disaster recovery and business continuity plans,

and we test them regularly.

• We adopt a continuous improvement approach to IT security and

continue to invest in the security of our systems.

Mitigation actions in 2019

• New Head of Cyber Security role created, reporting directly

to the group’s Chief Information Officer.

• Ensuring that we have products that meet the
design, price and quality needs of the small
builder, and their customer, is a key focus of the
business model and is a critical element of our
future success and growth aspirations. Kitchen
technology and design do not stand still, and our
products must reflect that.

• If we do not support the builder with new

products that their customers want, we could
lose their loyalty, and sales could diminish.

• Our dedicated product team regularly refresh our offerings to meet
builders’ and end-users’ expectations for design, price, quality and
availability.

• We work with external design and brand specialists and attend

product design fairs to monitor likely future trends.

• Our local depot staff have close relationships with their customers
and end-users, and we actively gather feedback from them about
changes in trends.

• We work with our suppliers, to develop new and improved products
for the future, some of which are unique to Howdens. A number of
new products were introduced during the year across all product
categories, and more are already planned for 2020.

Mitigation actions in 2019

• 12 new kitchen ranges introduced including a new handleless design.

• Improved how we align our product offering to our customers

and their customers’ needs.

• Lamona appliance range improved and increased.

9. CREDIT CONTROL FAILURE

Risk and impact

Mitigating factors

• When a builder comes into one of our depots for
the first time, we offer them a trade account,
so they can complete the job before paying
Howdens. Many of our customers rely on our
trade account facilities, as cash flow is often
critical to small businesses.

• Failure to provide, or service these facilities

could affect our ability to continue to support
our customers, and potentially our ability to
collect debt. This could have a direct impact on
both our revenue and our working capital.

• We have an effective trade account policy used to agree terms with
our customers and efficient debt collection processes, which we
monitor closely and regularly.

• We have robust systems and tested business continuity plans.

• We maintain good personal relationships with our customers,
both at depot level and within the credit control department.

• Our concentration of debt is limited, as our exposure is

spread across 400,000 customer trade accounts.

Mitigation actions in 2019

• Builder log-on on Howdens.com, providing customers with

improved ways to manage their trade account.

• Insurance obtained to mitigate the risk of exploiting large

account opportunities.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional InformationSustainability Matters

Introduction:
Why sustainability matters to us
Links to long-term value, our culture, our business model
and our risks. Material areas and KPIs.

Our impact on our stakeholders
A summary of our social and environmental footprint.

Our people
Keeping our people safe, offering them rewarding careers
and a great place to work and grow.

Sustainable supply chain
Timber management, supplier engagement and
assessment, ethical procurement.

Sustainable product
Efficient, durable, reliable products.

Our environment
Reducing waste, responsible operations, lowering emissions.

s
r
e
t
t
a
M

y
t
i
l
i

b
a
n
a
t
s
u
S

Our communities
Local community projects, our national partnership with
Leonard Cheshire, Community Kitchens.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information
Sustainability Matters

Why Sustainability Matters to us

SUSTAINABLE BEHAVIOUR GENERATES
LONG-TERM VALUE

THE BOARD LEADS OUR COMMITMENT
TO SUSTAINABILITY

Howdens is a growing business, with exciting prospects for
the future. Sustainable behaviour will help us continue to grow
over time in a way that preserves our culture, maintains focus
on our business model, mitigates our risks and addresses the
needs of our stakeholders.

The importance of sustainable behaviour is recognised right
through the business. You can see the Board’s Statements of
Intent on Health & Safety and Sustainability on our website
at www.howdenjoinerygroupplc.com/sustainability/group-
health-safety-and-sustainability-policies.

SUSTAINABILITY BEHAVIOUR IS PART
OF OUR CULTURE

WHAT ARE THE MATERIAL SUSTAINABILITY
AREAS FOR US AND OUR STAKEHOLDERS?

We’ve organised this report into five sections, reflecting the
main areas of importance to us and to our stakeholders:

People: keeping them safe, offering rewarding careers.

Sustainable supply chain: sustainable sourcing, shared
values throughout the supply chain, active monitoring of
suppliers.

Sustainable product: safe, traceable, energy-efficient
and durable.

Environment: reducing waste, responsible operations,
lowering emissions.

Communities: local community projects, our nationwide
work with Leonard Cheshire Disability, Community Kitchens.

OUR SUSTAINABILITY KPIS

Our sustainability KPIs cover safety, use of wood from
certified sources and re-use, recovery and recycling of
waste. You can find them on pages 54, 56 and 58.

When we talk about the Howdens culture, we describe it
as being ‘worthwhile for all concerned’ and ‘creating the
conditions that allow everyone to succeed’. That means
that our business needs to be worthwhile for our staff,
our customers, our suppliers, the environment and the
communities we operate in.

SUSTAINABLE BEHAVIOUR SUPPORTS
OUR UNIQUE BUSINESS MODEL

Sustainable behaviour gives us a competitive advantage.

Lowest cost production in our dedicated UK factories leads
naturally to minimising waste, energy and raw materials.
Our mission statement aim of ‘no-call-back quality’ means
that we need to produce and source product which is durable
and safe.

Being trusted partners to both our suppliers and customers
means that our relationships with them need to work for all
parties over the long term.

We have over 750 depots in the UK and Europe, and the
relationships that those depots rely on to trade profitably
mean that our success relies on us being a good neighbour
in each of those communities.

SUSTAINABLE BEHAVIOUR MITIGATES OUR RISKS

We discuss our principal risks on pages 40 to 47. Sustainable
behaviour helps us to address some of those risks.

For example, we place a great emphasis on looking after
our people. We invest in keeping them safe, developing their
skills, and offering them rewarding careers and a great
place to work. We do this because it’s the right thing to do,
but it also mitigates our ‘Health & Safety’ and ‘Loss of key
personnel’ risks.

Developing and maintaining sustainable supplier
relationships mitigates the ‘Interruption to continuity of
supply’ risk, and energy-efficient, safe, tested and durable
product mitigates our ‘Product design relevance’ risk.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information52

Sustainability Matters

Our impact on our stakeholders

ENVIRONMENT

240,000m3

of chipboard from sustainably
managed UK forests

99.8%

of manufacturing waste
recycled or reused

12,000

tonnes of waste sawdust converted
to energy to heat our factories

PEOPLE

450

apprentices in training. Tailored apprentice
programmes across the Group

10,000

full-time jobs with prospects. In UK
manufacturing, in over 750 local depots
and in distribution, systems and support

100%

of employees in share ownership
schemes, or similar

Top 25

Best Big Companies to Work For

SHAREHOLDERS

£126m

returned to shareholders in dividends
and buybacks

WIDER ECONOMY

£70m

of rent paid to around 650
commercial landlords

£330m

of tax generated or collected.
Corporation tax, NI, PAYE and VAT

£270m

of working capital extended to over 400,000
small businesses in our peak trading period.
No fees, up to 8 weeks to pay

£61m

capital investment in the year. Investing in UK
manufacturing and distribution. Expanding
our depot network in the UK and France

PEOPLE
£440m

of wages, salaries and benefits paid
to our employees

Responsible for all or part of the pensions of over
18,000

people

COMMUNITY & CHARITY

15th

year of our national partnership with Leonard
Cheshire. £0.75m donated in 2019. Supporting
young, disabled adults to find valuable roles
within their communities

3,600

other charity donations. £1.5m given to local
charities and community activities across
our network

£260m

cash contributed to our pension
schemes in the last five years
750

communities

Employing people in over

Sustainability Matters

Our people

Keeping them safe and healthy, offering them rewarding careers

Keeping our people safe and healthy
Focusing on a safety culture, supporting employees’ physical and mental health

KPI
Reportable injuries/100k employees
36% below HSE all-industry average in 2019

300

250

200

150

100

2015

2016

2017

2018

2019

HSE all-industry rate

Howdens

We have around 10,000 employees and we want all of them to
go home, safe and healthy every day.

We are pleased that our safety KPI – the level of RIDDOR
reportable injuries – continues to be significantly below
the UK industry average, and we continue to invest in safe
behaviours, processes and machinery to continue to maintain
and improve these high standards.

In 2018 we reported in detail on our Safe to Trade programme
for our depot network, and Safe to Supply for our factories and
logistics network. In 2019 we extended this to the solid surface
fitters involved in kitchen and worktop fitting with Safe to Fit.

Safe to Fit offers practical safety guidance to our own employees
as well as subcontractors and our customers, to reduce risks
associated with processing and installation of solid stone
products. The final element of our ‘Safe to..’ strategy is Safe to
Support, for our colleagues in support functions, which will give
us a unified but tailored approach across the whole business.

Our focus on building robust systems and processes has
given us strong foundations to drive the maturity of our safety
culture forward. The ‘Safe To..’ programme is built on strong
safety leadership, engagement and inclusion of everyone
in safety, and working towards a fair and just culture where
everyone takes responsibility for themselves and others –
an interdependent culture.

Given our focus on driving further improvement through
developing a strong safety culture, we welcome the new global
health and safety standard ISO 45001. This builds upon the
outgoing standard, OHSAS 18001 – which we have held since
2008 – with an increased emphasis on safety leadership,
culture and employee participation.

We are very pleased to have achieved ISO 45001 certification
in 2019 for our factories and logistics network, and our
objective is to have the new standard in place across the
whole Group by the first half of 2021.

We continue to work with other leading companies and
external consultants to share best practice, to help us
benchmark and to learn and challenge ourselves. We hope
that these actions will improve our safety record even further
in the future.

We also recognise the benefits of supporting our employees’
mental health and wellbeing, both at work and at home.
Our free and completely confidential Employee Assistance
Program is available to all employees and offers mental and
physical health support, counselling, coaching, help with
challenging life situations and legal advice.

Employee engagement:
Best Big Companies
to Work For 2020

As part of our employee engagement activities,
we have taken part in the Sunday Times Best
Big Companies to Work For assessment process
every three years since 2010. This involves a
comprehensive survey, sent in confidence by
an independent third party to every one of our
employees.

The survey asks them for their views on their
manager, their team, their wellbeing, personal
growth and future prospects, whether they think
they get a fair deal, the company as a whole, the
leadership, and whether they think that Howdens
gives back to society and has a positive impact.

We are very pleased that our employees’ views
have led to us being in the top 25 Best Big
Companies to work for on every occasion, as
well as being awarded a 2 Star Best Companies
accreditation which recognises ‘an outstanding
commitment to workforce engagement’.

We also won a special ‘Giving Something Back’
award, recognising the work we do in our
communities, with particular recognition given to
the volunteer On-Call Firefighter and Emergency
Medical Responder teams that operate from our
factory and warehouse sites and work with their
local Fire and Rescue Services to save lives and
support their local communities.

Offering rewarding careers
Great rewards, great opportunities
to develop, great place to work

We pay a good basic salary; all of our pay rates are above
living wage and most of them are well above it.

We also offer a range of benefits, including pension schemes
which we contributed £57m to in 2019, for the benefit of our
18,000 current and past employee members. We give free
shares to all our people who stay with the company for at
least three years so that they can share in our growth.

Part of our culture and our business model is that we offer
staff the chance to get significant bonuses for exceptional
performance. Depot, manufacturing and warehouse staff
bonuses are directly linked to the specific profitability or
productivity of their area, so teams are directly rewarded
for their hard work.

We offer rewarding career opportunities because we want to
recruit the best people, and when we’ve found them we want
to keep them. We’re very proud that a lot of our staff choose
to stay with us to develop their careers. When carrying out
some analysis of our HR records during 2019, we found that
almost half of our staff have been with Howdens for more than
5 years, and 85% of manager vacancies had been filled by
existing employees.

We also employ 450 apprentices throughout the business,
offering a range of worthwhile futures and high-quality
nationally-recognised qualifications to people across the
country. We work with local colleges to develop bespoke
apprentice programmes, tailored to the specific skills and
development needs of our apprentices, and which also fit the
needs and demands of a growing modern business. See a video
about our apprentice programs on our website here: www.
howdenjoinerygroupplc.com/about/our-people.asp

We’ve increased the number of apprentices in the business
in 2019 and we currently have apprentices working and
learning skills in areas such as sales, customer service,
warehouse work, senior leadership, business admin, HR,
manufacturing, engineering, IT, design, truck driving and
business improvement techniques. These programmes offer
development opportunities for all levels – from school leavers
learning foundation skills to experienced staff doing master’s
degree level qualifications.

Find out more about working with Howdens, and see our
current vacancies on our careers website at https://careers.
howdens.com.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information
Sustainability Matters

Sustainable supply chain

Sustainable product

Sustainable sourcing, actively engaging with our supply chain

Offering our customers a range of high-quality, durable products

Sustainable sourcing
Timber management and chain of custody, shared values throughout the supply chain

KPI

100% of chipboard
& MDF used in our
manufacturing
processes from
FSC® or PEFC™
certified sources

100%

FOR FURTHER KPIS SEE PAGES 32–34

In 2019 we used 237,000 cubic metres of chipboard and 44,000
cubic metres of MDF in our factories – that’s enough to fill the
Royal Albert Hall more than three times. We use either FSC or
PEFC certified chipboard & MDF in our manufacturing process.
All the new kitchen ranges we introduced during 2019 were
from one of these certified sources.

This means that the wood comes from responsibly managed
forests and that we have independent documented evidence of
an unbroken chain of ownership all the way from the forest to
us, via the mill, the importer, and our suppliers.

We are also a member of the Timber Trade Federation which
requires our commitment to implementing an environmental
due diligence system to fulfil the Federation’s responsible
purchasing commitments.

We continually look to improve our processes and our
awareness of timber sourcing risks. This includes attending
workshops run by The Office for Product Safety and Standards
who monitor and enforce the Timber Regulations, so that we
can keep up to date with the latest developments.

We only want to work with suppliers who share our ethical
values. We are clear about our expectations and we aim to
align them through our whole supply chain.

Every year we bring our main suppliers together at a forum
to talk about shared issues. This benefits both us and our
suppliers, and is an example of the principle that our business
needs to be ‘worthwhile for all concerned’.

As well as talking to our suppliers about product development,
we use the supplier forum as an opportunity to repeat and
reinforce our expectations for sustainability and ethical
behaviour. We tell our suppliers what we need from them
and we work together to come up with solutions.

Active engagement with our supply chain
Supplier assessments, risk-based testing, ethical procurement

We know that there will always be potential ethical, social
and environmental risks in our supply chain, and we are
committed to understanding, identifying, and minimising
them as much as possible. We will only trade with a supplier
when we have carried out a thorough risk assessment and are
satisfied that we have credible evidence that they meet our
high standards.

In 2019 we have continued to strengthen our approach to
reducing supply chain risks. We make our expectations clear
in our supplier contract terms and conditions, which include
specific ethics and sustainability clauses. We also have a
Supplier Code of Conduct where we set out what we expect and
how we will monitor that suppliers are complying.

After clearly setting out our standards and expectations, we then
work to understand the specific risk profile of each supplier.

range of sustainability data and accreditation information for
their companies and their individual operating sites, as well as
the results of independent third party sustainability audits.

We encourage all our suppliers to become members of
Sedex. For those who are not, we use a combination of
specific questionnaires and targeted verification processes
– which may include us commissioning an independent
sustainability audit.

We need our people to understand and demonstrate best
practice and integrity, so we’ve given them training to support
them in their dealings with suppliers. All of our buyers and
our compliance team have taken and passed the Chartered
Institute of Procurement and Supply’s Ethical Procurement &
Supply training, and we have a rolling programme of refresher
training on Modern Slavery and Anti-Bribery.

In 2018 we started to use Sedex, a leading worldwide platform
for sharing responsible sourcing data, to help us assess
supplier risk and to verify any specific mitigations which may
be in place. Sedex is used by over 50,000 members in over
150 countries. It is a place where suppliers can share a wide

There is more information about the work we do to safeguard
against human rights violations, in both our own business
and our supply chain, in our modern slavery statement. You
can find this in the Sustainability section of our investor
relations website.

We need to offer our customers and end-users a range of
high-quality products which are durable, energy-efficient and
responsibly produced, as well as looking good and offering
excellent value for money.

We have direct control of these factors with the cabinets,
frontals and worktops that we make in our UK factories. We
know where the raw materials are sourced from, and we can
test the finished products to levels beyond industry standards
in our own test laboratories. This allows us to be confident
offering a 25 year guarantee on our cabinets, for example.
It’s part of our mission statement: ‘No-call-back quality’.

For the product we buy in, our aim is to develop long-lasting
and trusted relationships with responsible suppliers. As
the UK’s number one kitchen brand, we can offer suppliers
sufficient volume to make it worth their while committing
investment funds to develop efficient products to our
demanding specifications. It’s part of our culture: ‘Worthwhile
for all concerned….creating the conditions that allow everyone
to succeed’. It also allows us to offer a three-year warranty on
all our Lamona appliances.

We’re always working in our factories and with our suppliers to
make our product offer more sustainable.

Some of our current highlights are shown below:

Lamona heat-pump
tumble dryer

• Co-developed with a long-term supply partner,

requiring the supplier to commit to significant R&D
expenditure in a project that lasted several years

• A unique product on the market – the first integrated
heat-pump tumble dryer. Required the supplier to re-
engineer the pump to fit into an integrated appliance

• We can encourage suppliers to do this because we

have sufficient scale

• A+ energy rating. Uses 41% less energy than the

product that it replaced.

• 98% recyclable at the end of its life

Lamona dual cavity
single oven

•

Top and bottom fans with dividing shelf in the middle

• Allows you to just heat half of the oven, or to heat
both halves to different temperatures, saving
energy. Also allows you to use the whole oven as
one space if you need it

• 91% recyclable at the end of its life

Lamona dishwasher

• A++ rated

• Saves an average of 560 litres of water/yr over
our standard dishwasher, and is 5db quieter

• 84% recyclable at the end of its life

Cabinets

Howdens bamboo flooring

• Made in our own UK factories from 100% FSC or PEFC
compliant raw materials, sourced from UK forests

•

25 year guarantee – we know it’s made to last

• Cabinet foot made out of recycled plastic

•

Twice as durable as oak – can be sanded and refinished up to 5 times

• Bamboo is renewable and much faster-growing than hardwood

•

25 year residential guarantee

Sustainability Matters

Our environment

Reducing waste, responsible operations, lowering emissions

Reducing waste
Reducing amounts to landfill, highly-efficient production, turning production waste into energy

Lowering emissions
Efficient operations lead to reduced emissions

GREENHOUSE GAS AND EMISSIONS REPORTING

KPI
Total % of production
and warehouse waste
reused, recovered
and recycled

99.8%

FOR FURTHER KPIS SEE PAGES 32–34

100% of all
packaging used in
our manufacturing
is from recycled or
certified sources

100%

We’re very pleased to have improved our KPI from last year’s
figure of 98.5% to this year’s 99.8%. We are even more pleased
that by the end of 2019 we had managed to find a way of
recycling the one remaining element of waste so that we will be
operating at 100% in 2020.

Highly-efficient production is one of our strategic aims as it
gives us a competitive cost advantage. Over the years we’ve
invested in efficient production machinery and in software
that takes the constantly-changing production mix, and
maximises the number of panels that we can get from each
sheet of chipboard. We’ve also worked with our chipboard
supplier to develop a new size of board that allows us to
minimise cutting waste even further.

Nevertheless, the sheer scale of our manufacturing
operations means that we still generate a lot of sawdust waste.
At both of our factories, we have invested in biomass boilers
which burn this waste to produce heat. They allow us to reuse
waste, they reduce our emissions and they save us the cost of
the equivalent bought-in fuel.

In 2019, we converted 12,000 tonnes of sawdust into energy
at our Howden and Runcorn sites. This is enough sawdust to
fill 15 Olympic swimming pools. Burning it onsite means that it
doesn’t have to be transported elsewhere to be reused. It also
saves us money. We generated 46,000 MWh of energy from
our biomass boilers in 2019, equivalent to the average annual
electricity consumption of around 12,000 households.

Responsible operations

Energy-efficient factories and warehouses

Safe and efficient transport fleet

All our factories, warehouses and transport sites hold the
ISO 14001 standard for Environmental Management. This
assures us that we have sustainable processes in place,
and it encourages us to look for improvements.

2019 initiatives in our factories should give us an aggregate
energy saving of around 0.8 million kWh per year, the
equivalent of the annual energy use of 50 average homes.
Our total electricity used in manufacturing was 4% less than
last year, despite a 5% increase in factory production volumes.

The cumulative effect of the energy saving projects in our
factories since 2010 means that despite manufacturing 45%
more finished goods per annum in 2019, we used 18% less
electricity to make them.

Our sustainability-award-winning transport fleet drives over
16 million miles per year, so it needs to be efficient and safe.

All of our trucks are of the latest and most efficient European
standard. We then add further measures to the standard
vehicles to increase efficiency.

We also invest in safety and energy-efficiency training for our
drivers. We combine this with in-cab telemetry and a system
of daily debriefs where driver behaviour is assessed against
energy-efficiency and safety targets. We reward drivers who
reach the highest standards, and we work with any who need
help to improve.

We keep looking for further improvements and we continue to
work with industry bodies and truck manufacturers in trials of
new technology.

We are pleased to report that our total emissions have
reduced in 2019 despite an increase in turnover.
Turnover increased by 4.8% in 2019, whilst the turnover ratio decreased by 7.6% and the inflation adjusted
turnover ratio decreased by 6.4%. We will continue to look for further improvements. Our record over the
past five years is shown on the chart below.

Scope 1 – Direct: Gas

Scope 1 – Direct: Diesel

Scope 1 – Direct: Other fuels

SCOPE 1 – DIRECT: TOTAL

Scope 2 – Indirect: Electricity

SCOPE 2 – INDIRECT: TOTAL

TOTAL (Scope 1 and 2)

Turnover (£m)
Turnover ratio (tCO2e per £m)
Inflation adjusted turnover ratio (tCO2e per £m)

Total CO2
Emissions
(Tonnes)
2019

2,622

28,705

690

32,016

18,517

50,532

1,583.6

31.9

33.3

Total CO2
Emissions
(Tonnes)
2018

3,472

26,683

898

31,053

21,130

52,183

1,511.3

34.5

37.0

Emission source data is converted to carbon tonnes using the conversion factors published by Defra. Source data includes meter
readings for electricity and gas and purchasing records for other fuels.

Total Carbon emissions (‘000s tCO2e)

Turnover ratio (tCO2e per £m)

Turnover ratio inflation adjusted (tCO2e per £m)

60.0

55.0

50.0

45.0

40.0

35.0

30.0

2015

2016

2017

2018

2019

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information60

Sustainability Matters

Our communities

Local community projects

Local involvement on a nationwide basis, thousands of donations,
£1.5m contributed
Each of our depots, and every one of our manufacturing,
distribution and support sites, has an important role in the
life of its local community. Each site depends on the local
community for its success and growth; for customers
and staff.

equipment.

• Donating cash to local air ambulance charities, helping

them to keep on providing essential emergency services.

• Buying kit for a local children’s sports team.

• Donating cash to a local hospital’s appeal for vital

Our culture is based on personal relationships and individual
accountability, and we encourage our people to support and
engage with local activities and charities.

We make our products, time and cash available for staff to
get involved in all sorts of ways. This year we have donated 40
kitchens to local good causes, and paid for them to be fitted.
These kitchens go into places like village halls and community
centres, as well as to organisations that provide education
and employment skills training for young adults with additional
needs. It helps them to continue to serve their neighbourhoods.

We also support thousands of small local projects with cash
donations. Typical donations may be just a few hundred
pounds, but they will make a big difference. They might cover
things like:

• Helping local hospices to fund vital care for patients or

counselling for bereaved families.

• Donating stock to help renovate facilities at a local

community centre or scout hut.

In 2019, we’ve made over 3,600 separate donations which
have involved us giving cash or products worth £1.5m.

Our culture of giving back to the local community also shows
in the actions our people take as individuals. Every year, we
support our people as they take the Howdens culture and make
it personal. They give up their time and put themselves to the
test to raise money for all sorts of local and national causes.
Some of the amazing things our people do are showcased in a
video on our website here: www.howdenjoinerygroupplc.com/
about/our-people.asp

We hold the Charities Aid Foundation Gold Award in recognition
of the high level of employee participation in payroll giving.
As an example, in 2019 a team of nine from our East Midlands
region raised over £19,000 for a local children’s hospital by
completing a gruelling million metre row.

Leonard Cheshire

15th year of partnership. £750,000 donated, 27 inclusive kitchens donated,
‘Can Do’ projects
We’ve had a successful partnership with Leonard Cheshire
since 2004 it continues to grow. In 2019 we have donated cash
and goods worth £0.75m.

an active role in their communities through Howdens’
sponsorship of the ‘Can Do’ volunteering programme.

• Helping young people living with disabilities to play

Leonard Cheshire’s aim is to support individuals to live, learn
and work as independently as they choose, whatever their
ability. They work for a fairer, more inclusive society that
recognises the contributions that we all make and where
we can all play our part.

Like Howdens, they value local relationships, and their work
supports people to be active and proud members of their
local communities.

Our work with Leonard Cheshire is currently focused in
two areas:

• Designing and fitting inclusive kitchens in their care

homes and day centres so that disabled people can live
more independently.

Inclusive kitchens
Howdens are experts at designing inclusive and democratic
kitchens that can help a wide range of people with different
needs. This could range from features that help the youngest
and oldest members of multi-generational families, to features
that can help people with limited mobility, sight or other
additional needs.

All of our kitchen ranges are available with a variety of
inclusive features such as easy access cabinets, pull-down
shelves and pull-out storage, variable-height worktops for
sinks and preparation areas, high-contrast work surfaces and
cupboards to help with limited sight, and raised plinths to allow
wheelchairs to pass below.

There is an obvious fit between our skills in inclusive kitchen
design and the needs of Leonard Cheshire’s residents. We
have pledged to supply and fit inclusive kitchens from our
range wherever they are needed in any of Leonard Cheshire’s
homes across the country, and we have been doing this for
many years. In 2019 we fitted a further 27 kitchens nationwide.

One of the kitchen users commented: “I struggle with my
disability every day and find baking a great way to improve
the mobility in my arms. For me it’s like occupational therapy in
that it keeps my hand movement going. At first, I struggled to
maintain a grip on items, but I’m building strength now.”

It does this by supporting them to devise and take part in a
range of projects in their local community. The participants
design their projects according to their specific needs and
interests, so they cover a wide range of activities.

In 2019, for example, projects have ranged from community
sports events to garden renovation to making videos to raise
awareness. The Can Do programme provides these activities
in a safe environment where young disabled people can step
out of their comfort zone to develop their skills, while mixing
with their peers and having the opportunity to gain a City &
Guilds qualification.

The manager of one of the Leonard Cheshire homes where we
fitted an inclusive kitchen told us: “Having a fully accessible
kitchen for our service users is extremely important for
their independence. I couldn’t begin to describe the hours of
freedom and joy, and the levels of independence this kitchen
will bring to our residents.”

Can Do
We began to support the Can Do programme in 2010 and we
are its single biggest funder. Can Do is a skills development
programme for people aged 16–35 with a disability or long-
term health condition. It gives them the chance to develop
important life and work skills, boost their self-confidence,
give back to their community and add something to their CV.

Howdens support has helped Can Do expand from four
locations in 2010 to 24 locations in 2019, supporting 3,000
young people per year through meaningful projects in their
local communities.

90% of participants said that they had learnt new skills which
would help them in the future.

Some feedback from Can Do participants in 2019 were: “I now
feel far more confident in myself and have gained more skills.
I have also tried things I’ve never done before.”, that it “gave
me a good sense of independence”, and “I have achieved a lot
in a short time on Can Do and there’s a lot of improvements to
master in the future”.

Case Study

Community kitchens
During 2019 we worked with one of our suppliers,
NEFF, to donate new kitchens to two community
centres, in Leeds and London. The aim behind
these community kitchens is to bring local
residents together to share recipes
and learn new skills.

With a national decline in cooking skills,
the project provides a space for people
of all generations to share recipes, cook,
socialise and eat well together, as well
as catering for community events.

Home cooking skills are crucial to
healthier, more sustainable diets.
In response to local demand, the
kitchens run courses to support people
to build life skills in cooking, and also
budgeting, self-reliance and caring
for their own health through better diets.

Our depots are at the heart of local
communities, so we’re proud to support
initiatives like this.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernance62

Going Concern and Viability statements

Other Directors’ statements

GOING CONCERN

Strategy and business model

The Group meets its day-to-day working capital requirements
through cash generated from operations. If required, the
Group also has access to an asset-backed lending facility of
£140m which expires in December 2023.

•

proven, successful business model

scope, and resources, for growing the depot network in
line with announced plans

•

clear strategic direction

The Group’s forecasts and projections have been stress-
tested for reasonably possible adverse variations in economic
conditions and trading performance. The results of this testing
show that the Group should be able to operate within the level of
its current net cash balances and its committed bank facility,
and that it would not breach the facility covenants.

After making due enquiries the Directors have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements.

LONG TERM PROSPECTS AND VIABILITY

Assessment of long-term prospects

The Directors have assessed the Company’s long-term
prospects, with particular reference to the factors below:

Current position

•

history of profits, strong net profit margins

debt-free. Consistently cash-generative. Proven ability to
maintain strong cash balances whilst also investing for
growth and returning cash to shareholders. £140m lending
facility available if needed

strong relationships with suppliers and customers, built
on trust

proven ability to flex the operating cost base in
a severe economic downturn

• robust disaster recovery and business continuity

framework

Robust assessment of principal risks

•

the Directors’ role in the risk identification, management,
and assessment process is outlined on pages 40 to 47,
together with details of the principal risks and mitigations

the Directors are satisfied that they have carried out a
robust assessment of the Company’s principal risks

Assessment of Viability

The Directors’ review of the Company’s long-term viability
was mainly done with reference to the Company’s annual
strategic planning process, which looks forward over a
three-year period.

The three-year plans were subjected to sensitivity analysis
which modelled reduced income, cash flow and capital
expenditure scenarios, modelled on the biggest downturn
in sales and margin that the Company has ever experienced
over a three year period.

The Directors consider that the reasonably foreseeable
financial effects of any reasonably likely combination of the
Company’s principal risks are unlikely to be greater than those
effects which were modelled in the downturn scenarios.

The results of the sensitivity analysis showed that the
Company would remain profitable over the three-year period,
and would not need to use its current lending facility. The
testing did not factor in any mitigating actions that would be
open to the Company in the event that such a downturn was
experienced.

Having taken into account the Company’s current position,
strategic plans and principal risks in their evaluation of the
prospects of the business, the Directors concluded that they
have a reasonable expectation that the Company will continue
to operate and to meet its liabilities as they fall due during the
three year period to December 2022.

Howden Joinery Group Plc Annual Report & Accounts 2019

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report,
Directors’ Remuneration Report and the Financial Statements
in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law, the
Directors are required to prepare Group Financial Statements
in accordance with International Financial Reporting
Standards (‘IFRSs’) as adopted by the European Union and
Article 4 of the IAS Regulation and have chosen to prepare
the Parent Company Financial Statements in accordance
with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law).
Under company law, the Directors must not approve the
accounts unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period. In preparing the parent
company financial statements, the Directors are required to:

• Select suitable accounting policies and then apply them

consistently.

• Make judgements and accounting estimates

that are reasonable and prudent.

• State whether applicable UK Accounting Standards have

been followed subject to any material departures disclosed
and explained in the Financial Statements.

• Prepare the Financial Statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.

In preparing the Group financial statements, International
Accounting Standard 1 requires that directors:

to the Board. When the Directors discharge their duty as set
out in section 172 of the Companies Act 2006 (‘section 172’ or
‘s.172’), they have regard to the other factors set out on page
76 and they also consider the interests and views of other
stakeholders, including our pensioners, regulators and the
government, and the customers of our trade customers.

The Directors are required to include a statement of how they
have had regard to stakeholders and the other factors set out
in section 172(1)(a) to (f) when performing their duty. The full
s.172(1) statement may be found on pages 74 and 75. On page
75, we have set out examples of how the Directors have had
regard to the matters in s.172(1)(a) – (f) when discharging their
section 172 duty.

NON-FINANCIAL REPORTING

In order to consolidate our reporting requirements under
sections 414CA and 414CB of the Companies Act 2006 in
respect of Non-Financial Reporting, the table on page 121
shows where in this Annual Report and Accounts to find each
of the disclosure requirements.

DISCLOSURE OF INFORMATION TO THE AUDITOR

Having made the requisite enquiries, the Directors in office at
the date of this report have each confirmed that, so far as they
are aware, there is no relevant audit information (as defined by
section 418 of the Companies Act 2006) of which the Group’s
auditor is unaware, and each of the Directors has taken all the
steps they ought to have taken as a Director to make themself
aware of any relevant audit information and to establish
that the Group’s auditor is aware of that information. This
confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.

• Properly select and apply accounting policies.

DIRECTORS’ RESPONSIBILITY STATEMENT

• Present information, including accounting policies, in a

We confirm to the best of our knowledge:

manner that provides relevant, reliable, comparable and
understandable information.

• Provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial
position and financial performance.

• Make an assessment of the Company’s ability

to continue as a going concern.

The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the Financial Statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

SECTION 172(1) STATEMENT

The Board reviews all matters and decisions through the
consideration and discussion of reports which are sent in
advance of each of their meetings and through presentations

•

the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Group and Company, and the undertakings
including the consolidation taken as a whole;

the Annual Report and Accounts includes a fair review of
the development and performance of the business and the
position of the Group and Company and the undertakings
including the consolidation taken as a whole, together with
a description of the principal risks and uncertainties they
face; and

the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Group’s and
Company’s performance, business model and strategy.

This responsibility statement was approved by the Board of
Directors and is signed on its behalf by:

Andrew Livingston
Chief Executive Officer

Mark Robson
Deputy Chief Executive
and Chief Financial Officer

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information Corporate Governance Report
Includes the Chairman’s introduction (pages 66 and 67)
and the Board’s key activities in 2019 and for
2020 (pages 70 and 71).

Board of Directors
Each Director brings their own perspective, experience
and skills, which collectively contribute to a Board which
can effectively govern and contribute to the long-term
sustainable success of the Company.

Remuneration Committee Report
Fair and balanced remuneration practices for our
Executive Directors and senior managers plays a key role
in ensuring sustainable growth of the business and the
fulfilment of our strategic objectives.

Total Executive Director – Fixed vs Variable Pay

2019

2018

Fixed Pay
Variable Pay

Executive Committee
and Company Secretary
Our Executive Committee is made up of senior employees
who assist the Executive Directors in the day-to-day
management of the Company.

Section 172(1) Statement and
Stakeholder Engagement
Our stakeholders are always considered in the decisions
we make, but it's imperative that we engage and foster
long-term relationships with them so that we truly
understand their experience of the Company.

Audit Committee Report
The oversight of the financial reporting process and the
Company's system of internal controls is a crucial pillar in
our governance framework.

Corporate Governance Report

Introduction from the
Chairman

Board of Directors

Executive Committee and the
Company Secretary

Section 172(1) Statement

Stakeholder Engagement

2018 UK Corporate
Governance Code Application
and Compliance

Nominations Committee
Report

Remuneration Committee
Report

112

Audit Committee Report

120 Directors’ Report

e
c
n
a
n
r
e
v
o
G

112

2018 UK Corporate Governance
Code Application and Compliance
The UK Corporate Governance Code is the framework by
which we can benchmark our governance arrangements.

Nominations Committee Report
The recruitment of talented individuals to the Board
and senior management team ensures we can remain
competitive.

Directors’ Report
The Directors' Report is a requirement of the
Companies Act 2006.

120

Howden Joinery Group Plc Annual Report & Accounts 2019

Corporate Governance Report

INTRODUCTION FROM THE CHAIRMAN

The new principles-based approach adopted in the latest
version of the UK Corporate Governance Code encourages
companies to demonstrate throughout their reporting how
the governance of the company contributes to its long-term
sustainable success and achieves wider objectives. As such
we have ensured that our Annual Report and Accounts as a
whole address the Principles and Provisions of the Code.

We have updated our corporate governance reports
this year to draw out more clearly the disclosures which
matter most to our stakeholders. Parts of these reports
unavoidably must cover statutory and other regulatory
disclosures but, where possible, we have moved some of
the information previously contained in these reports online
or put them elsewhere in the Annual Report to prioritise the
information which matters most.

Reporting

Our reporting of culture and purpose are considered in
detail in the Strategic Report. Consideration of our wider
objectives and broader societal contribution is detailed in
our ‘Sustainability Matters’ report.

The detail we have set out in the corporate governance
reports is intended to provide you with more granular detail,
not about our model or our results, but information about
the teams delivering and overseeing those results and their
reporting hierarchies.

In our Corporate Governance report we identify who our key
stakeholders are, how we engage and foster relationships
with them and how consideration of their needs have
influenced our decision-making. In the Nominations
Committee Report we consider in more detail how we
manage succession at Board and senior management
levels. In our Remuneration Committee Report we consider
how our Executive pay aligns with strategy. And in the
Audit Committee Report we consider what the procedural
safeguards are that we have in place to protect the interests
of our stakeholders.

Agenda

Like many companies, the Board’s agenda is driven by
financial and non-financial matters and we have provided
more detail this year to demonstrate how the matters we
considered and the decisions we made are aligned with the
different stakeholders. We have embedded good processes
for employment engagement and equality, diversity and
inclusion and we will improve these processes over time. We
are also dedicating more time to our environmental agenda.

But the Board recognises that all of this is only possible if
our purpose is clear, our commercial strategy is sound,
our leadership teams are fit-for-purpose and our financial
controls robust. These things must remain our primary
focus and they will deliver the long-term, sustainable
success for all of our stakeholders.

Principles first

It is true to say that Howdens is no stranger to a principles-
based approach. The Company was founded on the single
principle that it must be worthwhile for all concerned.
That is as true today as it ever was and it continues to
underpin all strategic, all commercial and all governance
decision making.

2020 ANNUAL GENERAL MEETING (‘AGM’)

SHARE CAPITAL AND SIGNIFICANT AGREEMENTS

Details of the 2020 AGM may be found in the
'Additional Information' section on page 176.

Specific statutory and regulatory disclosures previously
contained in this report have been moved to the
‘Additional Information’ section on pages 176 and 177.

Board Meeting Attendance

Richard Pennycook (6/6)
Mark Allen (3/6)1
Karen Caddick (6/6)
Andrew Cripps (6/6)

Geoff Drabble (6/6)
Louise Fowler (1/1)2
Tiffany Hall (5/5)3
Andrew Livingston (6/6)

Mark Robson (6/6)
Debbie White (6/6)

Mark was unable to attend the February and April meetings due to his commitments at Dairy Crest and the November meeting due to health reasons.
Mark received all of the Board papers in advance of the meetings and was able to feedback his views to the Chairman.

2. Louise was appointed to the Board on 1 November 2019.

3. Tiffany retired from the Board on 17 September 2019.

Board of Directors

RICHARD PENNYCOOK
Chairman

GEOFF DRABBLE
Senior Independent Director

KAREN CADDICK
Non-Executive Director

ANDREW CRIPPS
Non-Executive Director

LOUISE FOWLER
Non-Executive Director

DEBBIE WHITE
Non-Executive Director

Executive Directors

ANDREW LIVINGSTON
Chief Executive Officer

MARK ROBSON
Deputy Chief Executive
& Chief Financial Officer

Executive Committee

CLIVE COCKBURN
Chief Information Officer

MARK SLATER
Commercial Director

ROB FENWICK
Chief Governance Officer

ANDY WITTS
Chief Operating Officer: Trade

ANDY GAULT
Group Digital Director

GARETH HOPKINS
Interim Group HR Director

THERESA KEATING
Group Finance Director

Company Secretary

FORBES MCNAUGHTON

ROLES

Further information about the role of the
Board, the Executive and Non-Executive
Directors, external advisors and
individuals may be found on our website:
www.howdenjoinerygroupplc.com/
governance/division-of-responsibilities

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Corporate Governance Report continued
Board of directors

Key to Board committee membership

Chair of Committee

Nominations Committee

Remuneration Committee

Audit Committee

Independence

The Board considered that all of the Non-Executive
Directors were independent for the full duration of the
period being reported on and that Richard Pennycook
was independent upon his appointment as Chairman.

Executive Directors

Non-Executive Directors

Andrew was appointed CEO Designate in January 2018 and was appointed to the Board as Chief Executive
Officer on 2 April 2018.

Other listed company appointments

Non-Executive Director at LondonMetric Property Plc

ANDREW LIVINGSTON
Chief Executive Officer

Contribution to the long-term sustainable success of the Company

Andrew has a strong track record of performance, execution and driving change through improving
digital capability, ranges and new site openings. He also has knowledge of key European geographies, is a
competent French speaker, and has a strong entrepreneurial mindset. Andrew's mindset fits the Howdens
culture which has served the Company well and is fundamental to its success. He was previously the CEO of
Screwfix.

Mark was appointed Deputy Chief Executive in May 2014, having joined the Board in April 2005
as Chief Financial Officer.

Contribution to the long-term sustainable success of the Company

Mark has served on the Board since April 2005 and in this time has accrued deep sector and market
knowledge relevant to Howdens. Mark has an excellent reputation underpinned by his record of
achievement across a number of different sectors. He also has relevant financial experience from his major
finance roles at Delta plc and ICI and trained as an accountant at Price Waterhouse.

MARK ROBSON
Deputy Chief Executive
and Chief Financial Officer

Non-Executive Directors

RICHARD PENNYCOOK
Independent
Non-Executive Chairman

GEOFF DRABBLE
Senior Independent Director
and Non-Executive responsible
for workforce engagement

Richard was appointed to the Board in September 2013 and became Non-Executive Chairman and
Chairman of the Nominations Committee in May 2016.

Other listed company appointments

Chairman of On the Beach Group plc1

Contribution to the long-term sustainable success of the Company

Richard has in-depth knowledge of UK listed companies and the associated high corporate governance
standards required by such companies. He has served in remuneration, audit and nominations committee
chairman roles and as board chairman. Richard also has extensive experience in logistics, supply chain
management, retailing, manufacturing and consumer goods, and therefore he brings a wealth of relevant
knowledge to the Board.

Geoff was appointed to the Board in July 2015 and became Senior Independent Director in September
2019.

Other listed company appointments

Chairman of Ferguson Plc1

Contribution to the long-term sustainable success of the Company

Geoff brings extensive experience of the building products and construction markets having spent over a
decade as CEO of Ashtead Group Plc in addition to his current appointment as Chairman of Ferguson plc.
He also has extensive experience from his time as an executive director at the Laird Group, where he was
responsible for the Building Products division. Geoff understands and has managed businesses with multi-
site depot operations and he has strong business-to-business sector experience.

Karen was appointed to the Board in September 2018 and became Chair of the Remuneration Committee in
September 2019.

Contribution to the long-term sustainable success of the Company

Karen’s professional experience provides her with a strong diversity of perspective and cultural fit to help with
the leadership of the Howdens business. Having served as the Group Human Resources Director of large listed
organisations such as Saga plc and currently at RSA Insurance Group plc, Karen has particular strengths in
organisational development, delivery of diversity programmes, and executive remuneration. These attributes
have stood Karen in good stead when she succeeded Tiffany Hall as chair of the Remuneration Committee in
September 2019 and has made her a valuable addition to the Nominations Committee.

Andrew was appointed to the Board in December 2015 and became Chair of the Audit Committee in
May 2016.

Other listed company appointments

Deputy Chair of Swedish Match AB

Contribution to the long-term sustainable success of the Company

Andrew brings extensive experience as a non-executive director and audit committee chair with particular
knowledge of branded consumer and business-to-business products, manufacturing and distribution
in the UK and continental Europe. His experience of multisite wholesale distribution to small business
customers at Booker Group plc is valuable to the Board's decision-making process. He is a Chartered
Accountant and former Finance Director with extensive recent and relevant financial experience.

Louise was appointed to the Board in November 2019.

Other listed company appointments

Non-Executive Director of Assura plc

Contribution to the long-term sustainable success of the Company

Louise has over 25 years' customer, brand and digital experience at a senior level. Her experience
encompasses publically listed and private businesses, the mutual sector and not-for-profit organisations.
Louise’s strong background in consumer experience and reputation is valuable to the Company as it strives
to provide a strong aftersales service to further support the builder customer. Her digital experience will
also provide valuable insight given the investment the Company is making in its digital programme.

Debbie was appointed to the Board in February 2017.

Contribution to the long-term sustainable success of the Company

Debbie has direct operational experience in the business-to-business sector from her time as CEO at
Interserve plc. She also has in-depth knowledge of the UK and French markets, both of which Howdens
operates within. Her previous experience as a chief financial officer and as chair of the audit committee
of the charity Wellbeing of Women ensures Debbie has strong financial awareness and competence.
Debbie has also supported management in the formation and delivery of its equality, diversity and
inclusion (‘EDI’) programme.

KAREN CADDICK
Independent
Non-Executive Director

ANDREW CRIPPS
Independent
Non-Executive Director

LOUISE FOWLER
Independent
Non-Executive Director

DEBBIE WHITE
Independent
Non-Executive Director

The Board considered Richard’s appointments as Chairman to On the Beach Group Plc and Boparan Holdings Ltd and Geoff’s appointment
as Chairman to Ferguson Plc prior to their appointment. The Board were satisfied that both had the requisite time available to commit to all
of the their responsibilities in their respective roles. In both instances the Board recognised that they were retiring from other roles. Further
information is available on page 81.

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Corporate Governance Report continued
Key Board Activity

2019

JANUARY

• Board evaluation feedback
• Five-year plan
• Pensions update1
• Brexit contingency planning
and downturn modelling

• Health & Safety
• Key Risks and Principal Risks
• Non-Executive Director fees
• A tour of the Howdens new

product Expo in Northampton
preceded the meeting

Executive Committee presenters:
• Andy Witts (COO: Trade)
• Kevin Barrett (Group

Development Director3)

APRIL

• Diversity Working Group
• Health & Safety
• Malus & Clawback, Shareholding
and Competition Law policies
Investor relations, including
broker feedback following
preliminary results

•

• A session focusing on strategy
and the Company's five year
plan followed the meeting

Executive Committee presenters:

• Gareth Hopkins

(Interim Group HR Director)

JULY

• Diversity Working Group
• Brexit planning
• Raunds development
• Health & Safety
• Draft interim results and

announcement
• Principal Risks

• Health & Safety and Sustainability

Statements of Intent

Executive Committee presenters:
• Theresa Keating

(Group Finance Director)

• Kevin Barrett (Group

Development Director3)
• Rob Fenwick (COO: Supply2)

FEBRUARY
• Draft 2018 preliminary results
• Draft 2018 Annual Report and Accounts and

2019 AGM documents

• Dividend and capital returns strategy
• Group policies and statements
• Updated Long Term Incentive Plan (‘LTIP’) rules
• Amended Articles of Association
• Principal Advisors
• Health and safety

MAY – AGM
• A meeting of the shareholders
of the Company was held and
all resolutions were passed,
including for a new Executive
Director Remuneration Policy,
a new set of LTIP rules, and
amendments to the Articles of
Association. Members had the
opportunity to ask questions of
the Board

Governance and Risk

Attendees

Set out above and on the facing page
are highlights of the matters the Board
considered (or will consider – see 2020
Activities on the opposite page) as part of its
annual meeting cycle. Not all of the matters
the Board considered or will consider are
listed, therefore this should not be considered
an exhaustive list of activities.

The Board received governance, legal and
regulatory updates at regular intervals from
the Company Secretary and the Board’s
advisors. It also continued to receive regular
updates from the Brexit Readiness Sub-
Committee (a sub-committee of the Executive
Committee).

In addition to the matters shown on the
timeline above, at each meeting the Board
received detailed strategic, operational and
financial updates from the CEO and DCEO
& CFO. The Board also considered aspects
of Group culture and strategy at various
points during the year in addition to the more
focused strategy session at the April meeting.

Risk remains a matter reserved for the Board
and a detailed review of our risk management
processes and principal risks can be found
on pages 40 to 47. We have reviewed our risk
management processes and remain satisfied
that they are robust and effective. Reporting
from our whistleblowing helpline is also
considered by the Board on a biannual basis.

Following the successful CEO transition
process, the Board agreed that the standing
invitations of the Divisional Operating
Officers, Group Finance Director and Interim
Group HR Director were no longer required
for the smooth running of the meetings.
Individual Executive Committee members
and senior managers were invited to present
to the Board and its Committees as required.

Shareholder Engagement

Information about how we interact with
shareholders can be found in our new
section on Stakeholder Engagement on
pages 76 to 78.

2020

JANUARY
• 2019 External Board Evaluation

• 2020 Budget

• Environmental, Social and Governance (‘ESG’) plans

• Pensions (including a presentation

from the chair of trustees)

• Employee Engagement

• Health & Safety

• Whistleblowing

•

Investor Relations

FEBRUARY
• Draft 2019 preliminary results, draft 2019 Annual
Report and Accounts and 2020 AGM documents

• Risk Management

• Shareholder and capital returns

• Health and safety

APRIL
• The Board will be taken on a tour of the Company's

'Expo' (our annual new product exhibition)

• Strategic opportunities

• Draft Interim Management Statement

• Health & Safety

•

Investor Relations

• Group Policies and Statements

MAY
• AGM – further details on page 176

JULY
• Draft 2020 Interim results

• Digital Programme

• Commercial update

• ESG plans

• Pensions

• Whistleblowing

• Health & Safety

SEPTEMBER
• The Board will be taken on a tour of the Howden

factories.

• Employee Engagement

•

Investor Relations

• Key Risks

• Corporate Governance

• Health and safety

NOVEMBER
• Operations and Commercial update

• ESG plans

• Health & Safety

• Board Committees’ Terms of Reference and the
Schedule of Matters Reserved for the Board

•

Investor relations

• 2021 Board calendar

SEPTEMBER

• Pensions update1
•

Investor relations, including
broker feedback following
interim results

• Key risks
• Corporate governance

• Health and safety

A session with the Group's
corporate lawyers, Freshfields,
followed the meeting. The following
topics were covered:

• Directors’ duties
• Market Abuse Regulations
• FRC reform

• Market developments in takeover

defence

Executive Committee presenters:
• Rob Fenwick (COO Supply*)

OCTOBER – NOVEMBER
Board effectiveness evaluation

Further details available on pages 90 and 91

NOVEMBER

• 2019/20 Executive Business Priorities
• P11 performance
• French and Belgian operations
• Market and competitor analysis
• Digital programme
• Health & Safety
• Shares and dividend forfeiture programme

•

Investor relations

Executive Committee presenters:
• Andy Witts (COO: Trade)
• Kevin Barrett (Group Development Director3)
• Andy Gault (Group Digital Director)

The Company's actuaries reported to the Board on routine funding and investment matters.

2. Rob Fenwick was appointed Chief Governance Officer in January 2020. Prior to this, he

served as Chief Operating Officer of the Supply Division. Further information about Rob’s
change of role may be found in the Nominations Committee Report on page 89.

3. At the date of this report, the role of Group Development Director was no longer an

Executive Committee role.

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Corporate Governance Report continued
Executive Committee and Company Secretary

Executive Directors

ANDREW LIVINGSTON
Chief Executive Officer

MARK ROBSON
Deputy Chief Executive and Chief Financial Officer

Andrew and Mark’s profiles
may be found on page 68

Executive Committee Members

Clive joined Howdens in October 2002 and has been a member of the Executive Committee since
January 2016.

Clive was appointed Chief Information Officer having joined Howdens in 2002 as Head of IT Infrastructure
and Service Delivery. Prior to joining, he held senior IT positions in Hays Logistics UK, United Transport
Limited and Exel Logistics Plc.

Rob joined Howdens in January 2001 and has been a member of the Executive Committee since
April 2005.

Between October 2005 and December 2019, Rob was responsible for the Supply Division. As part of the
succession planning for the Executive Committee, Rob was appointed Chief Governance Officer in January
2020, further information about which may be found on page 89. Prior to joining Howdens, Rob worked in
the automotive and FMCG sectors.

Andy joined Howdens in April 2018 as a member of the Executive Committee.

Andy has over 20 years’ retail eCommerce experience having worked at leading retailers such as Screwfix,
B&Q and Travis Perkins. His eCommerce experience encompasses the disciplines of supply chain and
buying. He is also a member of the IMRG Advisory Board and has served on the Google Retail Advisory
Council (‘EMEA’).

Gareth joined Howdens in April 2015 as a member of the Executive Committee.

Gareth was appointed Interim Group HR Director having previously worked in the business as a
HR consultant for 15 months. He has worked as an interim HR Director in FTSE 250 companies for
15 years and was previously Group HR Director at Dairy Crest and Whitworths.

CLIVE COCKBURN
Chief Information Officer

ROB FENWICK
Chief Governance Officer

ANDY GAULT
Group Digital Director

GARETH HOPKINS
Interim Group HR Director

Theresa joined Howdens in September 2000 and has been a member of the Executive Committee since
February 2012.

Theresa was appointed Group Finance Director in May 2014, having been Group Financial Controller since
2007. She joined the Group Finance team in 2000 having previously held various commercial finance roles
at Waterstones, HMV and Heals. Theresa is also a trustee of E-Act, a multi-academy trust.

Mark joined Howdens in June 2019 as a member of the Executive Committee.

Mark has over 25 years’ experience in retail and trade businesses working in senior commercial, marketing
and strategy roles. Prior to joining the business Mark held senior commercial positions with Travis Perkins
Plc, Home Retail Group and Dixons Carphone.

Andy joined Howdens in July 1995 and has been a member of the Executive Committee since
September 2008.

Andy was one of the founding members of the Howdens depot management team, having joined from
Magnet in 1995. He was promoted from the regional team to become Sales Director in January 2007
and was appointed Chief Operating Officer of Trade in January 2014.

Forbes joined Howdens in July 2012 and was appointed Group Company Secretary in May 2014.

Forbes joined the Company as Deputy Company Secretary in 2012 following a period of secondment from
KPMG. He is a fellow of the Institute of Chartered Secretaries and Administrators (‘ICSA’) and is Secretary to
the Executive Committee as well as to the Board of Directors.

THERESA KEATING
Group Finance Director

MARK SLATER
Commercial Director

ANDY WITTS
Chief Operating Officer: Trade

Company Secretary

FORBES MCNAUGHTON
Company Secretary

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Corporate Governance Report continued
Directors' Duties

SECTION 172(1) STATEMENT

A director of a company is required to act in a way they consider, in good
faith, would most likely promote the success of the company for the benefit
of its members as a whole. In doing this, the director must have regard,
amongst other matters, to the following:

ENVIRONMENT AND COMMUNITY

The impact of the company’s operations
on the community and the environment.

LONG-TERM THINKING

The likely consequences of any
decision in the long term.

REPUTATION

The desirability of the company for
maintaining a reputation for high
standards of business conduct.

INVESTORS

The need for every member to be
treated fairly and for no member to
be favoured over another member.

SUPPLIERS

The need to foster the company’s
business relationships with (amongst
others) suppliers and…

…customers.

WORKFORCE

The interests of the Company’s employees.

CUSTOMERS

Howdens is a company that strives to
be worthwhile for all concerned. It's
the principle that it was founded on.
But balancing the needs and views of
all of our stakeholders is challenging
as there are often competing interests.
This is why the Board first and foremost
considers our purpose, our culture, our
mission and our strategy to ensure all
decisions have a clear and consistent
rationale. For details on the matters
which the Board discussed and debated
during 2019 please see pages 70 and 71.
Details about our key stakeholders, how
we engage with them, and how we foster
relationships with them may be found on
pages 76 to 78.

As Directors, when we discharge our
duty as set out in section 172 of the
Companies Act 2006 (‘Section 172’), we
have regard to the other factors set out
on the previous page. In addition to these
factors, we also consider the interests
and views of other stakeholders,
including our pensioners, regulators and
the government, and the customers of
our trade customers.

We have set out some examples below
of how the Directors have had regard
to the matters in s.172(1)(a)–(f) when
discharging their Section 172 duty and
the effect of that on certain decisions
taken by them in 2019.

LONG TERM INCENTIVE PLAN

In February 2019, the Board approved a
new set of long-term incentive share plan
(‘LTIP’) rules to be put to shareholders
at the AGM in May 2019. The new LTIP
rules had been updated to ensure they
reflected best market practice and
regulatory changes. In reaching its
decision to put the new LTIP rules to
shareholders, the Board had regard
to a number of factors. The Directors
considered the flexibility the rules
afforded the Board to grant a variety of
share award types over the lifetime of
the LTIP, which would ensure the Board
could award the most appropriate type
of award to individuals or groups in order
to drive desirable behaviours. This is
particularly important from a long-term
risk management point of view.

The Chair of the Remuneration
Committee consulted extensively with
shareholders and investor groups

whilst the policy relating to the LTIP was
being formulated. Whilst no specific
changes to the rules were requested, the
Remuneration Committee introduced an
additional financial measure to the LTIP
following feedback from shareholders.
More information on the additional
measure can be found on page 105.

Enforceable malus and clawback
provisions are essential in protecting the
interests of a wide range of stakeholders
and are important in the management
of reputation of the Company (see page
15 for discussion of our culture and our
commitment to being worthwhile to all
concerned). The Board noted during
the approval process that the rules
governing malus and clawback had
been extrapolated from the rules into a
separate policy. Although not included
within the new LTIP rules, the Board
was satisfied that malus and clawback
provisions were extensively covered and
could be applied to any share awards
made under the new LTIP (as well as to
the annual bonus award).

INTERNATIONAL STRATEGY

The Board reviewed and approved
management’s proposals regarding
international strategy at the beginning
of 2019. They concluded that there
was a viable, city-based business for
Howdens in France and Belgium and
approved five new depot openings. In
conjunction, operations in Holland and
Germany were closed.

After careful consideration of factors
detailed in s172(1), the Board concluded
that these decisions would promote
the success of the Company for the
benefit of its members. In particular,
the Board considered the amount of
human resource and capital that would
be required to make the Howdens model
profitable in the different international
jurisdictions. The Board took into account
the mature depot estate in France and
Belgium and the ability to utilise the
existing operational leverage available.
Whilst full coverage of the UK market is
not imminent, the Board were also mindful
of having additional capacity outside of
the UK available before that occurred.
As such, the investment in the French
depot network was intended to safeguard
sustainable growth in the longer term.

In contrast, the Dutch and German
businesses were not profitable and to
make them profitable would have required
significant additional investment. The
Board were mindful of the detrimental
impact closure of these businesses would
have on local employees. Redeployment
of employees was considered but
not possible given the scale of local
operations and as such appropriate
compensation arrangements were
made with the workforce who had been
made redundant.

SHAREHOLDER RETURNS

Following the Company's year end,
the Board made an assessment of the
strength of the Company's balance
sheet and future prospects relative to
uncertainties in the external environment.
Details of our long-term approach to
dividends and our policy are set out on
page 35 of the Financial Review.

In February 2019, the Board
recommended an increased final
ordinary dividend of 7.9 pence per
ordinary share, up from 7.5 pence in
2018 (an increase of just over 5%).
In making their decision, the Board
considered a range of factors including
the long-term viability and business plan
(including financing requirements) of
the Company, the Company's Defined
Benefit pension scheme deficit, as
well as the availability of alternative
strategic options which would benefit
the Company in the long term.

The Board take regular feedback
from shareholders on the most
appropriate method of returning
capital, including at the AGM where all
shareholders, regardless of the size
of their shareholding, are invited to
attend and ask questions of the Board.
Dividend policy, other shareholder
returns and alternative uses of capital
are regularly considered by the Board.
Management also discuss this during
investor roadshows following results
announcements. In light of this regular
feedback, it was noted that the Company
had a reputation for a well-understood
and prudent capital structure and
dividend policy and therefore the Board
should not deviate from or change these
at this time. The increase of just over 5%
was therefore approved.

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019Corporate Governance Report continued
Stakeholder Engagement

STAKEHOLDER MAP

Stakeholder and Forms of Engagement

Engagement detail and how it has influenced Board discussions and decision-making

Workforce continued

Whistleblowing Helpline

The Company uses an third-party operated, confidential whistleblowing helpline. The helpline
is multilingual and available 24 hours a day. The Company Secretary provides the Board with a
bi-annual report which details the number and nature of whistleblowing instances made during
the period. Whilst no specific complaints were escalated for Board attention, the governance
processes are in place should this be deemed necessary. The Board encouraged management
to ensure that employee communication about the helpline were refreshed during the year and
that there be a continuous communication programme put in place.

Trade Customers

Local Depots

STAKEHOLDERS

Engagement with our trade
customers includes the following:

• Local depots

• Builder Forums

The primary method of engaging with our trade customers since Howdens opened its doors
in 1995 has been through the conversations at the local depot. The relationship between the
depot manager and the trade customer has always been at the heart of what we do. Our depot
managers feed back builder views to management at Regional Board meetings, which the COO
of Trade is present at and which the CEO and other members of the Executive Committee often
attend. Feedback from Regional Board meetings influences product and pricing decisions.
However, it also reinforces our strategic decisions on new depot openings, ensuring that we are
maintaining excellent customer service and investing in new product.

The strategic digital improvements, as set out on page 23 of the Chief Executive's Statement,
were extensively tested on a cohort of trade customers to ensure that our digital offering is as
aligned to their needs as possible.

Builder Forums

To ensure we're hearing all the concerns and feedback of our trade customers, we have set up
regular direct feedback sessions with them in the form of Builder Forums. These forums see a
small group of customers coming together in an informal setting to talk about their experiences.
We have nearly 40 forums planned for 2020. The agenda is driven by the customers themselves
so we can be sure we're hearing everything that's on their mind. Our CEO has regularly reported
specific feedback from these sessions to the Board. In response to feedback from the forums,
we made improvements to our worktop specifications and the way we store the worktops in the
depots to ensure their quality is not compromised.

Ensuring all levels of our organisation understand the challenges of our trade customer
is fundamental to ensuring our service proposition is worthwhile to them. A case study
on our Builder Forums may be found in the Chief Executive's Statement on page 23 of the
Strategic Report.

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Suppliers

Supplier Conference

Engagement with our suppliers
includes the following:

•

Supplier Conference

Category Team relationships

Each year, our key suppliers are invited to join senior leadership at our annual Supplier
Conference. This is a important date in our calendar as it's a time when the Company is able
to communicate its priorities and any changes in the business to its suppliers, ensuring a
consistent message is heard by all. The 2019 conference was particularly important given
the changes which had been made during the year to introduce a commercial function into
the business and also for continuing discussions around Brexit preparedness. It is also an
opportunity for our suppliers to provide their feedback to a wider Company audience. Our Non-
Executive Directors have standing invitations to the conference.

Category Team Relationships

In our Chief Executive's Statement on page 28 you will find detail about the establishment of a
new commercial structure, which is organised into categories. This structure provides clearer
accountabilities for ranging decisions and with greater internal accountability comes the
fostering of stronger relationships with our suppliers. Suppliers are now engaging with focused
teams within the organisation and this clarity brings the opportunity for even more valuable
discussions.

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Stakeholder and Forms of Engagement

Engagement detail and how it has influenced Board discussions and decision-making

Workforce

Non-Executive Director responsible for workforce engagement

Engagement with our workforce
includes the following:

• Employee surveys

• Senior Leadership meetings

• Town Hall-style meetings

• Regional Board meetings

• Meetings with the trade union

• French Workers' Council meetings

During 2019, the Board appointed Geoff Drabble as the Non-Executive Director responsible for
workforce engagement.

All-Employee Survey

In the second half of 2019, all employees were given the chance to participate in the Sunday
Times Best Companies to Work For survey. The survey assessed 8 key factors which inform
how desirable a company is to work for. The Company was pleased that the overall score
remained in the 'Outstanding' category; however, further analysis of the scores by business
area and collation of the employee feedback is ongoing. This will provide the Board with
more in-depth information around the key learnings and will inform the next steps they take
in response to the survey. In particular, the Board will consider a number of opportunities for
improving employee wellbeing with management during 2020.

The survey result was considered as part of the decision-making process of the Remuneration
Committee when it set Executive Director remuneration in February 2020.

Senior Leadership Meetings ('SLMs')

During 2019, a Senior Leadership Team (‘SLT’) was formalised and began meeting on a
quarterly basis. The SLT is made up of around 25 leaders from across the business who work
closely with the Executive Committee to develop and deliver our business plans. The SLMs are
designed to encourage open and frank discussions across all business matters. Following the
success of the first meetings in 2019, members of the SLT will be invited to present to the Board
directly when relevant, which is both important for individuals' development, but also provides
the Board with an ongoing view of the talent pipeline below Executive Committee level.

Corporate Governance Report continued
Stakeholder Engagement

Stakeholder and Forms of Engagement

Engagement detail and how it has influenced Board discussions and decision-making

Pensioners

Board engagement with the Trustee Board

Engagement with our pensioners
includes the following:

•

Board engagement with the Trustee
Board

Annual Newsletter

Triennial valuations

The Trustee Board, chaired by an independent trustee, is responsible for investment strategy
and for the day-to-day running of the Howden Joinery Defined Benefit Pension Plan (the ‘Plan’).
There are a number of matters reserved for the Company as sponsor under the Trust deed
and the Board invites the Chair of the Trustees to present to the Board on an annual basis and
provide an update on matters affecting the membership. In January 2020, following extended
interaction between the Trustees and the Company, the Board approved the long-term strategy
proposed by the Trustees. The Company will monitor Trustee performance against the strategy.

Triennial valuations

At 31 December 2019, the Plan had 10,681 members (more than the total number of current
employees), of which 1,371 were active members, 5,488 were deferred members and 3,822
were pensioners. Whilst safeguarding the long-term viability of the Company is the primary
imperative for these members, ensuring that there is an appropriate balance between
shareholder distributions and Plan deficit funding is a priority for the Board. The Company has
historically made contributions well in excess of peers but this will be reviewed during the 2020
valuation process and the Board will review the balance of distribution of capital between the
different stakeholder groups.

Shareholders

Annual General Meeting (‘AGM’)

At the Company's AGM, shareholders are given the opportunity to ask questions to the Board
members directly. At the 2019 AGM, shareholders asked the Board about Brexit readiness,
debtors per depot, and capital returns. Following the meeting, the Board agreed that more
detailed commentary would be provided in Company reporting when the timing of peak trading
had made financial metrics anomalous.

Engagement with our shareholders
includes the following:

Annual General Meeting

Shareholder consultations

•

Investor site visits

Shareholder Consultations

Prelims and Interims Roadshows

The Chairman of the Board and of the Nominations Committee, Richard Pennycook, wrote to
our major shareholders after the 2019 AGM with the offer of a meeting to discuss governance
and strategy matters (or any other matters of interest) without the Company’s management
present. Richard met with the shareholders who requested a meeting in June and July and
discussed topics including executive remuneration, strategy, ESG, Brexit and the transition
to a new CEO. The discussion regarding ESG in part informed the Nominations Committee’s
support of Rob Fenwick’s appointment as Chief Governance Officer on the Executive Committee,
focusing on the Group’s ESG agenda (see page 89 of the Nominations Committee Report for
further details of Rob’s new role).

In January 2019, Tiffany Hall, who chaired the Remuneration Committee at the time, wrote to
major shareholders (and the Investment Association and other proxy advisors) to set out the
proposed changes to the Executive Remuneration Policy and welcoming any views on these
proposals. Following these meetings, the Remuneration Committee reduced the pension
provision further for executive director joiners to ensure it was in line with the pension provision
available to the majority of employees in the organisation and increased the stated minimum
percentage of bonus measures attributable to financial performance.

Investor Site Visits

During 2019, investors were invited to attend the Company's annual exposition (‘Expo’). Those
that attended received presentations from members of the senior leadership team, which
covered depot format, digital development and kitchen ranges. They were then given a tour
of the Expo, which covered kitchens, flooring, doors, appliances and depot formats. Investors
were also invited to join a tour of the Company's site in Howden, East Yorkshire.

Results Roadshows

Following the preliminary results announcement, the Executive Directors met with more than
40 investors. At these meetings investors showed particular interest in the initiatives that
the business was pursuing and conversely the level of investment needed, and the returns
and margin expected. Following the interim results, the Executive Directors met with around
30 investors.

2018 UK Corporate Governance Code: Application and Compliance

The Financial Reporting Council (‘FRC’) published its most recent iteration of the UK Corporate Governance Code (the ‘Code’) in
2018, which applies to accounting periods beginning on or after 1 January 2019. The period we are reporting on is 30 December
2018 to 28 December 2019. Although this period began prior to the Code's date of application, the Board updated its processes
to meet the 2018 Code for the 52 weeks ended 28 December 2019 and has reported accordingly. In meeting the 2018 Code, the
Board considers that it also applied the Principles and complied with all the Provisions of the 2016 Code throughout the period.

We are pleased to report that the Company applied all the Principles of the Code throughout the period and we have reported
in summary below how we have done so. We are also pleased to report that, in the first year in which we applied the new Code,
the Company was compliant with all Provisions except for Provision 38. Provision 38 provides that Executive Director pension
contribution rates (or payments in lieu) should be in line with those available to the workforce. Our Remuneration Policy
(‘Policy’), which was approved by shareholders in 2019, stipulates that Executive Director new joiners’ pension contribution
rates must match that available to the wider workforce. Our incumbent Executive Directors’ pension contribution rates, while in
line with Policy for existing Directors, do not yet match the wider workforce. This is because the reduction of fixed, contractual
remuneration must be done so carefully and proportionally over time. Both of our Executive Directors are fully supportive of their
respective rates tapering as set out on page 93 of the Remuneration Committee Report and the Board confirms that existing
Executive Director pension contribution rates will be in line with the wider workforce by the AGM in 2022.

SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE

A successful company is led by an effective and
entrepreneurial board, whose role is to promote the long-
term sustainable success of the company, generating
value for shareholders and contributing to wider society.

The board should establish the company’s purpose, values
and strategy, and satisfy itself that these and its culture
are aligned. All directors must act with integrity, lead by
example and promote the desired culture.

Howdens' founding principle of being worthwhile for all
concerned supports the premise that its role is to ensure long-
term, sustainable growth and value for all its stakeholders.
During 2019, the Company (led by the Board) increased
shareholder returns, paid more tax, employed more people
and contributed to the communities in which we operate.
More information on our sustainable business model and
strategy can be found on pages 18 to 21 and our contribution
to wider society can be found in our Sustainability Matters
report beginning on page 48.

Governing in an effective way ensures the framework and
controls needed to align our operations with our strategy are
in place. It's only by doing this that we can ensure long-term
strategic success of the Company for our stakeholders. We
discuss throughout the Governance section how our actions
support the strategy. For example, we have set out on page
96 of the Remuneration Committee Report the way our
remuneration structure supports our strategic aims.

The effectiveness of the Board was reviewed by an
independent third party in line with Code requirements
(see pages 90 and 91).

An explanation of our purpose, values and strategy are set
out in the Strategic Report which starts on page 10. The
Board regularly discusses the importance of Howdens’
unique culture and are mindful that it remains aligned with its
purpose, values and strategy. This remains an area of regular
scrutiny following the transition from the Founder CEO.
Workforce engagement is an important part of the Board’s
agenda and an independent survey of employee views was
undertaken during 2019, the results of which were presented
to the Board. More information on workforce engagement can
be found on pages 76 and 77.

Integrity and sympathy to the Howdens culture are
paramount when the Board recruits new members to
the Board. More information about our recruitment and
inductions process can be found on page 88.

The board should ensure that the necessary resources
are in place for the company to meet its objectives and
measure performance against them. The board should
also establish a framework of prudent and effective
controls, which enable risk to be assessed and managed.

The Board are satisfied that the necessary resources are in
place to ensure that the Company meets its objectives and
measures performance against them. Our KPIs and how we
have performed against them can be found on pages 32 to 34.

More information on our risk processes, including our
principal and emerging risks, can be found in the Principal
Risks and Uncertainties section starting on page 40. Our Audit
Committee report provides a summary of our internal control
framework on page 118.

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Corporate Governance Report continued
2018 UK Corporate Governance Code: Application of Principles

SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED

SECTION 2 – DIVISION OF RESPONSIBILITIES CONTINUED

In order for the company to meet its responsibilities to
shareholders and stakeholders, the board should ensure
effective engagement with, and encourage participation
from, these parties.

The board should ensure that workforce policies and
practices are consistent with the company’s values and
support its long-term sustainable success. The workforce
should be able to raise any matters of concern.

Howdens has a broad group of clearly defined stakeholders
and the Board actively engage with each of these groups on
a regular basis. A detailed explanation of our engagement
with our shareholders and wider stakeholder base and how
this engagement has informed the Board’s decision making
processes can be found on pages 76 to 78. How the Board
members discharged their s.172 statutory directors duties is
described on pages 74 and 75.

SECTION 2 – DIVISION OF RESPONSIBILITIES

The Board and its committees review workforce policies and
practices on a regular basis. A Group policy framework has
been established and is reported on to the Board on an annual
basis, as well as any updates needed for Group policies. Part
of this review includes ensuring that policies remain aligned
to the Howdens culture and support long-term success.

One example of this is how our Remuneration Committee
consider the pay policies and practices of the wider
workforce when determining Executive reward. More
information in this regard can be found on page 102.

All employees are able to raise any matters of concern via the
confidential whistleblowing helpline. The helpline is available
24 hours a day, is multilingual and operated by an independent
third party. The Board receive reporting from the helpline twice
a year and any matters of significant concern are escalated
as appropriate by the Company Secretary who oversees the
helpline with support from the internal audit team.

The chair leads the board and is responsible for its overall
effectiveness in directing the company. They should
demonstrate objective judgement throughout their tenure
and promote a culture of openness and debate. In addition,
the chair facilitates constructive board relations and the
effective contribution of all non-executive directors, and
ensures that directors receive accurate, timely and clear
information.

The Board confirms that Richard Pennycook was independent
on appointment when assessed against the circumstances
set out in Provision 10 of the Code. The roles of Chief Executive
and Chairman are not held by the same individual and the
Chairman has never held the position of Chief Executive of
the Company. These factors help ensure that the Chairman
demonstrates objective judgement throughout his tenure.

The Chairman is mindful of his role in facilitating constructive
board relations and promoting a culture of openness and
debate amongst the Board. This in turn encourages the
effective contribution of all the Non-Executive Directors.
The 2019 externally-facilitated Board evaluation concluded
that the Board’s culture was one of transparency,
support, constructive challenge and balance. Further
information about the outcomes and process of the 2019
Board evaluation may be found on pages 90 and 91 of the
Nominations Committee Report.

The Chairman is also mindful of the need for the Directors to
receive information which is accurate, timely and clear. He is
supported in this by the Company Secretary, who ensures the
effective flow of information in a timely manner between the
Board and senior management.

The board should include an appropriate combination
of executive and non-executive (and, in particular,
independent non-executive) directors, such that no one
individual or small group of individuals dominates the
board’s decision-making. There should be a clear division
of responsibilities between the leadership of the board and
the executive leadership of the company’s business.

At least half of the Board was made up of Independent
Non-Executive Directors (not including the Chairman)
throughout the reporting period. The Non-Executive Directors
which the Board considered to be independent are shown
as such on pages 68 and 69. The Board confirms that all
the Non-Executive Directors (excluding the Chairman)
were independent during the reporting period and that the
Chairman was independent on appointment.

There is a clear division of responsibilities between the
leadership in the organisation. The responsibilities of
the Chairman, Chief Executive, and Senior Independent
Director may be found on the Company’s website (www.
howdenjoinerygroupplc.com/governance/division-of-
responsibilities) and the function of the Board Committees
may be found in the respective committee terms of
reference, also available on the Company’s website (www.
howdenjoinerygroupplc.com/governance/corporate-
governance-report/introduction-from-the-chair).

Non-executive directors should have sufficient time to
meet their board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist
advice and hold management to account.

The number of Board meetings which were held during the
reporting period and the attendance at each of these meetings
may be found on page 67. Similarly, the number of each Board
Committee’s meetings and attendance may be found on the
following pages:

– Nominations Committee: page 85

– Remuneration Committee: page 93

– Audit Committee: page 113

When reviewing the Nominations Committee’s recommendation
to appoint a new Director, the Board will always assess
whether the candidate is able to allocate enough time to the
role. Similarly, when assessing the acceptability of an existing
Director’s wish to take on external appointments, the Board will
assess the additional demand on that Director’s time before
authorising the appointment.

During the reporting period, the following additional significant
appointments were authorised by the Board:

• Geoff Drabble’s appointment as Chairman of Ferguson plc

Prior to Geoff’s appointment as Chairman of Ferguson Plc,
the Board considered whether Geoff could allocate enough
time to his role as Non-Executive Director of the Company in
addition to a chair role of a FTSE 100 company. The Board was
satisfied that, following his retirement as Chief Executive of
Ashtead Group Plc, Geoff had the requisite time to fulfil the
new role as well as both his current role with the Company and
his role as Senior Independent Director of the Company once
Tiffany Hall had retired.

• Richard Pennycook’s appointment as Chairman of

On the Beach Group plc

Prior to Richard’s appointment as Chairman of On the
Beach Group plc (‘OTB’), a FTSE small cap company,
the Board carefully considered the additional time

requirement. The Board was satisfied that, following his
retirement from the board of The Hut Group the previous
year, which required a similar time commitment as the
role with OTB, Richard would still be able to fulfil his time
commitment with the Company and therefore authorised
his appointment as Chairman of OTB’s board.

• Richard Pennycook’s appointment as Chairman of

Boparan Holdings Ltd

Prior to Richard’s appointment as Chairman of Boparan
Holdings Ltd (‘Boparan’), the Board again carefully
considered the additional time requirement. The Board
was satisfied that, as his term as Chairman of the British
Retail Consortium would be concluding in early 2020 (with
the last meeting being in February 2020) and he would be
retiring from his role as Chairman of Fenwick Ltd in Q1 of
2020, Richard would be able to dedicate enough time to the
Company and to a new role as Chairman of Boparan. The
appointment was therefore authorised.

The feedback received during the 2019 externally-facilitated
Board evaluation (which was received from both management
and the Board) was that the relationship between the Board
and senior management was very strong and there was mutual
respect. Further information about the Board evaluation may be
found on pages 90 and 91.

Members of the senior management team regularly
presented to the Board on their respective areas of the
business (please see pages 70 and 71 for a timeline of
Board meetings and information regarding any Executive
Committee attendees), which provided an opportunity for
the Board to constructively challenge and to provide advice
to our senior management team. The April strategy sessions
also offered a chance for the Board to provide the senior
management team with direct guidance on strategy and the
business’s five-year plan.

Information about the management of conflicts between the
duties Directors owe the Company and either their personal
interests or other duties they owe to a third party may be
found on page 119.

The board, supported by the company secretary, should
ensure that it has the policies, processes, information,
time and resources it needs in order to function effectively
and efficiently.

The Board have implemented a Group Policy framework which
is considered by the Board on an annual basis. Individual
policies and associated practices are considered alongside
the framework review process.

All of the Directors of the Company have access to the advice
of the Company Secretary, who is responsible for advising the
Board on all governance matters.

As stated in the Schedule of Matters Reserved for the Board
(which may be found at www.howdenjoinerygroupplc.com/
governance/corporate-governance-report/schedule-of-
matters-reserved-for-the-board) the appointment and removal
of the Company Secretary is a decision for the Board as a whole.

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Corporate Governance Report continued
2018 UK Corporate Governance Code: Application of Principles

SECTION 3 – COMPOSITION, SUCCESSION AND EVALUATION

SECTION 4 – AUDIT, RISK AND INTERNAL CONTROL

SECTION 5 – REMUNERATION

Annual evaluation of the board should consider its
composition, diversity and how effectively members
work together to achieve objectives. Individual evaluation
should demonstrate whether each director continues to
contribute effectively.

Details of the 2019 externally-facilitated Board evaluation
process and outcomes may be found on pages 90 and 91 of
the Nominations Committee Report.

The specific reasons why the Board considers that each
Director’s contribution is, and continues to be, important to
the Company’s long-term sustainable success may be found
on pages 68 and 69 of this report. Reference to the specific
reasons and where to find them in the Annual Report and
Accounts will accompany the resolutions to re-elect the
Directors in the 2020 AGM Notice. The Board recommends
that shareholders vote in favour of the re-election or election
of all the Directors.

Appointments to the board should be subject to a formal,
rigorous and transparent procedure, and an effective
succession plan should be maintained for board and
senior management. Both appointments and succession
plans should be based on merit and objective criteria and,
within this context, should promote diversity of gender,
social and ethnic backgrounds, cognitive and personal
strengths.

The Nominations Committee engages external search
consultancies when searching for Board position
candidates. An external search consultancy, Russell
Reynolds Associates, was engaged to find candidates for
the Nominations Committee prior to the Board’s decision
to appoint Louise Fowler. Further information about the
appointments process is available on page 88 of the
Nominations Committee Report and the Board’s Diversity
Policy is available on page 87.

The Nominations Committee regularly reviews the tenure of
each Board member and the skills matrix (please see page 86
for further details). This ensures the Board’s succession plan
remains aligned with the natural rotation of Directors off the
Board and the strategic objectives of the business.

The succession plans for the senior management team
are regularly reviewed by the Nominations Committee
(please see the Nominations Committee timeline on
pages 84 and 85).

The board and its committees should have a combination
of skills, experience and knowledge. Consideration should
be given to the length of service of the board as a whole
and membership regularly refreshed.

As mentioned above, the Board uses a skills matrix to ensure
it has the necessary combination of skills, experience and
knowledge to meet its strategic objectives, business priorities
and to ensure the unique Howdens culture is maintained. The
skills matrix may be found on page 86.

The tenure of each Director may be found on page 88 of
the Nominations Committee Report. The Board has a good
balance of new and longer-serving Directors (as at the year
end date, tenures of the Non-Executive Directors (including
the Chairman) range from just under two months to just over
six years, and the average tenure is just over three years).

The board should establish formal and transparent
policies and procedures to ensure the independence
and effectiveness of internal and external audit
functions and satisfy itself on the integrity of financial
and narrative statements.

The Board has established formal and transparent policies
and procedures, which ensure the external auditor and
internal audit function are independent and effective and
are accountable to the Audit Committee. The Board also
monitored the integrity of the financial statements of the
Company and any other formal announcement relating to
its financial performance via the Audit Committee. Further
information about the work of the Audit Committee, including
the subjects above, may be found on pages 112 to 119.

The board should present a fair, balanced and
understandable assessment of the company’s
position and prospects.

A statement regarding the Directors’ responsibility for
preparing the Annual Report and Accounts and the Directors’
assessment of the Annual Report and Accounts, taken as
a whole, as being fair, balanced and understandable and
providing the necessary information for shareholders to
assess the Company’s position, performance, business
model and strategy may be found on page 63.

The board should establish procedures to manage risk,
oversee the internal control framework, and determine
the nature and extent of the principal risks the company
is willing to take in order to achieve its long-term
strategic objectives.

The Board is responsible for the Group’s systems of
internal control and risk management, and for reviewing
their effectiveness. The Board is assisted with these
responsibilities by the Audit Committee. Such a system is
designed to manage rather than eliminate the risks of failure
to achieve business objectives. The Board has conducted
reviews of the effectiveness of the system of internal controls
through the processes described within the Principal Risks
and Uncertainties section of the Strategic Report (pages
40 to 47) and are satisfied that it accords with the Code and
with the Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting. The Board has
not identified, or been advised of, any failings or weaknesses
which it has determined to be significant.

The assessment of the principal and emerging risks, the
uncertainties facing the Group, and the ongoing process for
identifying, evaluating and managing the significant risks
faced by the Group is set out on pages 40 to 47. The Board
confirms that it has conducted a robust assessment of the
principal and emerging risks as set out on pages 40 to 47.

Remuneration policies and practices should be designed
to support strategy and promote long-term sustainable
success. Executive remuneration should be aligned to
company purpose and values, and be clearly linked to the
successful delivery of the company’s long-term strategy.

The way the Remuneration Committee has ensured our
remuneration policies and practices are aligned with our
culture, our strategy and risk management is discussed in the
Remuneration Committee Report, which starts on page 92.

A formal and transparent procedure for developing policy
on executive remuneration and determining director and
senior management remuneration should be established.
No director should be involved in deciding their own
remuneration outcome.

The Remuneration Committee has delegated responsibility
for setting the Executive Directors’ remuneration under the
shareholder-approved Director Remuneration Policy (the
full Policy is set out in full at www.howdenjoinerygroupplc.
com/governance/remuneration-policy). The Remuneration
Committee also has delegated responsibility for setting the
Chair of the Board’s remuneration and the remuneration
of senior management (i.e. the members of the Executive
Committee and the Company Secretary). No Director is able
to determine their own remuneration outcome.

The Remuneration Committee reviews workforce
remuneration and related policies when setting Executive
Director remuneration. Ensuring these factors are always
considered means our remuneration policies are largely
predictable and clear. Further information may be found in
the Remuneration Committee Report on page 102.

Directors should exercise independent judgement and
discretion when authorising remuneration outcomes,
taking account of company and individual performance,
and wider circumstances.

The Remuneration Committee membership is made up of only
independent Non-Executive Directors.

Details of how the Remuneration Committee exercised its
discretion during the year may be found on page 95 of the
Remuneration Committee Report.

By order of the Board

Richard Pennycook
Chairman

26 February 2020

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Nominations Committee Report

Nominations Committee Meeting Attendance

Richard Pennycook (5/5)
Mark Allen (3/5)1
Karen Caddick (4/4)2
Andrew Cripps (5/5)

Geoff Drabble (5/5)
Tiffany Hall (4/4)3
Debbie White (5/5)

Mark was unable to attend the February meeting due to his commitments at Dairy
Crest and he was unable to attend the November meeting due to health reasons.
Mark received all of the meeting papers in advance of the meetings and was able
to feedback his views to the Committee Chairman.

2. Karen was appointed to the Nominations Committee after the January meeting

following the completion of her induction programme.

3. Tiffany retired from the Board on 17 September 2019.

Board gender split

Howdens1
Females:

37.5%

FTSE2502
Females:

29.6%

Male

Female

1. Figures correct as at 28 December 2019.

2. Figures derived from 2019 Hampton-Alexander Review report

and correct as at 14 October 2019.

On page 86, we have provided a view of the skillset and
experience of our Non-Executive Directors using a skills
matrix. This is a particularly useful tool for the Nominations
Committee to aid identification of skills and experience
opportunities, which in turn informs our non-executive
succession plans.

Evaluation

In 2019, we invited Independent Board Evaluation (‘IBE’)
to undertake our tri-ennial externally-facilitated Board
evaluation. IBE previously undertook our 2016 evaluation and
more information about the 2019 Board evaluation process
and outcomes may be found on pages 90 and 91.

Richard Pennycook
Nomination Committee Chairman

September
Meeting

• Non-Executive Director
succession update

• Executive Committee

succession planning and
talent management

• Board Diversity Policy

review

• Nominations Committee
Terms of Reference
updates

November
Meeting

• Executive Succession

Planning

Non-Executive Director
appointment

• Louise Fowler appointed
as a Non-Executive
Director

Key activities in the year ahead

• All current Directors will stand for election

(if appointed since the last AGM) or re-election
at the AGM on 7 May 2020.

• Regular Group HR Director succession updates

to be provided to the Committee.

•

The Committee to undertake its review of skills,
composition and size of the Board.

• Executive Committee succession planning and
talent management updates to be provided to
the Committee.

INTRODUCTION FROM THE COMMITTEE CHAIRMAN

The 2018 UK Corporate Governance Code (the ‘Code’) made
clear that the remit of nomination committees should not be
limited to boards of directors. Ensuring that there is a diverse
talent pipeline at senior management level is just as important
to the long-term success of the business as it is at Board level.
In recognition of the changes in the Code, you will see that we
have changed the structure of the Nominations Committee
Report from previous years by breaking it down into the three
core areas discussed in Section 3 of the Code: Succession,
Composition and Evaluation. Below, I have drawn out some
of the highlights from the year within each of these areas.

Succession

We were pleased to welcome Louise Fowler as a Non-
Executive Director in November. Louise has over 25 years’
of branding, customer and digital experience which are
valuable additions to the Board’s combined skillset, further
enhancing the diversity of background, skills and perspective
on the Board. You can read more about how we view
Louise’s contribution to the long-term sustainable success
of the Company on page 69 and further detail about her
appointment and induction on page 88.

Tiffany Hall retired from the Board in September having
served since May 2010 and Mark Allen retired from the Board
in December having served since May 2011. On behalf of the
Board, I would like to thank both Tiffany and Mark for their
significant and valuable contributions to the operation of our
Board and service to the Company.

Throughout 2019, the Committee has not only discussed Board
succession, but senior management succession as well. The
Board received regular updates from the Interim Group HR
Director regarding succession and talent management of the
Executive Committee, including the succession of the Group
Interim HR Director himself. Further discussion of this may be
found on page 89.

Composition

I’m pleased to report that, at the time of writing, half of our
Non-Executive Directors are female, bringing our female
representation on the Board to 37.5%. While we are all too aware
that improving gender representation is not the only means
by which a Board achieves diversity, I hope you’ll agree this is
a positive step. As stated in our Boardroom Diversity Policy on
page 87, the Committee will not only seek diversity of gender
when making any new appointments, we will also seek diversity
of mindset, race, and background.

2019 NOMINATIONS COMMITTEE ACTIVITY

January
Meeting

• 2018 Board evaluation

feedback

• Nominations Committee
Terms of Reference
updates

February
Meeting

• Board succession and
recommendations for
AGM elections

• Review of the draft 2018
Nominations Committee
Report

June
Executive Committee
appointment

• Mark Slater appointed
Commercial Director

July
Meeting

• Non-Executive Director
succession update,
including skills matrix
consideration

• Executive Committee

succession

• 2019 external Board
evaluation planning

2019

SKILLS AND EXPERIENCE MATRIX

The Nominations Committee used a skills matrix when assessing its Non-Executive Director succession plans. The matrix
highlights where the skills and experience of our Non-Executive Directors are particularly strong, where there are opportunities
to further grow the Board’s collective knowledge and to inform the Board’s future composition as Non-Executive Directors
naturally rotate off the Board.

Skills and Experience

Industry/Sector

Business-to-business

Manufacturing

Logistics, distribution and supply chain management

Consumer goods

Geographic exposure

France

Governance

UK listed companies

Company chair experience

Remuneration committee chair experience

Audit committee chair experience

Policy development

Senior independent director experience

Technical

Accounting and Finance

Audit

Executive management

Risk management

HR/Remuneration

Ecommerce

Marketing

IT/Cyber security

Legal

Howden Specific Considerations

Vertical integration

Multisite depot operation

Importance

Medium

High

Number of Non-Executive Directors

Importance

Direct experience

Indirect experience

DIVERSITY

Equality, Diversity and Inclusion (‘EDI’) Group

The Howdens EDI Group was established during 2019 as a
sub-committee of the Executive Committee. The EDI Group is
chaired by the Chief Governance Officer, Rob Fenwick, and its
members include employees from a range of roles, seniority,
backgrounds, abilities, race and geographic location. To
ensure the workforce and the EDI Group is reassured that
there is Board-level commitment of the EDI Group’s objectives,
Non-Executive Director Debbie White also acts as the Board’s
sponsor to the Group.

The EDI Group has begun its work by articulating what EDI
currently looks like in Howdens and what it should look like.
During 2020, the EDI Group will identify opportunities for line
management to improve equality, diversity and inclusion
within their areas and it will begin to raise the profile and
awareness of EDI within Howdens in support of the business’s
culture and values. Rob Fenwick will provide regular updates to
the Board on the EDI Group’s progress and recommendations.

Group Gender Diversity Statistics

The Nominations Committee reviews the gender statistics
shown in the chart to the right. Where other data is available,
this is presented to the Committee in order to determine
whether there are any implicit diversity issues.

Group Gender Diversity as at 28 December 2019
The percentages shown in brackets below indicate the change since 2018.

Male

Female

Board – 8

Senior Management – 8*

2,962 (+6%)

25 (-14%)

1 (0%)

3 (0%)

5 (-17%)

7 (0%)

86 (+13%)

7,089 (+6%)

Grades 1 to 3 – 111

Group – 10,051

* Excluding Executive Directors and including the Company Secretary.

Boardroom Diversity Policy

Group Diversity Policy

The Group promotes the importance of diversity and
adopts an Equal Opportunities Policy under which training
and career development opportunities are available to all
employees, regardless of gender, religion or race.

The Group is committed to meeting the code of practice
on the employment of disabled people and full and
fair consideration is given to disabled applicants for
employment. It aims to do all that is practicable to meet
its responsibility towards the employment and training of
disabled people. The Group welcomes, and considers fully,
applications by disabled persons, having regard to their
particular aptitudes and abilities. It is also the Group’s policy
to retain employees who may become disabled while in
service and to provide appropriate training.

The Board recognises the importance of ensuring that there
is diversity of perspective, background and approach in its
management team and on its Board. Since the business was
established in 1995, it has sought to enable individuals to
progress within the organisation regardless of age, gender,
background or formal qualifications.

We believe that it is in the interests of the business and
of its shareholders for us to build a stable, cohesive and
representative Board. Whilst the setting of targets on
particular aspects of diversity may be relevant in many
cases, we feel that this could be given inappropriate focus
within the context of a smaller board, resulting in the
possible overlooking of certain well-qualified candidates.

The Nominations Committee will continue to seek diversity
of mindset as well as of gender, race, and background
when considering new appointments in the period to 2021,
and it will continue to review this policy on an annual basis
to ensure it remains appropriate. More widely, we are
committed to developing a long-term pipeline of executive
talent that reflects the diversity of Howdens’ business and
its stakeholders. As at 28 December 2019, 37.5% of Board
members were women. Both of the Executive Directors
were male.

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 201988

Nominations Committee Report continued
Succession

An integral part of the work of the Nominations Committee is to
establish and maintain a stable leadership framework and to
proactively manage changes and their impacts on the future
leadership needs of the Company, both in terms of Executive
and Non-Executive leadership. Ensuring the correct leaders
are in place enables the organisation to compete effectively in
the marketplace and therefore to meet its various obligations
to its stakeholders.

As detailed in the rest of the report, the Nominations
Committee has managed succession programmes for both
the Board and senior management, which have ensured that
the necessary skills, expertise and experience are present in
the leadership of the organisation.

Board Succession

Non-Executive Tenure
as at 28 December 2019

Years

Richard Pennycook

Geoff Drabble

Andrew Cripps

Debbie White

Karen Caddick

Louise Fowler

The Nominations Committee regularly reviews the skills and
expertise that are present on the Board and compares these
to the expertise that it believes are required given the strategy,
business priorities and culture of the organisation.

Since Howdens began trading in 1995, its core strategy has
remained largely unchanged. The market, the size and the
stage of maturity of our organisation, however, have changed,
and so our Board has needed to evolve through sensible and
well-managed succession planning that doesn’t compromise
the stability of the Board.

Retirements

Tiffany Hall and Mark Allen both retired from the Board during
2019. Upon retirement, Tiffany was succeeded in her role as
Remuneration Committee Chair by Karen Caddick and in her
role as Senior Independent Director by Geoff Drabble.

Appointment

In October 2019, following consideration of a number of
candidates, the Nominations Committee recommended to
the Board that it appoint Louise Fowler as a Non-Executive
Director. Prior to this recommendation, Louise met with each
member of the Board. Louise’s significant digital, consumer,
brand and marketing experience was identified as being
particularly valuable to the collective skillset of the Board.
Louise’s affinity to the Howdens entrepreneurial culture
was also considered in the Committee’s recommendation to
appoint her.

The Committee engaged the external search consultancy,
Russell Reynolds Associates1 (‘Russell Reynolds’), to
undertake the process of recruiting a new Non-Executive
Director. Russell Reynolds is aware of our Boardroom Diversity
Policy and the Nominations Committee specifically tasked
them with producing a diverse shortlist of candidates for
the position.

The skills matrix (the current version of which may be found on
page 86), together with the collective knowledge, experience
and diversity of the Board and the length of service of the
Directors, was used by the Committee to highlight where
there were opportunities for a new Non-Executive Director to
contribute to the skillset of the Board. This informed the search
that Russell Reynolds undertook.

Induction

Following Louise’s appointment, a tailored induction
programme was created for her. The first part of the induction
included a visit to our site in Howden, East Yorkshire, where
Louise met with senior managers involved in the supply chain,
manufacturing and logistics and was given a tour of some of
the factory lines at the site.

Louise has also met with senior managers in our support
services, such as the Head of Health & Safety, the Company
Secretary, and the Head of Investor Relations, and she has met
with our Remuneration Committee advisors, PwC, and the audit
partner at our external audit firm, Deloitte.

We were pleased that Louise was also able to attend the
Company’s annual awards ceremony, the Golden Rooster
Awards, at the beginning of January, which gave her the
chance to meet employees from all levels and areas of the
business, and to be immersed in our unique culture as we
celebrated our colleagues’ achievements together.

Louise will meet all members of the Executive Committee,
senior members of the Commercial team and will visit a
number of depots as part of her induction. She will also be
invited to attend employee engagement sessions , such as
Regional Board meetings, and will meet with trade customers
at Builder Forums.

Senior Management Succession

The Committee received regular updates regarding senior
management2 succession planning (see Nominations
Committee Activity on pages 84 and 85). These updates
included the following:

Commercial Director appointment

Mark Slater was appointed as Commercial Director in June
2019. The Board had been fully briefed on the plans to launch
a commercial function in the business and, as part of these
plans, understood and were supportive of the need for a Group
Commercial Director.

Group Human Resources (‘HR’) Director retirement

In 2019, Gareth Hopkins, our Interim Group HR Director,
announced his plan to retire once a suitable replacement for
his role had been found. The Company engaged an external
recruitment consultant, who spent time in the business
and met with senior managers and Karen Caddick prior to
launching the search. The Nominations Committee was,
and will continue to be, regularly briefed on the recruitment
process and will have the opportunity to provide their views
to the senior management team.

COO of Supply retirement (see Case Study to the right)

Company and Executive committee Tenure
as at 28 December 2019

Years

e
e
t
t
i

m
m
o
C
e
v
i
t
u
c
e
x
E

s
r
o
t
c
e
r
i
D
e
v
i
t
u
c
e
x
E

Mark Robson

Andrew Livingston

Company Tenure

Executive Committee Tenure

Case Study:

Chief Operating Officer
(COO), Supply
Howdens is fortunate to have a settled and long-
serving senior management team, particularly
from an operations perspective. Careful
management of the succession process for
their roles is fundamental to the future long-term
success of the Company. It is also a cultural
necessity that long-serving Executives are treated
with the respect they have earned.

In January 2020, it was announced to the
business that Rob Fenwick, the Chief Operating
Officer of Supply, would move to the new
position of Chief Governance Officer until his
retirement in early 2021. The new role will see
Rob helping the business to develop its broader
purpose, in particular by developing the Group’s
Wellbeing programme, EDI Sub-Committee, and
Sustainability agenda.

As part of this succession plan, two existing senior
managers, Julian Lee and Richard Sutcliffe, were
promoted to the positions of Director of Supply
Operations and Director of Business Planning
respectively. Both Julian and Richard have
standing invitations to Executive Committee
meetings and report directly to the CEO; however,
to ensure continuity, Rob remains on hand to
provide any support that is needed.

The Nominations Committee was provided with
updates on the succession process and members
were able to express their views and provide advice
on the plans throughout 2019. The Committee will
continue monitor the success of the transition
throughout 2020.

The Committee confirms that Russell Reynolds has no other connection
with the Company or its directors other than in relation to the recruitment
of members of the Board.

2. The definition of ‘senior management’ for this purpose is defined in footnote 4 of the

2018 UK Corporate Governance Code as ‘the executive committee or the first layer of
management below board level, including the company secretary’.

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019

Nominations Committee Report continued

In line with the requirements of the 2018 UK Corporate Governance Code to undertake an externally-facilitated Board evaluation
every three years, and as has been the policy of the Board for some time, the Board invited Lisa Thomas of Independent Board
Evaluation (‘IBE’) to undertake our 2019 Board evaluation. IBE previously facilitated our 2016 evaluation but does not have any
other business relationship with the Company or with any member of the Board. The process and outcomes of the evaluation are
set out below.

EVALUATION AREAS OF FOCUS

Boardroom culture and focus

Board meetings

Board composition

Board resources

Governance and compliance

Shareholder accountability

Risk management

Strategy

Relationship with senior management

Stakeholders other than shareholders

Decision-making process

Papers and presentations

NATURE AND EXTENT OF THE EXTERNAL
FACILITATOR’S CONTACT

• Observations of Board and Board Committee meetings

Highlighted strengths

• Boardroom culture is transparent, supportive,

constructive, balanced and challenging

•

Interviews with all members of the Board

Interviews with members of senior management

• Meetings with the external auditor, Remuneration

Committee advisor, and pensions advisor

CONCLUSIONS AND RECOMMENDATIONS

The overarching message from the feedback gathered
during the evaluation was that the Board was performing
well and had increased its effectiveness over the last year.
The continuity provided by longer-standing Board members
and the fresh thinking from newer members has been
particularly helpful.

•

There was a ‘good rhythm’ to Board meetings, especially
helped by the introduction of additional Audit Committee
meetings during 2019

• Relationships with senior management were strong and

there was mutual respect

• High engagement and contributions on senior

management succession decisions were valued

Recommended areas for development

• More time to be dedicated on the long-term strategy of the
business and to the discussion of culture, talent planning
and diversity and the methods by which these could be
looked at more systematically

• A reduction in the amount of time spent on operational

updates in meetings so that further debate and discussion
could be engendered

Actions going forward

The feedback identified some areas where the Board would
like to spend a bit more time, or to address some topics in a
different way. The Board will continuously review its objectives
to determine what its priorities are for 2020 and 2021. This will
allow the Board to identify where it wishes to make the most
impact and give its support.

During 2020, two of the scheduled six Board meetings will
be held outside of the London head office at other company
sites and the Non-Executive Directors will undertake more
visits within the business themselves to ensure they are more
exposed to the culture and challenges faced by the Company
‘on the ground’.

Influence on Board composition

The evaluation made it clear that the mix of long-standing
and new Directors contributed to the effectiveness of the
Board and that the Board did not suffer from ‘group think’.
The Nominations Committee will continue to seek diversity
in all areas as it appoints new Non-Executive Directors in
future to ensure this remains the case.

NOMINATIONS COMMITTEE EVALUATION

Specific feedback on the Nominations Committee was given
as part of the evaluation and focused on the following areas:

• Meetings

• Board composition

• Diversity and succession planning

The feedback gathered indicated that the Nominations
Committee had engaged well over the year and had actively
participated in discussions regarding senior management
succession. It was also noted that the composition of the
Board was well settled, but the Committee was alive to thinking
about how to ensure there is diverse input into its discussions.

A recommended area of focus for the coming year was to
ensure that the diversity initiatives already in progress were
used to support the culture of the organisation. Developing
diverse pipelines of talent further would be integral to this.

Richard Pennycook
Nomination Committee Chairman

26 February 2020

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 201992

Remuneration Committee Meeting Attendance

Karen Caddick (5/5)
Tiffany Hall (4/4)1
Mark Allen (2/5)2
Andrew Cripps (5/5)

Geoff Drabble (5/5)
Louise Fowler (1/1)3
Debbie White (5/5)

Tiffany retired from the Board on 17 September 2019.

2. Mark was unable to attend the February and April meetings due to

commitments at Dairy Crest and he was unable to attend the November
meeting due to health reasons. Mark received all of the meeting papers
in advance of the meetings and was able to feedback his views to the
Committee Chair.

3. Louise was appointed to the Board on 1 November 2019.

Remuneration Committee Report contents

Annual Committee Chair Statement

Remuneration Policy Summary

Directors’ Remuneration Report

Directors' Remuneration Report Appendix

100

108

We have also mapped how our policy and practices
address the six key themes identified in Provision 40:
Clarity, simplicity, risk, predictability, proportionality and
alignment to culture. You can find this on page 98.

SENIOR MANAGEMENT AND THE WIDER WORKFORCE

The Howdens Remuneration Committee pre-empted the Code’s
requirement for remuneration committees to set remuneration
for senior management. During the year, the Committee
updated its Executive Committee Remuneration Policy which
details the remuneration parameters for this group.

The Committee also received updates on the ongoing
employee benefits review and all-employee remuneration
related policies in order to provide the context for, and to
ensure alignment with, the policy on Executive Director
remuneration. In accordance with the Code, the Committee
have adopted a ‘Provision 33 dashboard’ which shows some
of the key internal and external measures that the Committee
members should be aware of when determining Executive
Director and senior management remuneration. Our template
for this dashboard can be found on page 102 of this report.

INTRODUCTION OF A NEW MEASURE FOR THE
PERFORMANCE SHARE PLAN (‘PSP’)

As reported in the 2018 Remuneration Committee report,
the Committee was committed to reviewing and introducing
a shareholder returns measure from 2020 in respect of the
long term incentive plan. I am pleased to confirm that, from
2020, relative Total Shareholder Return (‘TSR’) will be used
as an additional metric to profit before tax. More detail on the
analysis of the Committee in determining the appropriate
measure, including peer group identification, the weighting of
TSR for the 2020 award and calibration of the measure can be
found in our case study on page 105.

PENSIONS

During 2019, the Committee considered the updated
guidance from the Investment Association which provides
that Remuneration Committees should ensure that there is
a credible plan to ensure that Executive Director pensions
are aligned with the wider workforce by the Company's
next policy cycle. Provision 38 of the Code also provides
that Executive Director pension contribution rates (or
payments in lieu) should be in line with those available to
the workforce.

I am therefore pleased to confirm that our incumbent
Executive Directors have agreed to reduce their pension
benefits to be in line with the wider workforce by the
next Executive Director Remuneration Policy approval
(at the AGM in May 2022). Andrew Livingston’s pension
supplement received in lieu of Company pension
contributions will reduce in January 2020 by 2% from 20%
of basic salary to 18% of basic salary. In January 2021 it will
reduce by a further 4% to 14% of basic salary and in May
2022, Andrew’s pension supplement will be aligned to the
Company pension contributions of the wider workforce,
which is currently 4% of basic salary. Similarly, Mark
Robson’s pension supplement received in lieu of salary will
reduce from 30% of basic salary to 24% with effect from
January 2020 and will reduce further to 18% of basic salary
from January 2021. His pension supplement will then be
aligned with the CEO and wider workforce in May 2022.

I would like to thank both Andrew and Mark for their
engagement on this matter. These reductions have been
entered into voluntarily and demonstrate their commitment
to ensuring fairness in Howdens’ remuneration practices.

ANNUAL REMUNERATION COMMITTEE CHAIR STATEMENT
I am pleased to present the Howden Joinery Group
Remuneration Committee Report for 2019. The report
has been prepared in compliance with the requirements
of the Large and Medium-sized Companies and Groups
Regulations 2013.

entrepreneurial, profit-focused culture and is reflected in the
heavy weighting given to profit measures in our incentive
schemes for Executive Directors and senior management.
This entrepreneurial culture has served our shareholders well.

It has been another busy year for the Howdens Remuneration
Committee. Our new Remuneration Policy was approved at the
AGM in May with more than 97% support from shareholders
and the Chair of the Committee retired from the Board in
September. I’d like to take this opportunity to thank Tiffany
for her efforts in this role and for her support in ensuring a
seamless handover over the course of the last year.

I will be presenting a summary of the work of the Committee
in 2019 at the Annual General Meeting on 7 May 2020.

POLICY

Our new Remuneration Policy was approved by shareholders
at the 2019 AGM with a high level of support from
shareholders. This policy is due to expire at the 2022 AGM
and a short-form version can be found on page 96. The policy
in full can be accessed at www.howdenjoinerygroupplc.
com/governance/remuneration-policy

Having consulted widely with our principal shareholders
and investor groups on the draft policy (and the application
of the policy) prior to the Annual General Meeting, we were
able to incorporate much of the feedback we received.
The Committee remains committed to ensuring there are
appropriate channels for stakeholder feedback on our
Executive Director remuneration policy and practices. More
information on how we engage with our stakeholders can be
found in the Corporate Governance Report on pages 76 to 78.

The Committee were particularly mindful that the new
policy continued to reflect the entrepreneurial culture of
the business and was able to be cascaded consistently
throughout the workforce. Howdens’ staff are paid on the
profitability of their local depot or on the profitability of
the Group as a whole. This has created an autonomous,

As such, the updates to the policy were made to ensure
continued compliance with the new UK Corporate Governance
Code, best practice requirements and to continue to support
our long-term strategy. We introduced post-vesting and
post-termination holding periods to ensure greater alignment
with our shareholders and reduced pension provision for new
Executive Director joiners to be in line with the wider workforce.

A breakdown of voting for both the Remuneration Policy and
Remuneration Reports for the previous three AGMs can be
found in the Appendix on page 111.

UK CORPORATE GOVERNANCE CODE

The Committee has also taken time to consider its broader
remit under the 2018 UK Corporate Governance Code ('the
Code') and we have updated this year’s Remuneration
Committee Report to reflect this.

The Remuneration Committee is mindful of the increased
public and investor focus on Executive pensions, variable
pay and the links between remuneration, strategy and long-
term success. We have specifically highlighted where the
Committee exercised discretion, and the reasons why, in
this report.

Vote on the Executive Directors’
Remuneration Policy at the 2019 AGM

% votes for:

97.15%

% votes against:

2.85%

Votes 'withheld' were not counted in the calculation of the proportion of the
votes for and against

The Howdens Remuneration Committee classifies ‘senior management’ as members of the Executive Committee, excluding Executive
Directors, and the Company Secretary.

2. That being the level of pension provision available with the highest level of employee participation.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional InformationRemuneration Committee Report continued

KPI link

See page 32

2019 REWARD OUTCOMES

2020 REWARD AND INCENTIVES

For the 2019 annual bonus, performance was based on
the delivery of both profit and cash flow targets. Despite
considerable uncertainty in the market due to the lack of
clarity of the UK’s future relationship with the European Union,
Howdens has performed well over the year delivering 4.8%
growth in sales on 2018 whilst continuing to deliver a strong
gross profit margin of 62.3%. This has resulted in a Profit Before
Tax (‘PBT’) of £260.7m and cash flow of £295.4m. This has
allowed us to continue to invest in key strategic opportunities
such as depots, digital initiatives, and supply chain resilience
which will position us competitively to meet future demand.

Our strong financial performance has resulted in an
annual bonus outcome between on-target and maximum
of 114% of salary for our Executive Directors, 76% of the
maximum opportunity.

The 2017 Performance Share Plan (‘PSP’) with performance
measured to FY 2019 is based on three year PBT growth per
annum. Over the three-year period of the 2017 Performance
Share Plan cycle, our PBT has grown by 3.2% per annum In
line with performance targets (requiring 3% per annum PBT
growth to achieve threshold vesting) the award will vest at
16% of maximum opportunity.

The CEO’s salary increase in January 2018 was in line with the
wider workforce. The Deputy Chief Executive Officer & Chief
Financial Officer (‘DCEO’ & ‘CFO’) did not receive a salary
increase in 2019. The Committee implemented a 3% base
salary increase in 2020 for the CEO and DCEO & CFO, which
was in line with the wider workforce.

For the 2020 annual bonus, we replicated the methodology
and measures used in the 2019 annual bonus PBT and cash
flow measures, subject to an aggregate maximum of 150% of
basic salary. This maintains the focus on profit in incentives
and alignment with the depots, whilst maintaining a healthy
stretch between target and maximum bonus levels to ensure
strong shareholder alignment.

For the 2020 PSP, it is our intention to maintain both the target
range and opportunity under the 2019 PSP of 220% of salary
for a target range of 5% to 15% PBT growth per annum.

Following comments from shareholders that a greater
diversity of measures within our long term incentive plans
would be desirable, we have introduced relative TSR as a
measure for the 2020 PSP. Alignment with the strategy of
the business has and will continue to be the central driver
for the selection of performance measures and we believe

that the relative TSR measure will complement the PBT growth
measure whilst retaining the focus on profit across the
business as a whole. Given market practice, and the current
use of profit within incentives, the Committee has agreed a
weighting of 33% for the relative TSR measure and 67% for
PBT growth.

I hope the information presented within this report provides
a clear explanation as to how we have operated our
remuneration policy over 2019 and as to how we intend to
implement our Policy for 2020. We continue to be committed to
an open and transparent dialogue with our stakeholders, and
the Committee would welcome any feedback or comments you
have on this report, our Policy or how we implement it for 2020.

Karen Caddick
Remuneration Committee Chair

HOW THE COMMITTEE EXERCISED
DISCRETION FOR THE INCENTIVE PERIOD
ENDING 28 DECEMBER 2019

The Committee considered the financial performance
for the incentive period ending 28 December 2019.
Profit before tax for the year was £260.7m and cash
flow was £295.4m. The three-year profit before tax
growth was 3.2%.

The Committee considered whether the incentive
outturns projected for the 2019 annual bonus
and 2017 PSP were proportionate to the financial
performance, whether the combined quantum of the
awards were excessive, and whether there were any
other external factors of which the Committee were
aware which would make increasing or decreasing
the payments under these awards appropriate. In
reaching their conclusion, the Committee considered
the Remuneration structures and policies for the
workforce as a whole, the relative ratios of Executive
and employee reward, continued alignment to
shareholder value, as well as the predictability,
proportionality of the incentives and their ongoing
alignment to culture.

Taking all of these matters into consideration, the
Committee approved the payment of these awards
without adjustment.

2019 REMUNERATION COMMITTEE ACTIVITY

December 2018 –
January 2019

Shareholder
consultation

• Company and

Remuneration Committee
Chair consultation with
shareholders on draft
Remuneration policy

January

Committee meeting
(out-of-cycle)

• Consideration of

shareholder feedback
relating to the draft
Remuneration policy

• Consideration of the use

of additional measures for
the PSP

February

Committee meeting

• Further shareholder

feedback was considered
prior to approval of the
Remuneration Policy to
be put for shareholder
approval

• Approval of 2019 salaries
for Executive Directors
and Senior Management
as well as payment of the
2018 bonus and lapse in
full of the 2016 PSP

• Targets agreed for 2019

annual bonus and 2019 PSP

• Approval of 2018

Remuneration Committee
Report

• Governance update

2019

March

Share award grant

• PSP granted to Executive
Directors and Executive
Committee

April

Committee meeting

• SIP grant to all UK

employees approved

• All employee benefits

review and gender pay
gap data considered

May

AGM

• Remuneration Policy
and Remuneration
Report approved by
shareholders

• New LTIP rules

also approved by
shareholders

July

November

Committee meeting

• Governance and AGM

• Governance update

update

• Update on outstanding

awards

• All employee benefits

review update

• Review of shadow PSP

measures

• PSP granted to

management grades
below Executive
Committee

• Remuneration Committee
advisor review initiated

• 2020 planning and salary benchmarking

• All employee benefits review update and

gender pay gap data considered

• Approach to analysing how current reward

structure related to key risks identified by the
Company considered

• Executive Director pension benefits

• Board Chair fee review

• Review of shadow PSP measures and

AGM

agreement in principle to use relative TSR as
additional measure for 2020 LTIP

• Executive Committee Remuneration Policy
and renewal of Interim Group HR Director’s
contract approved

• Review of Committee’s terms of reference

• Remuneration Committee advisor review

summary

Howden Joinery Group Plc Annual Report & Accounts 2019

Remuneration Committee Report continued

Fixed

Variable

KPI link

DIRECTORS’ REMUNERATION POLICY SUMMARY
At the Annual General Meeting of shareholders on 2 May 2019, the Directors' Remuneration Policy (the 'Remuneration Policy'), as
set out in the 2018 Annual Report and Accounts, was approved by shareholders. Set out below is a summary of that policy, how
that policy links to strategy and consideration of some of the factors the Committee addressed when formulating the policy. How
the Policy has been applied during 2019 can be found on subsequent pages in the report. The Remuneration Policy can be viewed
in full online at www.howdenjoinerygroupplc.com/governance/remuneration-policy.

EXECUTIVE DIRECTORS

Fixed Pay

Base Salary

Benefits

Pension

Salaries are reviewed annually and
set within a range defined by a market
benchmark. This is derived from
companies of a comparable size or
operating in a similar sector. Our policy is
to pay at median.

The Company pays the cost of providing
benefits on a monthly basis or as required
for one-off events.

Link to strategy:
Salaries reflect the market value of
the Executive’s role in addition to their
skill, responsibilities, performance and
experience.

Link to strategy:
Our policy provides a competitive level of
benefits.

Executive Directors appointed after May 2019 are invited
to join the auto-enrolment defined contribution pension
scheme or receive a salary supplement in lieu of pension
in line with the maximum level of benefit they would have
received if they had enrolled in the scheme. Company
contributions for Executive Directors are aligned with
those for the wider workforce.1

The pension benefits of the incumbent Executive Directors
are governed by earlier Remuneration Policies and their
contracts of employment. However, the incumbent
Executive Directors have voluntarily agreed to reduce
their current benefits to be in line with the wider workforce
by May 2022, that being the next scheduled renewal by
shareholders of this Policy. More detail on the tapering of
their benefits is set out on page 93.

Link to strategy:
The Committee remains committed to providing
competitive long-term savings opportunities provided they
are aligned with the opportunities afforded to the wider
workforce.

Variable Pay

Annual Bonus

Deferred Bonus

Performance Share Plan

The annual bonus has a maximum
opportunity of 150% of base salary.
Performance is assessed annually
against stretching PBT and cash flow
targets.

See page 32

Link to strategy:
PBT and cash flow targets reflect our
key internal performance indicators and
the role of sustainable profit growth in
our entrepreneurial culture. The annual
bonus incentivises performance over the
financial year.

30% of any bonus earned is deferred into
shares. Shares are paid out on the second
anniversary of the deferral date.

Malus and/or clawback provisions operate on
the bonus for a period of up to two years after
the performance period.

Link to strategy:
Deferral links bonus pay out to share price
performance over the medium term.

The vesting of awards is based on performance over a three-
year performance period. The maximum opportunity allowed
under the award is 270% of salary. Malus provisions apply for
the duration of the vesting period. Vested awards are subject
to a two-year holding period following vesting, during which no
performance measures apply.

Link to strategy:
Focuses management on longer-term financial growth
than addressed by the annual bonus. Long-term financial
growth is fundamental to the generation of shareholder
value.

As with the annual bonus, deferral links bonus pay out to share
price performance but the post-vesting holding period does
this over a longer period.

Performance Period

Additional Deferral Period

Time from grant to receipt

1 Year

2 Years

3 Years

1. At 28 December 2019, Company contributions to the wider workforce were 4% of basic salary.

Howden Joinery Group Plc Annual Report & Accounts 2019

3 Years

2 Years

5 Years

Executive Director Shareholdings

Significant shareholdings on the part of our Executive Directors are key to ensuring effective alignment with shareholders.
Under the Remuneration Policy, the Executive Directors are expected to have a personal shareholding equal to twice their
annual base salary. Shares deferred under the deferred bonus plan and unvested conditional share awards are not counted
towards this requirement. Executive Directors are also eligible to receive shares awarded under the Share Incentive Plan,
the Company’s all-employee share scheme. Shares awarded under the Share Incentive Plan are not counted towards the
shareholding requirement.

In 2019 a post-cessation shareholding requirement was introduced in the Remuneration Policy. This requires Executive Directors
to hold 100% of their shareholding requirement (or full actual holding if lower) for a period of two years post cessation. See the
Appendix on page 110 for a table of total shares in the Company held by the Directors, together with unvested performance
shares and those held subject to deferral conditions.

NON-EXECUTIVE DIRECTORS

Non·Executive Directors only receive fees for their services and are not eligible to participate in any performance-related
arrangements. There are no shareholding requirements for Non-Executive Directors prescribed by the Remuneration Policy.

Fees are reviewed every year and are set within a range defined by a market benchmark of comparable size companies and with
reference to any pay increase awarded to the wider workforce. All fees for 2020 and increases from the prior year are set out below.
Non-Executive Directors are also entitled to receive expenses in respect of reasonable travel and accommodation costs.

Fee

2020

Basic
NED Fee1

£56,650

% change from 2019

Chair
Fee

£257,500

Fee

2019

£55,000

£250,000

% change from 2018

SID
Fee

£15,000

50%2

£10,000

Committee
Chair Fee

£12,500

25%

£10,000

1. The Chair of the Board of Directors does not receive the basic Non-Executive Director fee or an additional fee for chairing the Nominations Committee.

2. In recognition of the additional time requirement necessary to undertake the role of Non-Executive Director responsible for workforce engagement, the

SID Fee was increased by £5,000.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information98

Remuneration Committee Report continued

When determining the Remuneration Policy, the Committee were mindful of their obligations under Provision 40 of the Corporate
Governance Code to ensure that the Policy and other remuneration practices were clear, simple, predictable, proportionate,
safeguarded the reputation of the Company and were aligned to Company culture and strategy. Set out below are examples of
how the Committee addressed these factors:

OUR CORPORATE PERFORMANCE

Total Shareholder Return (‘TSR’)

Clarity

Simplicity

Risk

Remuneration arrangements should
be transparent and promote effective
engagement with shareholders and the
workforce.

Remuneration structures should avoid
complexity and their rationale and
operation should be easy to understand.

The Company invited its principal
shareholders and shareholder
representative groups to consult on
the updated Remuneration Policy and
received good feedback. The level
of pension benefit for new Executive
Directors was reduced and the minimum
percentage of variable pay linked to
financial measures was increased
following input from these meetings.

All UK employees are awarded shares in
the Company through the Share Incentive
Plan. As such they are entitled to attend
and vote on the Remuneration Policy
and Remuneration Report at the Annual
General Meeting.

The Remuneration Policy has received
positive feedback from stakeholders in
relation to its simplicity.

When the Remuneration Policy was
updated in 2019 the profit share element
of the annual bonus was replaced due to
the complexity of the calculation and lack
of understanding of its operation.

The Committee’s approach to
performance measures had always been
that they must be understandable for
participants in the schemes in order to
ensure they are effective.

Remuneration arrangements should
ensure reputational and other risks from
excessive rewards, and behavioural risk
that can arise from target-based incentive
plans, are identified and mitigated.

The Remuneration Committee have a track
record of setting maximum levels of award
for the PSP below the maximum allowed
under the policy. This ensures that such
awards do not become excessive due to
share price volatility.

Whilst the Committee has consciously
not set an absolute annual quantum on
Executive remuneration, this is something
that the Committee will keep under review.
The total pay of the Executive Directors is
considered by the Committee as well as
pay ratios with the wider workforce and
shareholder returns.

Predictability

Proportionality

Alignment to culture

The range of possible values of rewards
to individual directors and any other
limits or discretions should be identified
and explained at the time of approving
the policy.

The link between individual awards, the
delivery of strategy and the long-term
performance of the company should be
clear. Outcomes should not reward poor
performance.

Incentive schemes should drive
behaviours consistent with company
purpose, values and strategy.

The range of possible rewards for the
Executive Directors is considered on page
103 and were communicated when the
Remuneration Policy was approved by
shareholders. The range in relation to the
PSP reflects the reduced maximum award
for 2020 rather than maximum allowed
under the policy.

The Committee has a wide range of
discretion in relation to variable pay
awards, new joiner and leavers which
were identified and explained when the
Remuneration Policy was approved.

In this Remuneration Report we have
linked where measures for individual
awards are linked to KPIs.

The Committee remains confident that
the awards used to ensure continued
delivery of strategy and long-term
performance are working as intended.
In both 2018 and 2019, the annual bonus
paid out at about three quarters of
maximum opportunity following delivery
of good PBT results in challenging market
conditions and which were slightly
ahead of market expectations. However,
as longer-term profit growth remained
subdued in the three years leading up to
these financial year ends, the PSP lapsed
in full in the first year and vested at a low
level in the second following a return to
growth.

The Committee remain confident that
the incentive schemes operated under
the Remuneration Policy are aligned with
purpose, values and strategy.

Howdens’ staff are paid on the
performance of their local depot or
on the profitability of the Group as a
whole. This has created an autonomous,
entrepreneurial, profit-focused culture
and is reflected in the heavy weighting
given to profit measures in our incentive
schemes for Executive Directors and
senior management.

The graph below illustrates the Company’s TSR performance relative to the constituents of the FTSE 250 (excluding investment
trusts) of which the Company is a constituent. It shows that over the past 10 years Howdens has generated significantly higher
returns than the FTSE 250 (excluding Investment Trusts).

900

800

700

600

500

400

300

200

100

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 18

Dec 19

Howdens

FTSE 250 (excluding Investment Trusts)

Profit Before Tax (‘PBT’)

The graph below illustrates the Company’s historic PBT performance.

Howdens historic PBT

£237.0m

£238.5m

£260.7m

£219.6m

£188.8m

300

250

200

m
£

150

100

£100.9m

£110.0m

£112.1m

£133.9m

£68.7m

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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101

Remuneration Committee Report continued

Fixed

Variable

DIRECTORS' REMUNERATION REPORT

SINGLE FIGURE OF REMUNERATION: EXECUTIVE DIRECTORS (AUDITED)

Salary

Benefits

Pension

Bonus

LTIP

Recruitment award

Total
Remuneration

£000s

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

Executive Directors:

Andrew Livingston*

Mark Robson

Former Executive
Directors

Matthew Ingle

Total

564

441

413

441

–

1,005

145

999

–

134

210

113

134

–

247

182

643

502

462

494

309

–

163

1,145

1,119

–

210

–

210

–

1,530

1,391

2,569

–

1,349

1,168

–

430

1,530

2,740

4,167

* Andrew was appointed to the Board on 2 April 2018 and therefore only received his salary,
benefits, pension and annual bonus as CEO for a proportion of 2018.

Total Executive Director Fixed vs Variable Pay

£000s

Executive Directors:

Andrew Livingston

Mark Robson

Former Executive Directors

Total (Fixed)

Total (Variable)

2019

2018

2019

2018

748

637

577

674

643

712

1,992

494

Matthew Ingle

Total

–

267

–

163

1,385

1,518

1,355

2,649

NOTES TO THE SINGLE FIGURE TABLE

Salary, benefits, pension

2019

Fixed Pay:
51%

Variable Pay:
49%

2018

Fixed Pay:
37%

Variable Pay:
63%

Salaries will not be changed outside of the annual review, unless there are exceptional circumstances, such as a mid-year
change in role. Increases will normally be only for inflation and/or in line with the wider employee population. Salaries are set
within a range defined by market benchmark derived from companies in a similar sector (policy is to pay median). Salaries for
2020 can be found on page 103. The peer group used is reviewed whenever benchmarking is performed, and the Committee
applies judgement in identifying appropriate peer group constituent companies. The individual’s level of total remuneration
against the market is considered at the same time.

Benefits are based upon market rates and include receipt of a car allowance, non-exclusive use of a driver, health
insurance and death-in-service insurance payable by the Company. Following Andrew Livingston’s appointment as CEO, the
Remuneration Committee agreed that the Company would pay reasonable hotel costs in order to provide flexibility whilst he
undertook the logistical demands of the role. During 2019 the Committee agreed that the Company would continue to pay
reasonable hotel costs until he had successfully relocated.

Mark Robson opted-out of the Defined Benefit Pension Scheme on 31 December 2018. Under the terms of his employment
contract and the Remuneration Policy agreed by shareholders in 2016 he received pension benefit in lieu of 30% of basic
salary for the remainder of the financial year. More information about future Executive Director pension benefits can be
found on page 93.

Recruitment award

Andrew Livingston’s recruitment award figure is higher than reported in the 2018 Remuneration Committee Report due to
the growth in the Company's share price since the award was made. The calculation of the value of the award was therefore
updated to take account of this growth. More information on the recruitment awards can be found on page 109.

Annual Bonus (Audited)

Targets for 2019

Our annual bonus for 2019 was based on PBT and cash flow measures
subject to an aggregate maximum of 150% of salary. The PBT and cash
flow measures were weighted as follows:

Threshold

Target

Outperformance

PBT component

Cash flow component

£242.3m
(17% of salary)

£243.0m
(3% of salary)

£255.1m
(63.75% of salary)

£259.0m
(11.25% of salary)

£267.9m
(127.5% of salary)

£269.0m
(22.5% of salary)

70% of the annual bonus was paid in cash and 30% of the annual bonus
was deferred as shares, which will vest two years following the deferral
date (subject to continued employment).

Outcomes for the year

The PBT figure for the year in relation to the annual bonus is £260.7m
(between target and outperformance). The cash flow figure for the
year in relation to the bonus was £295.4m (above outperformance).
In aggregate, the Executive Directors will receive an annual bonus of
114% of salary for 2019.

PBT (% of salary)

Cash Flow (% of salary)

Total Bonus (% of salary)

Total Bonus (£'000)

Andrew Livingston
91.6%

22.5%

114%

643

Mark Robson

91.6%

22.5%

114%

502

Performance Share Plan ('PSP') (Audited)

Targets for 2019

2020 is the first year in which the PSP award will vest. The PSP awards
granted from 2016 to 2019 have been measured against PBT growth
over a three year period. The PBT growth for the 2017 award was measured
between FY 2017 to FY 2019. Any PSP award that vests is subject to a two-year
holding period for serving Executive Directors.

Outcomes for the year

The 2017 PSP had a threshold requirement of 3% p.a. and a maximum
requirement of 15% p.a. 2019 PBT was £260.7m, and therefore growth
on FY 2016 was 3.2% p.a. The award will therefore vest at 16% of maximum
opportunity at the end of March.

£59,830 of Mark Robson’s 2019 long-term incentive award was attributable to
share price increases. The share price at the date of grant was 430.9p and the
three month average to 28 December 2019, the price on which the value of the
award is calculated, was 602.2p.

22.5%

Annual
Bonus
Outcome

35.9%

91.6%

127.5%

Opportunity

Actual

Target not reached

PSP
Outcome

Vest: 16%

Lapse: 84%

Howden Joinery Group Plc Annual Report & Accounts 2019

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103

Remuneration Committee Report continued

Single figure of Remuneration: Non-executive directors (Audited)

The table below sets out the remuneration received by Non-Executive Directors in 2018 and 2019.

Non-Executive Director

Notes

Richard Pennycook

Mark Allen

Karen Caddick

Andrew Cripps

Geoff Drabble

Louise Fowler

Tiffany Hall

Debbie White

Total

Retired from the Board in December 2019

Appointed Remuneration Committee Chair in September 2019

Appointed Senior Independent Director in September 2019

Appointed to the Board in November 2019

Retired from the Board in September 2019

Remuneration (£'000)

2019

260

611

2018

250

–

572

WIDER WORKFORCE CONSIDERATIONS

The Remuneration Committee received regular updates from the Interim Group HR Director in respect of the ongoing all-
employee benefits review. This review incorporates all aspects of employee reward at Howdens. The Committee also adopted
the template dashboard shown below in 2019. This dashboard, known as our Provision 33 Dashboard, shows some of the
key internal and external measures and information that the Committee must be mindful of when they determine Executive
Director and senior management remuneration. These measures are considered in addition to wider workforce-related policies
and the alignment of incentives with the culture of the organisation. The Provision 33 Dashboard is populated with up-to-date
information prior to each meeting where it is to be considered.

Provision 33 Dashboard template

Workforce Reward

• Salary

• Pensions

• Benefits

• Bonus

• Shares

Provision 40

• Clarity

• Simplicity

• Risk

• Predictability

• Proportionality

• Alignment to culture

External Ratios

CEO Ratio as at YE2019

25th percentile (vs prior year), 50th percentile (vs prior year),
75th percentile (vs prior year)

Gender Pay Gap

Group

Mean pay gap

Median pay gap

Bonus mean gap

Bonus median gap

Shareholder Alignment

Executive Director shareholdings

CEO as % of salary
DCEO & CFO as % of salary

Share price performance

Fixed

Variable

IMPLEMENTATION OF REMUNERATION POLICY FOR 2020

2020 REMUNERATION SCENARIOS

The remuneration package for the Executive Directors is designed to provide an appropriate balance between fixed and variable
performance-related components, with a significant proportion of the package weighted towards long-term variable pay. The
Committee remains satisfied that the composition and structure of the remuneration packages is appropriate, clearly supports
the Company’s strategic ambitions and does not incentivise inappropriate risk-taking and reviews this on an annual basis.

Value of package (£’000)

Andrew Livingston

Mark Robson

Maximum +

21%

25%

36%

18%

£3,544,297

Maximum +

22%

24%

36%

18%

£2,802,433

Maximum

26%

30%

44%

£2,905,568

Maximum

27%

30%

43%

£2,303,346

On-target

41%

24%

35%

£1,831,342

On-target

43%

23%

34%

£1,463,973

Minimum

100%

£757,117

Minimum

100%

£624,601

1,000

2,000

3,000

4,000

500

1,000

1,500

2,000

2,500

3,000

Fixed elements of remuneration

Annual Bonus

LTIP

LTIP (attributable to 50% share price appreciation)

Fixed elements of remuneration consist of the annual salary that the Executive Director will receive for 2020, alongside their 2020 pension entitlement, and actual
benefits received in 2018/19 (as a proxy for 2020).

Annual bonus is based on a maximum opportunity of 150% of salary and an on-target opportunity of 75% of salary.

LTIP is based on a maximum opportunity of 220% of salary in line with the 2020 grant (noting that the overall policy maximum is 270% of salary). Target opportunity is
calculated as 50% of maximum (110% of salary).

The ‘maximum +' includes share price appreciation of 50%. This column is calculated on the same basis as the maximum column however includes an uplift of 50% total
over three years for the performance share plan.

The composition and value of the Executive Directors’ remuneration packages in a range of performance scenarios are set
out in the charts above. These show that the proportion of the package delivered through long-term performance is in line
with our remuneration policy and changes significantly across the performance scenarios. As a result, the package promotes
the achievement of superior long-term performance and aligns the interests of the Executive Directors with those of other
shareholders. A brief description of each remuneration scenario is set out below the charts.

Prior Year

Current

Base salaries

Base salary increases from 2020 are set out in the table below. The salary increase awarded to Andrew Livingston and Mark
Robson were in line with the average increase that will be made to our workforce in 2020.

Executive Directors

Andrew Livingston

Mark Robson

2020

2019

Salary (£'000)

% increase

Salary (£'000)

% increase

581

454

3.0%

564

441

2.5%

–

The Committee also considers the appropriateness of introducing an absolute quantum for Executive reward during the year.

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105

Remuneration Committee Report continued

Fixed

Variable

Annual Bonus measures

The table below sets out Annual Bonus measures for 2020. Targets for these measures are considered commercially sensitive by
the Board and so are not disclosed here. Performance targets, together with achievement against them, will be set out in full in
the 2020 Remuneration Committee Report.

Bonus measure Definition

Performance level

Pay out level

PBT

Pre-exceptional profit before tax from continuing operations

Cash
Flow

Net cash flow from operating activities, taking into account the
efficiency with which working capital is used, and adjusted for
exceptional items

Threshold
Target
Maximum

17% of salary
63.75% of salary
127.5% of salary

3% of salary
11.25% of salary
22.5% of salary

Performance Share Plan measures

As reported earlier in this report and in the case study on page 105 the Remuneration Committee have introduced a relative
Total Shareholder Returns (‘TSR’) measure in 2020 in addition to the existing PBT measure. Set out below are the performance
measures and relative weightings for each of the measures. For 2020 the maximum opportunity under the PSP remains 220% in
line with the approach taken in 2019. The performance period is three years, measured over the relevant financial years, starting
with the financial year of grant. For scheme interests awarded in 2019 see the Appendix on page 108.

PSP measure

PBT growth

Measure weighting

67%

PBT growth performance condition

PBT component
vesting schedule

15% p.a.

5% p.a.

Less than 5% p.a.

PSP measure

Relative TSR

Measure weighting

33%

Straight-line vesting between these points

Payout level

100% of maximum

15% of maximum

Comparator group and
averaging period for
TSR performance

• Companies ranked up to 50 above and 50 below Howdens by market capitalisation in the FTSE All Share

index at or shortly before the start of the performance period (excluding Investment Trusts).

• One month TSR average for the month preceding the first day of the performance period and one month

TSR average for the final month of the performance period.

Performance
assessment

Performance against comparator group

Equal to or above upper quartile

Payout level

100% of maximum

Straight-line vesting between these points

Equal to median

Below median

15% of maximum

Under the terms of the Remuneration Policy approved by shareholders at the 2019 Annual General Meeting, the 2020 PSP
awards will be subject to a two-year post-vesting holding period.

Relative importance of spend on pay

The graph below sets out the change in the Group’s total
remuneration spend from 2018 to 2019 compared to the total
returns to shareholders of the Group and the two incentive
performance measures PBT and cash flow.

400

300

m
£

200

100

+5.4%

m
7
.
0
4
4
£

m
2

8
1
4
£

-3.6%

m
5
0
3
1
£

m
8

5
2
1
£

Total returns to
shareholders

Total Spend
on Pay

+9.3%

m
7
.
0
6
2
£

m
5

8
3
2
£

+29.1%

m
4

5
9
2
£

m
8

4
2
2
£

PBT

Cash flow*

* Net cash flow from operating activities, being the definition used for the annual

bonus scheme (see page 104)

Percentage change in remuneration of Director
undertaking the role of Chief Executive Officer

The graphs below set out the change in short-term pay from
2018 to 2019 of the CEO compared to all employees
(on a per capita basis).

CEO
700

0
0
0
£

600

500

400

300

200

100

+1.1%

9
.
7
5
5

3
6
5

Salary

+2.9%

4
2
6

7
.

2
4
6

Bonus

-11.8%

.
1
8

.
1
7

Benefits

All full time employees (per capita)

0
0
0
£

+2.9%

1
.
7
2

6
2

Salary

+12.5%

9
0

.
1

-8.6%

Benefits

Bonus

Case Study

Additional measure for the
Long Term Incentive Plan
In the 2018 Remuneration Committee Report we committed
to introducing a greater diversity of measures for our
long-term incentives following shareholder feedback.
The Committee stated that, from 2020 onwards, a returns
measure would be introduced into our long-term incentive
program alongside the PBT measure and throughout
2019 we would monitor them against internal targets to
ensure we could appropriately calibrate these metrics.
This ensured that they were well understood within
the senior management population before they were
formally introduced.

In January 2019, the Committee discussed with
management a number of potential measures and it was
agreed that Relative Total Shareholder Returns (‘TSR’) and
Return On Invested Capital (‘ROIC’) would provide greatest
alignment with shareholder interests and best complement
the existing PBT measure.

Performance against these two measures were considered
at the Committee meeting in July as well as more detailed
analysis on the most appropriate definitions of ROIC and the
TSR peer group. Wider market analysis and benchmarking
was undertaken and considered by the Committee.

In November, the Committee approved the use of TSR as the
returns measure for the 2020 PSP. Due to its widespread
adoption, both the Committee and management agreed that
a TSR measure was a more relevant comparator externally
which would safeguard against complexity and provide the
best alignment with shareholder interests.

The Committee also agreed the weighting of the measure
(33%), performance period, comparator group, average
period for TSR performance and the performance
assessment. More detailed information about the
operation of the TSR measure can be found on page 104.

Alignment with the strategy of the business and the
avoidance of rewarding failure has and will always be the
central drivers for the selection of performance measures
and the Committee is confident that the introduction of the
TSR measure continues to provide this alignment without
introducing unnecessary complexity.

Howden Joinery Group Plc Annual Report & Accounts 2019

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107

Remuneration Committee Report continued

OUR CORPORATE PERFORMANCE AND REMUNERATION

Historic single figure

The table and graph below show the historic CEO single figure and incentive pay-out levels. They show that the annual bonus
has performed strongly and that long-term incentives have reflected the challenges that faced the Company after 2008 and the
challenging market conditions following the 2016 referendum on membership of the European Union.

The maximum bonus opportunity reduced from 200% of basic salary to 150% following the approval of the Directors’
Remuneration Policy by shareholders in May 2016.

Year

2010

2011

2012

2013

2014

2015

2016

2017

2018

CEO single figure (£'000)

1,458

6,083

3,401

5,168

6,221

5,225

3,098

1,268

2,569

Annual bonus (% of maximum)

69%

66%

51%

LTIP vest (% of maximum)

100%

63%

89%

64%

56%

48%

100%

35%

75%

2019

1,391

76%

0%*

* Andrew Livingston was appointed as CEO in April 2018 and therefore he was not granted an award under the LTIP in 2017.

’

)
s
0
0
0
£
(
e
r
u
g
F
e
g
n
S

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

CEO single figure

Annual bonus – % of maximum

LTIP vest – % of maximum

100

%
o
f

m
a
x
m
u
m

CEO PAY RATIO TABLE

Financial Year

Method

25th percentile pay ratio

50th percentile pay ratio

75th percentile pay ratio

2019

2018

71:1

122:1

58:1

100:1

48:1

81:1

During 2019, Howdens has identified the CEO pay ratio in line with the updates to the Directors’ Remuneration Reporting
Regulations. The data used to calculate the CEO pay ratio was accurate as at 31 December 2019.

In accordance with section 17 of The Companies (Miscellaneous Reporting) Regulations 2018, method A was used in the
calculation of the pay ratios; ranking the pay and benefits of all our UK employees for the relevant financial year to identify
the 25th, 50th, and 75th percentile-ranked employees and using the pay and benefits figures for these three UK employees to
determine the pay ratios at each quartile. Method A has been used as it has been identified by the Department for Business,
Energy and Industrial Strategy (‘BEIS’) in its guidance as the most statistically accurate method for identifying the pay ratios.

The total pay, benefits and salary of each colleague who is the best equivalent of the 25th, 50th, and 75th ranked employee is
as follows:

Total pay and benefits (‘FTE’)

Salary (including overtime) (‘FTE’)

25th percentile

50th percentile

75th percentile

£24,743

£19,353

£30,185

£23,782

£36,783

£28,792

The pay and benefits of our colleagues was calculated in line with the Single Total Figure of Remuneration methodology. In our
calculations we used actual pay from 1 January 2019 to 31 December 2019. Joiners, leavers and part-time employees’ earnings
have been annualised on an FTE basis (excluding any payments of a one-off nature).

Where bonus payments are made on a weekly, monthly or quarterly basis, we included payments made in the 2019
compensation year; however, for annual bonus payments, we estimated the bonus due to employees for the 2019
compensation year (payment is due in March 2020). P11D values have been based on the 2018/19 reportable values;
however, they have been annualised accordingly.

Howdens’ vertically integrated business means that our workforce is made up of a wide range of roles from kitchen designers
to skilled engineers, from warehouse staff to senior management. We work on the premise that Howdens must be worthwhile
for all concerned and our reward structures across the business are designed to reflect the levels of personal autonomy and
outperformance we expect from every individual. Pay structures vary between roles in order to deliver an appropriate balance
between fixed and variable pay but our emphasis on profit in our reward structures, from the depots to the Executive Directors,
helps to provide some alignment of reward across the business.

The significant decrease in the CEO pay ratio from 2018 to 2019 was primarily the result of the inclusion of the CEO’s one-off
recruitment award in the single pay figure for 2018 which was not repeated in 2019. The 2018 figures excluding this award
were broadly in line with those reported for 2019 (2018: 25th Percentile 62:1, 50th percentile 50:1 and 75th percentile 41:1). It
is a feature of our pay structure that senior management receive a larger proportion of their total pay via incentives and the
outcome of incentives is likely to be the main cause of variability in the ratio in future years. Andrew Livingston did not join the
Board until April 2018 and will not be in receipt of a long-term incentive award until 2021 at the earliest. Should his long-term
incentive awards vest, they will increase the ratio.

The Remuneration Committee are regularly updated on the benefits review across the business and are mindful that consistency
of approach and fairness are two important drivers for change.

Howden Joinery Group Plc Annual Report & Accounts 2019

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108

109

Remuneration Committee Report continued

Fixed

Variable

DIRECTORS' REMUNERATION REPORT APPENDIX
In this Appendix a number of key disclosures are set out that provide further clarity to investors and other readers of this
report on the implementation of our remuneration policy in the year under review.

TOTAL PENSION ENTITLEMENTS (AUDITED)

Executive Directors who joined the business before 2012 were eligible to participate in the Howden Joinery Group Pension Plan
(the ‘Plan’). The Plan closed to new joiners in 2012 and new Executive Directors are invited to participate in the Howden Joinery
Auto-Enrolment Pension Scheme or receive an amount in lieu of membership of the Scheme. More information on pension
entitlements for Executive Directors can be found in the Remuneration Policy at www.howdenjoinerygroupplc.com/governance/
remuneration-policy

The table below sets out the accrued pension for the Executive Directors who served during the year, with pension values
calculated using the HMRC method. No additional benefits become receivable if Executive Directors retire early. Mark Robson
has chosen to opt-out of the memberships of the plan and therefore received a salary supplement of 30% of base salary in lieu of
pension in 2019.

Accrued pension at 28 Dec 2019 (£'000)

Normal retirement date

Pension value in the year from defined benefit component (£'000)

Pension value in the year from defined contribution component (£'000)

Pension value in the year from cash allowance (£'000)

Total

Current Executive Directors

Andrew Livingston

Mark Robson

–

113

16/01/2019

–

132

134

SCHEME INTERESTS AWARDED DURING THE FINANCIAL YEAR (AUDITED)

During 2019 the Executive Directors were invited to participate in the Performance Share Plan, as follows:

Nature of award

Level of award

PBT component
vesting schedule

Restricted shares awarded under the PSP

Number of awarded shares

Face value of award1

Executive

CEO

Deputy CEO & CFO

246,766

193,036

PBT growth performance condition

15% p.a.

220% of salary
(100% of maximum)

£1,283,183

£1,003,787

Vesting

Straight-line vesting between these points

Straight-line vesting

5% p.a.

33% of salary
(15% of maximum)

Less than 5% p.a.

Performance period

Vesting date

Performance measured from FY2019 to FY2021

3 May 2022

1. Based on a share price of £5.20, being the closing price on 2 May 2019.

Free shares awarded under the Share Incentive Plan

Executive

Andrew Livingston

Mark Robson

Number of
awarded shares

Face value of
award1

100

£517

Date of grant

8 April 2019

Performance
criteria

n/a

1. Based on a share price of £5.17, being the closing price on 5 April 2019.

RECRUITMENT AWARDS (AUDITED)

Andrew Livingston forfeited a number of awards from his previous employment on leaving that role, including performance
based awards and awards of restricted shares not subject to performance conditions. As per our approved 2016 recruitment
policy, these awards were replaced by awards of similar structure, fair value, and timing as far as practical.

Awards not previously subject to performance conditions were replaced with awards of restricted shares, with equivalent
remaining periods to release of awards foregone.

Performance based awards were replaced with restricted share awards of an equivalent expected value and release date. Due
to the short period (of less than one year) between Andrew’s date of appointment and the original vesting date of the foregone
performance awards, it was not considered appropriate to apply performance conditions to the replacements for these awards,
but rather to mirror the expected value of the number of shares granted.

In total, 249,330 shares were awarded to replace those forfeited from previous employment with a total value of £1,233,233.

The table below sets out details for each tranche of the replacement awards made to Andrew:

(Audited)

Number of shares

131,639

69,397

48,294

Vesting date

31 March 2018

1 March 2019

1 March 2020

Value of shares (£)1

605,025

337,408

290,800

As the recruitment awards were granted in 2018, the value of the awards were based on actual date of vest, or three month average share price to 28 December 2019
of £6.02 if unvested.

Andrew will retain these shares as part of his shareholding requirement as CEO (200% of salary), subject to disposals to cover
tax liabilities arising.

As reported in the 2018 Remuneration Committee Report, Andrew forfeited his 2017 annual bonus on leaving his previous role. In
line with our approved policy, this was replaced with a like-for-like cash award of £296,413. This amount was determined to be an
appropriate estimate of the value of the bonus foregone, pro-rated for time in role.

SERVICE CONTRACTS/NOTICE PERIOD

All Executive Directors’ employment contracts have twelve months’ notice of termination on both sides. In the event of
termination by the Company, there will be no compensation for loss of office due to misconduct or normal resignation. In other
circumstances, Executive Directors may be entitled to receive compensation for loss of office which will be paid monthly for a
maximum of twelve months. Such payments will be equivalent to the monthly salary that the Executive would have received if
still in employment with the Company. Executive Directors will be expected to mitigate their loss within a twelve-month period of
their departure of the Company.

Non-Executive Director appointments are for an initial period of three years. They are subject to re-appointment annually in
accordance with the UK Corporate Governance Code. Non-Executive Directors are not entitled to any form of compensation in
the event of early termination for whatever reason.

PAYMENTS TO PAST DIRECTORS (AUDITED)

Matthew Ingle retired from the Board on 2 April 2018 and from the Group on 31 July 2018. For his services provided to the Group to
31 July 2018, Matthew received a pro-rated long-term incentive award under the PSP. In light of the 2017 PSP outcome, as set out
on page 101, Matthew received 21,087 shares with a total value of £126,973 based on the three month average share price at 28
December 2019 of £6.02. £36,110 of Matthew Ingle’s long-term incentive award was attributable to share price increases. The
share price at the date of grant was £4.31. No post-vest holding period will be applied to this award.

Howden Joinery Group Plc Annual Report & Accounts 2019

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111

Remuneration Committee Report continued

EXTERNAL APPOINTMENTS

It is recognised that Executive Directors may be invited to become Non-Executive Directors of other companies and that
exposure to such duties can broaden their experience and skills, which will benefit the Company. Howdens allows Executive
Directors and other appropriate senior employees to accept a maximum of one external non-executive appointment outside the
Company, subject to permission from the Committee, provided this is not with a competing company nor likely to lead to conflicts
of interest.

Andrew Livingston is currently Non-Executive Director of LondonMetric Property Plc, a FTSE250 REIT. Andrew received £54,083
in fees in respect of his role as Non-Executive Director. Andrew held this position upon appointment. Mark Robson does not have
any external appointments. Executive Directors may retain the fees paid to them in respect of their Non-Executive duties.

DIRECTOR SHAREHOLDINGS (AUDITED)

In order that their interests are aligned with those of shareholders, Executive Directors are expected to build up and maintain
a personal shareholding in the Company of at least 200% of salary.

The table below sets out the total shares held together with unvested performance shares and those held subject to deferral
conditions.

Shareholding requirement %

Shareholding requirement (number of shares)

Owned outright (including connected persons)

Share awards subject only to continued employment

Share awards subject to performance conditions
and continued employment4

Options subject to performance conditions

Vested but unexercised options

Current shareholding (% of salary)¹

Guideline met

Current Executive Directors

Andrew Livingston

Mark Robson

200%

187,247

109,388

48,4942

200%

146,310

153,020

3003

511,536

623,700

–

117%

–

209%

Based on a share price of £6.02, being the three-month average price to 28 December 2019. This is calculated by using only those shares owned outright by the
Executive Directors and their connected persons.

2. Recruitment Plan and Share Incentive Plan.

3. Share Incentive Plan.

4. Performance Share Awards under the Long Term Incentive Plan.

NON-EXECUTIVE DIRECTOR SHAREHOLDINGS (AUDITED)

There is no shareholding requirement for Non-Executive Directors.

Shareholding:

Non-Executive Director:

Karen
Caddick

6,000

Andrew
Cripps

3,000

Geoff
Drabble

3,000

Louise
Fowler

–

Richard
Pennycook

54,663

Debbie
White

4,562

No changes to the Executive and Non-Executive Directors’ total shareholdings (including any holdings of their connected persons)
have occurred between the end of the period and 26 February 2020.

CONSIDERATION BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION

The Committee met five times during 2019 and discussed a number of items for which it is responsible. Under its terms of
reference, which are reviewed on an annual basis, the Committee is responsible for determining the broad policy and specific
remuneration packages for Executive Directors and senior management (that being the Company Secretary and members of
the Executive Committee), including pension rights and, where applicable, any compensation payments. The Committee is also
regularly updated on pay and conditions applying to other employees in the Company.

VOTING AT THE 2019 ANNUAL GENERAL MEETING (‘AGM’)

The results of the advisory vote in respect of the Directors’ Remuneration Report and the binding vote on the Directors’
Remuneration Policy at the 2019 AGM may be found in the chart below.

AGM VOTING OUTCOMES

Report

2019

For – 95.87%

Against – 3.29%

Withheld – 0.84%

Policy

For – 97.02%

Against – 2.84%

Withheld – 0.14%

2018

Report

For – 96.63%

Against – 3.19%

Withheld – 0.18%

2017

Report

For – 94.86%

Against – 2.86%

Withheld – 2.27%

For¹

Against

Withheld²

1. A vote 'for' includes those votes giving the Chair discretion.

2. A vote 'withheld' is not a vote in law.

ADVISORS TO THE COMMITTEE

The Committee regularly consults with the CEO and the Interim Group HR Director on matters concerning remuneration, although
they are never present when their own reward is under discussion. The Company Chair attends the Remuneration Committee by
invitation except when his own remuneration is determined. The Company Secretary acts as secretary to the Committee but is
never present when his own reward is determined.

The Committee also has access to detailed external information and research on market data and trends from independent
consultants. PricewaterhouseCoopers LLP (‘PwC’) is the Committee’s retained independent advisor and provided advice to the
Committee during the year. PwC has been independent advisor to the Committee since 2007 and was appointed by the Committee
as the result of a tender process. During the year, the Committee reviewed the ongoing independence of PwC as adviser to the
Committee and agreed to retain them following a short external search. It was satisfied that PwC was providing robust and
professional advice.

Work undertaken by PwC for the Committee included updating the Committee on trends in compensation and governance
matters and advising the Committee in connection with benchmarking of the total reward packages for the Executive Directors
and other senior members of staff. A representative from PwC attends each meeting of the Remuneration Committee. Fees paid
to PwC in relation to remuneration services provided to the Committee in 2019 totalled £130,550 with fee levels based on the
quantity and complexity of work undertaken. PwC also provided consultancy advice and support to the internal audit function to
the Company during 2019.

PwC is a member of the Remuneration Consultants’ Group which operates a code of conduct in relation to executive
remuneration consulting.

By order of the Board

Karen Caddick
Remuneration Committee Chair

26 February 2020

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113

Audit Committee Report

Audit Committee Meeting Attendance

Andrew Cripps (5/5)
Mark Allen (2/5)1
Karen Caddick (5/5)
Geoff Drabble (5/5)

Louise Fowler (1/1)2
Tiffany Hall (4/4)3
Debbie White (5/5)

Mark was unable to attend the February and April meetings due to his commitments at Dairy
Crest and the November meeting due to health reasons. Mark received all of the meeting papers
ahead of each meeting and was able to feedback his views to the Committee Chair.

2. Louise was appointed to the Board on 1 November 2019.

3. Tiffany retired from the Board on 17 September 2019.

During 2020, the Committee will continue to monitor the
integrity of financial statements and formal announcements
relating to financial performance, review internal controls,
review and monitor the effectiveness of the Internal Audit
function, and the effectiveness and objectivity of the external
auditor. It will also continue its plan for the re-tender of the
external audit work in preparation for the change of auditor in
2022 (see 'Key activities in the year ahead' to the right).

Andrew Cripps
Audit Committee Chair

Key activities in the year ahead

• Review of the Annual Report and Accounts
and preliminary results announcement.

• Deloitte's reappointment as auditor to be

recommended to shareholders at the AGM.

• Update to be given by the Audit Committee

Chair to shareholders at the AGM.

• Planning for the retender of external audit

services.

• Review of the 2020 interim results.

• Consideration of Internal Audit's findings.

• Review of key controls in the Supply and Trade

business areas.

• Approval of the 2021 Audit Committee calendar.

• Review of the Committee's terms of reference.

July
Meeting

September
Meeting

November
Meeting

•

IFRS 16 project update

• 2019 Interim Results

•

IFRS 16 planning update

•

IFRS 16 project update

• Review of distributable reserves

• External auditor half year review

•

Internal Audit Report

• 2019 External audit plan

•

Internal Audit Report

• Annual Report timetable

•

Internal and operational control update

• Conflicts of interest review

• Discussion with external auditor
(without management present)

• Discussion with the Head
of Internal Audit and Risk
(without management present)

• Audit tender planning

• Terms of reference review

• Discussion with external auditor
(without management present)

INTRODUCTION FROM THE COMMITTEE CHAIR

As stakeholders seek ever greater assurance over the
robustness of controls and the integrity of financial
reporting, so the importance of the Audit Committee has
evolved such that it is a central pillar of the corporate
governance framework of the organisation. It provides
independent challenge and scrutiny of the Company’s
internal financial controls and risk management systems.

The Audit Committee is supported in providing assurance
over the integrity of financial reports by our independent
external auditor, Deloitte LLP (‘Deloitte’). Deloitte provide an
impartial evaluation of our financial statements and their
report to members of the Company may be found on pages
161 to 168. We have committed to retendering the external
audit and engaging a new external auditor no later than
2022 and will continue to monitor Deloitte’s independence
throughout the remainder of their appointment.

The Howdens internal audit function is also a key partner for
the Audit Committee in ensuring that the internal controls of
the Company are robust. The Internal Audit Plan is regularly
reviewed by the Committee to ensure it’s fully aligned to the
strategy and the latest view of emerging and significant risks
to the business. The Head of Internal Audit and Risk also has
a standing invitation to Audit Committee meetings.

In 2019, the Audit Committee increased its scheduled
meetings from three to five, which allowed more time for the
Committee to focus on the Company’s internal controls.

At the end of 2019, the Board undertook its triennial
externally-facilitated effectiveness evaluation. Information
about the evaluation outcomes for the Audit Committee may
be found on page 115.

2019 AUDIT COMMITTEE ACTIVITY

February
Meeting

•

IFRS 16 project update

• 2018 Draft Annual Report

• Audit Committee
Effectiveness

and Accounts and
Preliminary Announcement

• Effectiveness of the external
auditor and audit processes

• External Audit Report

• Discussion with external

•

Internal Audit Report

• External Audit Policies

auditors (without
management present)

April
Meeting

•

IFRS 16 project update

• Accounting for

intangible assets

• Cyber security

•

Internal Audit Report

• External audit process

effectiveness

May
AGM

• Authority for the Directors
to determine the auditor’s
remuneration and the
reappointment of the
external auditor were
approved by shareholders

2019

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019114

115

Audit Committee Report continued

FINANCIAL REPORTING

Results Review

The Audit Committee reviewed the Group’s 2019 Annual
Report and Accounts and the half-yearly financial report
published in July 2019.

As part of these reviews, the Committee received papers
from management on changes in accounting policy, areas
of significant judgement, the Group's key risks, going
concern considerations and longer-term viability. The
Committee also received reports from Deloitte on their
audit of the Annual Report and Accounts and review of
the half-yearly financial report.

The Committee considered whether the Annual Report and
Accounts were fair, balanced and understandable and
contained the information necessary for shareholders to
assess the Company’s position, performance, business
model, and strategy.

Financial Controls

The Committee received a report from the Head of Internal
Audit and Risk on the results of key control questionnaires
prepared by Group and Divisional management. The
effectiveness of the Group’s internal financial controls (with
specific reference to controls in place on a divisional basis)
and the disclosures made in the Annual Report and Accounts
on this matter were reviewed by the Audit Committee.

Areas of Significant Financial Judgement

The Committee exercises its judgement in deciding the
areas of accounting that are significant to the Group’s
accounts. The external auditor reports detailed results of
their procedures in relation to these significant areas to the
Committee.

Areas of significant financial judgement

Inventory obsolescence provisioning

Validity of the actuarial assumptions

The matters shown below have been discussed with the
Deputy Chief Executive & Chief Financial Officer, Group
Finance Director and the external auditor, and the Committee
is satisfied that each of the matters have been fully and
adequately addressed by the Executive Committee,
appropriately tested and reviewed by the external auditor,
and the disclosures made in the Annual Report and Accounts
are appropriate.

Inventory obsolescence provisioning

The Group’s in-stock model (further information about which
may be found on page 6) and the scale of our product range
necessitates tight management of inventory to ensure
local availability of stock while at the same time minimising
obsolescence and wastage.

The Committee reviewed the results of stock counts and
the processes used to value each category of inventory,
including the assumptions behind obsolescence provisions,
with management.

The external auditor provided reports to the Committee which
considered the appropriateness of provisions held against
the carrying value of inventory, while also having regard to
the age of discontinued lines and volumes of continuing lines
relative to the expected usage and the levels of historical
write-offs.

Validity of the actuarial assumptions

During 2019, the Group moved to a policy of updating CMI
tables, a key element of the mortality assumptions, annually.
The previous approach had been to update these every three
years following completion of the triennial valuation. Given
the more modest life expectancy improvement rate forecast
in the 2018 CMI table and a deterioration of the discount rate,
the pension deficit increased from £36m at the end of 2018 to
£56.6m at this balance sheet date. The Committee remains
aware that the valuation of assets and liabilities remain
sensitive to changes in the actuarial assumptions, particularly
the discount, inflation and mortality rates applied.

The Committee carefully considered:

• whether the actuarial assumptions, and in particular the
discount, inflation and mortality assumptions, applied
were appropriate; and

Management override of controls (presumed risk)

•

the views of the external auditors.

Area of significant financial judgement in 2019 and 2018

Presumed risk for the audit under ISA 240

The Committee also met with the Group’s external actuaries
during the year and considered their recommendations.

Distributable Reserves

The Committee requested that management analyse the
revenue and other reserves of the parent company to
ascertain the full extent to which these may be distributable.
This information is now included on page 170.

GOVERNANCE

Governance Updates

Updates on the latest governance practices for Audit
Committees and changes in reporting requirements were
provided by the external auditor. All members of the Audit
Committee are also members of the Deloitte Academy, which
provides updates on financial and reporting matters.

Committee Effectiveness

An effectiveness review was carried out on the Committee as
part of the Board’s triennial externally-facilitated evaluation
process (further details about the process may be found on
pages 90 and 91 of the Nominations Committee Report).

The evaluation of the Audit Committee focused on the
following areas:

• Chairship

• Meetings and meeting agendas

• Evolution of responsibilities

• External audit

•

Internal audit

The internal Finance team

Feedback from the review was that the Audit Committee
has evolved in a positive way in response to increased
responsibilities and regulations and also to the increased
size of the business. The feedback also showed that the
Committee is ‘thorough and tenacious in its approach" and
that the addition in 2019 of two further scheduled meetings
a year allowed for more challenge and consideration of
subjects in more detail.

Policies and Conflicts

The Committee reviewed its policies in relation to allocation
of non-audit work (further detail on this policy may be found
on page 118) and employment of ex-audit firm personnel.
It also reviewed the Directors’ conflicts of interest register.
Further information about conflicts of interest may be found
on page 119.

CMA Order Compliance

The Audit Committee confirms that the Company has
complied with the provisions of the Competition and Markets
Authority Order 2014 throughout its financial year ended
28 December 2019 and up to the date of this report.

Case Study
IFRS 16
As we have been reporting in our Annual Report and
Accounts since 2015, Howdens will report under IFRS 16 for
first time in our financial year to December 2020.

IFRS 16 will bring all leases onto the Group balance sheet
as right to use assets and associated financial liabilities,
increasing both by a material amount. At the end of
December 2018, Howdens had leases with committed
repayments of c.£0.5bn. In recognition of the fact that
IFRS 16 would bring this amount onto the balance sheet,
albeit discounted to reflect the time value of money, the
Committee agreed an implementation plan, progress
against which was reported at each meeting during 2019.

A project team formed in 2017, made up of representatives
from the Group divisional accounting teams and
Information Services, has been working towards the
implementation plan. The project team confirmed early
in the process that an IT solution was required and a
tender process was carried out. System penetration
and interface testing was carried out on the selected
solution. The uploading of templates to the system
then commenced.

In April 2019, the Committee considered the basis of
adoption and in July approved the modified retrospective
basis, having also considered alternative permitted bases.
The Committee concluded that the adopted method
combined the simplicity of not needing to derive a large
number of discount rates with most of the P&L benefits of
a fully retrospective adoption.

In September 2019, the Committee discussed and
approved the incremental borrowing rate methodology,
one of the main judgemental inputs into the IFRS 16
calculation. The incremental borrowing rate being the
discount rate used to give the present value of leases on
the balance sheet. The key features of the methodology
were considered prior to adoption.

In November, the Committee considered the draft
disclosure for 2019, the final version of which can be
found in Note 2 on pages 128 and 129.

The external auditor was engaged with the process
throughout the implementation plan and provided input on
the basis of adoption and the incremental borrowing rate
methodology.

Howden Joinery Group Plc Annual Report & Accounts 2019

116

117

Audit Committee Report continued

Committee Membership

EXTERNAL AUDITOR

The Committee is composed entirely of independent
Non-Executive Directors. Independence is critical for fair
assessment of the management team and the external and
internal audit functions.

Committee Chair

Andrew Cripps was appointed Audit Committee Chair in May
2016. He is responsible for determining the Committee’s
agenda and for maintaining the key relationships between the
Group’s senior management, Head of Internal Audit and Risk,
the Company Secretary and senior representatives of the
external auditor.

External auditor

Deloitte LLP (‘Deloitte’)

External auditor tenure

18 years

Lead audit partner

Claire Faulkner

Lead audit partner tenure

3 years (of a 5 year cycle)

Latest that a new external
auditor will be engaged*

2022

Total fees paid to auditor
in the year

£0.7m (Non-audit fees accounted
for £0.1m of the total fee)

Andrew is also responsible for ensuring that key audit
issues are reported to the Board in an effective and timely
manner and that they are reported to shareholders in the
Annual Report.

From 2020, he will also present a summary of the work
of the Audit Committee to shareholders at the Annual
General Meeting.

* The information above is correct as at 28 December 2019.

External Audit Tender

As previously reported, the Audit Committee will engage
a new external auditor no later than 2022 (following the
conclusion of the current five-year lead audit partner cycle).
The Committee will keep the need to re-tender the external
audit under review until this time.

Recent and relevant financial experience

Andrew Cripps qualified as a Chartered Accountant with
KPMG and has held executive director roles in the UK and
Europe with Rothmans International, where he was Corporate
Finance Director. More recently, Andrew has been Audit
Committee Chair of a number of public companies.

In coming to this decision, the Audit Committee considered
the transitional arrangements published by the Department
of Business, Energy & Industrial Strategy in 2015, which
provide that the Company cannot renew Deloitte’s
appointment as external auditor beyond June 2023, given it
has been the external auditor for over eleven years but less
than twenty years.

Competence relevant to the sector

The unique business model of Howdens means it does
not naturally fit into one sector and therefore when the
Committee undertook an assessment of its skills and
experience it assessed them against a number of sectors
relevant to the Company. These included building and
construction, multi-site wholesale, manufacturing and
logistics, and service to customers.

The Committee concluded that competence relevant to these
sectors was well represented within the current membership
and that the thorough inductions provided to the Committee
members and the opportunities for them to meet with senior
management and Executives further enhanced their working
knowledge of the way the Company operates and the sectors
it spans.

The Committee also considered the UK Corporate Governance
Code and the FRC’s Guidance on Audit Committees, which
provides that the external audit should be re-tendered at least
every ten years and that this process should fit in with the
lead audit partner five-year rotation.

Deloitte has expressed their willingness to continue in
office as auditor and the Committee has unanimously
recommended to the Board that a proposal to reappoint
them as the auditor and to authorise the Directors to fix their
remuneration is put to the shareholders at the Annual General
Meeting on 7 May 2020 (details of the AGM may be found on
page 176).

External Auditor Independence

Auditor independence is an essential part of the audit
framework and the assurance it provides. The Committee
therefore undertook a comprehensive review of auditor
independence during 2019, which included:

• A review of the independence of the external auditor and
the arrangements which they have in place to identify,
report and manage conflicts of interest.

• A review of the changes in key external audit staff for the
current year and the arrangements for the day-to-day
management of the audit relationship.

• Consideration of the overall extent of non-audit services
provided by the external auditor, in addition to case-by-
case approval of the provision of non-audit services as
appropriate.

• Deliberation of the likelihood of a withdrawal of the auditor
from the market and note taken of the fact that there
are no contractual obligations to restrict the choice of
external auditor.

At the year-end, the external auditor formally confirmed
that they had complied with the requirements of the FRC
Ethical Standard as well as internal requirements and their
independence and objectivity had been maintained. The Audit
Committee also has a policy in relation to the employment of
former members of the external audit team.

External Auditor Effectiveness

To assess the effectiveness of the external auditor, the
Committee reviewed:

•

The proposed plan of work presented by the external
auditor, including audit risks, materiality, terms of
engagement and fees prior to commencement of the
2019 audit.

The external auditor’s fulfilment of the agreed audit
plan and any variations from the plan.

Performance Expectations
for the External Auditor
Specific auditor responsibilities

• Discuss audit approach and areas of focus in

advance.

• Report issues at all levels within the Company in a

timely fashion.

• Ensure clarity of roles and responsibilities between

local Deloitte and Howdens’ Finance teams.

• Respond to any issues raised by management on a

timely basis.

• Meet agreed deadlines.

• Provide continuity and succession planning of key

staff members of Deloitte.

• Provide sufficient time for management to consider
draft auditor's reports and respond to requests and
queries.

• Ensure consistent communication between local and

central audit teams.

Wider responsibilities

• Provide timely up-to-date knowledge of technical and

governance issues.

• Serve as an industry resource, communicating best

• Perceptions and professional scepticism of the external

practice trends in reporting.

auditor and audit process from key management
personnel in the finance function.

• Robustness and perceptiveness of the auditor in their
handling of the key accounting and audit judgements.

•

Internal control and risk content of the external
auditor’s report.

•

Independence of thought and potential for conflict.

The only non-audit services provided by Deloitte in the
year was their review of the half-yearly financial report.
No advisory work was requested from the auditor this year
or last.

External Auditor Fees

All relevant fees proposed by the external auditor must be
reported to and approved by the Audit Committee.

Details of the total fees, including non-audit fees, paid during
the year to Deloitte may be found on the opposite page and in
Note 6 to the consolidated financial statements (page 136).

• Adhere to all independence policies.

• Deliver a focused and consistent audit approach for
the Group that reflects local risks and materiality.

•

Liaise with the Howdens Internal Audit and Risk team
to avoid duplication of work.

• Provide consistency in advice at all levels.

• Ultimately, provide a high quality service to the Board,
be scrupulous in their scrutiny of the Group and act
with utmost integrity.

Independence

The Committee reviews the independence of the external
auditor bi-annually. This includes consideration of the
potential for conflicts of interest as well as the auditor's
internal procedures to ensure independence of its staff.

The Committee noted that the only non-audit services
provided by Deloitte in the year was their review of
the half-yearly financial report. No advisory work was
requested from the auditor this year or last.

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119

Audit Committee Report continued

Policy for Non-Audit Services Provided by the
External Auditor

CONTROLS AND INTERNAL AUDIT

Internal Control Framework

The main aims of this policy are to:

• Ensure the independence of the auditor in performing the

statutory audit; and

• Avoid any conflict of interest by clearly detailing the types

of work that the auditor can and cannot undertake.

The Audit Committee has reviewed and updated the policy
for non-audit services to ensure that it is in line with the FRC's
Revised Ethical Standards 2019 (which will take effect from 15
March 2020) and the FRC's Audit Quality Practice Aid 2019.

The policy, in line with regulation, substantially limits the non-
audit services which can be provided by the external auditor.
The policy provides:

• A 70% cap of the value of the audit fee for all non-audit
services calculated on a rolling three-year basis.

• Categories of service that are prohibited from being

carried out by the auditor.

The policy specifies a de minimus limit as well as the type of
non-audit work that the auditor may be engaged in without
the matter first being referred to the Audit Committee, which
considers each referral on a case-by-case basis.

The policy ensures that the auditor does not audit its own
work or make management decisions for the Company or any
of its subsidiaries. The policy also clarifies responsibilities for
the agreement of fees payable for non-audit work.

•

The Group has an established framework of internal controls,
which includes the following key elements:

•

The Board reviews Group strategy, and the Executive
Committee are accountable for performance within the
agreed strategy.

The Group and its subsidiaries operate control procedures
designed to ensure complete and accurate accounting
of financial transactions and to limit exposure to loss of
assets or fraud.

The Audit Committee meets regularly and its
responsibilities are set out in the Audit Committee Terms
of Reference (which may be found on the Company's
website at www.howdenjoinerygroupplc.com/
governance/corporate-governance-report/terms-of-
reference-of-the-audit-committee). It receives reports
from the Internal Audit function on the results of work
carried out under an annually agreed audit programme.
Operational and compliance controls are considered
when the Committee reviews the annual Internal Audit
programme. The Audit Committee has full and unfettered
access to the internal and external auditors.

• Operating entities provide certified statements of

compliance with specified key financial controls. These
controls are then cyclically tested by Internal Audit to
ensure they remain effective, and are being consistently
applied.

The Audit Committee annually assesses the effectiveness
of the assurance provided by the internal and external
auditors. Every five years an external assessment is also
undertaken with regard to the assurance provided by the
Internal Audit department. An external assessment was
undertaken by Grant Thornton in 2017.

Internal Audit

During the year, the Committee reviewed:

•

Internal Audit’s programme of work and resources and
approved its annual plan.

• Results of audits and other significant findings including
the adequacy and timeliness of management’s response.

•

The level and nature of assurance activity performed by
Internal Audit.

• Staffing, reporting and effectiveness of divisional audit.

The Committee considered that the Internal Audit function
remained effective and provided a comprehensive level of
assurance through its programme of work.

Case Study
Intangible Assets
Intangible assets considered for capitalisation in the
Group balance sheet principally comprise the directly
attributable costs of developing computer software
and ongoing costs of software licences. In view of the
significant increase in expenditure on the Group’s digital
framework, the Committee reviewed:

• how software costs are accounted for

•

the controls applied

the disclosures made

The Committee noted that judgement is carefully applied
as to whether expenditure produces demonstrable future
economic benefit which justifies recognition as an asset in
the Group’s balance sheet, subject to annual amortisation.
All other software costs are expensed as incurred. As a
result of this review, the Committee were satisfied with
the accounting policies for intangible assets and their
application, including disclosure in the Annual Accounts.
Further details of intangible assets are set out in Notes 2
and 12 to the consolidated financial statements.

Fraud Risk

The Committee considered the controls in place to mitigate
fraud risk and received a report from Internal Audit which
confirmed the effectiveness of those controls.

Divisional Controls

Senior management from the business were invited to
discuss the controls in their business areas. The Director of
Commercial Finance and Head of Compliance of the Trade
division gave presentations on the control environments in
their area. An update on the IT control environment was also
presented by the Chief Information Officer. Updates on cyber
and information security were also provided by the Head of
Information Systems Security.

Independent Assurance

The Committee assessed the coverage of independent
assurance by reviewing the annual internal audit plan
against the Group assurance map. In addition, the Committee
reviewed reports on preparedness to manage crises, business
continuity and product recall. It also received reports on the
scope of preparations for the UK’s exit from the EU.

Whistleblowing

Complaints on accounting, risk issues, internal controls,
auditing issues and related matters are reported to the Audit
Committee as appropriate. Oversight of the Company's
whistleblowing policy is a matter considered by the Board. The
Board receives biannual updates on whistleblowing statistics
and trends (see pages 77 and 80).

Conflicts of Interest

The Companies Act 2006 places a duty upon Directors to
ensure that they do not, without the Company’s prior consent,
place themselves in a position where there is a conflict, or
possible conflict, between the duties they owe the Company
and either their personal interests or other duties they owe to
a third party.

If any Director becomes aware that they, or any party
connected to them, have an interest in an existing or proposed
transaction with the Company, they must notify the Board
as soon as practicable. The Board has the authority to
authorise a conflict if it is determined that to do so would be
in the best interests of the Company. The Audit Committee
reviews the output of this process annually to ensure it is
appropriately monitored.

By order of the Board

Andrew Cripps
Audit Committee Chair

26 February 2020

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019
120

121

Directors’ Report

The Directors have pleasure in submitting their report and the audited financial statements for
the 52 week period ended 28 December 2019. Comparative figures relate to the 52 weeks ended
29 December 2018.

In order to make our Annual Report and Accounts more accessible a number of the sections traditionally found in this report
can now be found in other sections of this Annual Report and Accounts where it was deemed that the information would be
presented in a more connected and accessible way. The Directors’ Report comprises the sections detailed below, including the
statement on political donations and research and development (‘R&D’). Any sections that have been moved have been cross-
referenced below for ease of reference:

LOCATED IN THE SUSTAINABILITY REPORT:

Greenhouse Gas Emissions: Details of the Group’s
greenhouse gas emissions, as required by Sch. 7 of
the Large and Medium-Sized Companies and Groups
(Accounts and Reports) Regulation 2008 as amended by
the Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013, are set out on page 59.

LOCATED IN THE GOVERNANCE SECTION:

Corporate governance code: Information on how the
Company applied the Principles and complied with the
Provisions of the 2018 UK Corporate Governance Code
may be found on pages 79 to 83. A copy of the 2018
UK Corporate Governance Code can be accessed via
www.frc.org.uk.

Internal control and risk management arrangements:
Internal control arrangements information may be
found in the Audit Committee Report on page 118.
Risk management arrangements information may be
found on pages 70 and 83 and in the Principal risks and
uncertainties section beginning on page 40.

Diversity policies: The Board and Group Diversity
Policies are available on page 87 of the Nominations
Committee Report.

Stakeholder engagement: Details regarding the
engagement with suppliers, customers, and others in
business relationships with the Company, as required by
Sch. 7 to the Large and Medium-Sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as
amended by the Companies (Miscellaneous Reporting)
Regulations 2018), may be found on pages 76 to 78.

Employees: Information about the total number of
employees and gender diversity statistics are located
on page 87. The average number of employees and their
remuneration are shown in Note 7 on page 136. The
methods of engaging with the workforce may be found
on pages 76 and 77. All eligible UK employees have been
invited to participate in a free share award under the
Company’s Share Incentive Plan (‘SIP’) each year since
2015. Further details of the SIP may be found in Note 24.

LOCATED IN THE STRATEGIC REPORT:

Principal Group activities, business review and results:
The principal activities of Howden Joinery Group Plc and
its subsidiaries can be found on pages 2 to 63.

Dividend: Information about the final dividend can be
found in the Chairman’s Statement on page 11 and the
Financial Review on page 35.

Directors’ statement of disclosure of information to
the auditor: This statement may be found on page 63.

LOCATED IN THE ADDITIONAL
INFORMATION SECTION:

Annual General Meeting (‘AGM’): Information about the
AGM can be found on page 176. The recommendation to
reappoint the Group’s auditor, can be found on page 113.

Share capital, substantial shareholdings and
acquisition of the Company’s own shares: Information
in this regard can be found on page 176.

Indemnity and Insurance: Details of Directors’
Indemnity and Insurance is located on page 177.

Significant agreements: Details of any agreements that
take effect, alter or terminate upon a change of control
may be found page 177.

POLITICAL DONATIONS AND R&D

The Group made no political donations during the current and
previous financial year. Nor has it made any contributions
to any non-EU political party during the current or previous
financial year.

The Group has undertaken research and development
activities during the financial year to further enhance the
service proposition to our trade customers.

By order of the Board

Forbes McNaughton
Company Secretary

26 February 2020

NON-FINANCIAL REPORTING:

Non-financial measures are an important part of our business and we have recognised the importance of non-financial
information in our Annual Reports for many years. The Board are committed to acting responsibly and working with our
stakeholders to manage the social and ethical impact of our activities. We aim to treat all our stakeholders fairly and with
integrity, as we explain in the introduction to our Sustainability Report on page 51.

We have a number of Group policies to provide guidance to our employees. The policies are designed to be easily
understood and they generally include examples of acceptable and unacceptable behaviours.

In order to consolidate our reporting requirements under sections 414CA and 414CB of the Companies Act 2006 in respect
of Non-Financial Reporting, the table below shows where in this Annual Report to find each of the disclosure requirements.

Focus area

Policies and statements

More information and outcomes

Environmental
matters

Sustainability and Corporate
Social Responsibility Statement
of Intent (see Group website).

Social matters

Sustainability and Corporate
Social Responsibility Statement
of Intent (see Group website).

Respect for
human rights

Sustainability and Corporate
Social Responsibility Statement
of Intent (see Group website).

• Greenhouse gas and emissions reporting (page 59).

• KPI on production, reuse, recovery and recycling of warehouse waste and
our target of 100% packaging used in manufacturing being made from
recycled or certified sources (page 58).

• KPI on use of certified timber in our manufacturing processes (page 56).

• Discussions of our efforts to reduce waste and our responsible, energy-

efficient operations (page 58).

• Our impact on our stakeholders (starting on page 52) and engagement

with stakeholders (starting on page 76).

• Our work with local and national charities (pages 60 and 61).

• Discussion of Supplier Code of Conduct (page 56).

• Discussion of sustainable sourcing, active monitoring of suppliers and

training of our procurement staff (page 56 and 57).

• Modern Slavery Statement (see Group website).

• Internationally recognised labour standards form part of our contracts

of employment.

Anti-bribery
and corruption

Employees

Anti-Bribery and Corruption,
Conflicts of interest, Corporate
gifts and hospitality, Anti-money
laundering, Anti-tax evasion and
Competition law policies.

• During 2019, the Board considered and approved updated versions of
the following Group policies: anti-bribery and corruption, anti-money
laundering, anti-tax evasion, competition law policy, market abuse
compliance and the modern slavery statement and whisteblowing. We
have a rolling programme of refresher training on Modern Slavery and
Anti-Bribery for our compliance team and buyers.

Health & Safety Statement of
Intent (see Group website),
Market abuse compliance,
Data Protection and Privacy,
Whistleblowing.

• KPI on Health & Safety (page 54).

• Discussion of Health & Safety performance and initiatives (page 54).

• Discussion of employee rewards and benefits, development opportunities

(page 55).

• Apprentice schemes (page 55).

• Diversity policies and statistics (page 87).

• Director’s remuneration policy (see Group website for the full policy or

page 96 for a summary of the policy).

We outline our business model on pages 18 and 19. All of our non-financial KPIs are presented together on pages 33 and
34. A discussion of our principal and emerging risks, including those related to our business relationships, products and
services, as well as a description of our risk management process, starts at page 40.

Profit before tax
Profit before tax
£261m (2018: £239m)

+4.8%

m
4
0
4
,
1
£

m
7
0
3

,
1
£

m
0
2
2

,
1
£

m
1
1
5

,
1
£

m
4
8
5

,
1
£

+9.3%

m
7
3
2
£

m
2
3
2
£

m
9
3
2
£

m
0
2
2
£

m
1
6
2
£

Net cash
Net cash
In line with our targeted capital structure (see page
37), we continue to maintain sufficient cash to
operate through the annual capital cycle without
debt. Balance at year end – £267m (2018: £219m)

m
6
2
2
£

m
7
2
2
£

m
1
4
2
£

m
1
3
2
£

m
7
6
2
£

Operating profit
Operating profit
£260m (2018: £240m)

EPSEPS
35.0p (2018: 31.3p)

Returns to shareholders
Returns to shareholders
Dividends and share buybacks £126m (2018: £131m)

+8.3%

m
7
3
2
£

m
4
3
2
£

m
0
4
2
£

m
2
2
2
£

m
0
6
2
£

+11.8%

p
9
2

p
0
3

p
1
3

p
7
2

p
5
3

m
5
4
1
£

m
5
0
1
£

m
1
3
1
£

m
6
2
1
£

m
6
1
1
£

124 Consolidated

income statement

124 Consolidated statement
of comprehensive
income

125 Consolidated
balance sheet

126 Consolidated statement
of changes in equity

127 Consolidated cash
flow statement

128 Notes to the

consolidated financial
statements

161

Independent auditor’s
report to the members
of Howden Joinery
Group Plc

169 Company balance sheet

170 Company statement of
changes in equity

171

Notes to the Company
financial statements

s
t
n
e
m
e
t
a
t
S

a
c
n
a
n
F

124

125

Consolidated income statement

Consolidated balance sheet

Continuing operations:

Revenue

Cost of sales

Gross profit

Selling & distribution costs

Administrative expenses

Operating profit

Finance income

Other finance expense – pensions

Profit before tax

Tax on profit

Profit for the period attributable to the equity holders of the parent

Earnings per share:

Basic earnings per 10p share

Diluted earnings per 10p share

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

Notes

1,583.6

(597.4)

986.2

(621.7)

(104.5)

260.0

1.1

(0.4)

260.7

(51.7)

209.0

35.0p

34.8p

1,511.3

(579.1)

932.2

(594.4)

(97.7)

240.1

0.7

(2.3)

238.5

(48.1)

190.4

31.3p

31.2p

Consolidated statement of comprehensive income

Profit for the period

Items of other comprehensive income:

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

Notes

209.0

190.4

Items that will not be reclassified subsequently to profit or loss:

Actuarial (losses)/gains on defined benefit pension scheme

Deferred tax on actuarial gains & losses on defined benefit pension scheme

Change of tax rate on deferred tax

Items that may be reclassified subsequently to profit or loss:

Currency translation differences

Other comprehensive income for the period

Total comprehensive income for the period attributable
to equity holders of the parent

(47.1)

8.0

(0.7)

(1.9)

(41.7)

167.3

59.3

(11.3)

–

(0.2)

47.8

238.2

Non-current assets

Intangible assets

Property, plant and equipment

Deferred tax asset

Long-term prepayments

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Current tax liability

Non-current liabilities

Pension liability

Deferred tax liability

Provisions

Total liabilities

Net assets

Equity

Share capital

Share premium and capital redemption reserve

ESOP reserve

Treasury shares

Retained earnings

Total equity

Notes

28 December 2019
£m

29 December 2018
£m

24.9

212.4

13.5

0.9

251.7

231.8

193.1

267.4

692.3

944.0

(241.4)

(20.3)

(261.7)

(56.6)

(1.5)

(9.0)

(67.1)

(328.8)

615.2

60.5

92.2

(6.3)

(29.3)

498.1

615.2

23.1

187.1

11.2

–

221.4

226.3

186.0

231.3

643.6

865.0

(232.9)

(20.2)

(253.1)

(36.0)

(1.5)

(7.3)

(44.8)

(297.9)

567.1

61.5

87.5

(8.8)

(32.9)

459.8

567.1

The financial statements were approved by the Board and authorised for issue on 26 February 2020 and were signed on its
behalf by

Mark Robson
Deputy Chief Executive and Chief Financial Officer

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019126

127

Consolidated statement of changes in equity

Consolidated cash flow statement

At 30 December 2017

Accumulated profit for the period

Other comprehensive income for the period

Total comprehensive income for the period

Current tax on share schemes

Deferred tax on share schemes

Movement in ESOP

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

Dividends

At 29 December 2018

Accumulated profit for the period

Other comprehensive income for the period

Total comprehensive income for the period

Current tax on share schemes

Deferred tax on share schemes

Movement in ESOP

Buyback and cancellation of shares (Note 1)

Transfer of shares from treasury into share trust

Dividends

At 28 December 2019

Called
up share
capital
£m

62.8

–

(1.3)

–

61.5

–

(1.0)

–

Capital
redemption
reserve
£m

Share
premium
account
£m

ESOP
reserve
£m

Treasury
shares
£m

Retained
profit
£m

–

4.7

–

87.5

(10.7)

(36.2)

–

5.2

–

(3.3)

–

3.3

–

87.5

(8.8)

(32.9)

–

6.1

–

(3.6)

–

3.6

–

Total
£m

454.2

190.4

47.8

350.8

190.4

47.8

238.2

0.1

(0.1)

–

0.1

(0.1)

5.2

(60.9)

(62.2)

–

(68.3)

459.8

209.0

(41.7)

167.3

0.3

0.2

–

567.1

209.0

(41.7)

167.3

0.3

0.2

6.1

(58.9)

(55.2)

–

(70.6)

60.5

4.7

87.5

(6.3)

(29.3)

498.1

615.2

The ESOP reserve includes shares in Howden Joinery Group Plc with a market value on the balance sheet date of £38.7m (2018:
£27.1m), which are held by the Group's Employee Share Trusts in order to satisfy share options and awards made under the
Group's various share-based payment schemes.

The item ‘Movement in ESOP’ consists of the share-based payment charge in the year, together with any receipts of cash from
employees on exercise of share options.

At the current period end there were 6,015,580 ordinary shares held in treasury, each with a nominal value of 10p (2018:
6,738,280 shares).

Note 1: This includes a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve for the shares bought back and cancelled

before 29 December 2018, under which retained earnings have been reduced by £3.7m and the capital redemption reserve has been increased by £3.7m.
This line also records the shares bought back and cancelled in the current period, which had an aggregate nominal value of £1m and a cost of £55.2m.

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

Notes

260.0

240.1

Operating profit

Adjustments for:

Depreciation and amortisation included in operating profit

Share-based payments charge

Loss on disposal of property, plant and equipment and intangible assets

Operating cash flows before movements in working capital

Movements in working capital and exceptional items

Increase in inventories

Increase in trade and other receivables

Increase in trade and other payables and provisions

Difference between pensions operating charge and cash paid

Cash generated from operations

Tax paid

Net cash flow from operating activities

Cash flows used in investing activities

Payments to acquire property, plant and equipment and intangible assets

Receipts from sale of property, plant and equipment and intangible assets

Interest received

Net cash used in investing activities

Cash flows used in financing activities

Payments to acquire own shares

Receipts from release of shares from share trust

(Increase)/decrease in long-term prepayments

Dividends paid to Group shareholders

Net cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

34.5

4.9

1.4

300.8

(5.5)

(7.1)

6.3

(26.9)

(33.2)

267.6

(46.2)

221.4

(61.1)

0.3

1.1

(59.7)

(55.2)

1.1

(0.9)

(70.6)

(125.6)

36.1

231.3

267.4

30.2

4.3

–

274.6

(18.0)

(48.2)

16.5

(16.3)

(66.0)

208.6

(45.4)

163.2

(44.3)

0.1

0.7

(43.5)

(62.2)

0.9

0.1

(68.3)

(129.5)

(9.8)

241.1

231.3

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129

Notes to the consolidated financial statements

1 GENERAL INFORMATION

Howden Joinery Group Plc is a company incorporated in the
United Kingdom under the Companies Act 2006. The registered
office address is 40 Portman Square, London, W1H 6LT. The
nature of the Group’s operations are set out in the Strategic
Report, and the Group's principal activity is the sale of kitchens
and joinery products, along with the associated manufacture,
sourcing, and distribution of these products.

These financial statements are presented in UK pounds
sterling, being the currency of the primary economic
environment in which the Group operates.

Foreign operations are included in accordance with the
policies set out in Note 2.

2 SIGNIFICANT ACCOUNTING POLICIES

Accounting period

The Group’s accounting period covers the 52 weeks to
28 December 2019. The comparative period covered the
52 weeks to 29 December 2018.

Statement of compliance and basis of preparation

The Group's financial statements have been prepared in
accordance with the IFRSs adopted for use in the European
Union and International Financial Reporting Interpretations
Committee (‘IFRIC’) interpretations and with those parts of
the Companies Act 2006 applicable to companies reporting
under IFRS. They therefore comply with Article 4 of the EU IAS
Regulation.

The financial statements have been prepared on the historical
cost basis, and on the going concern basis, as described in the
going concern statement in the Strategic Report. The principal
accounting policies are set out below.

Standards adopted in the period

None of the IFRSs adopted in the current period, including
IFRS 15; Revenue from Contracts with Customers and IFRS 9:
Financial Instruments, have had a material effect on the Group.

Standards in issue but not yet effective

At the date of authorisation of these financial statements,
the following standards, amendments to standards, and
interpretations, were in issue but not yet effective for the
Group in these financial statements:

IFRS 16: Leases

IFRIC 23: Uncertainty over Income Tax Treatments

Amendments to IFRS 9: Prepayment Features with
Negative Compensation

Amendments to IAS 28: Long-term Interests in Associates
and JVs

Annual Improvements to IFRSs 2015 – 17 cycle

IFRS 17: Insurance Contracts

Amendments to IAS 19: Plan Amendment, Curtailment
or Settlement

Amendments to References to the Conceptual Framework
in IFRS Standards

Amendment to IFRS 3: Business Combinations

Amendments to IAS 1 and IAS 8: Definition of Material

Amendments to IFRS 9, IAS 39, and IFRS 7 – Interest rate
Benchmark Reform

Amendments to IAS 1 – Classification of liabilities as Current
or Non-Current

The Directors anticipate that the adoption of the standards
and interpretations mentioned above will have no significant
impact on the Group’s financial statements when the relevant
standards come into effect, other than in the case of IFRS 16
which we discuss in more detail below.

IFRS 16: Leases

We will adopt IFRS 16 in the year to 26 December 2020, with
a transition date of 29 December 2019. Our first report under
IFRS 16 will be the June 2020 half-yearly report.

Transactions affected by IFRS 16
We lease our depot, warehouse, factory and office properties,
as well as other assets such as fork lift trucks, lorries, vans and
cars. Under IAS 17, the previous lease accounting standard,
these leases were not recognised on the balance sheet, and
annual rent payments were charged to income on a straight-
line basis.

IFRS 16 will require us to recognise these leases on the balance
sheet, causing both our gross assets and gross liabilities to
increase. The addition to gross assets will represent our right
to use the leased asset, and the addition to gross liabilities will
reflect our obligation to make future lease payments.

IFRS 16 will also have a timing effect on the annual lease
expense, which will no longer be equal to the rent payable for
that year. The total income statement charge under IFRS 16
will consist of an operating charge representing straight line
depreciation on the leased asset, plus an interest charge,
which will vary over the life of the lease. More interest will be
charged in the early periods of each lease and less interest
will be charged in the later periods as the outstanding balance
reduces, as with interest on a loan.

This means that the annual IFRS 16 income statement charge
for a lease will not be the same each year. It will be more than
the annual rent payable in the earlier years of a lease, and less
in the later years.

Total interest and depreciation charged over the life of a lease
will still equal the total rent paid, as at present. Whether the
IFRS 16 charge in a year is larger or smaller than the rent
payable will depend on the maturity profile of the leases which
we have at any one time.

We show our operating lease commitments under IAS 17 at
Note 23, and our annual rent payable at Note 6.

Adoption and transition
We are adopting IFRS 16 using the modified retrospective
approach for all of our leases. This means that we will not
restate the 2019 comparative figures in our 2020 financial
statements, and that we will discount leases using incremental
borrowing rates as at the date of adoption.

For all of our property leases and some of our vehicle
leases – representing approximately 90% of our total lease
commitments by value – we are measuring the leases as if IFRS
16 had been applied since the lease commencement date. For
the remaining leases we are measuring them as if the lease
had started on adopting IFRS 16, i.e. 29 December 2019.

We have elected to use the following permitted practical
expedients on transition:

•

to apply the portfolio approach where a group of leases
have similar characteristics

to use hindsight when determining the lease term

to use the existing onerous lease provision on transition to
reduce the right of use asset, rather than conducting an
impairment review

to exclude initial direct costs from measurement of the
right of use asset

to use the definition of a lease which existed under the
previous accounting standard when determining if a
contract contains a lease under IFRS 16

We will present our updated accounting policies as part of the
2020 half-yearly report, together with details of incremental
borrowing rates, key judgements and a reconciliation between
2019 closing IAS 17 lease commitments and 2020 opening IFRS
16 lease liabilities.

Impact of IFRS 16 on the financial statements
1) Balance Sheet
Using the Group’s leases on the transition date, 29 December
2019, the pre-tax impact of IFRS 16 will be:

•

recognition of an opening right of use asset of £549m

recognition of an opening lease liability of £568m

• an adjustment to opening reserves in the 2020 financial

statements which will reduce them by £31m.

The amount of the adjustment to opening reserves does not
equal the difference between the right of use asset and the
lease liability because it also includes items such as rent
prepayments and rent-free balances which were being carried
on the balance sheet under IAS 17, and which are also required
to be taken to opening reserves on adopting IFRS 16.

2) Income Statement
If we took the leases at 29 December 2019 and rolled them
forward to the end of the 2020 financial year, the income
statement will include:

•

IFRS 16 lease depreciation of £73m, which will be charged
in arriving at operating profit, and

IFRS 16 lease interest of £9m, which will be included as a
finance charge, below operating profit

Under IAS 17, the projected rent payable for these leases in the
year would be £81m, which would all be charged to operating
profit. This means that the effect of IFRS 16 would be to
increase operating profit by £8m, to increase finance charges
by £9m and therefore to decrease profit before tax by £1m.

It should be noted that the 2020 income statement estimates
above will differ from the actual 2020 figures because the
estimates do not include assumptions for any new leases,
lease renewals or rent reviews in 2020. There are also a
number of properties whose lease renewals are in negotiation
at 29 December 2019 and which are therefore prevented from
being treated as leases under IFRS 16 and excluded from the
figures above. The rent for these properties will be charged to
operating profit until the new leases are signed, at which point
they will be recognised as leases under IFRS 16.

Strategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019130

131

Basis of consolidation

Subsidiaries

Subsidiaries are all entities over which the Group has control.
‘Control’ is defined in this case as the power to govern financial
and operating policies so as to obtain benefits from the
subsidiaries' activities. Subsidiaries are fully consolidated
from the date on which control is established until the date
that control ceases. Control is achieved where the Group has
the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.

Revenue recognition

Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable
for goods and services, based on despatch of goods or
services provided to customers outside the Group, excluding
sales taxes and discounts. Interest income is recognised
in the income statement as it accrues, using the effective
interest method.

Inventories

Inventories are stated at the lower of cost and net
realisable value. Cost includes an attributable proportion
of manufacturing overheads based on budgeted levels of
activity. Cost is calculated using a standard cost which is
regularly updated to reflect average actual costs. Provision
is made for obsolete, slow-moving, or defective items
where appropriate.

Property, plant and equipment

On adopting IFRS, the Group adopted the transitional
provisions of IFRS 1 to use previous revaluations of freehold
properties as the new deemed cost at the date of transition
to IFRSs.

All property, plant and equipment is stated at cost (or deemed
cost, as applicable) less accumulated depreciation, and less
any provision for impairment.

Depreciation of property, plant and equipment is provided to
write off the difference between their cost and their residual
value over their estimated lives on a straight-line basis. The
current range of useful lives is as follows:

Capital work-in-progress and freehold land are not
depreciated.

Residual values, remaining useful economic lives and
depreciation periods and methods are reviewed annually
and adjusted if appropriate.

Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.

Intangible assets

Our intangible assets represent computer software. Where
computer software is not an integral part of a related item of
computer hardware, the software is classified as an intangible
asset. The capitalised costs of software for internal use include
external direct costs of materials and services consumed in
developing or obtaining the software and payroll and payroll-
related costs for employees who are directly associated with
and who devote substantial time to the project. Capitalisation
of these costs ceases no later than the point at which the
software is substantially complete and ready for its intended
internal use. These costs are amortised over their expected
useful lives, which are reviewed annually. The expected useful
lives range between three and seven years, depending on the
nature of the software.

Impairment of assets

The carrying amount of the Group’s assets is reviewed at
each balance sheet date to determine whether there is any
indication of impairment. If such an indication exists, the
asset’s recoverable amount is estimated.

Apart from in the case of trade and other receivables,
and inventories, an impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its
recoverable amount. Impairment losses are recognised in
the income statement.

For trade and other receivables and inventories which are
considered to be impaired, the carrying amount is reduced
through the use of an allowance for estimated irrecoverable
amounts. Changes in the carrying value of this allowance are
recognised in the income statement.

Freehold property

50 years

Long leasehold property

Short leasehold property

the period of the lease, or the
individual asset's life, if shorter

the period of the lease, or the
individual asset's life if shorter

Plant, machinery & vehicles

3–20 years

Fixtures & fittings

2–15 years

Current tax

Foreign operations

The tax expense represents the sum of the tax currently
payable and deferred tax.

The tax currently payable is based on taxable profit for
the financial period. Taxable profit differs from net profit
as reported in the income statement because it excludes
items of income or expense that are taxable or deductible in
other financial years and it further excludes items that are
never taxable or deductible. The Group’s liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.

Additional income taxes that arise from the distribution of
dividends are recognised at the same time as the liability to
pay the related dividend.

Deferred tax

Deferred tax is provided in full using the balance sheet liability
method. It is the tax expected to be payable or recoverable on
the temporary difference between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax
purposes; the initial recognition of assets and liabilities other
than in a business combination that affect neither accounting
nor taxable profit; and differences relating to investments
in subsidiaries, to the extent that they will not reverse in the
foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of
the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. The carrying amounts of
deferred tax assets are reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of
the asset to be recovered.

Deferred tax is charged or credited to the income statement
except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also recognised
in equity.

Foreign currencies

Foreign currency transactions

Transactions in foreign currency are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated at the exchange rate ruling
at the date. Foreign exchange gains and losses are recognised
in the income statement.

The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
where applicable, are translated into sterling at foreign
exchange rates ruling at the balance sheet date. The results
and cash flows of overseas subsidiaries and the results of joint
ventures are translated into sterling on an average exchange
rate basis, weighted by the actual results of each month.

Exchange differences arising from the translation of the
results and net assets of overseas subsidiaries are taken to
equity via the statement of comprehensive income.

Provisions

Provisions are recognised when the Group has a present
obligation as a result of a past event, it is probable that the
Group will be required to settle that obligation, and a reliable
estimate can be made of the amount required to settle
the obligation.

Provisions are measured at the Directors’ best estimate of the
expenditure required to settle the obligation at the balance
sheet date, taking into account the risks and uncertainties
surrounding the obligation, and are discounted to present
value where the effect is material.

Pensions

Payments to defined contribution retirement benefit schemes
are charged to the income statement as they fall due.

The Group operates a defined benefit pension scheme.
The Group’s net obligation in respect of the defined benefit
pension scheme is calculated by estimating the amount
of future benefit that employees have earned in return for
their service in the current and prior periods. That benefit is
then discounted to determine its present value, and the fair
value of any scheme assets is deducted. The discount rate
used is selected so as to closely approximate the yield at the
balance sheet date on AA-rated bonds that have maturity
dates approximating to the terms of the Group’s obligations.
The calculation is performed by a qualified actuary using the
projected unit method. Scheme assets are valued at bid price.

Current and past service costs are recognised in operating
profit and net financing costs include interest on pension
scheme liabilities and assets. Actuarial gains and losses are
recognised immediately through the remeasurement of the
defined benefit liability and are taken through the statement of
comprehensive income.

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional InformationHowden Joinery Group Plc Annual Report & Accounts 2019Howden Joinery Group Plc Annual Report & Accounts 2019132

133

Leased assets

Leases are classified as finance leases when the terms of
the lease transfer substantially all the risks and rewards of
ownership to the Group. All other leases are classified as
operating leases. For property leases, the land and building
elements are treated separately to determine the appropriate
lease classification.

The Group issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments
are measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of shares that will
eventually vest.

Finance leases

Assets funded through finance leases are capitalised as
property, plant and equipment, and depreciated over their
estimated useful lives or the lease term, whichever is shorter.
The amount capitalised is the lower of the fair value of the
asset or the present value of the minimum lease payments
during the lease term at the inception of the lease. The
resulting lease obligations are included in liabilities net of
finance charges. Finance costs on finance leases are charged
directly to the income statement.

Operating leases

Assets leased under operating leases are not recorded on the
balance sheet. Rental payments are charged directly to the
income statement.

Lease incentives

Lease incentives primarily include up-front cash payments or
rent-free periods. Lease incentives are capitalised and spread
over the period of the lease term.

Leases with predetermined fixed rental increases

The Group has some leases with predetermined fixed rental
increases. These rental increases are accounted for on a
straight-line basis over the period of the lease term.

Borrowing costs

Borrowing costs are recognised in the income statement in the
period in which they are incurred. In the case of prepaid loan
facility fees, they are capitalised and set against the related
borrowings, and then amortised over the life of the related
loan facility.

Other payables

Other payables are stated at their fair value.

Share-based payments

The Group has applied the requirements of IFRS 2 Share-based
Payments. In accordance with the transitional provisions, IFRS
2 has been applied to all grants of equity instruments after 7
November 2002 that were unvested at the date of the Group's
transition to IFRS.

Financial instruments

Financial assets and financial liabilities are recognised on the
Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.

Trade receivables

Trade receivables do not carry any interest and are stated at
their nominal value, as reduced by appropriate allowances for
estimated irrecoverable amounts. Such allowances are raised
based on an assessment of debtor ageing, past experience, or
known customer circumstances.

Cash and cash equivalents

Cash and cash equivalents comprises cash at bank and in
hand together with any overdrafts repayable on demand and
any short-term investments with a maturity date of less than
three months from the balance sheet date.

Net cash

Net cash, as shown in Note 22, comprises cash and cash
equivalents plus any bank borrowings/prepaid loan fees, and
any finance leases.

Short-term investments

From time to time, the Group uses short-term investments in
UK Gilts as part of its cash management activities. The Group
reviews these investments before entering into them, and,
after establishing that the Group has both the intention and
the ability to hold these investments to maturity, they are
classified as held-to-maturity and are initially recognised at
cost, including any transaction fees.

Subsequent to initial recognition, these investments are
carried at amortised cost using the effective interest method.
Income from these investments is recognised in the income
statement on an effective yield basis. They form part of our
cash and cash equivalents for balance sheet and cash flow
disclosure purposes.

Financial liabilities and equity

Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that
evidences a residual interest in the assets of the Group
after deducting all of its liabilities.

Trade payables

Trade payables are not interest-bearing and are stated at their
nominal value.

3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND
MAJOR SOURCES OF ESTIMATION UNCERTAINTY

The Group makes some judgements when applying its
accounting policies which can have a significant effect on
the amounts recognised in these financial statements. The
Group also makes assumptions concerning the future and
other major sources of estimation uncertainty that can result
in a material adjustment to the carrying amounts of assets
and liabilities within the next financial period. We discuss
these below.

Actuarial assumptions underlying the value of
pension liabilities – judgement and estimation
uncertainty

The Group operates a defined benefit scheme for its
employees. There is significant judgement involved in
selecting appropriate measurement bases for the actuarial
assumptions used to measure the pension deficit.

There is also estimation uncertainty which means that
reasonable alternative assumptions could have led to
measurement at a materially different amount.

The key assumptions within this calculation are discount rate,
inflation rates and mortality rates. These are set out in Note
19, together with sensitivity analysis that shows the effect
that these estimates can have on the carrying value of the
pension deficit.

Allowances against the carrying values of
inventories – estimation uncertainty

In order to achieve the accounting objective that inventories
are stated at the lower of cost and net realisable value,
the Group carries an allowance against products which it
estimates may not sell at a price above cost, or where we may
be holding levels of product in excess of estimated future
demand. The Group bases these estimates on a regular review
of product lifecycles and selling prices achieved in the market,
and in particular on historical sales profiles of products after
they have been discontinued. These estimates are regularly
reviewed against actual experience, and revised to reflect any
differences, but the accuracy of the estimates at any point in
time can be affected by the extent to which current products
may not follow historical patterns.

Both the gross inventory balance and the amount of the
allowance against carrying value are material items and
we would expect this to remain the case as the Group grows
in size, and as consumer demand for regular introductions
of new product continues. Details of inventories and of the
allowance against their carrying amount for the current and
prior period end are shown in Note 15.

We derive our allowance against carrying value based on
specific kitchen ranges and stock items where a decision
has been made to discontinue future sales or where our
monitoring of current sales indicates that the rate of sales is in
decline. As such, the allowance is specific in nature and does
not lend itself to meaningful sensitivity analysis in the same
way as a figure which is derived by a general formula.

Once a decision is made to discontinue future sales of a
product, it will still be available for sale in depots for a set
standard period of time, after which any remaining units of
that product will be removed from sale. Our stock allowance
is calculated so that the carrying value of any unsold units is
progressively written down to nil over the period in which they
are available for sale. The rate at which the units are written
down to nil is based on actual historical experience of realised
selling prices for previous similar products, and recognises
that higher selling prices are typically achievable at the
beginning of the period than at the end of the period.

135

4 REVENUE

An analysis of the Group's revenue is as follows:

The following is an analysis of the carrying amount of assets, and additions to property, plant and equipment and intangible
assets, analysed by the geographical area in which the assets are located:

Continuing operations

Sales of goods

Total revenue

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

1,583.6

1,511.3

5 SEGMENTAL REPORTING

(a) Basis of segmentation, and other general information

Information reported to the Group's Executive Committee is focused on one operating segment, Howden Joinery. Thus, the
information required in respect of profit or loss, assets and liabilities, can all be found in the relevant primary statements and
notes of these consolidated financial statements.

The Howden Joinery business derives its revenue from the sale of kitchens and joinery products.

Carrying amount of assets

Continental Europe

Non-current assets (excluding deferred tax assets)

Continental Europe

(b) Other information

Additions to property, plant and equipment and intangible assets

Capital additions

Depreciation and amortisation

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

63.6

(34.5)

45.2

(30.2)

Continental Europe

The Group's operations are mainly located in the UK, with a small presence in France and Belgium. The Group has depots in each
of these three countries. The number of depots in each location at the current and prior period ends is shown in the five year
record which is located towards the back of this Annual Report. The Group's manufacturing and sourcing operations are located
in the UK.

The following table analyses the Group's revenues from external customers by geographical market, irrespective of the origin of
the goods:

Revenues from external customers

Continental Europe

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

1,550.3

33.3

1,583.6

1,477.3

34.0

1,511.3

6 OPERATING PROFIT

Operating profit has been arrived at after (charging)/crediting:

Net foreign exchange(loss)/gain

Depreciation of property, plant and equipment

Amortisation of intangible assets (included in administrative expenses)

Cost of inventories recognised as an expense

Write down of inventories

(Loss)/profit on disposal of fixed assets

Increase in allowance for doubtful debts (Note 16)

Staff costs (Note 7)

Lease payments under operating leases

Auditor's remuneration for audit services (see below)

All of the items above relate to continuing operations.

28 December 2019
£m

29 December 2018
£m

916.8

27.2

944.0

828.4

36.6

865.0

28 December 2019
£m

29 December 2018
£m

233.8

4.4

238.2

205.8

4.4

210.2

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

61.0

2.6

63.6

44.0

1.2

45.2

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

(2.5)

(28.0)

(6.5)

(586.5)

(8.4)

(1.4)

(0.1)

(440.7)

(85.1)

(0.6)

1.1

(25.8)

(4.4)

(571.4)

(8.8)

–

(1.4)

(418.2)

(82.7)

(0.5)

137

A more detailed analysis of auditor's total remuneration is given below:

Audit services:

Fees paid to the Company's auditor for the audit of the
Company's annual financial statements

Fees paid to the Company's auditor and their associates
for other services to the Group:

– the audit of the subsidiary companies pursuant to legislation

Total audit fees

Other services:

Audit related assurance services (review of the half-year results)

Tax compliance services

Tax advisory services

Total non-audit fees

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

8 FINANCE INCOME

Bank interest receivable

(0.2)

9 TAX

(a) Tax in the income statement

(0.4)

(0.6)

(0.1)

–

(0.1)

(0.3)

(0.5)

(0.1)

–

(0.1)

Current tax:

Current year

Adjustments in respect of previous periods

Total current tax

Deferred tax:

Current year

Adjustments in respect of previous periods

Total deferred tax

Total tax charged in the income statement

Details of the Group's policy on the use of auditors for non-audit services, the reasons why the auditor was used rather than
another supplier and how the auditor's independence and objectivity were safeguarded are set out in the Corporate Governance
Report. No services were provided pursuant to contingent fee arrangements.

7 STAFF COSTS

The aggregate payroll costs of employees, including executive directors, were:

Wages and salaries

Social security costs

Pension operating costs (Note 19)

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

(375.0)

(35.2)

(30.5)

(440.7)

(352.7)

(32.0)

(33.5)

(418.2)

Wages and salaries includes a charge in respect of share-based payments of £4.9m (2018: £4.3m).

The average monthly number of persons (full time equivalent, including executive directors) employed by the Group during the
period was as follows:

52 weeks to
28 December 2019
No.

52 weeks to
29 December 2018
No.

9,903

9,590

UK Corporation tax is calculated at 19% (2018: 19%) of the estimated assessable profit for the period. Tax for other countries is
calculated at the rates prevailing in the respective jurisdictions.

(b) Tax relating to items of other comprehensive income or changes in equity

Deferred tax charge/(credit) to other comprehensive income on actuarial
gain/loss on pension scheme

Change of rate effect on deferred tax

Deferred tax charge/(credit) to equity on share schemes

Current tax charge to equity on share schemes

Total charge/(credit) to other comprehensive income or changes in equity

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

(8.0)

0.7

(0.2)

(0.3)

(7.8)

11.3

–

0.1

(0.1)

11.3

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

1.1

0.7

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

47.9

(1.3)

46.6

5.3

(0.2)

5.1

51.7

44.8

0.3

45.1

3.0

–

3.0

48.1

138

139

The total tax charge for the period can be reconciled to the result per the income statement as follows:

Profit before tax

Tax at the UK corporation tax rate of 19% (2018: 19%)

IFRS2 share scheme charge

Expenses not deductible for tax purposes

Overseas losses not utilised

Non-qualifying depreciation

Other tax adjustments in respect of previous years

Total tax charged in the income statement

The Group's effective rate of tax is 19.8% (2018: 20.2%).

10 EARNINGS PER SHARE

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

260.7

49.5

0.2

1.9

0.4

1.2

(1.5)

51.7

238.5

45.3

(0.6)

0.9

1.0

1.2

0.3

48.1

52 weeks to 28 December 2019

52 weeks to 29 December 2018

Earnings
£m

209.0

–

209.0

Weighted average
number of shares
m

Earnings
per share
p

596.9

3.0

599.9

35.0

(0.2)

34.8

Earnings
£m

190.4

–

190.4

Weighted average
number of shares
m

Earnings
per share
p

608.3

2.5

610.8

31.3

(0.1)

31.2

From continuing operations

Basic earnings per share

Effect of dilutive share options

Diluted earnings per share

11 DIVIDENDS

Amounts recognised as distributions to equity holders in the period:

Interim dividend for the 52 weeks to 28 December 2019 – 3.9p/share

Final dividend for the 52 weeks to 29 December 2018 – 7.9p/share

Interim dividend for the 52 weeks to 29 December 2018 – 3.7p/share

Final dividend for the 53 weeks to 30 December 2017 – 7.5p/share

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

–

22.4

45.9

68.3

23.2

47.4

–

70.6

52 weeks to
28 December 2019
£m

Dividend proposed at the end of the period (but not recognised in the period):

Proposed final dividend for the 52 weeks to 28 December 2019 – (9.1p/share)

54.9

The Directors propose a final dividend in respect of the 52 weeks to 28 December 2019 of 9.1p per share, payable to ordinary
shareholders who are on the register of shareholders at 22 May 2020, and payable on 19 June 2020.

Dividends have been waived indefinitely on all shares held by the Group's employee share trusts, which have not yet been
awarded to employees.

The proposed final dividend for the current period is subject to the approval of the shareholders at the 2020 Annual General
Meeting, and has not been included as a liability in these financial statements.

12 INTANGIBLE ASSETS

The intangible assets shown below all relate to software, as detailed further in the accounting policies note.

Cost

At 30 December 2017

Additions

Reclassifications

At 29 December 2018

Exchange adjustments

Additions

Disposals

At 28 December 2019

Accumulated depreciation

At 30 December 2017

Charge for the period

At 29 December 2018

Exchange adjustments

Charge for the period

Disposals

At 28 December 2019

Net book value at 28 December 2019

Net book value at 29 December 2018

Intangible
assets in use
£m

Intangible assets
under construction
£m

23.5

9.6

6.5

39.6

(0.1)

6.2

(1.3)

44.4

(14.9)

(4.4)

(19.4)

0.1

(6.5)

1.2

(24.6)

19.8

20.2

6.8

2.6

(6.5)

2.9

–

2.3

(0.1)

5.1

–

5.1

2.9

TOTAL
£m

30.3

12.2

–

42.5

(0.1)

8.5

(1.4)

49.5

(14.9)

(4.4)

(19.4)

0.1

(6.5)

1.2

(24.6)

24.9

23.1

140

141

13 PROPERTY, PLANT AND EQUIPMENT

14 DEFERRED TAX

Cost

At 30 December 2017

Exchange adjustments

Additions

Disposals

Reclassifications

At 29 December 2018

Exchange adjustments

Additions

Disposals

Reclassifications

At 28 December 2019

Accumulated depreciation

At 30 December 2017

Charge for the period

Disposals

At 29 December 2018

Exchange adjustments

Charge for the period

Disposals

At 28 December 2019

Net book value at 28 December 2019

Net book value at 29 December 2018

Freehold
property
£m

Leasehold
property
£m

Plant,
machinery
& vehicles
£m

Fixtures &
fittings
£m

Capital
WIP
£m

33.9

–

1.4

–

3.3

38.6

–

0.6

–

0.2

39.4

(4.3)

(1.1)

–

(5.4)

–

(1.2)

–

(6.6)

32.8

33.2

67.8

–

4.5

(0.9)

0.3

71.7

–

5.2

(0.6)

5.2

81.5

167.5

118.5

–

5.5

(4.8)

10.5

178.7

(0.1)

8.1

(11.3)

3.6

179.0

0.1

14.7

(0.7)

1.2

133.8

(0.3)

15.9

(2.4)

0.1

147.1

(25.7)

(5.5)

0.9

(113.4)

(83.2)

(11.4)

4.8

(7.8)

0.5

(30.3)

(120.0)

(90.5)

–

(5.4)

0.5

0.1

(12.1)

11.1

0.1

(9.3)

1.2

(35.2)

(120.9)

(98.5)

18.9

–

6.9

–

(15.3)

10.5

–

25.3

(0.1)

(9.1)

26.6

–

46.3

41.4

58.1

58.7

48.6

43.3

26.6

10.5

TOTAL
£m

406.6

0.1

33.0

(6.4)

–

433.3

(0.4)

55.1

(14.4)

–

473.6

(226.6)

(25.8)

6.2

(246.2)

0.2

(28.0)

12.8

(261.2)

212.4

187.1

The following are the major deferred tax assets and liabilities recognised by the Group, and the movements on them during the
current and prior reporting periods:

At 30 December 2017

(Charge)/credit to income statement

Charge outside income statement

At 29 December 2018

(Charge)/credit to income statement

(Charge)/credit outside income statement – change of rate

Credit outside income statement

At 28 December 2019

Retirement
benefit
obligations
£m

Accelerated
capital
allowances
£m

Company
share
schemes
£m

Other
temporary
differences
£m

20.8

(2.7)

(11.3)

6.8

(4.5)

(0.7)

8.0

9.6

1.6

(0.4)

–

1.2

(0.7)

–

0.5

0.7

–

(0.1)

0.6

0.1

–

0.8

0.9

0.2

–

1.1

–

1.1

Total
£m

24.0

(2.9)

(11.4)

9.7

(5.1)

(0.6)

8.0

12.0

Deferred tax arising from accelerated capital allowances, company share schemes and other temporary differences can be
further analysed as a £3.9m asset and a £1.5m liability (2018: £4.4m asset and £1.5m liability).

The presentation in the balance sheet is as follows:

Deferred tax assets

Deferred tax liabilities

28 December 2019
£m

29 December 2018
£m

13.5

(1.5)

12.0

11.2

(1.5)

9.7

At the balance sheet date the Group had unused tax losses as disclosed below. These losses are carried forward by particular
Group companies and may only be offset against profits of that particular company. Deferred tax assets are not recognised
in relation to these losses as it is not considered probable that suitable future taxable profits will be available in the relevant
company against which the unused losses can be utilised. Specifically, in the case of the trading and non-trading losses this is
due to the unpredictability of future profit streams in the relevant entities, while for the capital losses it is due to the future capital
gains not currently being forecast to arise. All unrecognised losses may be carried forward indefinitely and have been valued in
GBP at the year end closing exchange rate.

The analysis below does not include any tax losses attributable to our former subsidiaries in The Netherlands and Germany,
which have now ceased to trade.

Trading losses

Non-trading losses

Capital losses

Total losses

28 December 2019
£m

29 December 2018
£m

147

142

143

15 INVENTORIES

Raw materials

Work in progress

Finished goods and goods for resale

Allowance against carrying value of inventories

28 December 2019
£m

29 December 2018
£m

8.7

5.7

255.3

(37.9)

231.8

6.1

5.4

246.6

(31.8)

226.3

In the event that the Group were to use its bank facility, it has pledged its inventories as security for any borrowing under the
facility. More details are given in Note 18.

The historical level of customer default is low, and as a result we consider the ‘credit quality’ of period end trade receivables to
be high. We regularly review trade receivables which are past due but not impaired, and we consider, based on past experience,
whether the credit quality of these amounts at the balance sheet date has deteriorated since the transaction was entered
into and therefore whether the amounts are recoverable. We maintain regular contact with all such customers and, where
necessary, we take legal action to recover the receivable. We make an allowance for impairment for any specific amounts which
we consider to be irrecoverable or only partly recoverable. We also have a separate general allowance, which is calculated as
a percentage of sales and is based on historical default rates. At the period end, the total bad debt provision of £11.4m (2018:
£11.3m) consists of a specific provision of £4.6m (2018: £5.3m) which has been made against specific debts with a gross
carrying value of £5.8m (2018: £6.6m), and a general provision of £6.8m (2018: £6.0m). To the extent that recoverable amounts
are estimated to be less than their associated carrying values, we have recorded impairment charges in the consolidated
income statement and have written carrying values down to their estimated recoverable amounts.

We wrote off £6.9m of debts in the period (2018: £5.5m). Included within our aggregate trade receivables balance are specific
debtor balances with customers totalling £27.7m before bad debt provision (2018: £25.8m before provision) which are past
due as at the reporting date. We have assessed these balances for recoverability and we believe that their credit quality
remains intact.

An ageing analysis of these past due trade receivables is as follows:

16 OTHER FINANCIAL ASSETS

Trade and other receivables

Trade receivables (net of allowance)

Prepayments

Other receivables

28 December 2019
£m

29 December 2018
£m

148.3

42.1

2.7

193.1

145.2

37.4

3.4

186.0

1–30 days past due

31–60 days past due

61–90 days past due

90+ days past due

28 December 2019
£m

29 December 2018
£m

13.2

3.2

2.2

9.1

27.7

11.4

3.4

2.0

9.0

25.8

Trade and other receivables are not interest-bearing, and are on commercial terms. Their carrying value approximates to their
fair value.

Total overdue amounts, excluding allowance for doubtful receivables

An analysis of the Group's allowance for doubtful receivables is as follows:

Balance at start of period

Increase in allowance recognised in the income statement

Balance at end of period

28 December 2019
£m

29 December 2018
£m

11.3

0.1

11.4

9.9

1.4

11.3

The Group’s exposure to the credit risk inherent in its trade receivables is discussed in Note 26. We have no significant
concentration of credit risk, as our exposure is spread over a large number of customers. We charge interest at appropriate
market rates on balances which are in litigation.

Before accepting any new credit customer, we obtain a credit check from an external agency to assess the potential customer’s
credit quality, and then we set credit limits on a customer-by-customer basis. We review credit limits regularly, and adjust them if
circumstances change. In the case of one-off customers, our policy is to require immediate payment at the point of sale, and not
to offer credit terms.

There were no trade receivables which would have been impaired at either period end were it not for the fact that their credit
terms were renegotiated. The Group does not renegotiate credit terms.

Cash and cash equivalents

Cash and cash equivalents comprises cash on hand and at bank, together with demand deposits and other short-term
investments. Cash at bank is either in current accounts, or is placed on short-term deposit, and is available on demand.
Interest on short-term deposits is paid at prevailing money market rates. The carrying amount of these assets approximates
to their fair value.

Short-term investments

Short-term investments at the end of 2019 comprised investments in short-term UK Gilts. They had maturity dates ranging
between one and three months from the balance sheet date. They returned a fixed rate of interest and the weighted average
effective interest rate on the Gilts held at the balance sheet date was 0.48% p.a.

These investments were classified as held-to-maturity, and held at amortised cost. The Directors estimated that the fair value of
these investments at the period end was equal to their carrying value.

The Group did not have any short-term investments at the end of 2018.

Assets pledged as security

In the event that the Group were to use its bank facility, it has pledged its trade receivables as security for any borrowing under
the facility. More details are given in Note 18.

144

145

17 OTHER FINANCIAL LIABILITIES

Trade and other payables

Current liabilities

Trade payables

Other tax and social security

Other payables

Accruals

28 December 2019
£m

29 December 2018
£m

96.4

71.1

11.3

62.6

241.4

95.6

69.0

11.9

56.4

232.9

Trade payables, other payables, and accruals principally comprise amounts due in respect of trade purchases and ongoing
costs. Their carrying value in both periods approximates to their fair value.

19 RETIREMENT BENEFIT OBLIGATIONS

(a) Overview of all retirement benefit arrangements

Defined contribution: auto-enrolment plan

The Group operates an auto-enrolment defined contribution plan for employees. Under the terms of this scheme, employees
make pension contributions out of their salaries, and the Group also makes additional contributions.

The total cost charged to income in respect of this plan in the current period of £9.3m (2018: £6.7m) represents the Group's
contributions due and payable in respect of the period. All of this amount was paid in the period as it also was in the previous period.

Defined contribution: other plan

The Group operates another defined contribution plan for its employees. The assets of this plan are held separately from those
of the Group, and are under the control of the scheme trustees. This plan began operation during 2006.

The total cost charged to income in respect of this plan in the current period of £1.2m (2018: £0.9m) represents the Group's
contributions due and paid in respect of the period.

The average credit taken for trade purchases during the period, based on total operations, was 42 days (2018: 41 days).

Defined benefit plan

The Group's policy on payment of creditors is to agree terms of payment prior to commencing trade with a supplier, and to abide
by those terms on the timely submission of satisfactory invoices.

18 BORROWING FACILITY

At the period end date, the Group had a £140m committed borrowing facility, due to expire in December 2023. The Group did not
use the facility in the year.

The facility is secured on the trade receivables and stock of the Group. The available facility limit is calculated every week, based
on the asset backing at the time and can never exceed £140m. There were no borrowings under the facility at either the current
or previous year end. As at 28 December 2019, the Group had available £138m of undrawn committed borrowing facilities, in
respect of which all conditions precedent had been met (29 December 2018: £138m), in addition to the Group's cash and short-
term investments as shown on the balance sheet.

If the Group were to use the facility, it would carry interest at a rate of LIBOR plus a margin of 125 basis points. Under the terms of
the facility, none of the Group's principal subsidiary companies can sign up to additional secured borrowings, other than those
expressly permitted within the terms of the facility. The facility (i) permits normal trade credit granted to it in the ordinary course
of business; (ii) allows up to £10m of additional secured borrowings, and (iii) allows up to £20m of finance lease borrowing.

Characteristics and risks of the plan
The Group operates a funded pension plan which provides benefits based on the career average pensionable pay of
participating employees. This plan was closed to new entrants from April 2013.

The assets of the plan are held separately from those of the Group, being held in a trustee-administered pension plan and invested
with independent fund managers. The trustee directors of the plan comprise three member-elected trustees, one independent
trustee, and four Group-appointed trustees. All trustees are required to act in the best interests of the plan beneficiaries.

The plan exposes the Group to actuarial risks, such as longevity risk, interest rate risk, inflation risk and market (investment) risk.

Accounting and actuarial valuation
Contributions are charged to the consolidated income statement so as to spread the cost of pensions over the employees’
working lives with the Group. The present value of the defined benefit obligation, the related current service cost, and past
service cost are determined by a qualified actuary using the projected unit method. The most recent completed actuarial
valuation was carried out at 5 April 2017 by the plan actuary. The actuary advising the Group has subsequently rolled forward
the results of the 5 April 2017 valuation to 28 December 2019. This roll-forward exercise involves updating all the assumptions
which are market-based (i.e. inflation, discount rate, rate of increase in pensions and rate of CARE revaluation) to values as at
28 December 2019. We are using CMI 2018 mortality tables, being the most recent tables available.

Funding and estimated contributions
The Group has an agreement with the pension plan trustees to make additional deficit contributions to the plan, over and above
the normal level of contributions, of £30m per year until June 2023. The Group's estimated total cash contributions to the defined
benefit plan in the 52 weeks ending 26 December 2020 are £47m.

Differences between the defined benefit pension deficit on an IAS 19 basis and on a funding basis

As is mandatory under International Financial Reporting Standards, the Group values its pension deficit in these accounts
on an IAS 19 basis. As shown below, the IAS 19 deficit at the current period end is £56.6m. On a funding basis (also known as a
‘Technical Provisions basis’, being the basis on which the triennial actuarial valuations are carried out), the funding deficit at
the current period end is estimated at £129.9m, this estimate being based on an approximate roll-forward of the 2017 triennial
funding valuation, updated for market conditions.

146

147

(b) Total amounts charged/(credited) in respect of pensions in the period

Sensitivities

Charged to the income statement:

Defined benefit plan – current service cost

Defined benefit plan – past service cost (GMP equalisation1)

Defined benefit plan – administration costs

Defined benefit plan – total operating charge

Defined benefit plan – net finance charge

Defined contribution plans – total operating charge

Total net amount charged to profit before tax

Charged/(credited) to equity:

Defined benefit plan – actuarial losses/(gains)

Total charge/(credit)

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

17.2

–

2.8

20.0

0.4

10.5

30.9

47.1

78.0

19.8

3.8

2.3

25.9

2.3

7.6

35.8

(59.3)

(23.5)

The past service cost in the prior period related to a charge recognised in respect of equalising the Guaranteed Minimum Pension entitlements between female
and male members of the plan between 1978 and 1997. This was an issue which affected all UK defined benefit pension plans which provide Guaranteed Minimum
Pensions, although it was only since the High Court ruling in a test case in October 2018 that there was some clarity as to the obligations which existed and the range
of suitable ways in which to measure them. The plan's actuary applied the principles of the High Court ruling to the specific details of the plan's membership in order
to calculate the past service cost shown above.

52 weeks to
28 December 2019

52 weeks to
29 December 2018

Key assumptions used in the valuation of the plan

Rate of increase of pensions in deferment capped at lower of CPI and 5%

Rate of CARE revaluation capped at lower of RPI and 3%

Rate of increase of pensions in payment:

– pensions with increases capped at lower of CPI and 5%

– pensions with increases capped at lower of CPI and 5%, with a 3% minimum

– pensions with increases capped at the lower of LPI and 2.5%

Rate of increase in salaries

Inflation assumption – RPI

Inflation assumption – CPI

Discount rate

Life expectancy (years): pensioner aged 65

– male

– female

Life expectancy (years): non-pensioner aged 45

– male

– female

2.40%

2.50%

2.40%

3.35%

2.20%

4.20%

3.20%

2.40%

1.95%

86.5

88.1

87.6

90.3

2.45%

2.60%

2.45%

3.35%

2.25%

4.45%

3.45%

2.45%

2.85%

87.4

89.0

88.6

91.1

If there was a decrease in the discount rate of 0.25%, there would be a corresponding increase in the scheme liabilities of
around 6%, or £90m, an increase in the operating charge of around £1.8m and an increase in pensions finance charge of
around £1.25m.

An increase of 0.25% to the inflation rate would increase scheme liabilities by around 2.4%, or £36m, increase the operating
charge by around £0.2m and increase the pensions finance charge by around £0.75m.

The effect of increasing the assumption regarding life expectancy by one year longer than shown above would be to increase
the assessed value of liabilities by around 3.5%, or £52m, to increase the operating charge by around £0.8m and to increase the
pensions finance charge by around £1.1m.

The sensitivities above are applied to the defined benefit obligation at the end of the reporting period, and the projected total
service cost for 2020. Whilst the analysis does not take account of the full distribution of cash flows expected under the scheme,
it does provide a reasonable approximation. The same amount of movement in the opposite direction would produce a broadly
equal and opposite effect.

Analysis of plan assets

Government bonds

Equities

– passive equities

– low volatility equities

Private equity1

Alternative growth assets

– fund of hedge funds

– absolute return fund

Insurance-linked securities

Corporate bonds

Commercial property fund2

Other secure income

Asset-backed securities

Cash and cash equivalents

Total

28 December 2019

29 December 2018

Quoted market
price in an active
market
£m

No quoted market
price in an active
market
£m

Quoted market
price in an active
market
£m

No quoted market
price in an active
market
£m

505.5

138.6

–

80.6

–

170.4

36.9

–

126.1

53.0

1,111.1

–

4.1

94.2

–

64.0

–

65.7

89.6

–

317.6

420.2

115.2

–

89.2

67.7

62.0

152.2

61.5

–

200.0

18.5

1,186.5

–

10.1

–

49.1

–

59.2

The plan assets do not include any of the Group's own financial instruments nor any property occupied by, or other assets used
by, the Group.

The private equity investments are held in two funds. One fund values the assets based on guidelines from the European Private Equity and Venture Capital
Association and International Private Equity and Venture Capital Valuation. The assets in the other fund are measured at fair market value on a quarterly basis
in accordance with US GAAP: using the latest closing prices for publicly traded and quoted securities and applying a possible exit price for non-marketable and
direct investments.

2. This holding is recorded at historical costs and then adjusted for amortisation and other payments received.

Asset allocation

The plan trustees' asset allocation strategy, as communicated to members in November 2019, was to target a weighting of 60% –
with a range of between 50% and 70% – in return-seeking assets (such as equities, alternative growth assets, private equity and
the commercial property fund), and a weighting of 40% – with a range of between 30% and 50% – in risk-reducing assets (such as
government bonds, corporate bonds, and cash and cash equivalents).

148

149

Analysis of plan members, scheme liability split and duration

Movements in the fair value of the plan's assets is as follows:

Active members

Deferred members

Subtotal

Pensioners

Total No./average duration

20191

No. of members

% of total liability

Duration (years)

1,448

5,677

7,125

3,652

10,777

72%

28%

100%

1. The figures are on an IAS 19 basis and are as at 5 April 2019, the date of the latest agreed pension plan accounts.

Active members

Deferred members

Subtotal

Pensioners

Total No./average duration

20182

No. of members

% of total liability

Duration (years)

1,534

5,890

7,424

3,495

10,919

69%

31%

100%

2. The figures are on an IAS 19 basis and are as at 5 April 2018, from the pension plan accounts.

Balance sheet

The amount included in the balance sheet arising from the Group's obligations in respect of defined benefit retirement benefit
plan is as follows:

Present value of defined benefit obligations

Fair value of scheme assets

Deficit in the scheme, recognised in the balance sheet

Movements in the present value of defined benefit obligations were as follows:

Present value at start of period

Current service cost

Past service cost

Administration cost

Interest on obligation

Actuarial losses/(gains):

– changes in financial and demographic assumptions

– experience

Benefits paid, including expenses

Present value at end of period

28 December 2019
£m

29 December 2018
£m

(1,485.3)

1,428.7

(56.6)

(1,281.7)

1,245.7

(36.0)

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

1,281.7

1,374.6

17.2

–

2.8

35.8

203.5

(6.6)

(49.1)

1,485.3

19.8

3.8

2.3

33.8

(104.7)

(0.6)

(47.3)

1,281.7

Fair value at start of period

Interest income on plan assets

Contributions from the Group

Actuarial gains/(losses)

Benefits paid, including expenses

Fair value at end of period

Movements in the deficit during the period are as follows:

Deficit at start of period

Current service cost

Past service cost

Administration cost

Employer contributions

Other finance charge

Actuarial (losses)/gains gross of deferred tax

Deficit at end of period

Income statement

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

1,245.7

35.4

46.9

149.8

(49.1)

1,428.7

1,265.3

31.5

42.2

(46.0)

(47.3)

1,245.7

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

(36.0)

(17.2)

–

(2.8)

46.9

(0.4)

(47.1)

(56.6)

(109.3)

(19.8)

(3.8)

(2.3)

42.2

(2.3)

59.3

(36.0)

Amounts recognised in the income statement arising from the Group's obligations in respect of the defined benefit plan are
shown below.

Amount charged to operating profit:

Current service cost

Past service cost

Administration cost

Total operating charge

The total operating charge is included in the financial statement heading Staff costs.

Amount credited to other finance charges:

Interest income on plan assets

Interest cost on defined benefit obligation

Net charge

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

17.2

–

2.8

20.0

19.8

3.8

2.3

25.9

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

(35.4)

35.8

0.4

(31.5)

33.8

2.3

The £203.5m item ‘changes in financial and demographic assumptions’ in 2019 comprises an increase in liabilities of £251.4m
relating to changes in the net discount rate and a decrease of £47.9m due to adopting the most recent longevity tables.

The actual return on plan assets was £185.2m (52 weeks to 29 December 2018: loss of £14.5m).

150

151

Statement of comprehensive income

Amounts taken to equity via the statement of comprehensive income in respect of the Group's defined benefit plan are shown below:

Actuarial gain/(loss) on plan assets

Actuarial (loss)/gain on plan liabilities

Net actuarial (loss)/gain, before associated deferred tax

20 PROVISIONS

At 30 December 2017

Additional provision in the period

Provision released in the period

Utilisation of provision in the period

At 29 December 2018

Additional provision in the period

Provision released in the period

Utilisation of provision in the period

At 28 December 2019

Property provision

Property
£m

Warranty
£m

4.3

0.4

(0.6)

(0.7)

3.4

3.1

(0.9)

(2.2)

3.4

3.9

3.5

–

(3.8)

3.6

5.3

–

(3.8)

5.1

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

149.8

(196.9)

(47.1)

Other
£m

2.3

0.3

(1.1)

(1.2)

0.3

5.5

–

(5.3)

0.5

(46.0)

105.3

59.3

Total
£m

10.5

4.2

(1.7)

(5.7)

7.3

13.9

(0.9)

(11.3)

9.0

The property provision covers two main areas: (i) onerous leases on any non-trading leased properties, and (ii) obligations to
make dilapidations payments to landlords of leased properties.

The timing of outflows from the provision is variable, and is dependent on rent payment dates, lease expiry dates, opportunities
to surrender leases, and on the timing of dilapidations assessments and works.

Warranty provision

The warranty provision relates to amounts due in respect of product warranties. As products are sold, the Group makes provision
for claims under warranties. As claims are made, the Group utilises the provision and then uses this historical
data to periodically revise the basis on which it makes further provision.

Other provision

Movement in the period relates to the closure of the Group's trials in Germany and The Netherlands. The closure of these
businesses was substantially completed in 2019, with a final £0.2m of further closure expenses expected in 2020.

21 SHARE CAPITAL

Ordinary shares of 10p each:

Allotted, called up and fully paid:

52 weeks to
28 December 2019
No.

52 weeks to
29 December 2018
No.

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

Balance at the beginning of the period

615,436,307

628,192,755

Bought back and cancelled during the period

(10,772,446)

(12,756,448)

Balance at the end of the period

604,663,861

615,436,307

61.5

(1.0)

60.5

62.8

(1.3)

61.5

22 NOTES TO THE CASH FLOW STATEMENT

Analysis of net cash

At 29 December 2018

Cash flow

At 28 December 2019

Cash at bank
and in hand
£m

Short-term
investments
£m

231.3

(12.8)

218.5

–

48.9

Cash and cash
equivalents,
and net cash
£m

231.3

36.1

267.4

The short-term investments held at the period end had a maturity of less than three months, and as such were considered to be
cash equivalents for the purposes of the cash flow statement. More details are given in Note 2 and Note 16.

23 FINANCIAL COMMITMENTS

Capital commitments

Contracted for, but not provided for in the financial statements:

– Tangible assets

– Intangible assets

28 December 2019
£m

29 December 2018
£m

17.8

0.3

18.1

3.6

1.0

4.6

The increase in commitments for tangible assets in the current period is mainly due to committed fitout works on the second and
third phases of our new warehouse development.

152

153

Operating lease commitments

The Group as lessee:

Payments under operating leases during the period are shown at Note 6. At the balance sheet date, the Group had outstanding
lease commitments for future minimum lease payments under non-cancellable operating leases which fall due as shown below.

Properties

Other leases

Total

28 December
2019
£m

29 December
2018
£m

28 December
2019
£m

29 December
2018
£m

28 December
2019
£m

29 December
2018
£m

69.6

197.4

258.9

525.9

67.0

195.8

179.6

442.4

15.2

37.4

7.1

59.7

15.1

32.2

8.5

55.8

84.8

234.8

266.0

585.6

82.1

228.0

188.1

498.2

Payments falling due:

Within one year

In the second to fifth year inclusive

After five years

The Group as lessor:

The Group sublets certain leased properties to third parties. At the balance sheet date, the Group had contracted with tenants for
the following future minimum lease payments:

Payments receivable:

Within one year

In the second to fifth year inclusive

After five years

24 SHARE-BASED PAYMENTS

1) Details of each scheme

28 December 2019

29 December 2018

£m

0.6

1.9

1.1

3.6

£m

1.9

2.9

0.9

5.7

The Group recognised a charge of £4.9m (2018: charge of £4.3m) in respect of share-based payments during the period. The
Group has various share-based payment schemes, which are all equity-settled. The main details of all schemes which existed
during the period are given below.

Freeshares

This is a UK tax-advantaged ‘all-employee’ Share Incentive Plan where eligible UK employees receive an award of free shares in
the Company. If participants are still employed by a UK Howdens group company on the third anniversary of the date the shares
were granted, the shares will vest. There are no other performance conditions attached to these awards. Dividends are payable
on the free shares during the vesting period.

Howden Joinery Group Long Term Incentive Plan (‘LTIP’)

This is a discretionary employee share plan under which the Company may grant different types of award including options,
conditional awards and restricted share awards. With the exception of (vi) below, neither dividends nor dividend equivalents are
payable during the vesting period. The different types of awards are as follows:

(i)

Market value options, the vesting period for which was three years commencing from the date of grant with an exercise
period of seven years (i.e. a total life of 10 years). Options vested where cumulative PBT of £90m was achieved over the
three financial years ending 2009, 2010 and 2011.

(ii)

Market value options, the vesting period for which was three years commencing from the date of grant with an exercise
period of seven years (i.e. a total life of 10 years). 15% of the options vested if the Group achieved growth in pre-exceptional
PBT equivalent to RPI over the performance period; 100% vested if pre-exceptional PBT growth equivalent to RPI + 8% was
achieved.

(iii)

Conditional Share Awards, the vesting period for which is three years commencing on the date of grant and subject to
continued employment. The shares are not subject to any other performance conditions.

(iv)

Market value options, the vesting period for which was three years commencing from the date of grant with an exercise
period of seven years (i.e. a total life of 10 years). The vesting conditions for these options were as follows:

Date of award

Vesting based on growth in profits – from year ended December

– to year ended December

Award vests at 15% if profits over the vesting period grow by

Award vests at 100% if profits over the vesting period grow by

2015

2014

2017

20%

2016

2015

2018

20%

If profits grow by a figure between the upper and lower thresholds for each year, the award will vest on a sliding scale.

(v)

Performance Share Plan, the vesting period for which is three years commencing from the date of grant. The awards are
subject to the following performance conditions:

Date of award

Vesting based on growth in profits – from year ended December

– to year ended December

Award vests at 15% if profits over the vesting period grow by

Award vests at 100% if profits over the vesting period grow by

2017

2016

2019

15%

2018

2017

2020

15%

2019

2018

2021

15%

(vi)

Restricted Share Awards, where the participant receives beneficial entitlement to shares upon grant of the award. The
legal interest however is not transferred to the participant until the forfeiture provisions and restrictions applicable to
the awards cease to apply. The shares are not subject to any performance conditions other than continued employment.
Dividends are payable during the vesting period.

Recruitment Plan

This is a discretionary employee share plan under which the Company may grant an eligible employee conditional rights to
acquire shares subject to certain conditions. The shares are not subject to any performance conditions other than continued
employment. Neither dividends nor dividend equivalents are payable during the vesting period. The awards granted under this
plan may only be satisfied with existing shares.

154

155

2) Movements in the period

52 weeks to 28 December 2019

In issue at start of period

Granted in period

Lapsed in period

Exercised in period

In issue at end of period

Exercisable at end of period

Number of options in the closing balance
granted before 7 November 2002

Weighted average share price for options
exercised during the period (£)

Weighted average life remaining for options
outstanding at the period end (years)

Weighted average fair value of options
granted during the period (£)

Exercise price for all options (£)

In issue at start of period

Granted in period

Lapsed in period

Exercised in period

In issue at end of period

Exercisable at end of period

Number of options in the closing balance
granted before 7 November 2002

Weighted average share price for options
exercised during the period (£)

Weighted average life remaining for options
outstanding at the period end (years)

Weighted average fair value of options
granted during the period (£)

Exercise price for all options (£)

1.09 to 3.79

Freeshares
Number

2,496,344

944,100

(208,500)

LTIP (i)
Number

58,500

–

LTIP (ii)
Number

80,277

–

LTIP (iii)
Number

LTIP (v)
Number

42,500

4,840,735

–

1,589,842

(11,500)

(1,690,324)

(453,497)

(58,500)

(80,277)

(8,100)

(8,976)

52 weeks to 29 December 2018

In issue at start of period

Granted in period

Lapsed in period

Exercised in period

In issue at end of period

Freeshares
Number

2,101,110

909,200

(215,000)

LTIP (i)
Number

62,150

–

LTIP (ii)
Number

96,919

–

LTIP (iii)
Number

LTIP (v)
Number

34,800

3,778,976

16,500

1,648,746

(2,600)

(585,333)

(298,966)

(3,650)

(16,642)

(6,200)

(1,654)

2,496,344

58,500

80,277

42,500

4,840,735

2,778,447

530,847

23,456

–

5.34

5.22

1.37

5.17

0.00

N/A

0.36

LTIP (iv)

Number

WAEP (£)

2.94

N/A

2.56

3.22

927,176

–

(396,094)

531,082

–

5.52

0.00

N/A

–

5.10

N/A

0.81

22,900

4,731,277

–

5.22

0.79

N/A

0.00

–

5.07

1.37

4.65

0.00

LTIP (vi)
Number

Recruitment
Plan
Number

–

117,691

111,327

–

(69,397)

111,327

48,294

–

N/A

0.96

5.60

0.00

–

4.86

0.18

N/A

0.00

–

4.66

1.40

4.57

0.00

–

4.76

1.34

4.68

0.00

Exercisable at end of period

358,644

58,500

80,277

Number of options in the closing balance
granted before 7 November 2002

Weighted average share price for options
exercised during the period (£)

Weighted average life remaining for options
outstanding at the period end (years)

Weighted average fair value of options
granted during the period (£)

Exercise price for all options (£)

In issue at start of period

Granted in period

Lapsed in period

Exercised in period

In issue at end of period

Exercisable at end of period

Number of options in the closing balance
granted before 7 November 2002

Weighted average share price for options
exercised during the period (£)

Weighted average life remaining for options
outstanding at the period end (years)

Weighted average fair value of options
granted during the period (£)

358,644

4.86

1.37

4.65

0.00

–

4.81

0.00

N/A

0.36

LTIP (iv)

Number

WAEP (£)

2.91

N/A

2.82

2.94

1,266,435

–

(339,259)

927,176

–

4.87

0.00

N/A

Exercise price for all options (£)

1.09 to 3.79

3) Fair value of options granted

–

4.65

0.00

N/A

0.81

Recruitment
Plan
Number

–

249,330

–

(131,639)

117,691

–

4.60

0.58

4.44

0.00

The fair value of all options granted is estimated on the date of grant using a binomial option valuation model.

The key assumptions used in the model were:

Dividend yield (%)

Expected life of options (years)

52 weeks to
28 December 2019

52 weeks to
29 December 2018

2.2 to 2.6

0.6 to 3

2.6

0.1 to 3

156

157

25 RELATED PARTY TRANSACTIONS

Companies which are related parties

Transactions between Group companies, which are related parties, have been eliminated on consolidation and are not disclosed
in this note. All transactions between the Group and the Group’s pension schemes have been disclosed in Note 19.

Remuneration of key management personnel

Key management personnel comprise the Board of Directors (including non-executive directors) and the Executive Committee.
Details of the aggregate remuneration to these personnel is set out below. The figure disclosed for share-based payments
represents the gain realised on the exercise of share options in the year, albeit that those options will have been granted in
previous periods. All figures include any related employer's National Insurance.

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

8.4

0.4

8.8

6.7

0.8

7.5

Short-term employment benefits

Share-based payments

Other transactions with key management personnel

There were no other transactions with key management personnel.

26 FINANCIAL RISK MANAGEMENT

(a) Capital risk management

The Group manages its capital structure to maximise shareholder returns through its debt and equity balance, trading-off the
benefits of financial leverage with the potential future costs of financial distress.

The capital structure of the Group consists of cash and short-term investments, the committed borrowing facility discussed
further in Note 18 – if needed – and equity attributable to equity holders of the parent (including issued share capital and reserves
as disclosed in the Consolidated Statement of Changes in Equity, and in Note 21).

The Board of Directors reviews the capital structure regularly, including at the time of preparing annual budgets, preparing
three-year corporate plans, and considering corporate transactions. As part of this review, the Board reviews the costs and the
risks associated with each class of capital. The Group will balance its overall capital structure through the payment of dividends,
new share issues and share buybacks, taking on or issuing new debt or repaying any existing debt.

(b) Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial
liability and equity instrument are in Note 2 to the financial statements.

Financial assets (current and non-current)

Trade receivables

Cash and cash equivalents

Financial liabilities (current and non-current)

Trade payables

(d) Financial risk management

General

28 December 2019
£m

29 December 2018
£m

148.3

267.4

145.2

231.3

96.4

95.6

The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board has approved and monitors
the risk management processes, including documented treasury policies, counterparty limits, controlling and reporting
structures. The types of risk exposure, the way in which these exposures are managed, and the quantification of the level of
exposure in the balance sheet is shown below (subcategorised into credit risk, liquidity risk and market risk). The Group is actively
engaged in the management of all of these financial risks in order to minimise their potential adverse impact on the Group’s
financial performance.

The principles, practices and procedures governing the Group-wide financial risk management process have been approved
by the Board and are overseen by the Executive Committee. In turn, the Executive Committee delegates authority to a central
treasury function (‘Group Treasury’) for the practical implementation of the financial risk management process across the
Group and for ensuring that the Group’s entities adhere to specified financial risk management policies. Group Treasury
regularly reassesses and reports on the financial risk environment, identifying and evaluating financial risks. The Group
does not take positions on derivative contracts and only enters into contractual bank deposit or lending arrangements with
counterparties that have appropriate credit ratings, as detailed in section (e) below.

Cash and cash equivalents

Cash and cash equivalents comprises cash on hand together with demand deposits, and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Arrangements are in place to ensure that cash is utilised most efficiently for the ongoing working capital needs of the Group’s
operating units and to ensure that the Group earns the most advantageous rates of interest available. The prime consideration in
the investment of cash balances is the security of the asset, followed by liquidity and then yield.

Current asset investments consist of UK Government Treasury Bills with an initial term to maturity of up to three months. These
investments are held to maturity and, whilst of lower liquidity than cash, will ensure that the primary Group policy objective of
asset security is met.

Management of trade receivables is discussed in Note 16.

159

(e) Credit risk

(g) Market risk

The Group's principal financial assets are cash, investments, and trade and other receivables. Our main credit risk is the risk of
trade customers defaulting their debts. We have a policy of only dealing with creditworthy counterparties in order to mitigate the
risk of defaults.

We describe our policy on dealing with trade customers in Note 16 and Note 2. Trade receivables are spread over a large number
of customers, and we do not have a significant exposure to any single counterparty.

We limit our exposure to credit risk on liquid funds and investments through adherence to a policy of minimum short-term
counterparty credit ratings assigned by international credit-rating agencies (Standard & Poor's A-1 and Moody's P-1). However,
when accounts are opened in new territories there may be instances where there is no appropriate partner which meets the
Group's credit rating conditions. In such circumstances, arrangements with a counterparty which does not meet the Group's
credit rating criteria can be made only at the specific approval of the Board and is subject to a maximum cash holding limit.

In addition, the Group Treasury function monitors counterparty risk through regular assessments which take account of
counterparties' key financial ratios, corporate bond and equity prices together with agency credit ratings.

Our maximum exposure to credit risk is presented in the following table:

Trade receivables (net of allowance)

Cash

Current asset investments

Total credit risk exposure

(f) Liquidity risk

28 December 2019
£m

29 December 2018
£m

148.3

218.5

48.9

415.7

145.2

231.3

–

376.5

Liquidity risk is the risk that the we could experience difficulties in meeting our commitments to creditors as financial liabilities
fall due for payment. The Group manages its liquidity risk by using reasonable and retrospectively-assessed assumptions
to forecast the future cash-generative capabilities and working capital requirements of the businesses it operates and by
maintaining sufficient cash and investment reserves, committed borrowing facilities and other credit lines as appropriate.
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has agreed an appropriate
liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity
management requirements.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities as
far as is possible. Included in Note 18 is a description of additional undrawn facilities that the Group has at its disposal to further
reduce liquidity risk. In addition, the Strategic Review contains a section describing the interaction of liquidity risk and the going
concern review.

Maturity profile of outstanding financial liabilities

Our only outstanding financial liabilities are our trade creditors. These are capital liabilities, with no associated interest, and are
payable within one year.

This is the risk that financial instrument fair values will fluctuate owing to changes in market prices. The significant market risks
to which we are exposed are foreign exchange risk, and interest rate risk. These are discussed further below:

Foreign exchange risk

We are exposed to foreign exchange risk, principally as a result of operating costs incurred in foreign currencies, and to a lesser
extent, from non-sterling revenues. Our policy is generally not to hedge such exposures. The exposure of our financial assets and
liabilities to currency risk is as follows:

Euro

Trade receivables

Other receivables

Cash and cash equivalents

Trade payables

Other payables

US Dollar

Cash and cash equivalents

Trade payables

Total

Interest rate risk

28 December 2019
£m

29 December 2018
£m

4.5

2.4

13.5

(18.8)

(3.1)

(1.5)

0.1

(0.1)

–

(1.5)

4.2

2.3

21.4

(23.2)

(3.1)

1.6

–

(1.1)

0.5

The Group does not have any significant exposure to interest rate risk.

(h) Financial instrument sensitivities

Financial instruments affected by market risk include deposits, trade receivables and trade payables. The following analysis,
required by IFRS 7, is intended to illustrate the sensitivity of the Group’s financial instruments as at its year end to changes in
market variables, being exchange rates and interest rates. The sensitivity analysis has been prepared on the basis that the
components of net cash and the proportion of financial instruments in foreign currencies are all constant. For floating rate
liabilities, the analysis is prepared assuming that the amount of liability outstanding at the year end date was outstanding for
the whole year. As a consequence, this sensitivity analysis relates to the position as at the balance sheet date. The following
assumptions were made in calculating the sensitivity analysis:

• Deposits are carried at amortised cost and therefore carrying value does not change as interest rates move.

• No sensitivity is provided for accrued interest as accruals are based on pre-agreed interest rates and therefore are

not susceptible to further rate movements.

• Finance lease interest payments are fixed at the inception of the contract and are not subject to repricing. They have

therefore been excluded from this analysis.

•

Translation of foreign subsidiaries and operations into the Group’s presentation currency have been excluded from
the sensitivity.

Using the above assumptions, the following analyses show the illustrative effect on the income statement and equity
that would result from reasonably possible changes in the relevant foreign currency or interest rates:

161

Interest rate sensitivity

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Independent auditor’s report
to the members of Howden Joinery Group Plc

The sensitivity analysis below has been determined based on the exposure to interest rates for floating rate non-derivative
instruments at the balance sheet date. The Group holds no derivative financial instruments. Fixed rate liabilities are not
susceptible to changes in interest rates, and are omitted from the analysis below. For floating rate liabilities, the analysis is
prepared assuming the amount of the liability outstanding at the balance sheet date was outstanding for the whole year. A 50
basis points increase is used as this represents management’s assessment of the possible change in interest rates.

At the reporting date, if interest rates had been 50 basis points higher and all other variables were held constant, the Group’s net
profit and profit and loss reserve would increase by £0.4m (2018: increase by £0.4m).

For a decrease of 50 basis points, the current year figures would decrease by £0.4m (2018: decrease by £0.4m).

Foreign exchange sensitivity

As noted above, the Group is mainly exposed to movements in Euro and US dollar exchange rates. The following information
details our sensitivity to a 10% weakening or strengthening in Sterling against the Euro and the US Dollar. These percentages are
the rates used by management when assessing sensitivities internally and represent management’s assessment of the possible
change in foreign currency rates. The sensitivity analysis of our exposure to foreign currency risk at the reporting date has been
determined based on the change taking place at the end of the financial period, and based on the outstanding foreign currency
balances at the period end.

10% weakening of Sterling to Euro

10% strengthening of Sterling to Euro

10% weakening of Sterling to US dollar

10% strengthening of Sterling to US dollar

28 December 2019
£m

29 December 2018
£m

(0.2)

0.1

–

0.2

(0.2)

(0.1)

0.1

1. Opinion

In our opinion:

•

the financial statements of Howden Joinery Group plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true
and fair view of the state of the Group’s and of the Company’s affairs as at 28 December 2019 and of the Group’s profit
for the period then ended;

the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;

the Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.

We have audited the financial statements which comprise:

•

the consolidated income statement;

the consolidated statement of comprehensive income;

the consolidated and company balance sheets;

the consolidated and company statements of changes in equity;

the consolidated cash flow statement; and

the related Group Notes 1 to 26 and Company Notes 1 to 6

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of
the Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.

We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm
that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters

The key audit matters that we identified in the current year were consistent with prior year:

• Valuation of the UK inventory obsolescence provision

• Appropriateness of the actuarial assumptions underlying the valuation of pension liabilities

Within this report, key audit matters are identified as follows:

Similar level of risk

Materiality

Scoping

The materiality that we used for the Group financial statements was £12.5 million which was determined
on the basis of approximately 5% of statutory profit before tax.

Full audit procedures were performed over 98% of the Group’s total assets, revenue and profit before
tax comprising the UK trading and corporate entities.

Significant changes
in our approach

There has been no significant change in our approach.

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Independent auditor’s report continued
to the members of Howden Joinery Group Plc

4. Conclusions relating to going concern, principal risks and viability statement

4.1. Going concern

We have reviewed the directors’ statement in Note 2 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s and Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the Group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting
framework and the system of internal control. We evaluated the directors’ assessment of the Group’s ability
to continue as a going concern, including challenging the underlying data and key assumptions used
to make the assessment, and evaluated the directors’ plans for future actions in relation to their going
concern assessment.

We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.

4.2. Principal risks and viability statement

Based solely on reading the directors’ statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of
the directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are
required to state whether we have anything material to add or draw attention to in relation to:

•

the disclosures on pages 38 to 45 that describe the principal risks, procedures to identify emerging
risks, and an explanation of how these are being managed or mitigated;

the directors' confirmation on page 60 that they have carried out a robust assessment of the principal
and emerging risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or

the directors’ explanation on page 38 as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.

We are also required to report whether the directors’ statement relating to the prospects of the Group
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

Going concern is the
basis of preparation of
the financial statements
that assumes an entity
will remain in operation
for a period of at least 12
months from the date of
approval of the financial
statements.

We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.

Viability means the
ability of the Group to
continue over the time
horizon considered
appropriate by the
directors.

We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

5.1. Valuation of the UK inventory obsolescence provision

Key audit matter
description

At the year end, the gross inventory balance is £269.6 million (2018: £258.2 million), of which there is a £37.9 million
(2018: £31.8 million) allowance against the carrying value.

How the scope
of our audit
responded to the
key audit matter

The scale of the Group’s product range means there is significant Management judgement involved in determining
the adequacy of the inventory obsolescence provision for active, discontinued, and slow moving ranges as well
as display items. In particular the provision percentages applied to those discontinued and slow moving inventory
lines. Given the high level of Management judgement involved, we deemed this a potential fraud risk for our audit.

The Audit Committee report on page 112 also refers to inventory provisioning as one of the significant issues and
judgements. Further information is included in Note 3 and Note 15.

We obtained an understanding of the relevant controls over the inventory obsolescence provision. We have
considered the methodology used to calculate the inventory provision.

We have challenged the reasonableness of Management’s judgements and the assumptions used, specifically by
assessing the provision percentages from an evaluation of sales of discontinued inventory lines. For active lines
we have assessed stock turn and evidence of sales below cost price to determine whether further provisions are
required.

We have assessed the integrity of the underlying calculation by checking the accuracy of the ageing of the
discontinued inventory items.

We have also reviewed the level of inventory write offs in the year compared to the overall inventory provision.

We have checked the completeness of the provision by assessing the net realisable value and inventory turn for a
sample of inventory lines.

Key
observations

On the basis of our testing, we are satisfied the overall provision is appropriate and is prepared on a basis
consistent with the prior period.

5.2. Appropriateness of the actuarial assumptions underlying the valuation of pension liabilities

Key audit matter
description

There is a significant Management judgement involved in the assessment of the actuarial assumptions used
to measure the defined benefit pension deficit of £56.6 million (2018: £36 million), particularly in respect of the
discount rate, inflation and mortality rates applied. The valuation of gross pension liabilities (£1,485.3 million) is
materially sensitive to changes in these underlying assumptions.

How the scope
of our audit
responded to the
key audit matter

Management has highlighted defined benefit pension arrangements as a critical accounting judgement and key
source of estimation in Note 3. Further information in respect of the pension scheme is included in Note 19. The Audit
Committee report on page 112 also refers to the valuation of the defined benefit deficit as one of the significant
judgements considered by the Committee.

We obtained an understanding of the relevant controls over the key assumptions used to determine the pension
liability.

With the involvement of our pension specialists,we have reviewed the valuation report prepared by the Group’s
external actuaries and assessed each of the key assumptions, being the discount rate, inflation rate and mortality.
We did this through comparison to available market data, our own benchmarks and by reference to the Company’s
accounting policies. We also assessed the appropriateness of the methodology used by the Group’s actuaries
to calculate the liabilities of the pension scheme. In addition, we benchmarked the key assumptions against a
population of other companies as at December 2019.

We have considered whether, individually and in aggregate, the assumptions are appropriate.

We have assessed the competence and independence of the Group’s external actuaries, confirming they have
sufficient and appropriate experience and are members of the Institute and Faculty of Actuaries.

We have assessed the pension disclosures in the financial statements and considered their compliance with the
requirements of IAS 19 Employee Benefits.

Key
observations

We are satisfied that, individually and in aggregate, the actuarial assumptions applied in respect of the scheme’s
liabilities are appropriate.

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Independent auditor’s report continued
to the members of Howden Joinery Group Plc

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements

Company financial statements

Materiality

£12.5 million (2018: £11.5 million)

£5 million (2018: £4.6 million)

Basis for determining
materiality

Approximately 5% (2018: 5%) of
statutory pre-tax profit

1% (2018: 1%) of net assets

Rationale for the
benchmark applied

Profit before tax has been used as the basis for
determining materiality as it is one of the most
relevant benchmarks for users of the accounts.

Net assets have been used as this is a non-trading
holding company and we consider this to be the most
appropriate basis.

Group materiality £12.5m

Component materiality range from £5m to £11.8m

Audit Committee reporting threshold £0.63m

PBT
£260.7m

PBT

Group materiality

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality
was set at 70% of Group materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered the
following factors:

•

the quality of the control environment where no significant deficiencies were identified;

the low turnover of management and key accounting personnel; and

• history of prior period errors of which there were a low number of corrected and uncorrected misstatements.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £625,000 (2018:
£575,000) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.

7. An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our audit scope on
the UK trading and corporate entities. All of these were subject to a full audit. For the period ended 28 December 2019 the French
and Belgian trading entities were taken out of Group audit scope on the basis they only contribute 2% to Group revenue. Desktop
reviews for these two entities have been performed. Given the relative size of the Continental European business to the UK
business we do not consider this a significant change in scope.

Our audit work for the UK trading and corporate entities was executed at levels of materiality applicable to each individual entity
which were lower than Group materiality and ranged between £5 million and £11.8 million (2018: £4.6 million and £10.9 million)
of Group materiality. These locations represent the principal business units and account for 98% (2018: 98%) of the Group’s net
assets, Group’s revenue and of the Group’s profit before tax for the 52 weeks ended 28 December 2019. They were also selected
to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. The UK
trading and corporate entities account for 98% (2018: 98%) of Group revenue and were audited by the Group team.

At the Group level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components
not subject to audit.

8. Other information

The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other
information include where we conclude that:

• Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s position and performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or

• Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters

communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.

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Independent auditor’s report continued
to the members of Howden Joinery Group Plc

10. Auditor’s responsibilities for the audit of the financial statements

11.2. Audit response to risks identified

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance
with laws and regulations are set out below.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.

11.1. Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:

•

the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;

results of our enquiries of management, internal audit, the Group’s in-house legal counsel and the Audit Committee about
their own identification and assessment of the risks of irregularities;

• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures

relating to:

‒ identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of

non-compliance;

‒ detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or

alleged fraud;

‒ the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

•

the matters discussed among the audit engagement team and involving relevant internal specialists, including tax,
corporate treasury, pensions and IT specialists regarding how and where fraud might occur in the financial statements
and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for
fraud and identified the greatest potential for fraud in the valuation of the UK inventory obsolescence provision. This was raised
as a key audit matter in the current year. In common with all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act 2006, Listing Rules,
pensions legislation and tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included
the Group’s operating licence, regulatory solvency requirements, environmental regulations and covenant requirements.

As a result of performing the above, we identified the valuation of the UK inventory obsolescence provision as a key audit
matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and
also describes the specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

•

reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;

• enquiring of management, the audit committee and both in-house and external legal counsel concerning actual and

potential litigation and claims;

• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material

misstatement due to fraud;

•

reading minutes of meetings of those charged with governance and reviewing internal audit reports; and

in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course
of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members,
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and

•

the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

13. Matters on which we are required to report by exception

13.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received

from branches not visited by us; or

•

the Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

13.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.

We have nothing to report in respect of these matters.

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to the members of Howden Joinery Group Plc

Company Balance Sheet

14. Other matters

14.1. Auditor tenure

Following the recommendation of the audit committee, we were appointed by the members at the Annual General meeting held
on 21 June 2002 to audit the financial statements for the year ending 28 December 2002 and subsequent financial periods. The
period of total uninterrupted engagement including previous renewals and reappointments of the firm is 18 years, covering the
years ending 28 December 2002 to 28 December 2019.

14.2. Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).

15. Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.

Claire Faulkner FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, England

26 February 2020

Non-current assets

Investments in subsidiaries

Long-term prepayments

Current assets

Debtors

Cash and cash equivalents

Current liabilities

Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities

Net assets

Equity

Called-up share capital

Share premium and capital redemption reserve

Retained earnings

Treasury shares

Total equity

Notes

28 December 2019
£m

29 December 2018
£m

699.0

0.9

699.9

2.9

256.0

258.9

(27.0)

231.9

931.8

60.5

92.2

808.4

(29.3)

931.8

699.0

–

699.0

1.1

212.0

213.1

(78.5)

134.6

833.6

61.5

87.5

717.5

(32.9)

833.6

The Company profit after tax for the 52 weeks to 28 December 2019 was £220.4m (52 weeks to 29 December 2018:
profit after tax of £208.0m).

These financial statements were approved by the Board on 26 February 2020 and were signed on its behalf by

Mark Robson
Deputy Chief Executive and Chief Financial Officer

For and on behalf of Howden Joinery Group Plc, registered number 02128710

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170

171

Company statement of changes in equity

Notes to the Company financial statements

At 30 December 2017

Retained profit for the period

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

Dividends declared and paid

At 29 December 2018

Retained profit for the period

Buyback and cancellation of shares (Note 1)

Transfer of shares from treasury into share trust

Dividends declared and paid

At 28 December 2019

Called
up share
capital
£m

Capital
redemption
reserve
£m

Share
premium
account
£m

Treasury
shares
£m

Retained
earnings
£m

87.5

(36.2)

638.7

62.8

–

(1.3)

–

61.5

–

(1.0)

–

4.7

–

3.3

–

87.5

(32.9)

–

3.6

–

Total
£m

752.8

208.0

(60.9)

(62.2)

–

3.3

(68.3)

717.5

220.4

833.6

220.4

(58.9)

(55.2)

–

3.6

(70.6)

60.5

4.7

87.5

(29.3)

808.4

931.8

Note 1: This includes a re-presentation of the cancellation of shares to retained earnings and capital redemption reserve for the shares bought back and cancelled

The Company's distributable reserves at period end are:

Retained earnings

Treasury shares

Distributable reserves

28 December 2019
£m

808.4

(29.3)

779.2

The difference between the Howden Joinery Group Plc entity Retained Earnings Reserve (£808.4m at 28 December 2019) and
the Group's consolidated Retained Earnings Reserve (£498.1m at 28 December 2019) is primarily due to the effect of goodwill
purchased by the Group's predecessor company MFI Furniture Group Plc, and subsequent capital reconstructions, which
resulted in the write off of that goodwill against consolidated reserves.

1 SIGNIFICANT COMPANY ACCOUNTING POLICIES

General information

Howden Joinery Group Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The Company's
principal activity is being the parent company of the Howden Joinery Group. More information about the Group structure is
given at page 174.

Basis of presentation

The Company’s accounting period covers the 52 weeks to 28 December 2019. The comparative period covered the 52 weeks
to 29 December 2018.

Basis of accounting

These financial statements have been prepared on the going concern basis and in accordance with Financial Reporting
Standard 101 Reduced Disclosure Framework (‘FRS 101’) and the UK Companies Act.

The accounts are prepared under the historical cost convention. Under section 408 of the Companies Act 2006 the Company
is exempt from the requirement to present its own income statement or statement of comprehensive income.

In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:

• Statement of Cash Flows and related notes;

• a comparative period reconciliation for share capital;

• disclosures in respect of transactions with wholly owned subsidiaries;

• comparative period reconciliations for tangible fixed assets and intangible assets;

• an additional statement of financial position for the beginning of the earliest comparative period as

required by IFRS 1 First-time Adoption of International Financial Reporting Standards;

• disclosures in respect of capital management;

•

the effects of new but not yet effective IFRSs; and

• disclosures in respect of Key Management Personnel.

As the Group Financial Statements include the equivalent disclosures, the Company has also taken advantage of the
exemptions under FRS 101 available in respect of IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7
Financial Instruments.

Investments in subsidiaries

These investments are shown at cost less any provision for impairment.

2 PROFIT AND LOSS ACCOUNT INFORMATION

The Company has no employees (2018: none), did not pay directors' emoluments (2018: £nil), and the fees payable to the
Company's auditor for the audit of the Company's annual accounts were £10,000 in both current and prior periods.

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Notes to the Company financial statements continued

3 INVESTMENTS IN SUBSIDIARIES

Shares in subsidiary
undertakings
£m

Long-term loans
to subsidiary
undertakings
£m

Total
£m

Cost and carrying value:

At 29 December 2018 and 28 December 2019

262.1

436.9

699.0

Details of principal subsidiary undertakings are given on page 174.

174 Parent company and subsidiaries

175 Five year record

176 Shareholder and share capital information

179 Corporate timetable

180 Advisors and registered office

4 DEBTORS

Other debtors

Other tax and social security

5 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

28 December 2019
£m

29 December 2018
£m

0.3

2.6

2.9

0.2

0.9

1.1

28 December 2019
£m

29 December 2018
£m

(27.0)

–

(27.0)

(78.2)

(0.3)

(78.5)

Owed to subsidiaries

Accruals and deferred income

6 SHARE CAPITAL

Ordinary shares of 10p each:

Allotted, called-up and fully paid:

52 weeks to
28 December 2019
No.

52 weeks to
29 December 2018
No.

52 weeks to
28 December 2019
£m

52 weeks to
29 December 2018
£m

Balance at the beginning of the period

615,436,307

628,192,755

Bought back and cancelled during the period

(10,772,446)

(12,756,448)

Balance at the end of the period

604,663,861

615,436,307

61.5

(1.0)

60.5

62.8

(1.3)

61.5

a
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Howden Joinery Group Plc Annual Report & Accounts 2019

174

175

Parent company and all subsidiary undertakings
as at 28 December 2019

Five year record

Country of registration
or incorporation

Registered office

England and Wales

40 Portman Square, London, W1H 6LT

Summarised Income Statement

PARENT COMPANY

Howden Joinery Group Plc

ALL SUBSIDIARY UNDERTAKINGS

Intermediate Holding Companies:

Howden Joinery Holdings Limited

England and Wales

40 Portman Square, London, W1H 6LT

Howden Joinery International Holdings Limited

England and Wales

40 Portman Square, London, W1H 6LT

Trading:

Howden Joinery Limited

Houdan Cuisines SAS

Houdan Cuisines SPRL

Property Management:

Howden Joinery Properties Limited

Howden Kitchens Properties Limited

Administration and Employee Services:

England and Wales

40 Portman Square, London, W1H 6LT

France

Belgium

1 Rue Calmette, ZA Du Bois Rigault Nord,
62880 Vendin-Le-Vieil

Rue Des Emailleries, 4, 6041 Gosselies

England and Wales

40 Portman Square, London, W1H 6LT

Howden Joinery Corporate Services Limited

England and Wales

40 Portman Square, London, W1H 6LT

Howden Joinery People Services Limited

England and Wales

40 Portman Square, London, W1H 6LT

Dormant:

Howden Kitchens Limited

Galiform Limited

England and Wales

40 Portman Square, London, W1H 6LT

Foreign Company Registrations:

Howden Joinery Limited

Isle of Man

Howden Joinery Properties Limited

Isle of Man

6th Floor, Victory House, Prospect Hill,
Douglas, IM1 1 EQ

The Company ultimately owns 100% of the ordinary share capital of all of the subsidiary undertakings listed above.

Revenue

Operating Profit

Profit before tax

Full year dividend per share (pence)

Basic EPS (pence)

Summarised Balance Sheet

Total non-current assets

Inventories

Receivables

Payables and provisions

Pension liability

Net cash, short term investments, and borrowings

Total net assets

Number of depots at end of year

France

Belgium

Netherlands

Germany

Total

Capital expenditure

Dec 2019
52 weeks

£m

Dec 2018
52 weeks

£m

Dec 2017
53 weeks

£m

Dec 2016
52 weeks

£m

Dec 2015
52 weeks

£m

1,583.6

1,511.3

1,403.8

1,307.3

1,220.2

260.0

240.1

234.4

237.2

221.9

260.7

13.0

35.0

238.5

11.6

31.3

232.2

11.1

29.9

237.0

10.7

29.5

219.6

9.9

27.3

251.7

221.4

221.3

201.6

153.0

231.8

193.1

226.3

186.0

(272.2)

(261.9)

(56.6)

96.1

267.4

615.2

732

–

759

(36.0)

114.4

231.3

567.1

694

718

208.3

137.8

(245.0)

(109.3)

(8.2)

241.1

454.2

661

685

183.7

135.9

(244.8)

(106.0)

(31.2)

226.6

397.0

642

666

177.1

129.5

(214.8)

(49.2)

42.6

226.1

421.7

619

–

639

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information176

177

Shareholder and share capital information

ANNUAL GENERAL MEETING

SIGNIFICANT AGREEMENTS

There are a number of agreements that take effect, alter or terminate upon a change of control such as commercial contracts,
bank loan agreements and employee share plans. The only one of these which is considered to be significant in terms of likely
impact on the business of the Group as a whole is the bank facility (as described in Note 18), which requires majority lender
consent for any change of control.

If the lender were not prepared to consent to a change of control, a mandatory repayment of the entire facility would be
triggered. The Directors are not aware of any agreements between the Company and its Directors or employees that provide for
compensation for loss of office or employment that occurs because of a takeover bid.

PROVISION FOR INDEMNITY AGAINST LIABILITY INCURRED BY A DIRECTOR

The Company has provided indemnities to the Directors (to the extent permitted by the Companies Act 2006) in respect of
liabilities incurred as a result of their office. Neither the indemnity nor any insurance provides cover in the event that the Director
is proven to have acted dishonestly or fraudulently.

The 2020 Annual General Meeting (‘AGM’) will be held at UBS, 5 Broadgate, London, EC2M 2QS on 7 May 2020 at 11:00am.
Shareholders will have the opportunity to discuss Howdens’ progress and operations directly with the Board at the AGM.

The notice of the AGM will be sent to shareholders at least 21 clear days before the meeting and will detail the resolutions to be
voted on.

SHARE CAPITAL

Issued share classes

Voting rights at general meetings

Fixed income rights

Individual special rights of control

Holding size restrictions1

Transfer restrictions1

Ordinary only (fully paid)

One vote per share

None

The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the
transfer of shares or on voting rights.

Treasury shares

The Company held 6,015,580 ordinary shares in Treasury at the end of the period (28 December 2019). Shares held in Treasury
have no voting rights and are used solely for the satisfaction of employee share awards.

Employee share awards

Details of employee share schemes are set out in Note 24 to the Financial Statements. Shares held by the Howden Joinery Group
Plc Employee Share Trust abstain from voting at the Company’s general meetings.

Acquisition of the Company’s own shares

During 2019, the Company returned over £55m to shareholders by repurchasing 10,772,446 of its ordinary shares (representing
a nominal value of £1,077,244.60), which equated to 1.8% of the called up share capital of the Company at the beginning of the
period (excluding Treasury shares). All of the shares repurchased during 2019 were cancelled.

At the AGM on 2 May 2019, the Directors were granted authority by shareholders to purchase up to 60,709,803 of the Company’s
ordinary shares through the market2. The authority expires at the conclusion of the 2020 AGM or within 15 months from the date
of passing the resolution (whichever is earlier).

Substantial shareholdings

As at 26 February 2020, the Company had been notified, in accordance with Rule 5 of the Disclosure and Transparency Rules, of
the following voting rights as a shareholder of the Company:

Substantial Shareholder

% of total voting rights

Date of last notification

Ameriprise Financial, Inc. and its group

Fiera Capital Corporation

4.99%

3.18%

Nov 2019

The percentage interest is as stated by the shareholder at the time of notification and current interests may vary.

Governed by the general provisions of the Articles of Association (which may be amended by special resolution of the shareholders) and prevailing legislation.

2. At prices ranging between 10p and the higher of (a) 105% of the average middle market quotation for an ordinary share as derived from the London

Stock Exchange Daily Official List for the five business days immediately preceding the day on which the ordinary share is purchased; and (b) an amount equal to the
higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share as derived from the London Stock
Exchange Trading System.

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information178

179

Shareholder ranges as at 28 December 2019

Corporate timetable

2020

Trading update

Half-Yearly Report

Trading update

End of financial year

30 April

23 July

5 November

26 December

Corporate holders

0 and 1,000

1,001 and 5,000

5,001 and 10,000

10,001 and 50,000

50,001 and 100,000

100,001 and 250,000

Over 250,000

Total

Individual holders

0 and 1,000

1,001 and 5,000

5,001 and 10,000

10,001 and 50,000

50,001 and 100,000

100,001 and 250,000

Over 250,000

Total

Number of Holdings

Number of Shares

% of Holdings

% of Shares

148

157

153

100

215

909

6,551

1,106

130

60,048

369,970

506,401

4,013,370

5,025,206

16,500,547

569,901,492

596,378,034

2,259,130

2,600,440

947,171

1,347,745

311,989

127,352

693,000

7,859

8,286,827

8,768

604,664,861

1.69

1.79

0.78

1.75

0.78

1.14

2.45

10.37

74.71

12.62

1.48

0.74

0.05

0.01

0.02

89.63

100

0.01

0.06

0.08

0.66

0.83

2.73

94.25

98.63

0.37

0.43

0.16

0.22

0.05

0.02

0.11

1.37

100

Howden Joinery Group Plc Annual Report & Accounts 2019

Strategic reportGovernanceFinancial statementsAdditional Information180

Advisors and Registered Office

PRINCIPAL BANKER

Lloyds

25 Gresham Street
London
EC2V 7HN

JOINT FINANCIAL ADVISORS
AND STOCKBROKERS

Numis Securities Ltd

The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT

UBS LTD

5 Broadgate
London
EC2M 2QS

SOLICITORS

Freshfields Bruckhaus Deringer LLP

65 Fleet Street
London
EC4Y 1HS

AUDITOR

Deloitte LLP

1 New St Square
London
EC4A 3HQ

REGISTRAR

Equiniti Ltd

Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

REGISTERED OFFICE

40 Portman Square
London
W1H 6LT

Howden Joinery Group Plc Annual Report & Accounts 2019

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