Howden Joinery Group Annual Report 2020

← All annual reports

FY2020 Annual Report · Howden Joinery Group

Loading PDF…

Annual Report and Accounts 2020
Howden Joinery Group Plc

The UK’s number 1
trade kitchen supplier

We make the builder’s life simpler

Contents

The strategic report

6
8
12

Howdens at a glance
Chairman’s statement
Our purpose, our culture & values, our market,
our business model and our strategy

22 Chief Executive’s statement
30 Key performance indicators

33 Financial review
38 Principal risks and uncertainties
48
63 Going Concern and Viability statements
67 Other Directors’ statements

Sustainability matters

Governance

70 Corporate governance report
Board of Directors
72
74 Key Board activity
76
78 Directors’ duties (Section 172(1) statement)
80 Adapting for COVID-19
82

Stakeholder engagement

Executive Committee and Company Secretary

Financial statements

138 Consolidated income statement
Consolidated statement of
138
comprehensive income
139 Consolidated balance sheet
140
141 Consolidated cash flow statement

Consolidated statement of changes in equity

Additional information

Parent company and all subsidiary undertakings

192
193 Five year record
194 Shareholder and share capital information
196 Shareholder ranges as at 26 December 2020
196 Corporate timetable
197 Advisors and registered office

We help our trade customers achieve
exceptional results for their customers,
and we profit from it.

2018 UK Corporate Governance Code
application and compliance
94 Nominations Committee report
104 Remuneration Committee report
126 Audit Committee report
134 Directors’ report

Notes to the consolidated financial statements
Independent auditor’s report to the members

142
177
187 Company balance sheet
188 Company statement of changes in equity
189

Notes to the Company financial statements

Howden Joinery Group Plc Annual Report & Accounts 2020
Howden Joinery Group Plc Annual Report & Accounts 2020

Howden Joinery Group Plc Annual Report & Accounts 2020

Performance in 2020

£1.5bn

Revenue

(2019: £1.6bn)

60.1%

Gross margin

(2019: 62.3%)

£196m

£185m

Operating profit

Profit before tax

(2019: £260m)

(2019: £261m)

16 new UK
depots

4 new depots
in France

24.9p

Earnings per share

(2019: 35.0p)

9.1p

2020 full year
dividend

9.1p

Special dividend
(in lieu of cancelled
2019 final dividend)

£431m

Net cash at
year end

18 new kitchen
ranges

Strategic review
of ESG

See page 52

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

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

Howden Joinery Group Plc Annual Report & Accounts 2020

Making more
product in our own
factories

Continuing to
strengthen our
digital offering

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Chairman’s statement
Howdens has grown steadily to become the leading
supplier of kitchens in the UK, by focusing closely on
the needs of our builder customers and providing
value to all concerned.

Key performance indicators
We saw total UK sales of £1.5bn in 2020, 2.3% down on
2019. Profit before tax was £75m lower than 2019 at
£185m. We put depot openings on hold in H1, but resumed
them in H2 and opened 20 new depots.

Sustainability matters
Why sustainability matters to us. What are our material
areas. Our impact on our stakeholders. Sustainability
KPIs, our 2020 strategic review, and our progress and
targets in our material sustainability areas.

m
4
8
5

,
1
£

m
1
1
5

,
1
£

m
8
4
5

,
1
£

m
4
0
4

,
1
£

m
7
0
3

,
1
£

m
1
6
2
£

m
7
3
2
£

m
2
3
2
£

m
9
3
2
£

1
4

3
3

m
5
8
1
£

7
2

9
1

0
2

Revenue

Profit before tax

Total depot openings

Our purpose, culture & values,
market, business model and
strategy

Financial review
2020 results commentary.
2021 current trading and outlook.

Going Concern and
Viability statement

Chief Executive’s statement
Howdens knows its purpose: to help our trade customers
achieve exceptional results for their customers and
to profit from doing so. When our customers succeed,
we succeed.

Principal risks and uncertainties
Our approach to risk and how we manage it.
Our principle risks and what we’re doing to
mitigate their potential effects.

Other Directors’ statements

SER VI C
ENIE N

C
EP R
R
T
N
E

E
D
A
R
T

V
N
O
C
&

E N E URIAL

TRUSTED
TRADE
RELATIONSHIPS

U
R
E

Howden Joinery Group Plc Annual Report & Accounts 2020

RADE

VA L

Howdens at a glance

Chairman’s statement

Our purpose, our culture
& values, our market, our
business model and our
strategy

22 Chief Executive’s statement

30 Key performance indicators

33 Financial review

38 Principal risks and uncertainties

Sustainability matters

Going Concern and Viability
statements

67 Other Directors’ statements

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

Howden Joinery Group Plc Annual Report & Accounts 2020

Howdens at a glance
The UK’s largest kitchen supplier

We produce

Resources and relationships

•

Trusted supplier relationships give us access
to the latest products at the best prices

• Skilled and motivated workforce

How do we create value?

•
•
•

UK’s largest kitchen supplier – economies of scale
Our own factories – the choice to make or buy
Our own warehousing and distribution network

Over 700 UK depots

We source

We deliver excellent
service across our
nationwide local
depot network

Resources and relationships

•

•
•
•

Decentralised business model
Empowered local depot managers
Trusted customer relationships
Local depot network with a nationwide reach
The right product. In stock

We distribute

We are worthwhile
for all concerned

Outcomes

Happy builders and end-users
Sustainable profits and strong cash generation

•
•
• Returns to shareholders
•

Investment in:
– our employees
– new depots
– new product
– new manufacturing and logistics
– new jobs throughout our business

• Giving back to local communities

We support the builder

How do we create value?

•
•

Trade-only, with excellent service
Helping our trade customers to succeed in
selling to their customers:
– Trade accounts support the builder’s cashflow
– Design and planning services
– Home visits for end-users
– Marketing materials
– The right product. In stock in local depots

t
r
o
p
e
r
c

g
e
t
a
r
t
S

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Chairman’s statement

Richard Pennycook Chairman

Since its foundation in 1995, Howdens has grown steadily to become
the leading supplier of kitchens in the UK, by focusing closely on the
needs of our builder customers and providing value to all concerned.

COVID-19
2020 will unfortunately be remembered for the
impact that COVID-19 had on all aspects of our
lives. At Howdens, our priority continued to be the
health and wellbeing of our employees, customers
and the communities that we operate in. We closed
our factories and depots on 23 March 2020 when
the UK went into lockdown and acted quickly
to preserve cash, including withdrawing our
recommendation to pay a 2019 final dividend and
postponing all non-essential capital expenditure,
only gradually re-opening our business when we
could operate in a safe, socially-distanced way.

I am immensely proud of the way that your
Company reacted to the pandemic, from the initial
provision during lockdown of emergency products
to the NHS, care workers and vulnerable people
and the way the teams quickly introduced new
processes and procedures in manufacturing and
depots to ensure a safe return to operation. We
also worked continuously with suppliers around
the world, ensuring we had products available in
stock ready for when trading recommenced. This
hard work made a significant contribution to our
performance in the second half.

Continued growth
Following the decline in sales of 28.7% in the first
half of 2020, we saw a strong recovery in the
second half with sales up 16.2% as businesses were
encouraged to return to work. Overall, 2020 sales
were down 2.3% compared with 2019, with gross
margin lower at 60.1% (2019: 62.3%), reflecting
product mix, pricing and the impact from needing
to close operations during lockdown. The first half
loss before tax of £14.2m, benefited from £22m

of Government furlough payments and £8m of
business rates relief which were subsequently
repaid in the second half, once the Board had
determined that the Group did not require financial
support from Government.

We were one of a number of companies who felt a
societal obligation to repay the furlough moneys
received from Government once we had had a
chance to evaluate the impact of the crisis on our
financial resources. More particularly, we were
the first to also repay the business rates relief
which had been provided by Government. We felt
strongly that this was the right thing to do and have
been delighted to note that many others have now
followed suit, returning over £2bn to the Treasury
which is much needed elsewhere.

Profit before tax was £185.3m, compared with
£260.7m in 2019. This was pleasing, considering
the impact COVID-19 had on our ability to trade and
on our operations.

The excellent response to the logistical/supply-
chain issues brought by the COVID-19 pandemic
was testament to the Brexit planning that your
management team put in place in recent years.

Our business model allows us to be agile in an
uncertain and changing market environment.
Considering the circumstances, we performed
well against our financial and non-financial key
performance indicators (‘KPIs’), as shown on
pages 30 to 32. Andrew Livingston discusses our
performance in more detail in his review of the year
on pages 22 to 29 and Paul Hayes in his financial
review on pages 33 to 37. We talk about our Purpose
and our Culture and values on pages 14 and 15.

Investment programme
In order to continue providing high levels of service
to local builders and innovative products to our
end-consumers, we believe that we must steadily
invest in the business – both in our manufacturing
and supply chain capability and in our national
footprint. The Board believes that there are
considerable opportunities for further growth, and
that in order to fulfil that potential we must continue
to invest in both capacity and capability through
the economic cycle.

Howdens has undertaken a major capital
expenditure programme in the past six years,
investing more than £330m in the business.

Although our 2020 plans were interrupted by
COVID-19, we opened 16 new depots, refurbished 30
older depots and continued to invest in our Raunds
distribution facilities, in Northamptonshire. We
continued to improve our digital services, both to
our trade customers and to the end consumer. As
a result, our new website is achieving more direct
hits, increasing brand awareness and enabling
end consumers to have a better dialogue with their
builders and our designers.

We anticipate that capital expenditure for 2021 will
be approximately £80m as we continue to open
new depots, refurbish some of the older ones and
invest in our manufacturing capability.

Returns to shareholders
Earnings for the year were 24.9p per ordinary
share, a reduction of 28.9% on the prior year
(2019: 35.0p).

As previously stated, the Board responded quickly
to COVID-19 by withdrawing its recommendation
for the 2019 final dividend of 9.1p per share and
suspending other shareholder returns. As a
consequence, no interim dividend was paid in 2020
and only £9.8m of shares were purchased as part
of the outstanding £50m 2019 share repurchase
programme.

Following the strong performance in the second
half of 2020 and in line with our stated dividend
policy, which is set out in detail in the Financial
Review on page 36, the Board has decided to
resume dividend payments. This includes, paying
a special dividend of 9.1p in lieu of the 2019 final
dividend that was cancelled during the peak period
of COVID-19 uncertainty and recommending a final
dividend for 2020 of 9.1p. The Group expects to
announce an interim dividend for 2021 with its half
year results in July.

Board
Paul Hayes joined Howdens as CFO designate in
November and was appointed to the Board as Chief
Financial Officer and an Executive Director at the
end of the year. Paul is a seasoned listed company
finance executive with complementary experience
in consumer and manufacturing businesses. I
am pleased to welcome Paul to the Board looking
forward to working with him and Andrew through
the next phase of Howdens’ development.

Further reading

See my introduction to our Governance Report

See our Sustainability Report

See our Board of Directors

Page 70

Page 48

Page 72

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information11

t
r
o
p
e
r
c

g
e
t
a
r
t
S

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.

Paul replaced Mark Robson who stood down from
the Board at the end of the year. Mark joined the
Board as Chief Finance Officer in April 2005 and,
in addition to this role, was appointed Deputy
CEO in May 2014. In his early years, Mark was
integral in the restructuring and refinancing of
the Group, strengthening its balance sheet whilst
ensuring that there was sufficient capital for
the Howdens business to grow into the strong,
sizeable and successful business it is today. His
careful, thoughtful and prudent management of
the Company’s finances has been a key element
of our ability to weather the storm of the COVID-19
pandemic. We are grateful to Mark for his service
and contribution to Howdens.

The Board’s response to COVID-19 is set out in
more detail in the Corporate governance report,
starting on page 70. Due to the unprecedented
events of 2020 the Board were required to meet
more regularly both on a formal and informal basis.
It also significantly impacted the Board’s agenda
and focus. I’m pleased with the Board’s response to
the challenges which have arisen, and continue to
arise, from the pandemic. Its impact can be felt in
every section of this annual report and accounts.

Governance
Howdens has a clear governance framework and
we 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 2020 can be found in
our Corporate governance report.

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 88. We are also pleased to report
that 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’) was approved by shareholders in
2019 and stipulates that Executive Director new
joiners’ pension contribution rates must match
that available to the wider workforce. A flight
path for reducing our incumbent CEO’s pension
contributions is set out in more detail on page 106
of the Remuneration Committee Report.

Board meetings in 2020 inevitably focused on
the impact of the COVID-19 crisis and a majority
of meetings were held by video conference.
Throughout the crisis, the Board ensured three
areas of consideration were covered at each
meeting: the health and safety of our colleagues
and customers, cash retention and generation,
and recovery planning. However, the Board was
careful not to lose sight of other crucial areas such
as ESG and corporate governance. Our Corporate
governance report sets out in more detail how the
Board responded to the COVID-19 crisis throughout
the year (pages 80 and 81).

Sustainability
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 for all
concerned. Howdens is a growing business and
sustainable behaviour will help us continue to grow
in a way that preserves our culture, supports our
business model, mitigates our risks and addresses
the needs of our stakeholders.

We expect to open around 35 new depots in the UK
and around eleven new depots in France, during
2021 as well as investing in our manufacturing
capability and digital offering.

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. 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 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 2020.

Richard Pennycook

Chairman

24 February 2021

During 2020, the Group carried out a wide-ranging
strategic review of its ESG priorities, identifying
four main commitments, including zero waste
to landfill and carbon neutral manufacturing,
which each have Executive Committee member
ownership. The review also identified a range of
other additional focus areas and research projects
as well as selecting and aligning our targets to the
UN Sustainable Development Goals (UN SDGs).

Fundamentally, each of our depots represents
a place in a local community and our people are
encouraged to participate in community life.
In 2020, the Group donated around £1.2m to
good causes.

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 38 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

GovernanceFinancial statementsAdditional information
12

Our purpose-driven approach

Our purpose

Culture & values

Sustainability

Governance

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

Worthwhile for
all concerned.

The importance of
sustainable behaviour
is recognised right
through the business.

A clear governance
framework. Operating
with integrity.

See page 14

See page 15

See page 48

See page 68

Our purpose drives our business model
and shapes our strategic decisions

Culture is aligned
with purpose, values
and strategy

Sustainable behaviour preserves
our culture, maintains focus on
our business model, mitigates our
risks and addresses the needs
of our stakeholders

Our governance framework
guides all decisions
and outcomes

Business model

Strategy

Trade only. In stock from local depots.
Entrepreneurial depots supported by
UK Manufacturing and efficient
sourcing and distribution.

Reach more builders. Offer them the best
product, pricing, service and support.
Generate profits for reinvestment and
shareholder returns.

Our business model and
strategy generate value for
a range of stakeholders

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

See page 18

See page 20

We respond to external opportunities and mitigate threats

Markets

Risks

See page 16

See page 38

Long-term value for our stakeholders

Long-term, sustainable growth and value for all stakeholders.
Ensuring that our business positively impacts the world around
us and the people within it.

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic report

Our purpose

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

Our culture & values

Staff

Customers

Communities

Suppliers and
landlords

Government and
local authorities

Shareholders

Pensioners

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.

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

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.

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’).

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.

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

Worthwhile for our trade customers
• Profitability, convenience, service, support

Worthwhile for our suppliers
• Strong and enduring relationships based on trust

• Great product range for them to offer to their customers

• Working together to develop new products and deliver

• 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 develop and

progress

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

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

a
c
n
a
n
F

Strategic report

Our market

UK market

• 29 million UK homes, 18 million owned and 11 million rented.

• Market continues to shift from DIY to ‘Do It For Me’.

• Strong level of investment in new house build.

• Stamp duty holiday has given short-term stimulus.

•

Consumer spend switching into home improvement
given current conditions.

Kitchens for everyone

• UK market leader, selling 1 in every 3 kitchens.

•

Selling primarily to small builders who supply into a broad range
of markets including social housing, private rentals and owner
occupied homes.

Contracts division supports the increasing demands of the new
build market.

One stop shop for each customer type.

Over 4 million cabinets, 2 million doors, 1 million appliances,
2.5 million m2 flooring.

Trusted by the trade

•

Increasing customer expectations result in professionals being
needed more and more.

Our service to the builder is built on strong local relationships
supported by our in stock model, depot manager autonomy and
trade quality products.

We support the trade with end consumer services – in-home
survey, free planning and design service, in depot presentations
and expert advice.

All our products are tested to UK and Global standards and our
accessories and appliances are tested to ensure they are easy
to fit for our builder customer.

•

One stop shop for all joinery and kitchen related products.

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

Kitchen is the heart of the home

•

Kitchens play a big part in the home and must be functional
and social places.

Kitchens need to be functional in small spaces.

Kitchens need to be design-driven as they are constantly
on show in open plan spaces.

Our ranges cater for traditional, modern and niche looks whilst
our appliances, storage options and kitchen accessories ensure
the level of functionality demanded by today’s consumer.

Technology advances mean more focus on sustainability,
eco-focus and time saving features.

French market

• 29 million homes in France: 60% owned, 40% rented.

•

Consumer spend switching into home improvement,
as in the UK.

Market starting to shift from DIY to ‘Do It For Me’ –
just as it was in the UK when Howdens first started.

Customers want everything quickly, and we’re the
only one who offers our range of quality and product
from stock.

a
c
n
a
n
F

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic report

Our business model
The UK’s leading kitchen supplier, selling only through trade customers.

What we do

The value we create

Product manufacturing and sourcing
• Our manufacturing and sourcing experts ensure that we offer

attractive products that are trade quality and easy to fit.

• We make what it makes sense for us to make in our two UK
factories and we buy other product in from our suppliers.

• We design and manufacture all our own cabinets, over 4 million
per year, as well as some cabinet frontals, worktops and skirting
boards. We’re agile and we keep the make vs buy decision under
review.

• We buy in thousands of different products from hundreds of

trusted suppliers based around the world, including appliances,
joinery, flooring and hardware. We offer everything necessary for
a new kitchen.

Distribution
• Our in-house distribution operation delivers from our factories

and central warehouses to our network of more than 750 depots.

• No two deliveries are alike, and each one must be correct,

complete and on time. We can guarantee this because we control
our own distribution.

Depots designed for our trade customers
• Our business depends on entrepreneurial depot managers and
the relationships between highly motivated and incentivised
depot teams and their local builders.

• A typical Howdens depot is in an edge-of-town location – more

convenient for our trade customers, and cheaper to rent. Around
85% of our UK customers live within 5 miles of a Howdens depot.

• Our in-stock model means that builders can get the products they
need at short notice, even when plans change part way through
a job.

• We offer the builder quality products, excellent levels of service
and trade accounts that allow them up to eight weeks to pay.
We focus on helping our customers succeed. When they make
money, we make money.

Consumers/Homemakers
• Our 1,600 specialist kitchen designers support the builder by

visiting the end-user’s home, or work with them remotely using
our new virtual design service, and help them choose, plan and
design their dream kitchens.

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

Customers
• Save time and money with Howdens. Trade quality, full product

range for the complete kitchen, available from stock at
competitive, confidential prices.

• Trusted personal relationships providing outstanding service,

from kitchen design to delivery and aftersales support.

• Trade accounts allow the builder to finish their project and receive
payment from their consumer before they need to pay us. We offer
online account management and ordering to help the busy builder.

Staff
• A growing company with opportunity for training, development

and career progression.

• A safe working environment, good salary, pension and benefits,

with local profit-sharing and incentives.

Suppliers
• Strong and enduring relationships based on trust.

• Co-operative engagement on new products and the scale

necessary to support suppliers’ businesses and investment
plans.

Investors
• Long-term value creation, generating cash for further investment

in the business and to support a growing dividend.

• Surplus cash returned to shareholders through share buybacks.

Communities and environment
• Employment opportunities and good neighbour in over

750 communities.

• Supporting local and national charities.

• Responsible ESG practices and policies.

• See our Sustainability report (page 48).

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic report

Our strategy

Strategic objective

Reach more builders.
Grow market share. Increase
trade convenience.

Operational excellence.
Increase customer service, efficiency,
trade value and profitability.

What does it mean?
Why is it important?

What did we deliver?
What are our future targets?

What risks does it mitigate?

• Continue to open more UK depots, closer to the builder.

• Adding a new depot near to an existing one sees overall sales
increase. We continue to see scope for 850 depots in the UK.

• Open more depots in France, at the right pace and in the right places.

• Use digital to drive personal relationships and save the builder time.
Anytime Ordering and online account management means that
conversations in the depot can focus on sales and profit.

• Time is money for the builder. Trade convenience helps them to make

more money, which means that we make more money.

•

Invest in the safety and success of our people. Careers with
prospects and excellent rewards for outstanding customer service.

Invest in our depots. New format depots reduce picking times and
increase efficiency.

Invest in efficient manufacturing and distribution. High quality
at low cost with reduced lead times and increased supply chain
resilience.

• Use digital to improve business processes, freeing up more time to

serve the builder directly.

• 16 new UK depots in 2020, with 35 new depots

• Failure to maximise growth.

targeted for 2021.

• 4 new depots in France in 2020, with 11 more

targeted for 2021.

• Website visits grew, and drove an increase in

sales leads and brochure requests.

• Online account management tool frees up builder

time for more profitable conversations.

•

2021 rollout of our digital Anytime Ordering service,
offering further efficiencies for both builders and depots.

• Health & safety KPI: serious accident rate significantly

• Health & safety.

lower than UK average.

•

ISO45001 in our factories and logistics network. Risk
Management Initiative of the Year in our depot network.

• 30 depots converted to our new format. Continued to
increase the amount of product we make in our own
factories in 2020.

•

Further 2021 investment in manufacturing will reduce
costs, cut lead times and increase supply chain resilience.

• Loss of key personnel.

• Deterioration of business model and culture.

• Cyber-security incident.

• Credit control failure.

Product innovation.
The right amount of the best
product, at the best price.

• Product leadership – constant investment in new product is

critical in our offer to builders. End users demand it.

• Good range management balances the benefits of having new
product with the costs of managing it through its lifecycle.

•

Increase the amount of product we make in our own UK factories
when it gives us a competitive advantage and security of supply.
Make what it makes sense to make and keep this decision under
review.

• 18 new kitchen ranges in 2020.

• Product design relevance.

• New handleless cabinet platform offers a stylish Linear

•

Interruption to continuity of supply.

look at affordable prices.

• 16 new ranges planned for 2021, with other products
and accessories to meet customers’ needs for a more
bespoke look.

• Disciplined range management.

• Acquired the assets to make our own solid surface

worktops.

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

Prudent financial management.
Giving us the tools to do the job.

• Cost control and agility to manage through macroeconomic crises.

• Strong financial management through the onset of COVID.

• Changes in market conditions.

• Manage cash through the operating cycle to cover changes in

working capital without having to borrow.

• Generate cash to invest in our strategic priorities.

• Return surplus cash to shareholders.

• Cost control and conservation of cash. No need to borrow
at any time during 2020, all Government COVID aid repaid
before end of 2020.

• Ending 2020 with a strong balance sheet, enabling us to
announce both investment for growth and return of cash
to shareholders in 2021.

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic report

Chief Executive’s statement

Andrew Livingston Chief Executive Officer

Howdens has performed well in a challenging year that has been
significantly impacted by COVID-19. We have adapted to COVID trading
conditions whilst investing and progressing our strategic plans.

Perspectives on 2020 results

The result for the year reflects the spring
lockdown period, followed by a year on year
increase in 2nd half sales and profit. Sales
for the full year were down 2% at £1,548m
with profit before tax of £185m, £75m
lower than 2019.

Howdens has performed well in a challenging year
that has been significantly impacted by COVID-19.
We adapted to COVID trading conditions while
investing in the business and progressing our
strategic plans.

Our performance shows the strength of our trade-
only business model and how we’ve continued to
evolve while prioritising the health and wellbeing of
our staff and customers.

• First half UK sales were 29% lower than 2019,

with all of the shortfall happening in the second
quarter, coinciding with the start of the UK
spring lockdown.

• UK second half sales increased by 16% on 2019,
with the increase trending upwards across
the half, exceeding our expectations in latter
periods.

We extended our traditional ‘P11’ sale period across
Periods 10 & 11.

• We saw signs of pent-up demand. We heard

reports of extended delivery times amongst our
competitors and there were end-user concerns
about further lockdowns, so we extended our
sale period to help builders to book in more
kitchen fits over a longer time.

• Period 10 & 11 sales were above our original
target, with Period 11 alone still returning a
record result compared to previous years.

•

It also benefitted supply chain management and
the ability of depots to service demand.

Importance of our Culture and
Business Model in 2020

The strength of our culture and business
model – the unique way we serve our
customers and go about our work- are
at the heart of Howdens’ success. I am
pleased with how the business responded,
and continues to respond, to the
challenges of COVID-19.

First, we took care of staff and customer wellbeing.

I believe this performance reflects the measures
we put in place to enable safe working across the
business and to support our customers with new
services, lower prices, high stock availability and a
safe place to trade.

• Safety-first, consensual approach when
returning to work. Following government
guidance, listening to our Health & Safety Team
Leaders, our staff and our customers.

• Specific online employee resource for COVID-19

With people by necessity spending more time at
home and with concerns about further lockdowns
we also believe people were choosing to spend
more on their homes.

issues.

• Financial support for staff on furlough.

We deferred or reduced cash expenditure where
possible, whilst protecting essential areas.

• Made sure depots stayed in stock, and

continued with the works at our new warehouse.

•

Initially deferred new depot openings,
refurbishments and refits, but restarted them
later in the year.

Responsible stakeholder relations

COVID-19 had a significant impact on all our
lives and our priority remains the health,
safety and wellbeing of our employees
and customers, while acting fairly and
responsibly in all our other stakeholder
relationships.

• During the spring lockdown we kept up an

emergency provision to support the NHS, care
providers and vulnerable people. We have
continued to support local and national charities
throughout the year.

• We continued to pay our landlords in full. We
honoured, and in some cases increased, our
orders from suppliers, and they supported us
with high stock availability.

• Thanks to our strong balance sheet and our
trading performance, we repaid all our 2020
furlough funding before the year end and
settled a number of other payments that we
initially deferred, including taxes, pension deficit
contributions and business rates waived by
local councils.

• We have subsequently been able to recommend
paying a dividend to shareholders in respect of
2020 and also a special dividend in recompense
for the cancelled 2019 dividend.

We supported our customers and local
communities.

• Re-opened depots and factories safely, with new

working practices, as soon as we could.

•

Increased stock levels to supply customers’
immediate needs. This also meant we supported
our supply partners.

Lowered some prices, giving depot teams more
flexibility on margin and incentivising them to
maximise sales.

• Launched new services including ‘call and

collect’ and an online kitchen design service.

Learnings in 2020

We applied learnings from trading under
COVID conditions to the ways we do
business and how we operate.

• Lockdown increased online shopping. Our

new online services are pathfinders for future
upgrades.

• Operating under COVID helps us see if there are
surplus costs and inefficiencies in the business,
and how we can use IT to free up time and
increase productivity.

• We now know how to deal with varying degrees
of lockdown and social distancing across all our
operations. We have seen that these may be put
in place at short notice and may have different
rules in different areas.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information24

Chief Executive’s statement continued

Based around our core building blocks of Trade Service & Convenience,
Trade Value and Product Leadership, we have initiatives in place to
exploit opportunities in a challenging market.

Update on strategic initiatives

1) Depot evolution

We are opening depots in an updated
format to provide the best environment to
do business in, with no material change to
fit-out costs.

This year we opened fewer depots than planned.

•

In the 1st half we put our opening programme
on hold.

•

In the 2nd half, we opened 16 new depots.

We are targeting around 35 UK depot openings in
2021, including some more in Northern Ireland.

We also re-formatted some more of our
older depots. We continue to learn how best
to apply this opportunity to our existing
depots.

In 2020 we converted 30 depots to the updated
format, in line with our budgeted average cost of
£225,000.

In 2021 we plan to reformat a further 40 depots.
We are budgeting an average cost similar to the
2020 level, and we continue to refine the scope of
refurbishments.

We also re-racked the warehouse areas of 17
existing depots without other modifications in 2020
and we plan to re-rack a further 20 in 2021.

By the end of 2020, we had 117 UK Depots in
the updated format, and we had re-racked
the warehouses of a further 79 depots. By
the end of 2021 we are planning to have 192
UK depots in the updated format, as well as
a further 99 that have been re-racked.

The market remains challenging and may
be further impacted by COVID-19 , Brexit
and underlying consumer confidence. We
believe we are well positioned with our in-
stock, local model, providing we reinforce
the differentiation of our offer profitably.

Based around our core building blocks of
Trade Service & Convenience, Trade Value
and Product Leadership, we have initiatives
in place to do this.

Our 4 strategic initiatives are:

Evolving our depot model to use space more
efficiently and to provide the best depot
environment for our staff and customers.

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

3) Using digital to raise brand awareness, to

support the business model with new services
and to free up time for depot staff and
customers to use more productively.

4) Developing our international operations, based

in France, using a city-based approach.

The updated depot format
Updated front area creates the best environment for our
customers to do business in. Better warehouse racking delivers
more stock, in less space, with reduced picking times.

We are adding more choice, with new colourways
in some of our most popular ranges, together
with a number of added value accessories so that
customers can create a more personalised look.

All our new kitchen ranges for 2021 will be in-stock
by the start of the 2nd Quarter, well ahead of our
peak sales period and 4 weeks earlier than in 2020.

Disciplined range management is crucial to
both best availability and profitability.

At the end of 2019, we had 67 current kitchen
ranges and we ended 2020 with 63, having cleared
more ranges than we added during the year.

We believe around 65 current ranges is the right
number for our market at present and will be
managing range introductions and clearances
accordingly.

2) Range and supply management

Range management

New kitchen ranges represent a significant
portion of sales each year, as product
lifecycles shorten and our customers want
new product from us.

Our 2020 new product featured 18 new kitchens in
two new styles plus more colour options.

We began using our new handleless cabinet
platform to meet demand for a Linear look at
more affordable price points.

Because we launched our new kitchen ranges
earlier than last year, we were well-positioned with
product as we returned to all-depot trading. New
product sales were ahead of 2019.

202 1 new product features 16 new kitchen
ranges, new lines and products to promote sales
of complete kitchens, and to enable customers to
accessorise kitchens for a more bespoke look.

For 2021 we are introducing a new more traditional
style timber shaker range that will strengthen our
£4,000-plus offering.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information
26

Chief Executive’s statement continued

Improving stock management, protecting our in-stock offer, investing
in making more of the product we sell and in our digital offering.

Improving stock management – XDCs

We are making an improvement to stock
replenishment by supplementing the
depot’s core weekly delivery with a next
day service from a regional cross-docking
centre (or ‘XDC’).

Howdens is an in-stock business. Builders tell us
that our high level of stock availability is one of the
key reasons they buy from us.

Our traditional stock replenishment model is
based on weekly delivery to depots. It is cost-
effective and is particularly suited to fast moving
product and product with relatively predictable
demand patterns.

Using XDCs to rebalance where we hold stock
and changing the delivery pattern of some lines
means that depots can, for example, allocate more
warehouse space to faster-selling lines and reduce
contingent stocks of slower-moving ones.

This makes it simpler and more efficient for depots
to deliver the superior service levels and product
availability that our customers expect. It frees up
time and resources spent on stock management,
for example on inter-depot stock transfers.

We are developing the XDC capability with 3rd party
logistics partners and in the main we are using their
existing infrastructure. The service is available to
120 depots at present and we expect to increase
this to around 250 depots during the 2nd Quarter
of 2021.

Primary

Weekly

Primary

Overnight

XDC

Daily

XDCs
Maintaining our in-stock offer, delivering superior customer
service, and freeing up time and resources in our depots.

Depot

Customer

Depot

Customer

GREAT!

Customer

It’ll be here
by 9am…

Safeguarding our manufacturing &
distribution under COVID conditions

Our stock strategy has also benefitted from
significant engagement with our supply base.

Our dedicated manufacturing & supply
chain is critical to the success of our in-
stock offer. It supplies all the product to
all our depots, which each have individual
and changing day to day requirements.
Operating under COVID conditions meant
finding ways to re-engineer how our
factories operate and how we supply and
distribute to depots.

When lockdown started, we initially closed
substantially all our manufacturing and supply
facilities.

• With employee consultation, we then designed
a series of social distancing measures, work
processes and practices as we prepared for a
phased return to work.

• With added safety measures in place, we re-

opened our factories and warehouses, making
sure that depots remained in stock as demand
and the number of depots trading changed.

• Since re-opening in April, we have continued
to work with appropriate COVID-compliant
processes.

• We can now manufacture all products whilst

maintaining social distancing.

• Our efficiency, whilst below pre-COVID levels,

• We have long-term relationships and

agreements with many of our suppliers.
Being a manufacturer ourselves has helped
us anticipate the potential COVID risks in our
supplier factories.

• We operate on ‘Ex works’ rather than ‘Delivered’
terms with the majority of our suppliers, which
means we can work directly with our shipping
partners to resolve logistical issues and
provides us with earlier warning of orders that
might be running late.

Stock availability is fundamental to our offer. We we
have prioritised this in 2020 and will continue to do
so in 2021.

• For 2021 we are extending our holdings of safety
stock as a contingency against unexpected
demand patterns and interruptions to supply.

• We have broadened the range of SKUs we

protect in this way and increased the number of
weeks cover we have on some lines.

More investment in our UK manufacturing

We keep under review what is best to make
or buy, both in terms of cost and overall
supply resilience and flexibility.

has progressively improved, and we were able
to accommodate the significant rise in 2nd Half
volumes.

In 2019 we invested in manufacturing technology
enabling us to make the doors for our new Hockley
kitchen ranges.

Protecting our in-stock offer

We acted to protect our in-stock offer
against supply chain disruption and
to accommodate irregular patterns of
demand. We increased levels of safety
stock and used back-up sources of supply.
We will continue to do so as needed.

We first did this as part of our Brexit planning and
again ahead of the spring lockdown. Our ability to
use our disaster recovery capacity, together with
the extra space at our new warehouse in Raunds,
which came on stream as scheduled in September
2020, helped us to maintain stock availability.

Based on the success of that, we have now
committed to a further investment.

• We intend to manufacture the frontals for some
of our top selling kitchen ranges at a lower cost
and a reduced lead time. We will still keep the
benefits of sourcing from external suppliers,
who will continue to provide around half of
our frontals. The new investment will be at our
Howden site. We expect that it will come on
stream in the second half of 2022.

• We are also commissioning a second architrave
and skirting line as our first line is now at full
capacity. We expect this to be up and running in
the first half of 2022.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information28

Chief Executive’s statement continued

We are clear on our prospects and priorities for 2021. We are confident
in our business model through changing economic conditions and in
the future benefits of our strategic initiatives.

4) Developing our international operations

The 2020 International performance
gives us the confidence to open more
depots in France.

We will have all our 2021 new kitchen product
on sale earlier than last year, aligned with depot
promotions to keep Howdens at the front of our
customers’ minds.

We identified the need to upgrade our offer in solid
surface worktops. In 2020 we took the opportunity
to buy the assets of a large UK solid surface
worktop maker from the administrator.

• We bought a 16-acre site near our factory at
Howden, including a recently-commissioned
factory and new manufacturing plant and
machinery.

• We acquired the assets at a competitive price,
with significant savings in lead time versus
building from scratch. We expect them to be
operational in 2021.

3) Use of digital

We use digital to reinforce our model of
strong local relationships between depots
and their customers.

Our digital investments were instrumental in
supporting our model in 2020, when relationships
and ways of doing business were disrupted.

2020 saw increased activity on our web
platform and growth in our social media
presence, which also stimulates interest
in viewing our products and services on
Howdens.com.

• Howdens.com ‘ impressions’ were present in
48% more organic search results a month.

• Site visits increased by 53% year on year.

• Depot leads via the website increased by 88%

and brochure requests by 39%.

• Across social media sites our follower base,

at 213,000, was up 119%. We reached 8 million
users a month, and those who actively engaged
with us were up 165%.

In 2020 Howdens.com provided a key
customer access point to the business.
We extended our range of online services
to support builders and end-users.

We rolled out the online account facilities so that
users can manage their accounts and make
payments at any time.

• By the end of the year, 30% of our credit account
holders had registered to use the service, with
around 43% of them using it to make a payment
and 68% downloading documents.

We launched a call-and-collect service through our
website, providing an additional way for customers
to trade safely with us following the onset of
lockdown.

When we couldn’t have kitchen planning meetings
in depots or in homes, we developed a personal
online kitchen design service.

• As well as enabling people to plan kitchens

without the need for a depot or home visit, the
service helps put Howdens front of mind earlier
in the procurement process.

• Feedback has been positive, and we are

continuing to offer the service.

We continue to add new digital
capabilities and content to support the
local relationships depots have with
their customers.

Starting from February 2021, we are offering
‘Anytime Ordering’ for the first time on our trade
website. This will be a major upgrade of our ‘call-
and-collect’ service, providing efficiencies for both
depots and customers.

Features of the service include:

• Bespoke pricing for each customer. Account

holders can see their own prices, order product
and quote for individual jobs out of hours.

• A scheduler for customers to select a depot
collection or delivery time of their choosing.

•

Integration with our depot lead management
system, helping depots manage their customer
relationships even more efficiently.

We will make improvements to service and
availability by utilising XDCs.

We are making investments in our kitchen
door, solid surface and skirting manufacturing
capabilities.

We will continue to add capabilities to our
digital platform with ‘Anytime Ordering’ as the
centre piece.

We plan to open around 35 depots in the UK, to open
11 new depots in France and to refurbish around
40 existing UK depots to the updated format.

We remain cautious on underlying market
conditions given the ongoing COVID-related
economic uncertainties and the impact of the result
of the recently concluded Brexit trade negotiations.

We remain confident in our business model through
changing economic conditions and of the benefits
our initiatives will bring to our performance.

I am very pleased with our achievements in 2020,
in particular how we both adapted to COVID trading
conditions and progressed our strategic plans,
which make us well prepared for what we expect
to be a challenging market in 2021. All this is
made possible by the character, skills &
commitment of our people and I thank
them for all for what they have done.

Andrew Livingston

Chief Executive Officer

24 February 2021

International delivered a step change in
performance post-lockdown. 2nd Half sales
increased significantly year on year.

•

In France, lockdown occurred a little earlier than
the UK. When lockdown started, sales were up
around 3% year on year.

• We took a similar approach to re-opening as in
the UK with depots initially re- opening in call &
collect mode on a phased basis.

• During May, as lockdown ended, depots

were able to trade in more normal ways, with
appropriate safety protocols in place.

• Whilst sales in the 1st Half were down around
18% year on year because of the onset of
lockdown, sales increased significantly year on
year in the final two periods of the 1st Half.

• Sales in the 2nd Half increased by 38 % in

constant currency terms and were up 13% for
the year as a whole.

We believe customers are increasingly recognising
the advantages of our trade-only in-stock model,
our service levels and competitive pricing.

We opened 4 depots in the 2nd Half of 2020, ending
the year with a total of 30.

We are planning 11 depot openings for 2021, which
is around the number of new depots we could staff
with ‘Howden trained’ teams.

Prospects for 2021
Our priority remains the safety of our people
and customers and we have contingency plans
to enable us to trade under the range of COVID
conditions we have seen to date.

We have increased prices, having lowered some
during 2020, and we aim to keep a profitable
balance between price and volume, whilst aligning
operating costs and working with suppliers to keep
product and input costs controlled.

We believe high stock availability was a major
contributor to our performance in 2020. We will
continue to manage our stock levels to protect
availability of both manufactured and bought-in
product.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information30

Key performance indicators

Links to:

Strategy

Risk

Remuneration

Financial

Non-Financial

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

Reach more builders.

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

Operational excellence.

Prudent financial management.

Failure to maximise growth potential.

Deterioration of model & culture.

Executive Committee and senior management
bonuses are directly linked to PBT.

Cash

Progress

We are pleased with our progress. We saw total
UK sales of £1.5bn in 2020, despite the effect of
COVID 19.

3
.
1

.
1

2016

2017

2018

2019

2020

Progress

We are pleased with our progress. Profit before
tax was £185m in a very challenging year.

m
7
3
2
£

m
2
3
2
£

m
9
3
2
£

m
1
6
2
£

m
5
8
1
£

2016

2017

2018

2019

2020

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 35).

Progress

We are pleased with our progress. We have
maintained capital investment and are proposing
both a normal and a special dividend.

Links to strategy, risks and remuneration

Prudent financial management.

Invest in our strategic priorities.

Return surplus cash to shareholders.

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

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. We also see scope to expand our depot
network in France.

Links to strategy, risks and remuneration

Reach more builders.

Failure to maximise growth potential.

Deterioration of model & culture.

Health & Safety

Progress

We paused depot openings in H1 2020, but
resumed them in H2, opening 16 new UK
depots, and 4 in France. We expect to open
around 35 UK depots in 2020, and 11 in France.

1
4

3
3

7
2

9
1

0
2

2016

2017

2018

2019

2020

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.

Progress

We are pleased with our progress.
See page 56 for more details.

Links to strategy, risks and remuneration

Operational excellence.

Health & Safety.

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. See page 58 for more details.

100% of wood-based
material used in
our manufacturing
processes from FSC® or
PEFC certified sources

100%

Links to strategy, risks and remuneration

Product innovation.

Product relevance.

Continuity of Supply.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information32

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. 100% of our
production waste was recycled or reused. See
page 60 for more details.

Links to strategy, risks and remuneration

Operational excellence.

Prudent financial management.

Links to:

Strategy

Risk

Remuneration

7
7
9

3
7
9

5
8
9

8
9
9

0
0
1

2016

2017

2018

2019

2020

Paul Hayes Chief Financial Officer

Financial results for 20201

Revenue

Revenue £m

Group:

Howden Joinery UK depots – same depot basis

UK depots opened in previous two years

Howden Joinery UK depots – total sales

2020

1,547.5

1,470.5

39.1

1,509.6

2019

1,583.6

1,540.5

9.8

1,550.3

Howden Joinery Continental European depots

37.9

33.3

Revenue €m

France and Belgium – same depot basis

Depots opened in previous two years

France and Belgium – total sales

Total Group revenue was £1,547.5m (2019: £1,583.6m).

38.3

4.3

42.6

37.4

0.3

37.7

Howden Joinery UK depot revenue reduced 2.6% to £1,509.6m (2019: £1,550.3m). UK revenue reduced by 4.5% on a same depot
basis2 to £1,470.5m (2019: £1,540.5m); this excludes the additional revenue from depots opened in 2019 and 2020 of £39.1m
(2019: £9.8m).

In the first half, Howden Joinery UK revenue was 1.1% higher in the first quarter and 55.9% lower in the second quarter, and 0.8%
lower and 56.9% lower, respectively, on a same depot basis2.

The table below shows the steady progression in UK sales following the initial impact of COVID-19 at the beginning of period 4,
with the second half showing strong growth of 15.8% compared to the same period last year (13.6% on a same depot basis2).

Howden Joinery UK Revenue

Quarter 1 (periods 1–3)

Period 4

Period 5

Period 6

First half (periods 1–6)

Second half (periods 7–13)

2020

£m

304.6

15.3

48.7

84.8

453.4

1,056.2

2019

£m

301.3

113.6

109.2

113.9

638.1

912.2

Change

1.1

(86.5)

(55.4)

(25.5)

(29.0)

15.8

The information presented relates to the 52 weeks to 26 December 2020 and the 52 weeks to 28 December 2019, unless otherwise
stated. The 2020 results are presented under IFRS 16 for the first time, 2019 results have not been restated.

2 Same depot basis for any year excludes depots opened in that year and the prior year.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information34

Financial review continued

How we make cash and how we spend it

Net cash and cash flow

£600

£500

£400

m
£

£300

£200

£100

m
7
6
2
£

+£313m

+£70m

-£88m

-£22m

-£32m

-£70m

-£10m

+£3m

+£164m

m
1
3
4
£

Opening
net cash

Operating cash
flows – pre leases

Lease
Payments

Working
capital changes

Pension
contribution

Tax
paid

Capital
expenditure

Shares re-
purchased

Other

Uses of cash

2019

£30.0m

£61.1m

£55.2m

£70.6m

Closing
net cash

2020

£30.0m

£69.7m

£9.8m

Pension deficit

Capex

Share Repurchase

Dividend

Dividend payments were suspended in 2020. At note 11 to these 2020 financial statements, the Board proposes a total of £108m in
dividends, including a £58m special dividend in lieu of the 2019 final dividend.

Depot revenue in Continental Europe
increased by 13.6% to £37.9m (2019:
£33.3m). On a local currency basis,
sales at our depots in France and
Belgium increased by 13.0% and by 2.5%
on a same depot basis1. Local currency
sales in the second half increased 38.0%
compared to the same period last year,
and by 23.7% on a same depot basis1.

Gross profit
Gross profit reduced to £930.0m (2019:
£986.2m). This change reflected a
negative volume and mix impact of
£29m, lower pricing of £16m, input cost
pressures of £5m and an additional
£6m of COVID-19 costs as we carried
fixed costs with lower production levels.
These factors resulted in gross profit
margin of 60.1% (2019: 62.3%).

Same depot basis for any year excludes
depots opened in that year and the prior year.

Operating profit
Operating profit reduced to £195.7m
(2019: £260.0m), principally due to
lower revenue and gross profit and
higher operating costs. The operating
profit margin was 12.6% (2019: 16.4%).

Selling and distribution costs and
administrative expenses increased to
£734.3m (2019: £726.2m). As expected,
costs increased due to continued
investments in areas across the
business, including £14m in UK depots
opened in 2019 and 2020 and £9m
additional costs to support growth,
including the Raunds distribution
facility and digital developments. The
lower activity levels resulted in £7m
lower costs in existing depots and the
adoption of IFRS 16 reduced operating
costs by £8m. There was also the
absence of £6m depot closure costs in
Germany and the Netherlands, incurred
in the prior year.

Profit before and after tax
The net interest charge of £10.4m
(2019: £0.7m credit), reflects an
additional charge of £10.3m following
the implementation of the leasing
standard IFRS 16, and lower bank
interest receivable. Profit before tax
was £185.3m (2019: £260.7m).

The tax charge on profit before tax was
£37.7m (2019: £51.7m), representing
an effective rate of tax of 20.3% (2019:
19.8%). As a result, profit after tax was
£147.6m (2019: £209.0m).

Earnings per share
Reflecting the above and the
reduced share count following share
repurchases, basic earnings per share
were 24.9p (2019: 35.0p).

Net working capital reduced by £70.3m,
mainly due to creditors that were up by
£91.2m as a result of high levels of stock
received late in the year and shipping
delays of inbound stock. The impact of
the high level of creditors is expected to
reverse in the first quarter 2021. Stock
increased £23.2m due to COVID-19 and
Brexit contingency planning and depot
openings. Debtors were down £2.3m.

Payments to acquire fixed and
intangible assets including new depots,
digital upgrades and investment in the
Raunds distribution centre, totalled
£69.7m (2019: £61.1m). Corporation tax
payments were £32.2m (2019: £46.2m),
share repurchases totalled £9.8m
(2019: £55.2m) and the interest and
principal paid on lease liabilities totalled
£87.6m. There were no dividends paid
(2019: £70.6m).

Reflecting the above, there was a net
cash inflow of £163.3m (2019: £36.1m),
leaving the Group with net cash at year
end of £430.7m (28 December 2019:
£267.4m net cash).

The Group has access to a £140m asset
backed lending facility which remained
undrawn at the balance sheet date.

Pensions
At 26 December 2020, the pension
deficit shown on the balance sheet
was £47.7m (28 December 2019:
£56.6m). The decrease in the deficit was
primarily due to an increase in asset
returns of £133.2m and a £46.0m cash
contribution partly offset by a £145.9m
increase in liabilities (the main elements
of which are a £203.7m increase in
liabilities primarily due to a reduction
in the net discount rate and a £37.9m
decrease in liabilities due to adopting
updated longevity assumptions).

Shareholder returns
and capital structure
In March 2020, the Group announced
that its dividend and share buyback
programmes were suspended and
would resume once the Group had
greater clarity about the impact on
the business of COVID-19. Therefore,
the Group cancelled the share
repurchase programmes, did not
pay the proposed 2019 final dividend
of 9.1p per ordinary share and did
not pay an interim dividend in 2020
(2019: 3.9p per share). Ahead of
this decision, the Group acquired
1.8m shares for a consideration of
£9.8m, relating to the £50m 2019
share repurchase programme. These
shares were cancelled.

The Board’s approach to capital
structure is unchanged, targeting a
capital structure that is both prudent
and recognises the benefits of
operational and financial leverage. The
Board also retains our policy to return
surplus cash to shareholders, having
considered, amongst other things, the
capital requirements of the Group. The
Group has significant property leases
for the depot network and continues to
have a 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. Against this backdrop and
recognising the strong trading and
cash performance in the second half of
2020, the Board has decided to resume
dividend payments.

Dividend policy
The Group’s unchanged 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.

Dividends
As a result, the Board will recommend
to shareholders a 2020 final dividend
of 9.1p per ordinary share, equating to
dividend cover of 2.7 times.

In addition, the Board has decided that
the Group will pay a special dividend of
9.1p per ordinary share, equivalent to
the cancelled 2019 final dividend.

The final dividend payment in respect of
2020 of 9.1p per share will, if approved
by shareholders, be paid on 18 June
2021, with an ex-dividend date of 20 May
2021 and a record date of 21 May 2021.
The special dividend of 9.1p per share
will be paid on the same timetable as the
final dividend. The cash being returned
to shareholders through these dividend
payments totals £107.7m.

The Board expects to announce a 2021
interim dividend with its results in July
of 3.0p per share, in line with its policy
of the interim dividend representing one
third of the prior year’s total dividend.

The Group’s strong balance sheet has
positioned the business well in these
challenging times and provides us with
a robust foundation to face the ongoing
uncertainty with confidence. The Board
will review the level of shareholder
returns once we see more stability in our
market and the broader economy.

Cash
As soon as the impact of COVID-19
became clear, the Group took a number
of actions in order to preserve cash,
including suspending shareholder
returns, deferring non-essential capital
expenditure and agreeing a deferral of
payments towards the Group pension
deficit. In addition, by the end of the first
half, the Group benefitted from available
UK Government support, including
furlough receipts, tax payment deferrals
and business rate reductions, which we
have since been able to repay.

Overall for 2020, there was a net
cash inflow from operating activities
of £329.2m (2019: £221.4m). This
was after a cash contribution to the
Group’s pension schemes in excess
of the operating charge of £22.2m
(2019: £26.9m).

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information36

Financial review continued

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 will make annual
deficit contributions of £30m per annum
for up to five years until June 2023.

The triennial actuarial review as at April
2020 is in progress and expected to
complete in 2021. Following a period
of consultation, the defined benefit
pension scheme will close to future
accrual from 31 March 2021.

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% of the scheme’s funding
basis for two consecutive months
and resumed if the funding position
subsequently falls back below 100%.

The contribution to the pension deficit in
the financial year ended 26 December
2020 was £30.0m (2019: £30.0m).

IFRS 16 – Leases
The Group adopted IFRS 16 for the first
time in the current year. The effects of
adoption are shown in detail at note 28
to the financial statements, together
with our revised accounting policies at
note 2 and the effect on the current year
at note 14.

The effect of IFRS 16 on the Income
Statement in 2020 compared to the
previous accounting standard, IAS 17,
was an increase in operating profit of
£8.1m. This is more than offset by an
increase in interest charges of £10.3m.

Under IFRS 16 we now recognise leases
on the balance sheet. The addition to
gross assets of £544m represents
our right to use the leased asset and
the increase in gross liabilities of
£581m reflects the present value of
our obligation to make future lease
payments.

Current trading and
outlook for 2021

Current trading

Howden Joinery UK sales in the first two
periods of the new financial year (to
20 February 2021), increased by 5.1%
(4.5% on a same depot basis). European
sales increased by 32.3% (31.2% on a
same depot basis). Excluding the first
week of the year (when depots were
closed in 2021, compared to 2020 which
had 2.5 trading days), UK sales were up
7.1% (6.5% on a same depot basis) and
European sales were up 38.6% (37.5%
on a same depot basis).

We have made a solid start to the year
although we have seen some greater
caution from end consumers on allowing
trades people into their homes under the
current lockdown. We therefore remain
cautious about the ongoing impact that
COVID-19 may have.

Outlook for 2021

So far in 2021 we have implemented
price increases across a range of
products as we manage the drivers
around margin and aim to get the right
balance between price and volume.
We are experiencing pressure from
commodity prices, increasing freight
costs and product mix, with a higher
than usual proportion of sales coming
from lower margin products. We
believe that Howdens is in a strong
position in an uncertain market and we
continue to invest in new depots, digital
investments and enhanced depot stock
replenishment while incurring some
inflationary cost increases. These
investments are partially offset by the
ending of the double-running costs of
our legacy national distribution centre
and the new Raunds development,
incurred in 2020.

Capital expenditure of around
£80m is expected in 2021, including
around 45 new depots and 40 depot
refurbishments, in-house manufacturing
further investment in digital and
maintenance deferred from 2020.

With respect to Brexit and COVID-19, we
continue to monitor our supply chain
closely and have increased stock levels.
Our Brexit planning has meant that,
to date, there has not been a material
impact on our business and we are
effectively managing through the short-
term challenges.

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.

New accounting standards

None of the new accounting standards
that came into effect during 2020 had
a material implication for the Group,
other than IFRS 16, whose effect we have
described on the previous page.

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

Paul Hayes

Chief Financial Officer

24 February 2021

The net favourable impact of exchange
rates on currency transactions in the
year was £0.4m. The principal exchange
rates affecting the profits of the Group
are set out in the following table.

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.

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 2020 and is in place until
December 2023.

The Group’s committed borrowing
facility contains certain financial
covenants. 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 2020 year end, the Group had
£431m 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 2020 and does not consider
interest rate risk to be significant
at present.

Principal exchange rates
versus UK pound (£)

1.50

1.25

1.00

0.75

0.50

0.25

1.27

1
3

.
1

1.28

4
3

.
1

1.14

7
1
.
1

1.12

0
1
.
1

United States
dollar (US$)

Euro (€)

Average
2020 Year-end
2019 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

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information38

Principal risks and uncertainties

What’s changed in 2020?
• No new principal risks
• 1 risk has increased
• Biggest influences on risks over the year have been

– Brexit uncertainty
– COVID-19

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 12 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.

ESG and Climate-related risks
We have always included ESG and
climate-related risks as part of
our existing risk identification and
management process.

There are climate-related risks on our
operational risk registers but at present
there are none which we consider to be
principal risks. We have two principal
risks which are ESG-related; Health &
Safety and Loss of key personnel.

ESG strategy and risk management

An effective ESG strategy will help us
to manage our risk profile and reduce
our principal risk exposures over time.
In 2020, as part of the Strategic Review
of ESG across the business (on pages
52 to 53) we completed a review of our
inherent ESG and climate-related risk
areas and considered how they link to
our principal risks.

Task Force on Climate-related
Financial Disclosures

TCFD reporting is important to effective
ESG and climate risk management. It
will also help us to meet the growing
stakeholder demand to understand
both how climate change could affect
Howdens and the effects that our
operations could have on the climate.
In 2020 we have taken the first steps on
our roadmap to TCFD reporting, which
we set out below.

Roadmap for Howdens introduction of TCFD reporting 2021–2022

Area

2020 Progress

2021 Priority

2022 Priority

Governance

Established our TCFD
governance framework
and executive oversight

Develop our TCFD
reporting mechanisms

Continue to develop
our TCFD reporting

Strategy

Established our Climate
Change strategy and agreed
with the Group Board

Confirm Board Risk
Appetite for climate risk

Risk
Management

Conducted a group wide
inherent risk assessment
and reviewed risk register
for risk gaps

Address any risk gaps in
our registers and identify
risk appetite

Metrics and
Targets

Identify key areas and
established responsibility
for metrics and targets

Identify appropriate
metrics for key climate
risks

Establish mechanisms for
monitoring and reporting
metrics and targets

Risk appetite
‘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.

Emerging risks
Emerging risks are considered by the
business and risk management team in
every risk review.

We use both internal expertise and
external resources to identify emerging
issues and their potential impact.

Where appropriate, emerging risks are
escalated to the Executive Committee
and Board as part of our regular
risk reporting.

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

Risk department: facilitate identification & evaluation of risk

Functional Leaders

Executive Committee

Board

Top-down
risk assessment

Assess risk profile
Identify Group risks

Sets risk appetite
and reviews profile

Operational
risk registers

Key risk
report

Principal
risks

Bottom-up
risk assessment

Develop
risk appetite &
mitigation plans

Challenges risks and
mitigation plans

Functional Management

Executive Committee

Board

Risk department: provide independent appraisal & guidance

• Functional 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 Report is 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 Report
to assess any changes to our risk
profiles. They also identify the
risks that they are managing at a
Group level. They then develop risk
appetites and future mitigation
plans for the Board to review.

• The Board challenge and agree

the Group key risks, appetites and
mitigation strategies twice yearly
and use this information to determine
the Group’s principal risks. The risk
process is defined by the Board and
set out in the Group Risk Charter. The
Charter was approved by the Board
in 2020 and sets out the Board’s
expectations for how the Executive
Committee manages risk, interprets
risk appetites and what is reported to
the Board.

• 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 63.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

Principal risks and uncertainties continued

Principal risks

• No new principal risks
• 1 risk score has increased – Risk 3: Changes to market conditions
• Brexit and COVID-19 have been the key risk influences in 2020
• 2020 updates to mitigating actions are listed on the following pages

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.

Higher

t
c
a
p
m

Lower

Risk

Higher Impact
Low Likelihood

Higher Impact
Higher Likelihood

Low Impact
Low Likelihood

Low Impact
Higher Likelihood

Likelihood

Higher

Failure to maximise growth potential

6 Health and Safety

Deterioration of business model and culture

7 Cyber security incident

3 Changes in market conditions

8 Product design relevance

Interruption to continuity of supply

Credit control failure

5 Loss of key personnel

COVID-19 – Risk timeline
COVID-19, identified as an emerging risk in last year’s report, had a major effect on our principal risks
in 2020. This timeline shows our risk response as well as the mitigations that are currently in place.
The Howdens in-stock model has been critical to our response, as well as the strength of our culture
and our people who gave us the agility to respond at speed. Early risk identification and management
was key to minimising the effects on our business.

1 – Pandemic in Asia

2 – Pandemic in Europe

Risks

Mitigations

Risks

Mitigations

• Supplier closures
• Transport
difficulties
• Product delays

• COVID Working Party formed
• Invested in stock for key lines
• Increased temporary

storage capacity
• Invested in remote
working capabilities
• Modelled financial and
operational scenarios

• European supplier

closures
• Transport
problems

• Product delays
• European depot

closures

• Worked closely with suppliers
• Optimised stockholding to support

key trading period

• Used our supply chain resilience to

deal with inbound transport disruption

• Invested in depot safety equipment

and processes

• Introduced new ways for customers
to interact with us using technology

3 – UK lockdown

4 – Trading in COVID-19 environment

Risks

Mitigations

Risks

Mitigations

• UK supplier delays
• UK depot closures
• Office closures
• Manufacturing

difficulties

• Transport delays
• Deteriorating market

conditions

• Conducted COVID-19 risk

assessments at all locations
• Supported working from home
• Protected our vulnerable staff
• Increased staff welfare activities

and training

• Protected our cash (via furlough,

government facilities etc.)

• Reviewed our cyber risk profile
and refreshed staff training

• Keeping our people
and customers
safe in COVID-19
Environment

• Introduced new Safe to

Trade operations at depots

• Introduced additional
safety measures at
manufacturing and
distribution locations

The mitigations we have taken allow us to operate safely under changing government guidelines,
and we’ll use what we’ve learnt to help us as we continue to manage the ongoing COVID risks into 2021.

How our governance and risk management procedures underpinned our COVID-19 response:

Monitoring
Set up monitoring
and provided
regular updates
to Board and
Executive
Committee.

Use of Experts
Used internal and
external expertise
to understand
changing
environment
and adapt to it.

Stakeholders
Kept stakeholders
informed and
supported them,
in line with our
culture.

Approach
Set up COVID-19
governance
framework
for managing
crisis using
existing Business
Continuity
measures.

Board
Called an
Extraordinary
Board meeting
to discuss risks
and mitigations
and confirm
governance
arrangements.
Audit committee
review of
governance
response.

External
Commitments
Considered
impacts on
our internal
and external
stakeholders
when making key
decisions (see
examples on
pages 79 to 81).

Supporting
our staff
Regular
communication
with staff. Focus
on staff safety
and welfare,
including training
in working from
home, Health &
Safety away
from the office,
mental health
and wellbeing.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

Principal risks and uncertainties continued

Brexit risks
On 31 December 2020, the transition period for the UK’s withdrawal from the EU ended. From that point new rules applied
for trading, immigration and importing/exporting procedures. This has bought some clarity to areas where there was
uncertainty and has addressed many of the pre-Brexit Risks which we outlined in our 2019 Annual Report and 2020 half-
year update.

Our most significant post-Brexit residual risk is outlined below:

What are the Brexit impacts

What this could mean

What we have done

Trade & Customs Risks

Exit from the EU Customs Union.

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

Obtained preferred importer/ exporter status to
reduce potential customs delays.

Continuously assessed and invested in our stock
position to ensure it remains optimal to mitigate
customs delays.

Reduced our reliance on the most affected ports.

This risk will be managed as part of our business as usual risk approach within our principal risk ‘interruption to continuity
of supply’.

Links to strategic areas

Reach more builders

Product innovation

Operational Excellence

Prudent financial management

2020 Principal risks
The arrows alongside each risk show the year on year change

1. Failure to maximise the growth potential of the business

Risk and impact

Mitigating factors

• 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,
systems, manufacturing and distribution to equip them for growth.

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

business model and culture.

Mitigation actions in 2020

• Converted a further 30 depots into the new depot environment.

• Opened a further 20 depots in the UK and France.

• Developed our digital capabilities including rolling out builder logon,

an online planning portal, and Anytime Ordering.

• Made our depots COVID safe to allow us to continue to serve our

customers. Keeping them open for call and collect during lockdown.

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 2020

• In early 2020 we held our ‘Rooster Awards’ event, bringing together
1,000 managers from across the business to discuss our business
model and our culture.

• During the COVID pandemic we have maintained close

communications through virtual channels.

• Reinforced the core values and principals of our culture: ‘Worthwhile

for all concerned’.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information44

Principal risks and uncertainties continued

2020 Principal risks continued
The arrows alongside each risk show the year on year change

Links to strategic areas

Reach more builders

Product innovation

Operational Excellence

Prudent financial management

3. Changes in market conditions

5. Loss of key personnel

Over 2020 this risk has increased as a result of the COVID-19 Pandemic and the impact it has had on our marketplace.

Risk and impact

Mitigating factors

• The skills, experience and performance of

• We use the Remuneration Committee to ensure that key team

Risk and impact

Mitigating factors

• 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. if activity increases we need to be
ready to capitalise on opportunities.

• 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.

Mitigation actions in 2020

• Focused our business model on supporting our customers needs
during the COVID-19 Pandemic by increasing our communications
with them during the first lockdown, ensuring that stock remained
available where and when they required it, opened our depots for
Call and Collect service and introducing a COVID-19 Safe to Trade
environment at our depots.

• Maintained focus on our Brexit preparations and investment in

contingency stock.

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 secure supply

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.

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.

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

customs delays.

Mitigation actions in 2020

• Opened a second new distribution centre in Raunds to provide more

resilient and flexible warehousing capabilities.

• Optimised our safety stock to reduce the potential risk that COVID-19
or Brexit could have on product availability through the supply chain.

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 2020

• Ensured our working environments remained COVID safe for all our

workers and bought in remote working for all our offices to reduce the
Health & Safety risk to all personnel.

• Recruited a new Human Resources Director to help to continue to

develop our people strategy.

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 56 for our related
KPI and discussion of our performance in recent years.

Mitigation actions in 2020

• COVID-19 has been a major Health & Safety risk influence throughout

2020 and we have focused on the welfare of our employees and
customers. Key activities include COVID-19 Risk assessments, new
‘Safe to Trade’ approaches in depots and offices and physical and
mental welfare focus and training for employees working from home.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information46

Links to strategic areas

Reach more builders

Product innovation

Operational Excellence

Prudent financial management

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 around 400,000 customer trade accounts.

Mitigation actions in 2020

• We implemented several changes in 2020 to secure our Credit

Control operations against potential COVID-19 risk. These included
introducing remote working across the Credit Control team, providing
appropriate communication and IT equipment and refreshing our
cyber security training.

Principal risks and uncertainties continued

2020 Principal risks continued
The arrows alongside each risk show the year on year change

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 2020

• New Head of Cyber Security role created, reporting directly

to the Group’s Chief Information Officer.

8. Product design relevance

Risk and impact

Mitigating factors

• 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 2021.

Mitigation actions in 2020

• 16 new kitchen ranges launched in 2020.

• Over 2,000 other new skus launched.

• Reset of our hardware range to focus on our customers’ core

joinery needs.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information48

Sustainability Matters

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

2020 Strategic Review
Stakeholder engagement, materiality assessment, our
Environment Social and Governance vision for the future,
our four main ESG commitments, alignment with UN SDGs.

Our environment
Reducing waste, responsible operations,
lowering emissions.

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.

Our communities
Local community projects, national partnership with
Leonard Cheshire, I can & I am.

Sustainable supply chain
Certified wood, responsible purchasing, efficient
distribution.

Sustainable product
New product development, product re-engineering,
sustainable sourcing strategy.

s
r
e
t
t
a
M

y
t
i
l
i

b
a
n
a
t
s
u
S

Howden Joinery Group Plc Annual Report & Accounts 2020

50
50

Sustainability Matters
Why sustainability matters to us

Generating long-term value
Howdens is a growing business. Sustainable behaviour
will help us continue to grow in a way that preserves our
culture, supports our business model, mitigates our risks
and addresses the needs of our stakeholders.

Part of our culture
We describe the Howdens culture 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 work in.

Supporting our 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 our suppliers and customers means
that our relationships need to be worthwhile for all parties over
the long term.

Our 2020 Environment Social and
Governance strategic review
The Board and Executive Committee reinforced their
commitment in 2020 through a wide-ranging Strategic Review
of our Environmental Social and Governance priorities, that
we set out on the next two pages, and which is reflected
throughout this report.

The review clarified our ESG Vision for the future. It identified
four main commitments, as well as a range of other potential
targets and research projects. It included engaging with key
stakeholders to test our assessment of our material ESG areas,
as well as selecting our material United Nations Sustainable
Development Goals.

What are the material areas for us and
our stakeholders?
We’ve organised the main body of this report into five sections,
reflecting the material areas for us and our stakeholders:

People: keeping them safe, embracing diversity and inclusion,
offering rewarding careers.

Sustainable supply chain: certified wood, responsible
purchasing, efficient distribution.

We have over 750 depots in the UK and Europe. Each one of
them relies on strong local relationships to trade profitably, so
we need to be a good neighbour in each of those communities.

Sustainable product: developing new sustainable products,
re-engineering existing products, having a sustainable
sourcing strategy.

Mitigating our risks
We discuss our principal risks on pages 38 to 47. Sustainable
behaviour helps us to address some of those risks.

For example, we place 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 our ‘Interruption to continuity of supply’ risk. Energy-
efficient, safe and durable product mitigates our ‘Product
design relevance’ risk.

The Board and Executive Committee lead
our commitment to sustainability
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.

Environment and operations: reducing waste, responsible
operations, lowering emissions.

Communities: local community projects, our nationwide work
with Leonard Cheshire Disability and I can & I am.

As part of our 2020 ESG Strategic Review we consulted
key stakeholders, and were pleased to reconfirm that they
continued to see these five areas as being the most material
ones for us.

Our sustainability KPIs
Our sustainability KPIs cover safety, use of wood from certified
sources, recycling of waste and recycled packaging, and you
can find them on pages 56, 58 and 60.

Our 2020 ESG strategic review has resulted in a number of
future commitments, targets and research projects. As we
work towards the commitments, and learn more about the
targets and research projects, this may lead to new KPIs and
key metrics in the future.

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information52

Sustainability Matters
Our 2020 Environment Social and
Governance strategic review

1 – Overview

Aims
Building on the existing good work across the Group, the aims
of the 2020 Environment Social and Governance strategic
review were: to engage with key stakeholders and test our
existing assessment of material ESG areas; to identify ESG
risks and opportunities, and to develop guiding principles
and commitments for the longer term.

Findings
• Key internal and external stakeholders confirmed that
they agree with our existing assessment of material
ESG areas (people, supply chain, product, environment
and operations, and communities). Investors share our
belief that sustainable behaviour is an important part of
delivering long-term value.

• Stakeholders want clear communication on ESG, with links
to trusted frameworks and systems of measurement.

• There are opportunities to build on our good work to

date, and to strengthen our ESG operations, governance
and reporting in the future.

Outcomes
• A long-term ESG Vision, supported by four main

commitments and a range of additional focus areas,
targets and research projects.

• Ownership of the four main commitments assigned
to individual Executive Committee members and the
Company Secretary.

• Mapping our existing material ESG areas and projects,

our four future commitments and our future focus areas
and research projects to the United Nations Sustainable
Development Goals and their underlying targets.

3 – How our Environment Social and Governance Vision fits with
UN Sustainable Development Goals and our existing ESG focus areas

2 – Summary of our ESG Vision and our four main commitments

Horizon goal

Our four 2020 ESG
Vision commitments…

…and other main
focus areas

Environment
UK’s leading responsible
kitchen business

Social
A unique and
sustainable culture

Governance
Leader in risk and
resilience governance

1 – Zero waste to landfill
2 – Carbon neutral
manufacturing

Responsible operations,
product and sourcing

Circular and customer-centric
waste recycling

3 – Leader in UK
Behavioural Safety
and wellbeing

4 – Highly effective ESG
reporting and disclosure,
including KPIs

Best in class social mobility

Fully embrace diversity
& inclusion

Outstanding community
engagement

Clear and effective ESG
governance structure

Strong business resilience and
local control frameworks

Key enablers

Our culture of ‘worthwhile for all concerned’, underpinning responsible behaviour and leadership by example.

Sustainability embedded in the commercial decision making and long-term planning process. KPIs with clear
accountability by Executive member.

Alignment to UN Sustainable Development Goals

Existing focus areas

Outputs of 2020 ESG strategic review

Our material SDGs

UN SDG description and relevant
targets under each SDG

“ Promote sustained, inclusive and
sustainable economic growth, full and
productive employment and decent
work for all”

SDG targets: 8.4, 8.5, 8.6, 8.7, 8.8.

Mapping to our 5
material ESG areas

People

Communities

Sustainable supply chain

Existing KPIs

Health & Safety –
reportable injury rates.

“ Ensure sustainable consumption and
production patterns”

SDG targets: 12.2, 12.5, 12.6, 12.7.

Sustainable supply chain

Sustainable product

Environment

% of FSC® or PEFC
certified wood.

% of production waste reused,
recovered or recycled.

“ Take urgent action to combat climate
change and its impacts”

SDG targets: 13.1, 13.2.

People

Sustainable supply chain

Environment

Sustainable product

“ Protect, restore and promote sustainable
use of terrestrial ecosystems, sustainably
manage forests…and halt biodiversity loss”

SDG targets: 15.1, 15.2.

Sustainable supply chain

Environment

Sustainable product

% of FSC® or PEFC
certified wood.

% of production waste reused,
recovered or recycled.

Existing projects, actions and metrics

Equal pay, responsible employment
practices, good development
opportunities. Best Companies to
work for.

Apprenticeship programmes.

ISO 45001 in Supply. Behavioural
H&S programmes.

Mapping to our four 2020
ESG Vision commitments

Details of our ESG Vision commitments,
plus other key targets and ongoing work

Behavioural Health &
Safety embedded across
the Group.

ExCo owners: COO Trade
and Supply Chain Op’s
Director

Continue to develop existing Behavioural Safety programmes.

Plan to achieve ISO45001 for UK depot network by end 2021.

Initial training for all managers in Equality, Diversity and Inclusion in
2021. Develop Group EDI roadmap and strategy for 2022–2025.

Develop Group wellbeing strategy in 2021.

Factory, warehouse and depot energy
reduction initiatives. Renewable heat –
turning factory waste sawdust into heat.

Working with suppliers to develop
energy-efficient appliances.

Carbon Neutral
Manufacturing.

ExCo owner: Supply
Chain Op’s Director

Achieve carbon neutral manufacturing by end 2021.

Review carbon neutral opportunities for depot and distribution
operations over longer term.

Pursue 2021 and 2023 energy consumption and energy
efficiency targets for our distribution fleet.

Carbon trust standard.

Consistent reduction in greenhouse gas
emissions measured against turnover.

ISO 14001 Environmental Management
System in Manufacturing, Logistics and
Distribution.

High quality ESG
governance and
external reporting.

Owner: Company
Secretary

Progressive, phased implementation of Taskforce on Climate-related
Financial Disclosure reporting.

Implement the well-known ISS external ESG reporting platform in
2021 to make our ESG information more accessible to stakeholders.

Embed integrated risk and governance framework.

Integrate ESG into business planning and product development cycles.

Reducing packaging.

Zero waste to landfill.

Maintain zero waste to landfill in manufacturing and distribution.

Increasing reuse and recycling –
reducing waste to landfill.

Supplier audits, ethical procurement
training.

ExCo owners: COO Trade
and Supply Chain Op’s
Director

Zero waste to landfill in depots over time. Target less than 5% to
landfill by end 2022.

Target 100% of kitchen frontals FSC® or PEFC by end 2022.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information54
54

Sustainability Matters
Our impact on stakeholders

Environment

220,000m3

of chipboard from sustainably
managed UK forests

100%

of manufacturing waste
reused recycled or recovered

11,000

tonnes of waste sawdust converted
to energy to heat our factories

People

450

apprentices in training. Tailored apprentice
programmes across the Group

10,000

100%

Winner

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

of employees in share ownership
schemes, or similar

2020 25 Best Big Companies To Work For

Shareholders

£108m

total proposed dividends, including
a special dividend in lieu of the
cancelled 2019 dividend

Wider economy

£70m

of rent paid to over 650 commercial landlords

£320m

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

£270m

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

£70m

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

All

Government COVID financial support
and rates relief repaid in the year

People

£460m

of wages, salaries and benefits paid
to our employees

Community & charity

16th

year of our national partnership with Leonard
Cheshire. Supporting disabled young adults to
find valuable roles within their communities

2,500

other charity donations. £1.1m given to local
charities and community activities across
our network

Responsible for all or part of the pensions of over
18,000
£260m

people

cash contributed to our pension
schemes in the last 5 years
750

Employing people in over

local communities

Howden Joinery Group Plc Annual Report & Accounts 2020
Howden Joinery Group Plc Annual Report & Accounts 2020

Howden Joinery Group Plc Annual Report & Accounts 2020

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Strategic reportGovernanceFinancial statementsAdditional information

Sustainability Matters
Our people

Keeping our people safe and healthy

Rewarding careers, opportunities to develop and thrive

2020 highlights
• We have around 10,000 employees and we want all of

them to be able to work safely every day.

• We are pleased that our safety KPI – the level of RIDDOR

reportable injuries – continues to be significantly
lower than the Health & Safety Executive’s all-industry
average. This gives us a strong base to build on as we
continue to look for further improvements in working
practices and ways to develop our safety culture.

• We successfully achieved the international safety
standard ISO 45001 in our factories and logistics
network. This standard builds on the outgoing standard,
OHSAS 180001, and expands its focus from safety
systems to safety leadership and culture.

• We continued to roll out our behavioural safety/safety

Reportable injuries/100k employees
32% below HSE all-industry average in 2020

300

250

200

150

100

culture approach across the business. We have always
committed to developing, implementing and improving
safe systems of work, and this has continued during
2020 with particular emphasis on re-engineering
working processes in our factories, warehouses and depots in response to COVID-19.

HSE all-industry rate

2016

2017

2018

2019

2020

For further KPIs see pages 30 to 32

Howdens

• Our manufacturing and distribution operations were awarded a distinction – the highest grade – in the British Safety

Council International Safety Awards. These prestigious international awards are evidence-based, and they recognise
best practice in occupational health, safety and wellbeing.

•

In our depot network we were very pleased to be awarded the International Institute of Risk & Safety Management’s
Technology Risk Management Initiative of the Year. This award was in recognition of a major project that involved us
working with our fork lift supplier to develop a bespoke warning alarm system that alerts our fork lift drivers against
trying to lift loads which are above the recommended capacity of the fork lift truck. Following a successful development
phase, we then made the investment to retrofit the alarm system to our fleet of over 700 fork lift trucks. All new trucks are
fitted with this system as standard.

• During 2020 we continued to see the benefits of our Safe to Trade change management programme in the depot

network. Amongst a range of measures which we featured in detail in our 2018 report, this programme uses video books
in each depot to deliver health & safety information and training in an appealing and easy to access format. This way of
getting up to date messages to the depots was particularly useful in 2020 when we were able to use it to get the latest
COVID operating procedures, bulletins and alerts to depots at the drop of a hat.

Results of our 2020 ESG Strategic Review – Future commitments, targets and ongoing work
• COMMITMENT: Achieve ISO 45001 across our UK depot network by the end of 2021.

• TARGET: Achieve the British Safety Council 5-star safety standard across all manufacturing and logistics sites by the

end of 2023. This standard requires an independent audit of our safety practices and goes far beyond the requirements
of current health and safety management systems. Undertaking this audit will allow us to objectively demonstrate our
commitment to achieving excellence in health and safety standards.

• ONGOING WORK: Continue to roll out a behavioural safety and safety culture approach across the Group. We will do
this based on outputs of the HSE Safety Climate Tool. This tool gives local managers tangible information on where
their safety culture strengths and areas of improvement are and allows us to set objective-based targets. Enhance the
maturity of Health & Safety in the workplace.

• ONGOING WORK: Development of a wellbeing strategy across the Group in 2021.

2020 highlights

• We were very pleased to win 14th place in the Sunday Times 2020
Best Big Companies to Work For survey. We received a two-star
Best Companies accreditation recognising our outstanding
commitment to workforce engagement and were also given
special recognition in the ‘Giving Something Back’ category for
the support we do for our local communities and the environment.

• We’ve done extensive work throughout 2020 to support

employees dealing with the impact of COVID. During the national
lockdown over 8,000 employees were furloughed and the Group
kept staff pay ahead of Government requirements throughout
the year. We prioritised staff health and safety, with regular
risk assessments and new controls to ensure COVID-secure
environments across all locations.

• We’ve done detailed work to support ongoing remote working

arrangements for office-based staff. Over 800 staff continue to
work remotely, and we’ve supported them to ensure they have
safe working environments at home. We’ve communicated
regularly with our remote workers and surveys have shown that
over 91% have said that we’ve supported them well throughout
the disruptions.

• Further work is in hand to teach managers new skills to best
support and lead their teams as remote working continues.

• We’ve continued to invest in developing the next generation.

We currently have over 450 apprentices on a range of tailored
programmes throughout all areas of the business.

Results of our 2020 ESG Strategic Review –
Future commitments, targets and ongoing work
• ONGOING WORK – Equality Diversity and Inclusion: Building on
our 2020 pilots, we will roll out initial EDI introductory training to
all line management in 2021. We will also further develop our EDI
roadmap and strategy for 2021–2025.

• ONGOING WORK – Social Mobility: In 2021 we will begin our

investigation and data-gathering phase to see what contribution
we can make to improve social mobility through the career
development opportunities we offer our people.

Case study
COVID-19

H&S response in the depots
When lockdown started we temporarily closed
all our depots as staff and customer safety
was our first priority.

We used this time to study safety guidelines
and best practice and to develop safe systems
of work so that we could reopen responsibly.

We supported our staff on their return to
work and were pleased when they told us that
they quickly felt reassured by the measures
in place, and in fact felt ‘safer than in
supermarkets’.

H&S response in the supply chain
As a manufacturing business, we were not
required to close our factories and warehouse
under lockdown. However, we chose to close
them for a short period of time so that we could
assess the risks, re-engineer processes where
necessary, and keep our people safe.

Returning to work after the temporary
shutdown was not easy. Our people, culture
and commitment to keep each other
safe helped us to come back to work with
confidence. We worked together on the
new controls, we were sensitive to peoples’
anxieties and home circumstances and we
listened to each other where things could
be improved.

It is testament to each of our staff that we
adapted to new ways of working, protected
service to our depots and their customers and
most importantly, kept each other safe.

Employee wellbeing
As a response to the pressures of lockdown,
we tripled the number of wellbeing sessions
we ran in 2020. These covered topics such as
resilience in difficult times, and also helped
employees with practical tips for dealing
with the pressures of change, the stresses
of working remotely, and the importance of
exercise and good diet.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information58

Sustainability Matters
Sustainable supply chain

Sustainability Matters
Sustainable product

Certified wood, responsible purchasing, efficient distribution

Development, re-engineering and a sustainable strategy

2020 highlights
• We used 220,000 cubic metres of chipboard and 49,000
cubic metres of MDF in our factories in 2020 – enough to
fill the Albert Hall 3 times – so we need to know where our
timber comes from.

• FSC/PEFC certification 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.

100%

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

For further KPIs see pages 30 to 32

• We are also members of the Timber Trade Federation and
are recognised by them as a ‘Responsible Purchaser’
which means that we have third-party assurance on our timber purchasing due
diligence systems.

• Our transport fleet drove around 15 million miles in 2020 so we need it to be both efficient and

safe. All of our trucks comply with the latest emissions standards, and we’ve fitted further refinements to the standard
build to increase efficiency and reduce emissions even further.

• We also invest in safety and energy-efficiency training for our drivers. We combine this with the latest 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 drivers who need help to improve.

•

In recent years, we have invested in training our own new drivers via a driving apprenticeship scheme. We were very
proud in 2020 when one of our drivers who had come through this apprentice scheme was awarded Young Driver of the
Year in ‘the UK’s premier HGV Driver Awards’. The award recognised the highest level of achievement in both safety and
fuel economy.

• 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. We’ve supplemented this in 2020 with a bespoke online course on FSC and PEFC chain of custody
standards and timber regulations.

• Our Modern Slavery Statement can be found here: https://www.howdenjoinerygroupplc.com/governance/modern-

slavery-statement.

Results of our 2020 ESG Strategic
Review – Future commitments,
targets and ongoing work
• TARGET to reduce energy consumption:

MPG improvement targets for our
distribution fleet. Targeting a 1%
improvement by 2021, with a further
2% by 2023.

• TARGET to increase energy use

efficiency: CO2 KG/M3 emission targets
for our distribution fleet. Targeting a 5%
reduction in 2021, with a further 2%
by 2023.

Case study
UK depot waste backhaul

One of the new projects that helped us cut our UK depot waste
percentage to landfill by 30% in 2020 was developing a ‘backhaul’
waste recovery system using our own distribution fleet.

When we deliver stock to depots, we collect waste from them.
Depending on the type of waste material, we then either return it to
our factory or warehouse sites where we already have sophisticated
reprocessing facilities, or we take it directly to wood processing
facilities across the country. This means that a large volume of this
waste is recycled into chipboard and ultimately back into our new
cabinet production.

In the first part-year of this project, we have made over 8,000 waste
backhaul collections and dealt with 2,000 tonnes of waste.

2020 highlights

New product development
•

All the new kitchen frontals introduced in 2020 were from either FSC or PEFC certified sources.

• We introduced a new engineered stone flooring which has a pre-attached underlay made from 100% recycled plastic

bottles. Every 50m2 saves 550 bottles from ending up in our oceans and polluting our landscapes. In 2020 this equated
to Howdens saving 400,000 bottles. This underlay also takes 90% less water and 50% less energy to produce.

• We also launched two of our own-brand Lamona washing machines with a drum made from plastic containing recycled
plastic bottles. Each drum contains 60 recycled bottles, and sales of these appliances were equivalent to an energy
saving from the recycled plastic of 0.9m kWh per year, enough energy to power 270 homes.

Product re-engineering
Because of the scale that we operate at, small changes can have big effects. Some 2020 highlights were:

•

We used to supply spare plastic installation clips with some of our cabinets, but we realised that our customers were
not using them. Instead we made the clips stronger and supplied fewer clips with each cabinet. This simple change will
avoid using around 10 tonnes of plastic per year.

We did a similar thing with hinge packs on some of our units, which will avoid using around 9 tonnes of steel per year.

Looking again at the protective packaging on one of our larger units meant that we’ll avoid using enough packaging
each year to fill a small house.

• Two-thirds of our Lamona ovens have an integrated plastic handle to aid with lifting during installation, this year we

have changed the plastic to one made from 100% recycled fishing nets recovered from the oceans.

Our sourcing strategy
• Our sourcing strategy helps us to build sustainable partnerships with our suppliers. In lockdown we committed to

support our customers by sticking to our in-stock business model. This gave us a commercial advantage, but it also
had a significant positive impact on our suppliers. By maintaining the inbound flow of products we kept the production
lines and supply chains of several factories both in the UK and abroad flowing when they were facing big reductions in
demand from their other customers.

• We have invested in our own UK manufacturing so that we can make more of the new product which we previously

bought in from Europe. This supports local communities and staff where our factories are based, and also brings the
environmental benefits of shorter supply chains. As an example of this, the additional product we made in-house in 2020
saved us transporting nearly 100 container loads into the UK from Italy.

• We take control of our bought-in products from the EU at producers’ factory gates wherever possible. This means that
we can make the transport more efficient, by consolidating loads and moving them from road to rail. In 2020 around
90% of our freight from the EU was dealt with in this way, saving around 2,000 tonnes of CO2 as well as giving us much
greater control, transparency and flexibility in an extremely challenging period for our supply chains.

Results of our 2020 ESG Strategic Review – Future commitments, targets and ongoing work
• TARGET: 100% of our kitchen frontals to have FSC or PEFC timber accreditation by the end of 2022.

• TARGET: 100% recycled corrugated cardboard in our own packaging by the end of 2022.

• TARGET: Introduce code of practice for all timber suppliers. This is to enhance our existing trading terms with suppliers
and be clear on our commitment and expectations regarding ESG standards within the supply base and throughout the
supply chain.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information60

Sustainability Matters
Our environment

Reducing waste, responsible operations, lowering emissions

Greenhouse gas and emissions reporting

2020 highlights
• Zero to landfill in 2020 in our manufacturing and

logistics operations. We’ve had less than 5% of this
waste going to landfill for several years, but getting to
zero in 2020 represents a terrific achievement and is the
culmination of years of hard work.

100% of production
and warehouse
waste reused,
recovered or
recycled

• When we started on this journey five years ago, we
recognised that we could achieve zero to landfill
immediately – by sending all our site’s produced waste to
offsite energy recovery. However, we also knew the right
way for us was to follow the internationally recognised
principals of the ‘Waste Hierarchy’. This approach
promotes removing or minimising the use of resources
in the first instance, and then maximising the amounts
of waste that we can reuse, recycle and recover. Doing
things this way takes longer as it is significantly more difficult due to the need for finding innovative solutions for the
small amounts of residual waste that remains. However, it’s the better solution in the long term for all concerned.

100%

For further KPIs see pages 30 to 32

• An example of how we were able to move from 0.2% of waste to landfill in 2019 to zero in 2020 is the boiler ash we
generate at one of our factories. Historically we’d had to send this to landfill as it couldn’t be processed further in
transfer stations or sent direct for recovery.

• During 2019, we worked with our on-site’s waste management contractor to explore alternative routes for this ash by

re-analysing the content and then looking for alternative disposal outlets. We identified an opportunity for it to be taken
to composting and aggregate recycling sites in the UK for them to further process and recreate a reusable end product.
Following stringent compliance checks carried out on various suppliers we were successful in approving an aggregate
recycler who now accepts our boiler ash in its current form and blends with their existing products to recreate a reusable
material, giving it a new life and avoiding it ending up in landfill.

• Moved from 40% to landfill to 10% to landfill in our UK depots. Waste management across our 750 depot network is a
bigger challenge than it is in our manufacturing and logistics operations, but we are pleased to have made significant
progress in 2020, and we give more details of how we have found an innovative solution to the wood waste in the case
study on page 58. There is still work to do to close the final 10% gap and we continue to put in place processes to deal
with the difficult items and scenarios. We set out our commitment to close that gap below.

•

ISO 14001. Our manufacturing, warehousing and transport are certified to ISO 14001 Environmental Management
System. This assures us that we have sustainable processes in place and also encourages us to look for improvements.

• Sawdust-to-heat. in 2020 we converted 11,000 tonnes of sawdust into energy in biomass boilers at our Runcorn and
Howden factories. This is enough sawdust to fill over a dozen Olympic swimming pools, and it would otherwise have to
have been transported elsewhere to be reused. Using it to heat our factories also saves us money. We generated over
40,000 MWh of energy from our biomass boilers, equivalent to the average electricity consumption of over 10,000
households.

• Green Gas. We’ve reduced our electricity demand from the grid in 2020 by using gas to generate electricity onsite

at both of our factories. We’ve offset the impact of this change using certified biomethane or ‘Green Gas’, which has
reduced our net carbon equivalent emissions from manufacturing by around 33% compared to 2019.

Results of our 2020 ESG Strategic Review – Future commitments, targets and ongoing work
• COMMITMENT: Zero to landfill across our UK depot network over time, with a target of less than 5% to landfill by the end
of 2022. As we’ve done with our manufacturing and logistics waste, above, we intend to use the principles of the waste
hierarchy to eliminate the 10% of depot waste that currently goes to landfill in a responsible way.

• COMMITMENT: Carbon neutral manufacturing by the end of 2021.

Howden Joinery Group Plc Annual Report & Accounts 2020

Greenhouse gas and emissions reporting
Gross emissions have increased in by 0.3% in 2020 but carbon offsetting has
reduced net emissions by 22.6%
We reduced our electricity demand from the grid In 2020 by using natural gas to generate electricity at our factories. This
increased our gas use which in turn has increased our gross emissions. However we have offset this by using ‘Green Gas’
biomethane, backed up by certificates of Renewable Gas Guarantee of Origin, with the result that our total net carbon
equivalent emissions from manufacturing after the offset are 33% lower than 2019.

Howdens are Standard Bearers for the Carbon Trust Standard, and we have committed to being carbon neutral in
manufacturing by the end of 2021.

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) gross emissions

Carbon Offset: Green Gas credits
Total net emissions after carbon offset

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

Additional turnover ratio (Net tCO2e per £m)
Additional Inflation adjusted turnover ratio (Net tCO2e per £m)

Total energy consumed (kWh)

Proportion of CO2 emissions generated in the UK:
Proportion of total energy consumed (kWh) in the UK:

Emission source data is converted to carbon tonnes using the conversion factors published by BEIS.

Our record over the past five years is shown on the chart below.

Total CO2 emissions
(Tonnes)
2020

Total CO2 emissions
(Tonnes)
2019

13,032
24,744
629
38,405

11,968
11,968

50,373

(9,168)
41,205

1,547.5
32.6

34.0

26.6

27.8

2,622
28,705
690
32,016

18,517
18,517

50,532

0
50,532

1,583.6
31.9

33.1

31.9

33.1

179,523,458

201,067,293

98.9%

98.2%

99.0%

98.4%

60.0

50.0

40.0

30.0

20.0

2016

2017

2018

2019

2020

Howden Joinery Group Plc Annual Report & Accounts 2020

Total Carbon usage (‘000s tCO2e)

Turnover ratio – gross (tCO2e per £m)

Turnover ratio – net (tCO2e per £m)

Strategic reportGovernanceFinancial statementsAdditional information62

Sustainability Matters
Our communities

Going Concern and Viability statements

Local and national donations

Going Concern

Case study
‘I can & I am’
‘I can & I am’ is a charity whose
purpose is to inspire confidence
and to ‘inflate balloons of self-
belief’. The charity was founded
by the inspirational educational
speaker James Shone, who
visits hundreds of schools and
businesses every year speaking
to teachers, parents, pupils and
employees.

Following James’ speech at The
Golden Rooster Awards 2020, our
annual awards event attended by
nearly 1,000 employees, Howdens
gifted a refurbished double-decker
bus to ‘I can & I am’. The lower level
of the bus features a Howdens
kitchen used for groups of young
people to learn new skills, whilst the
upper level is used for mentoring
as well as teaching a variety of
different skills and workshops.

More information about the ‘I can
& I am Bus’ can be found at https://
www.icanandiam.com/the-bus/

2020 highlights

Local donations, nationwide reach: £1.1m donated to
over 2,500 local charities
Despite all of the challenges 2020 has thrown at us, our enthusiasm for
supporting the communities in which we operate is as strong as ever.
Lockdowns and ongoing restrictions have made it harder for charities,
community groups and public services to operate, and we have had to
adapt how and where we give our support.

In the first half of the year, when the full extent of lockdown restrictions were
unknown, depots donated personal safety equipment and cleaning materials
to the NHS and other key workers. From hospitals in Antrim to hospices in
Weymouth, our depots donated stock to where it was needed most.

Later in the year we focused on our cash donations. We made an additional
£1,000 available per depot for depots who had already used their 2020 charity
budgets and any unutilised charity budget was split locally and donated to
hospices, care homes, mental health and homeless charities.

More information about our ‘Truly Local’ approach to charity and community
giving can be found at https://www.howdenjoinerygroupplc.com/about/in-the-
community/truly-local

Employee donations
Howdens once again received the Charities Aid Foundation Gold Award
in respect of charitable donations made via payroll giving. In 2020, our
employees donated over £200,000 to their chosen charities. The generosity
of our employees, even during times of crisis, is something of which we are
very proud.

In recognition of the difficulties facing charities resulting from COVID-19
restrictions, members of the Howdens Board and Executive Committee
donated a proportion of the salaries to charities in 2020 via payroll giving. In
total, these donations amounted to £104,000.

Leonard Cheshire Disability partnership
Our partnership with Leonard Cheshire Disability entered its 16th year in 2020.
Whilst our joint fundraising activities were curtailed by COVID-19 restrictions,
Howdens donated over £120,000 to the ‘Can Do’ programme during the year.

We regard the principle of independent living as being central to our enduring
partnership with Leonard Cheshire Disability and five inclusive kitchens were
fitted in Leonard Cheshire care homes across the UK in 2020. We would have
liked to have installed more and will increase this number in 2021.

Results of our 2020 ESG Strategic Review – Future commitments, targets and ongoing work
ONGOING WORK: We will take the learnings from the COVID-19 crisis and will look to make more impact with our community
donations in the future. We want to improve how we organise ourselves in respect of charitable giving and better help the
communities in which we work, whilst retaining our core strength of local giving through local networks.

The Directors have adopted the going concern basis in preparing these accounts and have concluded that there are no material
uncertainties leading to significant doubt about the Group’s going concern status. The reasons for this are explained below.

Assessment of principal risks
The Directors have reached their conclusion on going concern after assessing the principal risks, including the risks arising from
COVID-19 and Brexit.

Five main themes relating to COVID-19 and Brexit risks, and which were subject to particular scrutiny by the directors were:

Theme

Mitigations and other considerations

Can we source the necessary supplies of raw materials and finished goods?

• Are suppliers able to make and deliver?

Will suppliers be able to remain in business?

• Transport of goods into and out of EU

•

Increased stockholdings of key products

• Strong relationships with suppliers.

Continuing to place orders and receive stock

• Long-term supply arrangements

• Obtained preferred importer/exporter status to

reduce potential customs delays

Can we continue to manufacture, distribute and sell?

• Safe working practices

• Safe working practices across factories, warehousing,

distribution, depots, and offices

• Robust disaster recovery capability

How will customer demand be affected?

• How will our builder-customers be affected?

• Long-term relationships with builders give us good visibility

• How will end-user consumer confidence be affected?

of future market trends and end-consumer demand

• Regularly reviewing our forecasting models

Can we maintain sales volumes and margins?

• Changing consumer tastes

• Competitor actions

• Pressure on input costs and sales prices

Do we have sufficient financial resources and working capital?

• Sufficient underlying cash

• Sufficient working capital

• Continued new product introduction, strong in-stock
position, excellent service, support and convenience
for our customers

• Flexible operating model that can react quickly

• High cash balance increases resilience against

uncertainties

• Ability to review distributions and capital allocation

model as economic conditions change

Consumer and regulatory reactions to COVID-19 make prediction of future levels of demand difficult. Management have taken
actions to secure availability of stock and raw materials, to secure workplaces and distribution routes to meet reasonably
foreseeable levels of sales. The principal remaining uncertainties are therefore around the timing and level of demand.

e
c
n
a
n
r
e
v
o
G

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information64

Going Concern and Viability statements continued

Going Concern continued

Review of trading results, future trading
forecasts and downside scenario modelling
The Directors have reviewed trading results and financial
performance in 2020, as well as early weeks trading in 2021.
They have reviewed the Group balance sheet at December
2020, and the appropriate levels of working capital, including
higher inventory and cash balances.

They have also considered three financial modelling scenarios
prepared by management:

A ‘base case’ scenario. This is based on the Group’s latest
budget, which was approved by the Board in January
2021.

This scenario assumes capital expenditure in line with the
announced plans for new depot openings and additional
investment in our manufacturing sites. It also includes a
cash outflow for the dividend payment which the Board
will propose at the Annual General Meeting in May 2021,
and which is detailed in note 11 to the Group Financial
Statements.

A ‘plausible downturn’ scenario. This scenario starts with
2019 sales – taking the view that 2019 was the last normal
full year of trading – and models a going concern period
where those sales are reduced by 7% and margin is at
2020 levels. This compares to 2020 actual performance
where sales were down 2.3% on 2019.

This scenario maintains the same cost base as the base
case, despite assuming a reduction in sales. It assumes
capital expenditure and dividends at the same level as the
base case.

A ‘reverse stress-test’ scenario. This scenario starts
with the plausible downturn model and reduces sales even
further, to find the maximum reduction in sales that could
occur with the Group still remaining cash positive over the
whole going concern period, without the need to borrow or
take mitigating actions.

This scenario maintains the same cost base as the base
case, despite assuming a reduction in sales. It assumes
capital expenditure at around two thirds of the level of the
base case – which is broadly at a level which would cover
maintenance capex, plus the full planned investment in
new manufacturing and digital capability, plus half of
the planned new depot openings and refurbishments.
It assumes no dividend.

In the first two scenarios the Group has significant cash
throughout the going concern period after meeting its
commitments.

In the reverse stress-test scenario, the results show that sales
would have to fall by 40% before the Group would have to
draw on borrowing facilities or take further mitigating actions.
The likelihood of this level of fall in sales was considered to
be remote.

Borrowing facilities and mitigating actions
All of these scenarios are modelled on the basis that the Group
does not draw on its existing £140m borrowing facility that
could provide additional headroom.

In the reverse stress-test scenario, the EBITDA covenant in the
Group’s existing £140m facility would need to be renegotiated
or partially waived for the facility to be available. However, our
stress testing looks at the level of fall in sales before the Group
would need to borrow, and so it does not assume that the
facility will be available.

Whilst the plausible downturn and stress-test scenarios
assume reduced sales, they both assume the same cost base
as in the base case scenario. They do not assume, for example,
reduced transport and delivery costs, a lower headcount,
lower bonuses or tax payments. They do not assume any
Government assistance – for example through furlough
payments or business rates relief – nor do they assume any
restructuring actions which the Group could take.

All these assumptions build additional elements of prudence
into the scenario modelling.

Conclusion on going concern

Taking all of the factors above into account, the Directors
believe that the Group is well placed to manage its financing
and other business risks satisfactorily and they have a
reasonable expectation that the Company and Group will have
adequate resources to continue in operational existence for
the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing these 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 resilient profits, strong net profit margins.

• Cash and cash equivalents balance at December 2020 of

£431m.

• Debt-free. Consistently cash-generative. Proven ability to
maintain strong cash balances whilst also investing for
growth and returning cash to shareholders.

• £140m borrowing facility, which expires in December 2023,

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.

Strategy and business model

• Proven, successful business model.

• Scope, and resources, for growing the depot network

in line with announced plans.

• Clear strategic direction.

Robust assessment of principal risks

• The Directors’ role in the risk identification, management,
and assessment process is outlined on pages 38 to 47,
together with details of the principal risks and mitigations.

• Specific detail on how the Directors have approached

their review of COVID-19 and Brexit risks is set out in the
discussion of going concern, above.

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

Assessment of viability

Time period and scenario modelling

The Directors’ review of the Company’s long-term viability
used a three-year period as this aligns with the Company’s
strategic planning process.

The financial modelling to support the assessment of viability
was based on the three scenarios used for the going concern
assessment and detailed above.

The base case scenario is a three-year forecast which
covers the viability assessment period and assumes an
increase in sales and profit over this period.

The plausible downturn scenario took the same decline
over the going concern period as is detailed in the
discussion of going concern above, and then assumed
a phased recovery over the rest of the 3 year period. It
assumed that sales recovered cautiously, and in line with
IMF future economic forecasts for the UK and France. On
gross margin, which had been modelled at 2% down on
2019 over the going concern period, the model assumed
an improvement of 1% each subsequent year, thereby
returning to the 2019 margin level by the end of the
viability assessment period.

In the reverse stress-test scenario, the model assumed a
phased recovery of margin and profit on the same bases
as for the plausible downturn scenario. This was then
stress-tested to find the maximum amount by which sales
in the first year would have to fall before the Group would
no longer be cash positive at any point in the viability
assessment period, without borrowing or taking further
mitigating actions.

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 plausible downside and
reverse stress-test scenarios.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

Going Concern and Viability statements continued

Other Directors’ statements

Long-term prospects and viability continued

Results of scenario modelling

The results of the base case and plausible downturn scenario
modelling showed that the Company would have sufficient
cash over the viability assessment period and would not need
to use its borrowing facility.

The reverse stress-test showed that the level of fall in sales
required in the first year of the viability assessment period
before the Company would need to use its borrowing facility
at any point over the viability period was over twice the fall
modelled in the plausible downturn scenario.

None of the scenarios factored in any mitigating actions
that would be open to the Company in the event of a severe
downturn, and which are discussed in the going concern
assessment above.

Conclusion on viability

Having taken into account the Company’s current position,
strategy, business model 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 2023.

Further reading

Principal risks and mitigations, including a
review of the risks arising from COVID and Brexit

Management actions to secure stock availability,
workplaces and distribution routes

Trading results

Balance sheet

Details of our £140m borrowing facility

Auditor’s report, with details of their work and
conclusions on going concern and viability

Pages 38 to 47

Pages 22 to 29

Pages 33 to 37

Page 139

Page 159

Pages 177 to 186

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 accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union 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:

• Properly select and apply accounting policies.

• Present information, including accounting policies, in a

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
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
78 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 78 and 79. On page
79, we have set out examples of how the Directors have had
regard to the matters in s.172(1)(a) to (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 135
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.

Directors’ responsibility statement
We confirm to the best of our knowledge:

•

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

Paul Hayes
Chief Financial Officer

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information68

Corporate governance report
Includes the Chairman’s introduction (pages 70 and 71)
and the Board’s key activities in 2020 and for 2021
(pages 74 and 75).

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

2020

2019

104

Fixed

Variable

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
Company Secretary

Section 172(1) statement

80 Adapting for COVID-19

Stakeholder engagement

2018 UK Corporate Governance
Code application and
compliance

Nominations Committee report

104

Remuneration Committee report

126

Audit Committee report

134

Directors’ report

e
c
n
a
n
r
e
v
o
G

126

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

3,053 (+3%)

26 (-4%)

2 (+100%)

3 (0%)

5 (0%)

8 (+14%)

134

Howden Joinery Group Plc Annual Report & Accounts 2020

Corporate governance report

Richard Pennycook Chairman

Board meeting attendance

Richard Pennycook (10/10)
Karen Caddick (9/10)1
Andrew Cripps (10/10)

Geoff Drabble (10/10)
Louise Fowler (8/10)2
Andrew Livingston (10/10)

Mark Robson (9/10)3
Debbie White (10/10)

Karen was unable to attend the March Board meeting due to technical difficulties. Karen received all the Board papers in advance of the meeting and
was able to feedback her views to the Chairman.

Louise was unable to attend the September Board meeting due to a pre-existing commitment entered into prior to joining the Company and a subsequent
unscheduled meeting due to a family bereavement. Louise received all of the Board papers in advance of the meetings and was able to feedback her
views to the Chairman.

3 Mark did not attend one of the October meetings as the meeting was called to discuss his succession.

Introduction from the Chairman

Board and Committees

Board and Executive Committee structure

COVID-19

COVID-19 has impacted all of our lives in ways we could not
have imagined a year ago. In 2020 even the best-laid plans
had to be put on hold whilst the Board focused its energy
on ensuring that operations could continue in a COVID-
secure way and that the long-term future of the business
was protected.

The strength of our employee, supplier and customer
relationships was essential and enabled us to keep depots
open and stocked. Similarly, the partnerships we have built
with other stakeholders were never more important than when
the Board moved to temporarily protect our cash position by
suspending shareholder returns and deferring pension deficit
repayments. It was through responsive management and the
strength of our stakeholder relationships (underpinned by
good governance practices and the principle that Howdens
is worthwhile for all concerned) which has enabled Howdens
to finish 2020 strongly and to go into 2021 with cautious
optimism for the future.

As a result of the support Howdens received from its
stakeholders, the Board were able to announce in November
2020 that the Company would repay all Government support
received in the first half of the year under the Coronavirus
Job Retention Scheme and other deferred payments (such
as pension deficit repayments) before the end of the year. It
also enabled the Board to pay business rates from which the
Company was entitled to relief. The Board are acutely aware
of Howdens’ societal responsibilities and we felt it appropriate
to take a leading role in adoption this position. It was pleasing
to see other businesses take the same position shortly after.
At the Preliminary Results in February 2021, the Board will
announce that it will recommence shareholder returns by
way of dividend. This includes a ‘catch-up’ special dividend in
respect of shareholder payments suspended during 2020.

I would like to take this opportunity to thank all our
stakeholders, both direct and indirect, for their support during
2020. We have set out in more detail on pages 80 to 81 how the
Board responded to the COVID-19 crisis throughout the year.

It is sometimes easy to forget that there were other matters
which required the Board’s attention that were not related to
COVID-19 during 2020. Many of these are set out in this report
and in the supporting Committee reports. Our reporting of
culture and purpose are considered in detail in the Strategic
report and consideration of our broader ESG responsibilities
are set out in the Sustainability report, which begins on
page 48.

Consideration of Board effectiveness, succession and
diversity matters are set out in the Nominations Committee
report starting on page 94. This includes analysis of how the
Board has managed Executive succession during 2020 and
the onboarding of our new Chief Financial Officer, Paul Hayes.
There is also an update on our equality, diversity and inclusion
(EDI) initiatives.

Consideration of how our Executive pay aligns with strategy
and Group performance is set out in the Remuneration
Committee report starting on page 104. The Audit Committee
report, which begins on page 126, details the procedural
safeguards that have been put in place to protect
shareholder interests.

Governance

In last year’s Corporate Governance Report, I wrote that
the Board’s primary focus was on having a clear purpose, a
sound commercial strategy, fit-for-purpose leadership teams,
and robust financial controls. These disciplines have served
Howdens well during the challenges of 2020 and will continue
to do so as we develop the business in a sustainable way for
the benefit of all our stakeholders.

2021 Annual General Meeting (AGM)

Details of the 2021 AGM may be found in the
'Additional information' section on page 194.

Share capital and significant agreements

Specific statutory and regulatory disclosures previously
contained in this report have been moved to the
‘Additional information’ section on pages 194 and 195.

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

Paul Hayes
Chief Financial Officer

Executive Committee

Clive Cockburn
Chief Information Officer

Julian Lee
Operations Director

Andy Gault
Group Digital Director

Mark Slater
Commercial Director

Kirsty Homer
Group HR Director

Richard Sutcliffe
Supply Chain Director

Theresa Keating
Group Finance Director

Andy Witts
COO: Trade

Company Secretary

Forbes McNaughton

Howden Joinery Group Plc Annual Report & Accounts 2020

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

Strategic reportGovernanceFinancial statementsAdditional information

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 to the Board as Chief Executive Officer on 2 April 2018.

Other listed company appointments

Non-Executive Director at LondonMetric Property Plc

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 an entrepreneurial mindset. This mindset fits the Howdens
culture which has served the Company well and is fundamental to its success. He was previously the
CEO of Screwfix.

Paul was appointed to the Board as Chief Financial Officer on 27 December 2020.

Contribution to the long-term sustainable success of the Company

Paul is an experienced finance executive and has a proven track record in consumer and manufacturing
businesses. From 2017 until its acquisition by Recipharm AB in February 2020, Paul was CFO of Consort
Medical Plc, a leading drug and device manufacturing business. Before this, he was the Group Finance
Director of Vitec Group plc from 2011 to 2017. Paul has extensive experience in senior finance roles at
a number of UK and US listed companies including Signet Jewelers, RHM Plc and Smiths Group Plc. He
is a chartered accountant having qualified with Ernst & Young and has a first class Masters degree in
Mechanical Engineering, Manufacture & Management.

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 plc

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.

Andrew Livingston
Chief Executive Officer

Paul Hayes
Chief Financial Officer

Non-Executive Directors

Richard Pennycook
Independent
Non-Executive Chairman

Geoff was appointed to the Board in July 2015 and became Senior Independent Director in September 2019
and Non-Executive Responsible for Workforce Engagement in 2019.

Other listed company appointments

Chairman of Ferguson Plc
Chairman of DS Smith Plc1

Geoff Drabble
Senior Independent
Director and Non-Executive
responsible for workforce
engagement

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. Geoff is also
Chairman of DS Smith Plc, the global provider of sustainable packaging solutions, paper products and
recycling services.

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 for her role as Chair of the
Remuneration Committee 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 publicly 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 continues to make 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 Geoff’s appointment as Non-Executive Director and Chairman Designate to DS Smith Plc prior to his appointment. The Board was satisfied
that Geoff had the requisite time available to commit to his responsibilities in his roles as Senior Independent Director and Non-Executive responsible for
workforce engagement. Further information is available on page 90.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information74

Corporate governance report continued
Key Board activity

2020

January

February

March

• ESG review

• Health & Safety

• Pensions update1

• 2020 priorities and budget

• Workforce engagement

•

Investor relations update

• External Board Evaluation feedback

Executive Committee presenters:
• Rob Fenwick (Chief Governance Officer)

• Theresa Keating (Group Finance Director)

• Gareth Hopkins (Interim Group HR Director)3

• COVID-19 contingency planning

• Draft 2019 preliminary results

• Draft 2019 Annual Report and Accounts

and 2020 AGM documents

• Dividend and capital returns strategy

• Risk update

• NED fees

• Amended Articles of Association

• Principal Advisors

(Out of cycle meeting held in
response to the COVID-19 crisis)

• Health & Safety

• Government guidance

• Cash flow scenario analysis

• Final dividend

• Crisis risk structure

and analysis

• Safety stocks

Executive Committee presenters:
• Gareth Hopkins

(Interim Group HR Director)3

July
• ESG review (including EDI Committee and

September
• Update on strategic initiatives (including Digital,

October
• CFO Succession

wellbeing update)

• Health & Safety

• Pensions update

• Broker update

XDC, and manufacturing and logistics)

• Health & Safety

•

Investor relations, including broker feedback
following interim results

• Draft interim results and announcement

• Corporate governance update

• Principal Risks

Executive Committee presenters:
• Rob Fenwick (Chief Governance Officer)

• Theresa Keating (Group Finance Director)

Executive Committee presenters:
• Andy Gault (Group Digital Director)

• Julian Lee (Operations Director)

• Richard Sutcliffe (Supply Chain Director)

• Theresa Keating (Group Finance Director)

• Broker update

• Q3 IMS considerations

Executive Committee
presenters:
• Theresa Keating

(Group Finance Director)

Set out above and on the facing page are highlights of the matters the
Board considered (or will consider – see 2021 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.

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

Governance and risk

The Board received governance, legal and regulatory updates
at regular intervals from the Company Secretary and the
Board’s advisors.

Howden Joinery Group Plc Annual Report & Accounts 2020

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 38 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. In 2020 the Board reviewed and approved a Group
Risk Charter. More information on the Group Risk Charter is set out
on page 39.

Shareholder engagement

Information about how we interact with shareholders can be found in
our section on Stakeholder Engagement on page 87.

April

June

• Health & Safety

• Cash flow scenario analysis

(Out of cycle meeting held in
response to the COVID-19 crisis)

• Health & Safety

• Cash flow scenario analysis

• H2 trading

• Pensions – future provision

• AGM feedback

February 2021

Board effectiveness
evaluation

• Pensions update

• AGM planning

• NED perspectives and external
experiences of the COVID-19
crisis

May – AGM
Details of how the meeting was held
in light of the COVID-19 pandemic
may be found on page 87. All
resolutions were passed, with the
exception of the resolution for the
final dividend which was withdrawn.

November

• ESG update

• Health & Safety

• P11 performance

• Pensions update2

• Shares and dividend forfeiture

programme update

• 2021 Board calendar

Executive Committee presenters:
• Andy Witts (COO: Trade)

• Mark Slater (Commercial Director)

• Rob Fenwick (Chief Governance

Officer)

The Company’s actuaries reported to the Board on routine funding and investment
matters and the Chair of the Pension Trustees attended to provide an overview of the
Trustees’ funding and investment strategy and to seek approval from the Board of its
long-term strategy proposal.

The Company’s actuaries reported to the Board on routine funding and the valuation
and the Chair of the Pension Trustees attended to provide an overview of the Trustees’
funding and investment strategy.

3 Gareth retired from the Executive Committee in April 2020.

2021

January
• 2021 Budget

• ESG update

• Pensions update

• Health & Safety

• Whistleblowing

•

Investor Relations

• Group Policies and Statements

February
• Draft 2020 preliminary results, draft 2020 Annual
Report and Accounts and 2021 AGM documents

• Risk Management

• Shareholder and capital returns

• Health and safety

• NED fees

• Board Evaluation feedback

• Principal advisor review

April
• Strategic opportunities and long-term planning

• Draft Interim Management Statement

• Health and safety

•

Investor Relations

May
• AGM – further details on page 194

June
• Trading update

• AGM feedback

July
• ESG update

• Pension update

• HR update

• Health & Safety

• Digital Programme

• Draft 2021 Interim results

• Broker update

• Whistleblowing

September
• France and Belgium update

• Supply Chain update

• Employee engagement

• Health and safety

•

Investor relations update

• Key risks

• Corporate governance (including presentation from

the Group’s corporate lawyers, Freshfields)

November
• Trading and commercial update

• Health & Safety

•

Investor relations update

• Board Committees’ Terms of Reference review

• Schedule of Matters Reserved for the Board review

• 2022 Board calendar

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information76

Corporate governance report continued
Executive Committee and Company Secretary

Executive Committee members

Executive Directors

Andrew Livingston
Chief Executive Officer

Paul Hayes
Chief Financial Officer

Andrew and Paul’s profiles
may be found on page 72

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.

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’).

Kirsty joined Howdens in September 2020 and was appointed to the Executive Committee in December
2020.

Kirsty is a highly experienced HR practitioner, who has previously served as Global People & Governance
Director at Mothercare Plc and held senior HR roles at Waitrose and John Lewis before being appointed
Personnel Director there in 2013.

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.

Clive Cockburn
Chief Information Officer

Andy Gault
Group Digital Director

Kirsty Homer
Group HR Director

Theresa Keating
Group Finance Director

Julian joined Howdens in 2003 and was appointed to the Executive Committee in July 2020.

Julian joined Howdens as a leader of the Manufacturing Division and then moved to Asia in 2005 to head
up the International Sourcing and Supply Chain. Since returning to the UK in 2009, he has made a major
contribution to the development of our Supply Chain and Operations, taking full responsibility for these in
early 2020. Julian’s role encompasses Manufacturing and Distribution Operations at our sites in Howden
and Runcorn as well as our new facilities in Raunds. Prior to joining Howdens, Julian worked in a number
of Strategic and Operational roles within the Silentnight Group.

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.

Richard joined Howdens in June 2019 and was appointed to the Executive Committee in July 2020.

Prior to joining Howdens, Richard was Director of Supply Chain at Screwfix. Before this, he held senior
supply chain and business planning roles at Hobbycraft, Wyevale Garden Centres and B&Q. He was
appointed to help optimise stock holdings across the business and has improved stock availability both
nationally and locally. Richard is also leading the XDC project, which will deliver superior service levels
and availability to depots.

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 Chartered Governance Institute (ICSA) and is Secretary to the Executive
Committee as well as to the Board of Directors.

Julian Lee
Operations Director

Mark Slater
Commercial Director

Richard Sutcliffe
Supply Chain Director

Andy Witts
Chief Operating Officer: Trade

Company Secretary

Forbes McNaughton
Company Secretary

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information78

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:

Long-term thinking
The likely consequences of
any decision in the long term.

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

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…

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 we were 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
2020 please see pages 74 and 75.

The Board regularly considers feedback
from the Company’s stakeholders. These
are set out in detail on pages 82 to 87.
The Board considers this engagement
to be effective and in keeping with the
Company’s culture. For example, much
of the feedback is conversational rather
than formal but where there is need for
confidentiality, such as whistleblowing,
this is also provided. Stakeholder
feedback can directly affect the Board’s
decision making (such as feedback
received in relation to the Directors’
remuneration policy) but it also provides
the context for decision making,
particularly where there are competing
stakeholder interests.

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 section 172(1)(a)–(f) when
discharging their Section 172 duty and
the effect on certain decisions taken by
them in 2020.

Restarting operations
Following the announcement of the UK
Government’s ‘stay at home’ measures
on 23 March 2020, the decision was
taken to close our UK operations, with
the exception of essential activity at our
distribution and manufacturing sites.

Essential activity at these sites was
only carried out where two-metre social
distancing could be maintained, and
where operations involved the provision
of products to NHS trusts and other ‘at
needs’ organisations.

Following clarification from the
Department for Business, Energy and
Industrial Strategy that individuals
without COVID-19 symptoms and
individuals not capable of working from
home should be at work if their employer
complied with relevant health and safety
guidance, the Board made the decision
on 26 March to allow depot operations
to restart voluntarily on a ‘call and
collect’ basis and with social distancing
measures in place.

In reaching its decision to restart depot
operations, the Board had regard to a
number of factors. The primary concern
of the Board was the welfare of the
workforce, their families, our customers
and the communities within which the
business operates. The Board was also
mindful of the desirability to maintain
the Company’s reputation for doing the
right thing and that whilst immediate
crisis management was necessary,
focus on the recovery and maintenance
of stakeholder relationships in the long
term was crucial.

Stakeholder returns
As reported elsewhere in this Annual
Report, in November 2020 the Board
announced that it would be repaying all
financial support it had received in the
first half of the year under the Government
Coronavirus Job Retention Scheme and
would pay all other deferred payments
before the end of the year. This included
the payment of business rates from which
the Company was entitled to relief.

When coming to this decision, the Board
was mindful of its obligations to all its
stakeholders. As there was no obligation
on the Company to repay the support
it had legitimately received as a result
of the COVID-19 crisis or to pay back
deferred payments ahead of agreed
schedules, it is arguable that these
decisions were done to the detriment
of shareholders who could, in principle,
have received higher levels of returns
had the Board not taken this decision.

However, the Board was also mindful of
its statutory obligations to society as a
whole and on that basis (and in the face
of competing stakeholder demands)
agreed to this course of action. The
Board has been pleased with the
feedback from shareholders that they
support this decision and that other
companies followed Howdens’ lead in
the repayment of business rates, which
have contributed over £2bn to Treasury
finances to date.

Investment in in-house
manufacturing capabilities
During 2020, the Board approved
an investment to increase in-house
manufacturing capabilities. The
rationale behind the investment was
to build on the successful vertical
integration strategy by increasing
production of frontal and décor ends
whilst continuing to benefit from external
suppliers sourcing.

When considering the investment
proposition, the Board considered the
likely consequences of any decision
making in the long-term. Specifically,
the Board was mindful of the potentially
negative impact on existing supplier
relationships but that the benefits of the
investment would also include:

• The creation of shareholder value

through cost savings and improved
stock turnover.

•

Greater control of the supply
chain, resilience and greater
speed to market which would help
protect customers from exposure
to international supply chain
interruptions.

• Employee benefits such as job

creation.

•

The associated environmental
benefits, with an estimated 200 less
tonnes of CO2 due to fewer loads
being transported internationally.

Taking all stakeholder interests into
account, the Board approved the
proposal as it would most likely promote
the success of the Company for the
benefit of its members as a whole.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information80

Corporate governance report continued
Adapting for COVID-19

COVID-19 was very much an emerging
risk when we signed off our 2019 Annual
Report in February 2020. However,
within a month, following Government
guidance, the Board announced the
closure of all depots, both in the UK and
internationally, with the exception of
operations involving the provision of
products to NHS trusts and other ‘at
needs’ organisations where two-metre
social distancing could be maintained.
It also announced the closure of its
manufacturing operations, with the
exception of essential activity where
two-metre social distancing could
be maintained.

Within a week, following updated
Government guidance, the Board
announced the phased re-opening
of the depot network and supply
operations where it was safe to do
so to ensure we could provide support
to our trade customers.

The Board’s response
To address the pace of change, the
Board met more often and management
increased its reporting frequency. The
Board met (albeit virtually) each month
between February and July to consider
management’s response to the crisis.

At the meeting at the end of March 2020,
the Board met and based its agenda on
its three priorities:

Keeping employees and
customers safe.

Prudent cash management and
preservation, and viability.

(Only once the first two had been
established) Consideration of
strategic opportunities for the
future.

The Board also considered the
business continuity management and
governance framework put in place
by the Executive Committee, which
evidenced that:

• A clear command structure had

been established with experienced
leadership and management was
appropriately supported by subject
matter experts.

• A risk-based approach had been
adopted to ensure priorities were
focussed on key risk aspects. This
activity was supported by the Group
Risk team.

• Business continuity management

processes had been engaged, led by
the Chief Governance Officer, to co-
ordinate business activities.

•

‘Mission critical’ activities were
mapped for specific areas to ensure
focus was placed on the most
important aspects of the business.

• Daily Executive Committee meetings

took place to review the latest
COVID-19 developments and to
provide prompt decision making.

• Stakeholder responsibilities, as per
Section 172 of the Companies Act
2006, were clearly defined and well
understood.

In subsequent Board and Committee
meetings there was continued focus on
health and safety matters and standard
operating procedures across all
operations. These discussions included
mental health awareness. There was
consideration by the Remuneration
Committee of the approach to pay
and benefits whilst employees were
furloughed. Management continued to
update its cash flow scenario planning
to provide analysis of the Company’s
financial position, which was presented
to the Board.

The Board also received updates on
the provision of products supplied
to NHS Trusts and other ‘at needs’
organisations such as hospices.
Further details of Howdens community
support are set out on page 62 of the
Sustainability report.

Shareholder returns
At the meeting in March, as part of the
efforts to preserve cash, the Board
agreed to withdraw their support for
the resolution in the AGM notice to pay
a final dividend, while they effectively
suspended shareholder returns. The
Board was careful to have regard to
its responsibilities to its stakeholders
under section 172 of the Companies Act
2006 when taking this decision, but were
unanimous that it was in the interests
of all stakeholders and the long-term
interests of the Company to do so.

Stakeholder engagement
Board level stakeholder engagement
took many forms throughout the
year. As the Non-Executive Director
responsible for employee engagement,
Geoff Drabble’s normal programme
of events was curtailed. However,
engagement sessions were possible at
the Howden site during September when
reported COVID-19 cases were low and
Government measures allowed. Geoff
was able to conduct a socially distanced
Q&A session with employees and spoke
with many to hear their experiences
first-hand.

During the year, there were frequent
interactions between the Board and
the Pensions Trustees. The information
protocol in place between the Company
and Trustees safeguards adequate
information flows, but the strength of
relationship enabled the full and frank
discussions that were needed to help
protect the Company’s cash position.
The Trustees and Company agreed
a three-month suspension of deficit
recovery payments during the year
(which the Company has subsequently
caught up on) and the Trustees and the
Company’s banking partners agreed
covenant waivers when it was apparent
that a technical breach of the earnings
covenant was likely.

The Chairman and Executive Directors
spoke regularly with shareholders
during the year, both during and outside
of the normal engagement cycle. Many
shareholders were vocal in their support
for the repayment of Government
support prior to the recommencement
of shareholder returns.

Annual General Meeting
(AGM)
In April 2020, the Board took the
decision to change the venue and list
of permitted attendees to the AGM. The
meeting was held as a ‘closed’ meeting,
with only the DCEO & CFO and Company
Secretary, both shareholders in their
own right, in attendance. The Board were

mindful that the AGM provides a forum
for small shareholders to speak to the
Board directly. As such, an online facility
to submit questions was established
prior to the AGM so that shareholders
retained the ability to ask their
questions. To keep an open dialogue
with all shareholders, this facility was
retained for the rest of the year.

Returns
As reported elsewhere in this Annual
Report, the Board announced in
November 2020 that it would repay all
the financial support it had received
in the first half of the year through
the Government’s Coronavirus Job
Retention Scheme and would pay all
other deferred payments before the end
of the year. This included the payment of
business rates from which the Company
was entitled to relief. In addition, the
Board has also announced that it will
recommence shareholder returns by
way of dividend. This includes a ‘catch-
up’ special dividend in respect of the
2019 final dividend, which the Board
withdrew its support for prior to the
2020 AGM.

In addition to ensuring that all
employees were fairly remunerated
during the year and that all suppliers
and landlords were paid on time and in
full, the Board were mindful of Howdens’
founding principle of worthwhile for all
concerned and were resolute that no
single stakeholder group should bear
the brunt of the impact of COVID-19 on
Howdens.

Ongoing
Whilst the Board agenda has returned to
a more normal pattern at the beginning
of 2021, the Board continues to receive
regular updates from management on
COVID-19 governance and the frequently
changing external environment. The
safety of our employees and customers
remains the priority of the Board and
the Company and we are pleased that,
when tested, the Howdens culture and
business model both proved resilient.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information82

Corporate governance report continued
Stakeholder engagement

Stakeholder map

ciety
o
d S
n
t a
n
e
m
n
r
e
v
o

INDIRECT

DIRECT

Tra

orkfor c e

STAKEHOLDERS

s
r

plie
Sup

Pension e r s

ustomers of our Tra d e C u s t

r s

o m e

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 and

works councils

In 2019, the Board appointed Geoff Drabble as the Non-Executive Director responsible
for workforce engagement. 2020 has been a challenging year for face-to-face employee
engagement but, during the year, Geoff held an interactive session with blue and white collar
workers at the Howden factory.

Geoff also received briefings from management in relation to:

The consultation and employee involvement in establishing and maintaining COVID-
secure working (return to work plans). This included the communication and
engagement activities in this regard and Trade Union and works council involvement.

2. Furlough payment and communication.

3. How the business was supporting remote working.

4. Mental health and wellbeing support.

5. Protecting Clinically Extremely Vulnerable (CEV) employees.

Stakeholder and forms of engagement

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

Workforce continued

Engagement with Trade Union and works councils

Howdens respects the collective bargaining of its employees and actively engages with
the Trade Union and works councils on employee related matters. In 2020, there were a
number of significant areas of engagement with these collective groups which included:

1. COVID-19-related return to work engagement.

2. Ballot for flexible working.

3. Engagement on defined benefit scheme closure.

Employee surveys

Building on the success of the all-employee survey in 2019, a number of employee surveys
were used in 2020. Targeted surveys relating to ‘return to work’ and ‘remote working’ were
used to capture employee sentiment. The results were then used to inform management
and Board decision making when addressing each of these matters.

Senior Leadership Meetings (‘SLMs’)

The Senior Leadership Team (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.

Members of the SLT are 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.

Whistleblowing helpline

The Company uses a 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 communications about the
helpline were refreshed during the year and that there be a continuous communication
programme put in place.

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

e
c
n
a
n
r
e
v
o
G

s
t
n
e
m
e
t
a
t
s

a
c
n
a
n
F

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

Corporate governance report continued
Stakeholder engagement continued

Stakeholder and forms of engagement

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

Stakeholder and forms of engagement

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

Trade customers

Local depots

Suppliers

Supplier conferences

Engagement with our trade
customers includes the following:

• Local depots

• Builder forums

• Product research groups

• Customer surveys

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.

During 2020, the Regional Board meetings were mostly held virtually and were held
more regularly as the business navigated its way through the pandemic. From these
meetings, managers were able to feedback directly to the CEO, COO of Trade and other
senior executives of the local experiences. It was through these sessions that managers
discussed the urgent need for product to supply the NHS Nightingale Hospitals and to self-
employed account holders, who were also said to be extremely grateful for the service
provided during the strictest lockdown periods (even where these were required to be
limited), as they were able to finish their jobs (especially in vacant properties) and receive
much-needed cash.

Builder forums

Ensuring all levels of our organisation understand the challenges of our trade customer is
fundamental to ensuring our service proposition is worthwhile to them. We therefore hold
regular direct feedback sessions with our trade customers in the form of Builder Forums.
These forums normally see a small group of customers coming together in an informal
setting to talk about their experience of our product and also how it compares with others
in the market. The agendas for the forums are driven by the customers themselves so we
can be sure we are hearing everything that is on their mind.

In Q1 2020, prior to the COVID-19 lockdown measures being put in place by the
Government in March, 20 forums were held with our trade customers. In response to
feedback from the forums, we made a number of product and process improvements,
including additional investment in key manufacturing components to enhance our
cabinet specifications, improving the way we manufactured our 22mm worktops, and
improving our storage pallets for worktops and bulk storage.

In 2021, the business will once again host Builder Forums, but these will take place
virtually while Government COVID-19 measures are in place.

Cabinet research groups

Each year, we host a cabinet research group which is made up of a number of our account
holders, from small builders to landlords to developers. In these sessions, our teams begin
by asking our customers about their businesses and what they are experiencing in the
market. The session then focuses on our cabinets and discussions are held as to how the
cabinets are performing in the field. These sessions are key to ensuring that our cabinets
are the best in the trade market. In 2020, the group was split into three sessions to ensure
COVID-19 measures could be adhered to.

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 an important date in our calendar as it’s a time when the Company can
communicate its priorities and any changes in the business to its suppliers, ensuring a
consistent message is heard by all.

During 2020, the business hosted two supplier engagement sessions. These were held
virtually for the first time given COVID-19 restrictions.

The first session, ‘Leading the Way’, received strong feedback on the key messages, which
were to build back faster and fitter than the competition, investment in stock and new
opportunities on promotional activity, and the introduction of new products.

The second virtual supplier engagement session ‘Leading the Way… into 2021’ was held
to maintain an ongoing conversation with our key partners to ensure the full range of
opportunities could be taken advantage of into 2021. Each session was attended by
over 100 senior executives from our key partners, who were given the opportunity to ask
questions of our senior leadership.

It was more important than ever throughout 2020 to engage with and support our supplier
base, who experienced significant disruption to operations. Throughout the COVID-19
crisis all our orders placed prior to the crisis were honoured, and while many other
companies cancelled orders, we placed additional orders to ensure we were able to keep
supporting our customer, the builder. The Board and the Executive Committee understood
the importance of ensuring our suppliers’ order books were such that they could continue
to operate and persevere beyond the pandemic and that ongoing engagement on
forecasting was crucial for suppliers to be able to plan in our demand.

In both supplier engagement sessions, our leadership was keen to thank our partners for
their continued strong support and keenness to go above and beyond for the business
during the pandemic. Without the enduring strong relationships with our supplier partners,
the business would not have been in the position to maintain the in-stock promise to our
customers.

Category team relationships

In 2019, a new commercial structure was established, 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information86

Corporate governance report continued
Stakeholder engagement continued

Stakeholder and forms of engagement

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

Stakeholder and forms of engagement

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

Pensioners

Engagement with our pensioners
includes the following:

• Board engagement with the

Trustee Board

• Annual newsletter

• Triennial valuations

At 26 December 2020, the Howden Joinery Defined Benefit Pension Plan (the ‘Plan’) had
10,600 members, of which 1,246 were active members, 5,354 were deferred members, and
4,000 were pensioners and dependants.

Board engagement with the Trustee Board

The Trustee Board, chaired by an independent trustee, is responsible for investment
strategy and for the day-to-day running of 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 2020, the Company engaged with the Trustee Board on a number of matters outside of
the normal engagement cycle of investment and funding strategy. In the first half of the
year, the Company and Trustee Board entered into arrangements to defer deficit recovery
payments in order to safeguard the Company’s cash position at the outset of the COVID-19
crisis. Following this, the Company and Trustee Board entered tripartite arrangements
in conjunction with the Company’s banking partners to negate the effects of a technical
breach of the earnings covenant.

In the second half of the year, the Company and Trustee Board engaged closely on the
Company’s proposals to close the Plan to future accrual and the statutory consultation
process which was undertaken. The Company and the Trustee Board will continue to work
together closely on this matter to ensure a smooth transition of active employee members
from the Plan to the Company’s defined contribution pension scheme.

Triennial valuations

Ensuring that there is an appropriate balance between shareholder distributions and Plan
deficit funding is a priority for the Board. The triennial actuarial review as at April 2020 is in
progress and expected to complete in 2021.

Shareholders

Annual General Meeting (AGM)

Engagement with our shareholders
includes the following:

• Annual General Meeting

• Shareholder meetings and

Roadshows

• Shareholder consultations

• Asset reunification

In compliance with the Government’s ‘Stay at Home’ measures (effective from 23 March
2020 and extended on 16 April 2020), whereby public gatherings of more than two people
were prohibited, the 2020 AGM was held as a closed meeting with the minimum quorum
required by the Articles of Association. The attendance of the DCEO & CFO and Company
Secretary (the quorum) at the meeting were considered essential for work purposes
and therefore permitted under the measures. However, the Company was keen that
its shareholders should be provided with the opportunity to submit any questions they
may have of their Board of Directors and therefore a question facility was set up on the
Company’s corporate website and this remained open throughout the year following the
conclusion of the AGM.

Voting for the AGM was by way of a poll, which ensured that the votes of shareholders who
were unable to attend the AGM, but who had appointed proxies, were taken into account in
the final voting results. We believe this method gives a more accurate reflection of the views
of all of our shareholders and therefore routinely use this method for each general meeting
of the Company.

Shareholder meetings and results roadshows

Due to COVID-19, face-to-face meetings with investors were unable to take place during
2020. However, following both the preliminary results and interim results announcements,
the Executive Directors had calls with investors owning around one-third of the Company.
On these calls, investors showed particular interest in the initiatives that the business was
pursuing, the strength of the balance sheet, and the cash needed to sustain the business
throughout the COVID-19 pandemic.

The Non-Executive Directors, in particular the Chairman and Audit and Remuneration
Committee Chairs, are available for meetings with shareholders throughout the year.
The Chairman met with shareholders during the year to discuss a number of corporate
governance related matters including Board succession, diversity and distribution
of capital.

Shareholder consultation

In January 2021, the Company wrote to its largest 10 shareholders and shareholder advisory
groups regarding proposed changes to CEO base pay. Further details of the consultation
may be found on page 105 of the Remuneration Committee report.

Asset reunification

The Company, in conjunction with its Registrar, commenced a proactive asset reunification
programme in April 2020. The programme targeted holders of certificated ordinary shares
who had 12 consecutively uncashed dividends and sought to re-unite them with their
shares and unclaimed dividend payments.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information88

Corporate governance report continued
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. 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 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 be in line with that available to the wider workforce. Our Deputy
Chief Executive and Chief Financial Officer (who retired from the Board on 26 December 2020) received pension contributions
which were not in line with the wider workforce during the reporting period. However, in 2021, our new Chief Financial Officer
(who was appointed to the Board on 27 December 2020) will receive a pension contribution rate which is in line with the wider
workforce. Our incumbent Chief Executive’s pension contribution rate, while in line with Policy for existing Directors, is not yet
in line with the wider workforce. This is because the reduction of fixed, contractual remuneration must be applied carefully and
proportionally over time. Our Chief Executive is fully supportive of his rate tapering as set out on page 106 of the Remuneration
Committee Report and the Board confirms that his contribution rate 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 2020, the Board led the Company’s response to the
unprecedented challenges which arose as a result of the
COVID-19 pandemic. The Company’s primary focus was on
keeping our employees and customers safe from COVID-19
at all times. Once this had been established, action was
taken to safeguard the Company’s cash position to ensure
that it remained viable in the face of extremely challenging
external conditions.

In the latter part of the year, as pressures eased on cash,
depots and manufacturing operations reopened and trading
returned to a more normalised cycle (albeit in a COVID-
secure way), the Board was able to focus on longer-terms
strategic initiatives and stakeholder experience. In line with
Howdens’ values-led approach, the Board decided to return
Government support received during the year relating to
the Coronavirus Job Retention Scheme and business rates
relief. More information on our sustainable business model
and strategy, and our contribution to wider society may be
found in the Sustainability 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 is 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 the way
our remuneration structure supports our strategic aims in
the Remuneration Committee report on page 108.

An explanation of our purpose, values and strategy are
set out in the Strategic report which starts on page 4. 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 also an important part of the
Board’s agenda and more information about the methods of
engagement with the workforce may be found on pages 82
and 83.

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 pages 99 to 101.

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 30 to 32.

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 38. Our Audit
Committee report provides a summary of our internal control
framework on page 132.

Section 1: Board leadership and
company purpose continued

Section 2: Division
of responsibilities

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
2020 Board evaluation concluded that the Board worked well
as a group and continued to adopt a collegiate approach.
Further information about the outcomes and process of the
2020 Board evaluation may be found on pages 102 and 103 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.

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.

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 82 to 87. How the Board
members discharged their ‘section 172’ statutory directors
duties is described on pages 78 and 79.

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.

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 114.

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information90

Corporate governance report continued
2018 UK Corporate Governance Code: application of Principles

Section 2: Division of responsibilities continued

Section 3: Composition, succession and evaluation

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.

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.

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.

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

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 72 and 73. 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/tor-and-schedule-
of-matters).

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 71. Similarly, the number of each Board
Committee’s meetings and attendance may be found on the
following pages: page 95 (Nominations Committee), page 105
(Remuneration Committee), and page 127 (Audit Committee).

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 within its agreed existing protocol
whereby any significant appointments taken on whilst a Director
of the Company must be approved by the Board before they are
entered into. This is set out in the Schedule of Matters Reserved
for the Board which may be found on the Company’s website
(www.howdenjoinerygroupplc.com/governance/tor-and-
schedule-of-matters).

During the reporting period, Geoff Drabble’s appointment as
Non-Executive Director and Chairman Designate of DS Smith
Plc was authorised by the Board. Prior to Geoff’s appointment,
the Board considered whether Geoff could allocate enough time
to his role as Senior Independent Director and Non-Executive
Responsible for Workforce Engagement of the Company in
addition to a chair role of a FTSE 100 company. The Board was
satisfied that, given Geoff no longer held any full time executive
positions, he had the requisite time to fulfil the new role as well as
his current role with the Company.

Members of the senior management team regularly presented to
the Board on their respective areas of the business (please see
pages 74 and 75 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.

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 133.

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. Further information about the appointments
process is available on page 99 of the Nominations
Committee report and the Board’s diversity policy is
available on page 98.

The Nominations Committee regularly reviews the tenure of
each Board member and the skills matrix (please see pages
99 and 96 respectively 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 (see the
Nominations Committee timeline on pages 94 and 95).

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 96.

The tenure of each Director may be found on page 99 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 over one year to just over 7
years, and the average tenure is just over four years).

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 2020 Board evaluation process and outcomes
may be found on pages 102 and 103 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 72 and 73 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 2021 AGM Notice. The Board recommends
that shareholders vote in favour of the re-election or election
of all the Directors.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information92

Corporate governance report continued
2018 UK Corporate Governance Code: application of Principles

Section 4: Audit, risk and internal control

Section 5: Remuneration

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 annual and interim financial
statements of the Company through the Audit Committee.
Further information about the work of the Audit Committee,
including the subjects above, may be found in the Audit
Committee report which begins on page 126.

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 67.

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 (the
‘Principal risks and uncertainties’ section begins on page
38) 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 in the ‘Principal risks and
uncertainties’ section (which begins on page 38). The Board
confirms that it has conducted a robust assessment of the
principal and emerging risks.

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 104.

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 107 of the
Remuneration Committee report.

By order of the Board

Richard Pennycook
Chairman

24 February 2021

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 clear and as
predictable as possible. Further information may be found in
the Remuneration Committee report on page 114.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information94

Nominations Committee report

Richard Pennycook Nominations Committee Chairman

Introduction from the Committee Chairman
Whilst the impact of COVID-19 on the Nominations Committee
was less immediately felt, the Committee has nonetheless
had a busy year. Focusing on its core responsibilities
of succession (both at Board and senior management
level), composition and evaluation, the Committee made
recommendations to the Board on two external appointments,
that of the Group HR Director and the Executive Director role
of Chief Financial Officer. In addition, two internal promotions
to the Executive Committee were approved demonstrating
a healthy balance of internal and external candidates for
succession into senior management roles.

During the year the Nominations Committee has also overseen
the progress made by the Equality, Diversity and Inclusion
(EDI) Group and undertaken a remote annual Board evaluation
for the first time.

Succession

We were pleased to welcome Paul Hayes as Chief Financial
Officer in December 2020. Paul brings a significant amount
of listed company experience given his time in senior
finance roles at a number of UK and US listed companies.
His manufacturing experience will also be a benefit to
Howdens’ vertically integrated business. Paul’s appointment
followed a formal and rigorous procedure which is set out in
more detail on page 99.

2020 Nominations
Committee activity

Mark Robson retired from the Board at the end of December
2020 having been appointed as Chief Financial Officer
in April 2005. From April 2014, he was also Deputy Chief
Executive. Mark played a pivotal role over many years in
building Howdens into a strong and successful business.
In recent years he helped ensure a smooth CEO transition
following Matthew Ingle’s retirement in 2018 and his careful
management of the Company’s finances was a key element of
our ability to weather the storm of the COVID-19 pandemic. On
behalf of the Board, I would like to thank Mark for his significant
contribution to Howdens and to the Board.

As reported in last year’s Nominations Committee Report,
the Committee takes an active role in senior management
succession and oversaw three appointments to the Executive
Committee in addition to Paul’s appointment as Chief Financial
Officer. In July, Julian Lee and Richard Sutcliffe were promoted
to the Executive Committee following a period of ‘acting up’ in
role. Their respective roles as Operations Director and Supply
Chain Director follow the restructuring of the business’s
commercial functions from a two division structure (Trade and
Supply) to having a commercial team fully integrated with the
key manufacturing and supply chain functions.

Having operated with an interim HR Director for a number
of years, the business appointed Kirsty Homer as Group HR
Director in September. Kirsty’s appointment in the lead people
role is an important step forward for the business and she
brings with her extensive experience from roles at Mothercare
Plc and the John Lewis Partnership.

Nominations Committee meeting attendance

Board gender split

Richard Pennycook (4/4)
Karen Caddick (4/4)
Andrew Cripps (4/4)

Geoff Drabble (4/4)
Louise Fowler (2/3)1
Debbie White (4/4)

Louise was appointed to the Nominations Committee after the February
meeting following the completion of her induction programme. She
was unable to attend the September meeting due to a pre-existing
commitment entered into prior to joining the Company. Louise received
all of the papers in advance of the meetings and was able to feedback
her views to the Committee Chair.

Howdens1
Females:

37.5%

FTSE2502
Females:

33.2%

Female

Male

1 Figures correct as at 26 December 2020.

Figures derived from 2021 Hampton-Alexander Review and correct as
at 11 January 2021.

Composition

The importance of broadening diversity within leadership
and senior management teams has continued to gather
momentum. Whilst we remain pleased that half of the Non-
Executive Directors on the Howdens Board are female, we are
mindful that gender representation is not the only means by
which a board achieves diversity. Similarly, we are aware of
the need to improve gender, racial and other imbalances in our
senior management team and throughout our organisation.

The work of the EDI Group, which is set out in more detail on
page 97, has Debbie White as its Board sponsor and we are
pleased with the progress made despite the difficulties of
engaging with employees due to COVID-19. Awareness and
engagement activities, which have been well received in 2020,
will continue into 2021 as will the development of ways to raise
confidence and capability on EDI topics in the business. Our
ultimate goal is to identify a route map for the Howdens EDI
journey as part of an integrated approach to ESG matters.

The Nominations Committee understands the importance
of leading by example on EDI matters and in line with our
Boardroom diversity policy will continue to seek diversity of
mindset as well as of gender, race, and background when
considering new appointments in the period to 2022.

Evaluation

Following the externally facilitated Board review in 2019, an
internal Board evaluation process was undertaken in respect
of the 2020 review. More information on the Board evaluation
process and outcomes are set out on pages 102 and 103.

Richard Pennycook
Nominations Committee Chairman

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 6 May 2021.

• 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.

• Preparatory work to commence on Chairman succession.

July

Meeting

•

Executive Committee succession
and talent management

September

Executive Committee appointment

•

Kirsty Homer appointed Group HR Director

September

Extraordinary Meeting

• CFO succession update and
recommendation to Board

September

Meeting

• Non-Executive Director succession
update and skills matrix update

• Board Diversity Policy review

• Nominations Committee Terms of

Reference

November

Executive Director appointment

• Paul Hayes appointed Chief Financial

Officer Designate

February

Meeting

• Executive Committee succession

• Board succession and

recommendations for AGM elections

• Review of the draft 2019 Nominations

Committee Report

2020

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information96

Nominations Committee report continued
Composition

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

We reported in the 2019 Nominations Committee report that
the Howdens EDI Group had been established during as a
sub-committee of the Executive Committee. The EDI Group
was chaired by the Chief Governance Officer, Rob Fenwick,
throughout 2020 and its members included employees from
a range of roles, seniority, backgrounds, abilities, race and
geographic location. Non-Executive Director Debbie White
acted, and continues to act, as the Board’s sponsor to the
Group to ensure there is Board-level commitment of the EDI
Group’s objectives. The EDI Group also engaged Suzy Levy of
The Red Plate to provide third party support.

Following the foundational activities undertaken in 2019, the
EDI Group has focused its efforts in three main areas:

1. To raise awareness and engage senior management on
EDI and its importance to the business moving forwards.

2. Developing pathways to raise confidence and capability

on EDI topics in the business.

3. To identify a route map for the Howdens EDI journey as

part of an integrated approach to ESG matters.

To that end, members of the Executive Committee received
EDI training during 2020 and the EDI Group has identified
a roadmap for future years, based on the Mercer model,
underpinned by the principle of being ‘authentically Howdens’.
The EDI Group also delivered an interactive online training pilot
to over 150 employees from across the business with a number
of Non-Executive Directors also attending these sessions. EDI
training sessions will continue to be held in 2021.

In 2021, the Board will continue to receive regular updates
from the EDI Group and Debbie White will continue in her role as
Board sponsor to the EDI Group in 2021.

Group gender diversity statistics

The Nominations Committee reviews the gender statistics
shown in the chart below. 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 26 December 2020

The percentages shown in brackets below indicate the change since 2019.

Male

Female

Board – 8

Grades 1 to 32 – 138

3,053 (+3%)

26 (-4%)

2 (+100%)

3 (0%)

5 (0%)

8 (+14%)

112 (-4%)

7,239 (+2%)

Senior Management1 – 10

Group – 10,2923

Howden Joinery Group Plc Annual Report & Accounts 2020

Members of the Executive Committee, excluding Executive Directors and including the Company Secretary.

Includes Grades 1–3 equivalents.

Calculated on an individual basis, not on an FTE basis. Includes UK, France, Belgium and Isle of Man.

Strategic reportGovernanceFinancial statementsAdditional information98

Nominations Committee report continued
Composition continued

Succession

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 and we are mindful of the outputs and
recommendations from both the Hampton-Alexander Review
and the Parker Review when making appointments to the
Board. However, 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 2022,
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 26 December 2020, 37.5% of Board
members were women. Both of the Executive Directors
were male.

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.

Non-Executive tenure as at 26 December 2020

Years

Richard Pennycook

Geoff Drabble

Andrew Cripps

Debbie White

Karen Caddick

Louise Fowler

Board succession
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.

The Committee engaged the external search consultancy,
Odgers Berndtson1, to undertake the process of recruiting a
new CFO following Mark Robson’s indication that he would
considering retiring from the Board should an appropriate
candidate be identified.

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 does not compromise
the stability of the Board.

There were no Non-Executive Director retirements or
appointments in 2020. We continue to manage a phased
succession programme for Non-Executive Directors and are
pleased with the balance of length of tenure, as well as of
diversity, background and perspective of our current Non-
Executive Directors.

Appointment

In October 2020, following consideration of a number
of suitable candidates, the Nominations Committee
recommended to the Board that it appoint Paul Hayes as
Chief Financial Officer. In reaching this recommendation, the
Committee had undertaken a thorough recruitment process.

Given Mark Robson’s experience and length of tenure,
the Nominations Committee worked closely with Odgers
Berndtson to develop the right specification for the role.
Odgers Berndtson were made aware of Howdens’ Boardroom
Diversity Policy and the Nominations Committee specifically
tasked them with producing a diverse shortlist of candidates
for the position. The Nominations Committee reviewed the
current Executive Director structure at the outset of the
process and concluded that it would revert to a standard
structure with CEO and CFO on the Board following Mark’s
retirement from the Board.

Following the approval of the specification and interview and
selection process, the Nominations Committee requested
that the Remuneration Committee determine an indicative
reward package in line with the Remuneration Policy for
Executive Directors. With the assistance of Odgers Berndtson,
a long list of candidates was drawn up for consideration
by the Nominations Committee. Both internal and external
candidates were invited to participate in the process.

The Committee confirms that Odgers Berndtson has no other connection with the Company
or its Directors other than in relation to the recruitment of members of the Board.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information100

101

Nominations Committee report continued
Succession continued

The Nominations Committee considered formal appraisals of
all candidates selected from the longlist. A significant number
of the candidates met with the Chairman and some of the
Non-Executive Directors. Following the conclusion of these
meetings, the Nominations Committee met to agree a shortlist
of candidates.

Two candidates were considered for further consideration.
Both candidates met with the Non-Executive Directors,
the Chairman and members of the Executive Committee.
References were taken for each candidate and psychometric
profiles were undertaken for the selected candidates.

Following a further Nominations Committee meeting, it was
agreed to seek to engage with a particular individual and
agree contract terms. The Remuneration Committee worked
with Mark Robson to agree an exit arrangement which was fair
and in line with the Remuneration Policy. The Remuneration
Committee also agreed an onboarding package with the
new CFO. More information and detail about both Mark
Robson and Paul Hayes’ remuneration arrangements can be
found in the Remuneration Committee report, which starts
on page 104. After contractual arrangements had been

agreed with both parties in principle, the Board met on 15
October 2020 to consider the recommendations of both the
Nominations Committee and the Remuneration Committee.
They unanimously approved the proposals and internal and
external announcements were made on 16 October.

Having successfully secured a suitable candidate for the
role and discharged its announcement obligations, the
Nominations Committee tasked the Interim Group HR Director
with formulating transitional arrangements for the outgoing
and incoming CFOs, which included a detailed induction plan
for the new CFO Designate. Paul Hayes joined Howdens on 2
November 2020 as CFO Designate and assumed the role of
CFO on 27 December.

Induction

Following Paul’s appointment as CFO Designate in November
2020, he commenced a tailored induction programme.
This included gaining a broad commercial and operational
understanding of the business and visiting a number of
depots, our manufacturing sites in Howden and Runcorn, and
other locations. This has been achieved in a COVID-safe way
and provided him with a good understanding of the business.

Company and Executive Committee tenure as at 26 December 2020

Years

Rob Fenwick

Andy Witts

Theresa Keating

Clive Cockburn

Andy Gault

Mark Slater

Julian Lee

Richard Sutcliffe

Kirsty Homer

Mark Robson

Andrew Livingston

e
e
t
t
i

m
m
o
C
e
v

i
t
u
c
e
x
E

r
o
t
c
e
r
i
D
e
v

i
t
u
c
e
x
E

Company Tenure

Executive Committee Tenure

Paul also had induction sessions with the category and
supply chain teams and attended our second virtual supplier
engagement session ‘Leading the Way… into 2021’ (see page
85). He has joined a number of virtual meetings of each of
the trade regions where he was able to hear first-hand from
depot managers.

Paul has spent significant time with the supply, commercial
and trade finance teams as well as the Group finance function
and internal audit team. This has been supported by a good
transition with Mark Robson and one-to-one meetings with all
our Board members, the external auditor and members of the
Executive team.

Senior management succession
The Committee received regular updates regarding senior
management1 succession planning (see Nominations
Committee activity on pages 94 and 95). These updates
included the following:

Group Human Resources (‘HR’) Director appointment

In April 2020, Gareth Hopkins, our Interim Group HR Director,
retired from the Executive Committee and the business. An
interim HR Director was appointed to support management in
the search for a permanent successor and in the day-to-day
running of the business.

Following regular briefings to the Nominations Committee and
meetings with the Chairman and Remuneration Committee
Chair, the Committee approved the appointment of Kirsty
Homer as Group HR Director in September. Kirsty brings
a wealth of experience from her time in senior HR roles at
the John Lewis Partnership and more recently as Global
People and Governance Director at Mothercare Plc. Further
information about Kirsty is available in her biography on
page 76.

Operations Director and Supply Chain Director
appointments

Following an orderly succession process, Julian Lee and
Richard Sutcliffe were appointed as Operations Director
and Supply Chain Director respectively. They share the
responsibilities previously held by Rob Fenwick in his role as
Chief Operating Officer of the Supply Division along with Mark
Slater, Commercial Director. During the first half of 2020,
Julian and Richard had standing invitations to Executive
Committee meetings and were both instrumental in the
business’ response to the COVID-19 crisis.

Chief Governance Officer retirement

Please see case study to the right for details of Rob Fenwick’s
retirement.

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’.

Case study
Chief Governance Officer

As reported in the 2019 Nominations Committee
report, Rob Fenwick, Chief Governance Officer
(and formerly Chief Operating Officer of the Supply
Division) will retire from the Executive Committee at
the end of February 2021. During 2020, Rob helped the
business to develop its broader purpose, in particular
by developing the Group’s Sustainability agenda and
Chairing the EDI Sub-Committee. He was also on hand
to provide support to Julian Lee and Richard Sutcliffe
in their new roles as Operations Director and Supply
Chain Director.

In addition, Rob chaired the emergency Executive
Committee meetings held in response to the COVID-19
crisis to ensure the Executive Directors were
able to focus on strategic matters and high-level
management of the Group’s response. More details
of the governance structure of the Group’s response
to COVID-19 can be found on pages 80 and 81. He was
also tasked with the successful delivery of changes to
the Group’s pension benefit structure (more details of
which can be found on page 36). Having an Executive
Committee member of Rob’s experience to oversee
both the operational crisis response to COVID-19 and
the significant change-management pensions project
has been invaluable.

Howdens has been fortunate to have a settled
and long-serving senior management team and
careful management of the succession process for
their roles is fundamental to the future long-term
success of the Company. The retirement from the
Executive Committee of both Mark Robson and Rob
Fenwick marks a significant change for the senior
management of the business going into 2021, but the
Nominations Committee is confident that this change
has been managed appropriately. During the year,
the CEO presented his ongoing Executive Committee
succession plans to the Nominations Committee.
The Nominations Committee was satisfied that there
was sufficient experience and continuity at Executive
Committee level to ensure that the cultural aspects of
the business, which have made it so successful, were
not diluted. The Committee was also satisfied that the
Executive Committee was engaged with the positive
elements which can come about following senior
management change. Members of the Nominations
Committee were able to express their views and
provide advice on the plans throughout 2020 and will
continue to do so in 2021.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

102

103

Nominations Committee report continued
Evaluation

In line with the Board’s policy to undertake an external board effectiveness review every three years and following the evaluation
conducted by Independent Board Evaluation (IBE) in 2019, the 2020 review was undertaken by the Senior Independent Director
with support from the Company Secretary and focused on the following areas:

Evaluation areas of focus

Boardroom culture and focus

Board meetings

Board composition and succession

Board resources

Advisors to the Board

Strategy

Papers and presentations

Relationship with senior management

Management of COVID-19 response

Governance, compliance,
and risk management

Methodology
The evaluation was structured as an internal evaluation of
the Board and was undertaken by the Senior Independent
Director, with support from the Company Secretary. The
review comprised interviews with all members of the Board
with the report and recommendations agreed by the Senior
Independent Director and the Chairman.

Since the 2019 externally facilitated evaluation, Mark Robson
has retired as DCEO & CFO and Paul Hayes has been appointed
CFO. There were no other changes to the Board since the
previous review.

The process is outlined below:

• The evaluation methodology and agenda were agreed
between the Chairman, Senior Independent Director,
and Company Secretary.

•

Interviews with Board members and the Company
Secretary.

• The conclusions of the evaluation, including the

observations and recommendations were presented
to the Chairman.

• The main observations and recommendations from the

evaluation were presented to the Nominations Committee
and the Board.

Conclusions and recommendations
Non-Executive and Executive Directors were unanimous
in their appraisal that the Board had continued to operate
effectively during 2020.

The Board worked well as a group, continued to adopt
a collegiate approach with well-structured meetings. It
was concluded that there was a good balance of skills
and experience on the Board and the Executive Directors
expressed their view that they felt well-supported by the Non-
Executive Directors.

It was noted that the extraordinary circumstances created
by the COVID-19 pandemic during the year had tested the
Board and necessarily had focused its attention on more
operational matters.

Contributors commented that management’s handling of
the COVID crisis had been outstanding, especially in relation
to employee safety and keeping the business trading. It was
further noted that any issues raised during the process were
improvements to an organisation that was already performing
well and would seek to further strengthen it.

Highlighted strengths

• The collegiate approach of the Board, particularly in the

context of the COVID crisis.

• The support the Non-Executive Directors had provided to

the Executive Directors.

• Management of the succession processes for a number of

long-serving Executives in the business.

Recommended areas for development and actions
going forward

• Return to a focus on long-term, strategic matters in Board

meetings in 2021.

• Undertaking a review of financial and non-financial

reporting and communication outside of Board and Board
Committee meetings.

• Continuation of the focus on Non-Executive Director
succession planning, paying particular regard to the
recommendations of the Parker and Hampton-Alexander
reviews.

• More frequent ESG reporting to the Board.

Influence on Board composition
Members of the Board discussed the recommendations of the
Parker and Hampton-Alexander Reviews as part of the 2020
Board evaluation. In 2021, the Nominations Committee will
continue its focus on succession planning and to ensure that
when it looks to recommend a new appointment in future, that
the process has been inclusive of not only a broad range of
mindsets, but also a variety of backgrounds, including race
and ethnicity.

Nominations Committee evaluation
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 in 2021 the Committee would enhance its focus
on Non-Executive Director succession planning and the
requirements of the Parker and Hampton-Alexander reviews.

Richard Pennycook
Nomination Committee Chairman

24 February 2021

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information104

105

Remuneration Committee report

Karen Caddick Remuneration Committee Chair

Annual Remuneration Committee Chair’s statement

I am pleased to present the Howden Joinery Group
Remuneration Committee report for 2020. The report has
been prepared in compliance with the requirements of the
Large and Medium-sized Companies and Groups Regulations
2013 and incorporates changes made under the updated EU
Shareholder Rights Directive (SRD II).

Using this report
We have updated our Remuneration Committee report this
year to make accessing it as straightforward as possible. The
content of the report is governed by various legislation and
listed company disclosure requirements and, on occasion, this
results in duplication of information. We have tried to reduce
this wherever possible and present the information in an
accessible and, hopefully, intuitive way.

The report is split into three sections:

1. This Committee Chair’s statement

2. A summary of the Directors’ remuneration policy
(last approved by shareholders at the 2019 AGM)

3. The Directors’ remuneration report

We have divided the Directors’ remuneration report into four
parts:

Part 1 Company performance and stakeholder

experience

Part 2 Application of policy in 2020

Part 3

Implementation of policy in 2021

Part 4 Additional disclosures

We believe that this format clearly differentiates each of the
relevant sections of the Remuneration Committee report,
directs users to the sections relevant to their use, and is also
fully compliant with all applicable rules.

2020
2020 has been an extraordinary year for the Remuneration
Committee. The impact of COVID-19 on remuneration, both for
Executive Directors and that of the wider Howdens workforce,
has been significant. We have included a case study on page
115 to detail the response of the Committee to the COVID-19
crisis, but it is worth noting here that since the beginning of the
crisis, the Remuneration Committee has regularly monitored
the employee remuneration experience across all roles to
ensure that there is alignment between the experience of the
wider workforce and that of our senior management.

I would also like to take this opportunity to thank shareholders
who supported the Committee when we agreed to defer the
2020 Long Term Incentive Plan (LTIP) grant and amend the
weighting of the measures for this award to provide a greater
weighting on relative, rather than absolute measures.

During the year the Committee was also involved in the
recruitment process of the new Chief Financial Officer. It was
important that the Committee build a remuneration package
which would attract a high calibre individual to replace Mark
Robson, and we are pleased that we were able to do so within
our shareholder approved remuneration policy. More detail
on Paul Hayes’ remuneration for 2021 and Mark Robson’s exit
arrangements, which were also within policy, are detailed later
in the report.

I will be presenting a summary of the work of the Committee in
2020 at the Annual General Meeting (AGM) on 6 May 2021.

Policy
Our existing remuneration policy was approved by
shareholders at the 2019 AGM and is due to expire at the 2022
AGM. A short-form version can be found on pages 108 and 109.
The Remuneration Committee are satisfied that the Directors’
remuneration policy operated as intended during the year
despite the many challenges of the COVID-19 crisis. The policy
in full can be accessed at www.howdenjoinerygroupplc.com/
governance/remuneration-policy

I am pleased to report that the 2019 Directors’ Remuneration
Report received a high level of support at our AGM held on
7 May 2020. A breakdown of voting for both the remuneration
policy and remuneration reports for the previous three AGMs
can be found on page 125.

Remuneration Committee meeting attendance

Karen Caddick (7/7)
Andrew Cripps (7/7)
Geoff Drabble (7/7)

Louise Fowler (5/7)1
Debbie White (7/7)

Louise was unable to attend either of the Committee meetings in
September due to pre-existing commitments entered into prior to joining
the Company. She received all of the meeting papers in advance of the
meetings and was able to feedback her views to the Committee Chair.

2020 reward outcomes

Annual bonus

For the 2020 annual bonus, performance was based on the
delivery of both profit and cash flow targets. For the full year
we have reported a decrease in sales of 2% and in profit
of 29%. The decrease in sales and profit were exclusively
attributable to the unprecedented disruption to the business
in H1. Sales in H2 increased by 16% against 2019 with profit
before tax (PBT) increasing by 9%. Our performance reflected
the measures we put in place to enable our employees and
our customers to work safely together and was achieved
whilst repaying all of the financial support received under
Government’s Coronavirus Job Retention Scheme, all the
business rates deferred by local councils, and the deferred
pension deficit payments.

Despite our strong relative financial performance, full year
PBT and cash flow were below on-target vesting resulting in
0% of salary for our Executive Directors.

Performance Share Plan (PSP)

Similarly, the 2018 PSP with performance measured to FY 2020
is based on three-year PBT growth per annum. Over the three-
year period of the 2018 PSP cycle, our PBT has declined by 7.2%
per annum. In line with performance targets requiring 5% per
annum PBT growth to achieve threshold vesting, the award will
therefore lapse in full.

2021 reward and incentives

Salary

In January 2021 we wrote to our top 10 shareholders to
inform them that we would be increasing the CEO’s salary
above the increase proposed for the wider workforce. In this
communication, the Committee noted that Andrew Livingston
had been in role as CEO for a number of years and, whilst he
had received inflationary increases over this period in line with
the wider workforce, the Committee determined that a review
of his remuneration was appropriate, taking account of:

Andrew’s growing experience in the role and the desire
to fairly reflect the substantial growth in the business
delivered by Andrew since his appointment;

His salary positioning at the lower end of the market
upon appointment; and

Remuneration Committee report contents
104
Annual Committee Chair’s statement

Remuneration policy summary

108

Directors’ remuneration report

Part 1 – Company performance and

stakeholder experience

Part 2 – Application of policy in 2020

Part 3 – Implementation of policy in 2021

Part 4 – Additional disclosures

111

116

119

122

An increase in his responsibilities as a result of the
departure of Mark Robson as Deputy CEO and the
Company’s reversion to a traditional model with a
CEO and CFO, with some accountability therefore moving
back to the CEO.

In light of these factors, the Committee determined that it was
appropriate to increase the annual salary for the CEO from
£581,000 to £650,000 (an increase of 12%) with effect from 1
January 2021.

When considering Andrew’s pay we also considered carefully
whether it was appropriate to make such an increase at the
current time. Taking into account the significant improvement
in trading performance in H2, the support we have been able to
offer employees, the payments we have been able to restart to
shareholders, Government and the pension scheme, and the
importance of the coming years to Howdens’ future success,
we ultimately decided that bringing Andrew’s pay in line with
the market now was the right decision for the business. More
detailed information on the increase in CEO salary can be
found on page 120.

There will be no increase in CFO, Paul Hayes’ salary in 2021
having joined the business late in 2020 and as such the next
salary review for both CEO and CFO will be in 2022, with any
increases effective in July that year.

Annual bonus

For the 2021 annual bonus, we replicated the methodology
and PBT and cash flow measures used in the 2020 annual
bonus, 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.

PSP

We reported in the 2019 Remuneration Committee report that
we had introduced a shareholder returns measure in 2020
in respect of the PSP to complement the pre-existing profit
PBT measure. The Committee concluded that Relative Total
Shareholder Returns (TSR) would provide greater alignment
with shareholder interests and provide balance to the existing
PBT measure. The TSR measure was also felt to be the most
relevant comparator externally and would safeguard against
complexity. The introduction of this measure has been well
received by both shareholders and senior management.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

106

107

Remuneration Committee report continued
Annual Remuneration Committee Chair’s statement continued

For the 2021 PSP, we will maintain the opportunity of 220% for
Executive Directors and we will retain both the PBT and TSR
measures. Given market practice, and the current use of profit
in our incentives, the Committee has agreed a weighting of
67% for PBT growth and 33% for the TSR measure. This was
the weighting originally agreed for the 2020 PSP award and
the Committee are minded that this provides an appropriate
balance between earnings and shareholder returns for
the performance period, particularly given the ongoing
uncertainty around COVID-19 restrictions in the short and
medium term. The target range of 5% to 15% PBT growth per
annum has been retained and no changes will be made to the
TSR measure. More detail on each of the PSP measures is set
out on page 121.

Pensions
We reported last year that the Committee had agreed a plan
with the Executive Directors to ensure that their pensions
would be aligned with the wider workforce by the Company’s
next policy cycle (May 2022).

Our Executive Directors are now on that agreed flightpath and,
in January 2020, Andrew Livingston’s pension supplement,
received in lieu of Company pension contributions, reduced
from 20% of basic salary to 18% of basic salary. In January
2021, it reduced 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 5% of basic salary1.

Similarly, Mark Robson’s pension supplement, received in lieu
of pension contributions, reduced from 30% of basic salary to
24% from January 2020. Whilst Mark stepped down from the
Board at the end of the 2020 financial year, the Committee can
confirm that his supplement reduced further to 18% of basic
salary from January 2021. Paul Hayes’ pension supplement
received in lieu of Company pension contributions was aligned
with the wider workforce upon appointment, in line with policy.

In November 2020, the Company entered into a consultation
process with affected employees and collective bargaining
groups regarding the potential closure of the defined
benefit Howden Joinery Pension Plan (the ‘Plan’) to future
accrual. The outcome of the consultation was that the Plan
would be closed to future accrual from 31 March 2021. The
key driver for the Board in tabling these proposals was the
realignment of pension spending across its workforce to
provide all employees with the same flexible and competitive
pension arrangement. This will result in an improved defined
contribution pension benefit, which is currently received
by c.85% of all employees, and ensure fairness in pensions
across the Company. More detail on the changes to our
pension benefits can be found in the Financial Review on
page 36.

Senior management and the wider workforce
In addition to the Executive Directors, the Howdens
Remuneration Committee also sets remuneration for senior
management2. The Committee agreed during the year that
from 2021, and in line with best practice, the definition of senior
management would include the Head of Internal Audit and Risk.

2020 Remuneration
Committee activity

February

Committee meeting

• Approval of 2020 salaries for Executive Directors

and senior management as well as payment of the
2019 bonus and 2017 PSP

• Targets agreed for 2020 annual bonus and 2020 PSP

• Proposal from management approved regarding

the reduction the pension benefits for the Executive
Directors

• Approval of 2019 Remuneration Committee report

• Governance update

• Group benefits review update from HR Director

2020

April

Share award grant

• SIP Free Share grant
to all UK employees
approved

June

Committee meeting (out of cycle)

• Consideration of impact on remuneration

on all employees from COVID-19

• Approval of management proposal to forgo
20% of salary for Executive Directors and
Executive Committee members and 20% of
fees for the Chairman and Non-Executive
Directors for two months. Salary forgone
would be donated to a charity

May

AGM

• Remuneration report

approved by shareholders

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. We have
once again chosen to disclose the ‘Provision 33 dashboard’
template, which was adopted by the Committee in 2019 and
shows some of the key internal and external measures that
the Committee members are aware of when determining
Executive Director and senior management remuneration.
This dashboard can be found on page 125 of this report.

I hope the information presented within this report
provides a clear explanation as to how we have operated
our remuneration policy over 2020 and how we intend to
implement it for 2021. 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 2021.

Karen Caddick

Remuneration Committee Chair

1 From 1 April 2021, Company contributions will increase to 6% of basic salary.

The Howdens Remuneration Committee classifies ‘senior management’ as
members of the Executive Committee (excluding Executive Directors) and the
Company Secretary. From 2021, this classification will also include the Head
of Internal Audit and Risk.

How the Committee exercised discretion for the
incentive period ending 26 December 2020

The Committee considered the financial performance for
the incentive period ending 26 December 2020. PBT for
the year was £185.3m and cash flow was £291.7m.
The three-year PBT declined by 7.2% per annum.

The Committee considered whether the incentive
outturns projected for the 2020 annual bonus and
2018 PSP were proportionate to financial performance
and whether there were any other external factors of
which the Committee was aware which would make
increasing or decreasing the payments under these
awards appropriate. In reaching its 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 and
proportionality of the incentives, and their ongoing
alignment to culture.

Despite the significant contribution made by the Executive
Directors to Howdens during what was an extremely
challenging year, the Committee took all of these matters
into consideration and agreed that the lapsing in full of
these awards without adjustment was the right overall
outcome.

July

September

Committee meeting

• Governance and AGM update

• Update on outstanding awards

• Review of 2020 PSP measures

• 2021 remuneration timeline reviewed

Shareholder communication

• Company and Remuneration

Committee Chair communication
with shareholders on updated PSP
measures weighting

August

Share award grant

• PSP granted to Executive

Directors and Senior Management

• Approval of remuneration package for
new CFO and confirming arrangements
for outgoing DCEO & CFO

• Consideration of COVID-19 impact
on all employees’ remuneration

• Review of CEO salary

October

Committee meeting
(out of cycle)

• Approval of agreements reached
in principle with new CFO and
outgoing DCEO & CFO

November

Committee meeting

• Governance update

• Consideration of COVID-19 impact
on all employees’ remuneration

• 2021 planning and salary

benchmarking

• Review of PSP measures

• Approval of CEO 2021 salary

• Review of Committee’s terms of

reference

January 2021

Shareholder communication

• Company and Remuneration

Committee Chair communication
with shareholders on CEO salary

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information108

Remuneration Committee report continued
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 2020 and will be applied during 2021 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

Link to strategy

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.

Salaries reflect the market value of the Executive’s
role in addition to their skill, responsibilities,
performance and experience.

Benefits

Link to strategy

The Company pays the cost of providing benefits on a monthly basis
or as required for one-off events.

Our policy provides a competitive level of benefits.

Pension

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.

Executive Directors appointed after May 2019 are invited to join the
Company 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
workforce1.

The pension benefits of directors appointed before May 2019 are governed
by earlier Remuneration Policies and their contracts of employment.
However, the CEO, who was appointed to the Board in April 2018, has
voluntarily agreed to reduce his 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 106.

Variable pay

Annual bonus

The annual bonus has a maximum opportunity
of 150% of base salary. Performance is
assessed annually against stretching PBT
and cash flow targets.

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

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.

Deferral links bonus pay out to share price
performance over the medium term.

Performance period:
1 year

Additional deferral period:
2 years

Time from end of performance
period to receipt:
• 70% of bonus has no deferral

period.

• 30% of bonus paid after 2 year

deferral period.

109

Fixed

Variable

Performance Share Plan

Link to strategy

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.

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.

Performance period:
3 years

Additional deferral period:
2 years

As with the annual bonus, deferral links
bonus pay out to share price performance
but the post-vesting holding period does this
over the longer period.

Time from grant to receipt:
100% of vested award after 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 (SIP),
the Company’s all-employee share scheme. Any shares held in trust under the SIP that were awarded to an Executive Director
less than three years beforehand 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 of employment. See page 123 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 2021 and the prior year are set out of page 120.
Non-Executive Directors are also entitled to receive expenses in respect of reasonable travel and accommodation costs.

At 26 December 2020, Company contributions to the wider workforce were 5% of basic
salary. From 1 April 2021, Company contributions will increase to 6% of basic salary.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information110

111

Remuneration Committee report continued
Directors’ remuneration policy summary continued

Underlying principles
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:

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 Free
Shares in the Company through the Share
Incentive Plan. More information on how
the Company engages with its workforce
can be found on pages 82 and 83.

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
risks 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
119 and were communicated when the
Remuneration Policy was approved by
shareholders. The range in relation to the
PSP reflects the reduced maximum award
for 2021 rather than maximum allowed
under the policy.

The Committee has a wide range of
discretion in relation to variable pay
awards, new joiners, and leavers, which
were identified and explained when the
Remuneration Policy was approved.

In 2020 the profitability of the business
was significantly impacted by the
COVID-19 lockdown measures put in place
by Government in H1 and as such both the
2020 annual bonus and 2018 PSP lapsed
in full. Whilst the Committee was pleased
with the performance of the Executive
Directors throughout the year, particularly
given the extraordinary trading
environment, it concluded that this was
appropriate given the broader stakeholder
experience throughout the year.

The Committee remains confident that
the awards used to ensure continued
delivery of strategy and long-term
performance are working as intended.

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.

Directors’ remuneration report

Part 1: Company performance and stakeholder experience

In this opening section of the Directors’ remuneration report, we detail some of the considerations of which the Committee has
regard when implementing the Remuneration Policy. Contained in this section are specific disclosures on Group performance, as
well as comparative disclosures on the relative importance of spend on pay, historic CEO single figure, CEO ratio and all-Director
remuneration relative to average employees.

Group performance

Total shareholder return (TSR)

Profit before tax (PBT)

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).

The graph below illustrates the Company’s historic
PBT performance.

Howdens historic TSR

Howdens historic PBT (£m)

900

800

700

600

500

400

300

200

100

£237.0m

£238.5m

£260.7m

£188.8m

£232.2m

£219.6m

£185.3m

£110.0m

£133.9m

£112.1m

300

250

200

150

100

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 18

Dec 19

Dec 20

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Howdens

FTSE 250 (excluding Investment Trusts)

Relative importance of spend on pay

The graph below sets out the change in the Group’s total remuneration spend from 2019 to 2020 compared to the total returns
to shareholders of the Group and the two incentive performance measures PBT and cash flow.

500

450

400

350

300

250

200

150

100

m
£

+4.8%

m
7
.
1
6
4
£

m
7
.
0
4
4
£

Total Spend on Pay

-62.0%

m
8

5
2
£

m
8

9
£

Total returns to shareholders

-28.9%

m
7
.
0
6
2
£

m
3

5
8
1
£

PBT

+1.3%

m
4

5
9
2
£

m
7
.
1
9
2
£

Cash flow*

* Net cash flow from operating activities is the definition used for the annual bonus scheme (see page 121).

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information112

113

Remuneration Committee report continued
Directors’ remuneration report

Part 1: Company performance and stakeholder experience continued

Director pay

Our corporate performance and remuneration

Historic single figure

The table and graph below show the historic CEO single figure and incentive payout levels. They show that, until 2020, the annual
bonus performed strongly and that long-term incentives have reflected 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

2011

2012

2013

2014

2015

2016

2017

2018

CEO single figure (£'000)

6,083

3,401

5,168

6,221

5,225

3,098

1,268

2,569

Annual bonus (% of maximum)

66%

51%

LTIP vest (% of maximum)

100%

63%

89%

64%

56%

48%

100%

35%

75%

2019

1,391

76%

0%*

2020

816

* 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

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

CEO single figure

Annual bonus – % of maximum

LTIP vest – % of maximum

%
o
f

m
a
x
m
u
m

100

CEO pay ratio table

Year

2020

2019

2018

Method

25th percentile pay ratio

50th percentile pay ratio

75th percentile pay ratio

31:1

71:1

122:1

25:1

58:1

100:1

21:1

48:1

81:1

During 2020, Howdens has calculated 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 2020.

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 in its guidance as the most statistically accurate method for identifying the pay ratios.

In 2020, all levels of the wider workforce continued to receive bonus payments. No bonus payment was made to the CEO in
respect of the 2020 compensation year and this is reflected in the CEO single figure.

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

£26,731

£20,300

£32,195

£24,807

£39,408

£29,892

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 2020 to 31 December 2020. Joiners, leavers and part-time employees’ earnings
have been annualised on a full time equivalent (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 2020
compensation year. However, for annual bonus payments, we estimated the bonus due to employees for the 2020 compensation
year (payment is due in March 2021).

P11D values have been based on the 2019/20 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.

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.

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 2020

Strategic reportGovernanceFinancial statementsAdditional information

114

115

Remuneration Committee report continued
Directors’ remuneration report

Part 1: Company performance and stakeholder experience continued

All-Director remuneration relative to average employees (SRD II disclosure)
The updated EU Shareholder Rights Directive (SRD II) requires listed companies to disclose the annual change in each director’s
pay in comparison to the average change in employee pay. This comparison is made on salary, bonus and taxable benefits and as
such does not include some of the elements disclosed under the Single Figure Table such as pension contribution or long-term
incentives. While the SRD II requires a listed entity to provide employee pay information for that entity only (i.e. not on a group-
wide basis), a ‘Group’ comparator has also been included in the table below as this provides a more representative comparison.

The table below discloses this information solely in respect of the change from financial year 2019 to financial year 2020 but in
future years it will provide a comparative view against previous years and will ultimately provide a five-year view of the change in
individual director’s pay relative to the change in average employee pay.

Average Howden Joinery Group Plc employee remuneration1

Average Howdens Group employee remuneration

In the financial year ended 26 December 2020, Howden Joinery Group Plc did not employ any individuals.

% Change

2019 to 2020

Basic Salary

Benefits

–

Bonus

–

12%

Directors

Position

Andrew Livingston1

CEO

Mark Robson

DCEO & CFO

Richard Pennycook Chairman

Karen Caddick2

Non-Executive Director and Remuneration Committee Chair

Andrew Cripps

Non-Executive Director and Audit Committee Chair

Geoff Drabble2

Non-Executive Director and Senior Independent Director

Louise Fowler2

Non-Executive Director

Debbie White

Non-Executive Director

%Change

2019 to 2020

Basic Salary / Fee

Benefits

18%

22%

515%

84%

(51)%

(100)%

(89)%

100%

390%

Bonus

(100)%

–

Andrew Livingston received a relocation allowance in 2020 as permitted under the Director’s Remuneration Policy. More information on Executive Director
benefits is set out on page 117.

Louise Fowler was appointed to the Board in November 2019 and did not receive a full year of fees in respect of that year. In September 2019, Karen Caddick
was appointed Remuneration Committee Chair and Geoff Drabble was appointed Senior Independent Director. Geoff also assumed additional responsibilities
as the Non-Executive Director responsible for employee engagement at the beginning of 2019. The increases shown in their Non-Executive Director fees are
predominantly due to these changes.

Wider workforce considerations

The Remuneration Committee received 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. In light of the impact of COVID-19 on
the business, from Q2 2020 the Committee also received regular updates from management on the number of employees
furloughed under the Government’s Coronavirus Job Retention Scheme (CJRS) and information pertaining to the average salary
of an employee in 2020 versus the respective periods in 2019 for depot, blue collar manufacturing, and logistics roles.

In Q4 2020, the Company repaid to the Government the £22m it received in the first half of 2020 under the CJRS. No claims were
made under this Scheme in the second half of the year.

When determining the base salary, benefits and variable pay awards for the Executive Directors and senior management, the
Committee had regard to the information contained in the dashboard set out on page 125.

Case study
The Remuneration Committee’s response to COVID-19
It will be apparent to anyone reading
this report how the COVID-19 crisis has
impacted every aspect of Howdens.
Our safety first approach and how we
have managed our responsibilities
to our collective stakeholders is well
documented in other sections of this
Annual Report. In this case study, we
look specifically at the actions of the
Remuneration Committee in response
to the crisis as it unfolded and its
unique position in ensuring the ongoing
alignment between Executive reward
and that of the workforce as a whole.

Whilst the Board has sought as far as
possible to ensure that no individual
group of stakeholders is significantly
disadvantaged by the impact of
COVID-19, the Remuneration Committee
concluded that it was not appropriate
to amend performance targets or
exercise discretion in relation to the
annual bonus for Executive Directors.
The Remuneration Committee (and the
Board as a whole) were pleased with the
performance of the Executive Directors
in incredibly difficult circumstances
but were also mindful that profit targets
in respect of the annual bonus and the
2018 LTIP had not been met.

Approach

In determining how to implement the
Directors’ Remuneration Policy in such
an uncertain external environment,
the Remuneration Committee was
mindful of the impact of the crisis on
the Company’s stakeholder base. In
particular, the Committee had regard
to the large number of employees
furloughed in H1 and the suspension
of shareholder returns and pension
deficit recovery payments. In order to
adequately inform its decision making
process, the Committee received
detailed updates from management
throughout the year on the impact
of furlough on employees’ total
remuneration compared to prior year.
Detailed analysis based on job role was
presented to the Committee at each
of the meetings. In addition, updates
on the external environment and
shareholder sentiment were regularly
provided by the Committee’s advisors.

By the end of year, the Remuneration
Committee was pleased that the strong
trading performance in H2 had resulted
in incentives meaning that the majority
of roles (including all depot and blue
collar manufacturing roles) were in line
or ahead of 2019 total reward levels.
This was in addition to the Company
announcing that it would repay all
Government support it had received,
including business rates relief, and
catching up all deferred payments
before the end of the year. More
recently, the Board has announced that
it will make a ‘catch-up’ special dividend
payment in respect of the suspended
final dividend from 2019.

2020 LTIP

The Remuneration Committee set LTIP
targets as normal in February 2020 and
communicated these publicly in the
2019 Remuneration Committee Report.
However, by mid-March it was apparent
that with the temporary cessation of
operations and the closure of depots that
these targets were no longer achievable.
On that basis, the Remuneration
Committee took the decision to postpone
the grant of the 2020 LTIP, normally
made at the end of March, until there was
greater clarity on the impact COVID-19
restrictions would have on Howdens’
business in the short-term.

By July, it was clear that H1 trading
had been significantly impacted but
depot and manufacturing operations
were fully functional with COVID-safe
standard operating procedures in place.
It was at this point the Remuneration
Committee reviewed the position on
the 2020 LTIP grant. It had always been
the Committee’s intention to include
a relative TSR performance measure
alongside the PBT growth measure
which had used for a number of years.
The incorporation of the TSR measure
reflected the Committee’s desire to
explicitly incorporate a measure which
directly reflected the experience
of shareholders. The weighting of
measures for the award (as reported)
would have been 67% vesting based on
PBT growth with a performance target
range of 5%pa to 15%pa growth and 33%
based on relative TSR measured against
a broad group of FTSE listed companies
of similar market capitalisation, with a
performance target range of median to
upper quartile.

At the July Remuneration Committee
meeting the Committee considered
its approach to the 2020 LTIP award,
in particular the appropriateness
of the measures and respective
weightings in the given circumstances.
The Committee agreed that it was
appropriate to maintain the proposed
award level, performance measures
and targets. However, given the
considerable uncertainty over the
future course and timing of the
economic recovery, and ultimately
the performance of the business in
absolute terms over the performance
period, the Committee’s view was
that relative TSR provided a more
robust measure of management’s
performance over the period, as well
as increasing the alignment between
executives and shareholders. It was
therefore decided that the weightings of
the two performance measures would
be reversed for 2020 only, with PBT
growth carrying a 33% weighting and
relative TSR carrying a 67% weighting.
This decision was communicated to
large shareholders prior to the granting
of the award and the feedback received
on the chosen approach was very
supportive.

Salary sacrifice

In response to the significant
impact of the COVID-19 crisis on
Howdens employees and the broader
community, the Remuneration
Committee approved a management
proposal to temporarily reduce the
basic pay of Executive Committee
members by 20% for a period of two
months via individual charitable
donations. This was aligned to the
period that the majority of Howdens
employees were furloughed (by
the end of May, 90% were back at
work). Following the decision, the
Non-Executive Directors collectively
agreed to waive 20% of their fees for
the same period.

Donations were made through payroll
giving and individuals were able to
nominate a charity of their choice or
donate to NHS Charities Together. In
total, charitable donations made by
members of Board and the Executive
Committee totalled £104,473.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information116

Remuneration Committee report continued
Directors’ remuneration report

Part 2: Application of policy in 2020

In this section of the Directors’ remuneration report we set out how the Committee has executed policy for 2020. Disclosures in
this section are retrospective and where applicable are shown against prior year comparator.

Executive Directors

Salary

117

Fixed

Variable

Single figure of remuneration (audited)

£000s

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

Fixed

Variable

Salary/Fees

Benefits

Pension

Bonus

LTIP

Total
Remuneration

Executive Directors:

Andrew Livingston

Mark Robson

Total

Non–Executive Directors:

578

452

564

441

1,030 1,005

132

163

Richard Pennycook

256

250

Mark Allen

Karen Caddick

Andrew Cripps

Geoff Drabble

Louise Fowler

Tiffany Hall

Debbie White

Total

–

575

598

–

134

–

106

113

219

113

134

247

–

643

502

1,145

–

816

1,391

183

596

1,322

183

1,412

2,713

–

256

260

–

578

611

Total Executive Director fixed vs variable Pay

Notes to the single figure table

Total (Fixed)

Total (Variable)

Non-Executive Directors

£000s

2020

2019

2020

2019

Executive Directors:

Andrew Livingston

Mark Robson

Total

Non–Executive Directors:

816

596

748

637

1,412

1,385

Richard Pennycook

256

260

Mark Allen

Karen Caddick

Andrew Cripps

Geoff Drabble

Louise Fowler

Tiffany Hall

Debbie White

Total

–

578

611

–

643

685

1,328

–

Louise Fowler was appointed to the Board and both
Tiffany Hall and Mark Allen retired from the Board
during 2019. In September 2019, following Tiffany Hall’s
retirement, Karen Caddick was appointed Remuneration
Committee Chair and Geoff Drabble was appointed
Senior Independent Director.

In 2020 all Non-Executive Directors donated 20% of
their fees to charity for two months in recognition of
the challenges facing public services and charities as
a result of COVID-19. Non-Executive Directors were able
to nominate a charity of their choice or donate to NHS
Charities Together. The donations were made through
payroll giving and therefore the disclosures in the single
figure table above are inclusive of these donations.

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
2021 can be found on page 120. 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.

In 2020 both Executive Directors donated 20% of their base salary to charity for two months in recognition of the challenges
facing public services and charities as a result of COVID-19. Executive Directors were able to nominate a charity of their choice
or donate to NHS Charities Together. The donations were made through payroll giving and therefore the disclosures in the Single
Figure Table are inclusive of these donations.

Benefits

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. In 2020 Andrew relocated and received a relocation allowance in line with the shareholder
approved approach to recruitment remuneration of £94,340. Following receipt of the relocation allowance, no further payments
were made in respect of hotel costs and no future payments will be made in respect of accommodation costs.

Pension

Both Executive Directors received a cash benefit in lieu of pension during the year. More information about future Executive
Director pension benefits can be found on page 106.

LTIP

Mark Robson’s LTIP figure was reported as £210,000 in the 2019 Remuneration Committee report. This was calculated using the
average three-month share price to 28 December 2019. The figure contained in the single figure table has been calculated using
the share price on 27 March 2020, that being the opening share price on the vesting date of the 2017 LTIP award.

Annual bonus (audited)

Targets for 2020

Our annual bonus for 2020 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

Outcomes for the year

PBT component

Cash flow component

£250.7m (17% of salary)

£299.0m (3% of salary)

£268.3m (63.75% of salary)

£325.0m (11.25% of salary)

£281.7m (127.5% of salary)

£342.0m (22.5% of salary)

The PBT figure for the year in relation to the annual bonus is £185.3m. The cash flow figure for the year in relation to the bonus
was £291.7m. As both measures were below the threshold performance target, this award lapsed in full.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information118

119

Remuneration Committee Report continued
Directors’ remuneration report

Part 2: Application of policy in 2020 continued

Performance Share Plan (PSP) (audited)

Targets for 2020

The PSP awards granted from 2017 to 2020 have been measured against PBT growth over a three-year period. The PBT growth
for the 2018 award was based on growth from FY 2017 to FY 2020. Any PSP award that vests is subject to a two-year holding
period for serving Executive Directors.

Outcomes for the year

The 2018 PSP had a threshold requirement of 5% p.a. and a maximum requirement of 15% p.a. 2020 PBT was £185.3m, and
therefore decline on FY 2017 was 7.2% p.a. The award will therefore lapse in full.

2020 remuneration scenarios
Below we have shown the projected maximum and minimum remuneration scenarios, as reported in the 2019 Remuneration
Committee report, along with the actual outcome for 2020. Mark Robson’s actual 2020 package value fell below the minimum
scenario value reported in the 2019 Directors’ Remuneration report as his 2018/19 benefits figure was used as a proxy for the
calculation of the minimum scenario. In 2020, Mark’s benefits reduced by 51% year-on-year and therefore the actual outcome is
shown as having fallen beneath the minimum.

Value of package

Andrew Livingston

Mark Robson

Directors’ remuneration report

Part 3: Implementation of policy in 2021

Fixed

Variable

In this section of the Directors’ remuneration report we set out how the Committee has implemented policy for 2021.
Disclosures in this section are forward looking. The outcome of any variable award for Executive Directors will be reported
in the Remuneration Committee report for the financial year 2021.

2021 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. The Committee reviews this on
an annual basis.

The composition and value of the Executive Directors’ remuneration packages in a range of performance scenarios are set
out in the charts below. 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.

Value of package

Andrew Livingston

Paul Hayes

ACTUAL

100%

816

ACTUAL

100%

596

Maximum +

21%

25%

36%

18%

3,933

Maximum +

19%

25%

37%

19%

2,509

Maximum

26%

30%

44%

2,906

Maximum

27%

30%

43%

2,303

Maximum

25%

30%

45%

3,218

Maximum

23%

31%

46%

2,041

Minimum

100%

757

Minimum

100%

625

1,000

2,000

£’000

3,000

4,000

1,000

2,000

3,000

£’000

Fixed elements of remuneration

Annual bonus

LTIP

Fixed elements of remuneration consist of the annual salary that the Executive Director will received for 2020, alongside their 2020 pension entitlement.

Annual bonus was based on a maximum opportunity of 150% of salary and an on-target opportunity of 75% of salary.

LTIP was 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 was calculated as 50% of maximum (110% of salary).

On-target

41%

24%

35%

2,015

On-target

37%

26%

37%

1,255

Minimum

100%

813

Minimum

100%

469

1,000

2,000

£’000

3,000

4,000

500

1,000

1,500

2,000

2,500

3,000

£’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 2021, alongside their 2021 pension entitlement, and actual
benefits received in 2019/20 (as a proxy for 2021).

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 2021 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information120

Remuneration Committee report continued
Directors’ remuneration report

Part 3: Implementation of policy in 2021 continued

Non-Executive Director fees

2021

2020

Fee

Effective date

Fee

Effective date

Basic
NED Fee1

£58,500

Chair
Fee

SID
Fee

£265,000

£15,500

1 July 2021

Committee
Chair Fee

£12,900

£56,650

£257,500

£15,000

£12,500

1 March 2020

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.

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.

Executive Director base salaries

Base salary increases from 2021 are set out in the table below.

Executive Directors

Andrew Livingston

Paul Hayes

Mark Robson

2021

2020

Salary (£'000)

Effective date

Salary (£'000)

Effective date

650

425

–

1 January 2021

–

581

–

454

1 March 2020

–

1 March 2020

The Committee has determined that it is appropriate to increase the salary for the CEO to £650,000 effective from
1 January 2021. Andrew joined Howdens in January 2018, becoming CEO on 2 April 2018 with a base salary of £550,000.
Upon appointment, his salary was set at the lower end of the market against the group to reflect his experience at the time of
appointment. Over the three years since his appointment, Andrew has firmly established himself in the CEO role. The Committee’s
view is that just as his lack of experience on appointment was taken into account when his salary was first set, his experience in
the role should now be reflected in his pay.

The Remuneration Committee benchmarked the CEO’s salary against refreshed size and sector peer groups. The proposed
salary of £650,000 will position Andrew’s salary just below median against the sector peer group, and at around 95% of the
median for a size group of the companies 50 above and 50 below Howdens in the FTSE rankings. As stated in the Directors’
remuneration policy summary on page 108, policy is to pay at median.

Since Andrew’s appointment in 2018, he has led the business in producing strong performance for shareholders, with Howdens
having a TSR of +49% over the period, resulting in the Company moving to a position just below the FTSE 100 in the FTSE rankings.
The UK depot network has grown to 748 depots and we have delivered on core initiatives such as depot and product range
improvements. In addition, we continue to significantly improve our customers’ digital experience of Howdens and have seen
progress in Howdens’ overseas business in France and Belgium.

The strong business that Andrew has helped create has shown its resilience through the recent crisis, with all of our depots and
manufacturing and supply operations now re-opened and performing strongly and safely. The growth seen in H2, particularly
during peak autumn trading, was further evidence of his clear and successful leadership during the crisis. The business has
stayed true to its original ethos of ‘worthwhile for all concerned’ during the crisis and the stakeholder experience of Howdens,
be it from direct or indirect stakeholders, remains strong. In November 2020, the Board stated that it intended to repay all of
the Government’s CJRS payments, business rates deferred by local councils and deferred pension deficit payments before the
end of the year. It also signaled that the Board would consider recommencing payments of dividends with the announcement of
Howdens 2020 full year results in February 2021. Since this announcement, the Board has repaid all Government support and
deferred payments. It has confirmed the payment of a final dividend in respect of 2020 and a ‘catch-up’ special dividend relating
to the suspended 2019 final dividend.

121

Fixed

Variable

Paul Hayes’ base salary is £425,000 compared to Mark Robson’s salary of £454,000. We have appointed Paul Hayes to the role
of Chief Financial Officer only, and therefore the CEO role will have primary responsibility for the day-to-day running of the Group
and the satisfactory execution of the policies and strategy agreed by the Board.

The increase to Andrew’s base salary will apply from 1 January 2021. Thereafter, we will revert to the usual cycle of annual salary
reviews that applies at Howdens each year in July, with the first review for Andrew in July 2022.

Annual bonus measures

The table below sets out Annual Bonus measures for 2021. 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 2021 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 (PSP) measures

Set out below are the performance measures and relative weightings for each of the measures. For 2021 the maximum
opportunity under the PSP remains 220% in line with the approach taken in 2020. The performance period is three years,
measured over the relevant financial years, starting with the financial year of grant. See page 124 for scheme interests
awarded in 2020.

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 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

As we continue to navigate this challenging period, the Committee considers it important that Andrew is remunerated fairly for
the contribution he makes towards the business, relative to his peers.

Performance
assessment

Howden Joinery Group Plc Annual Report & Accounts 2020

Under the terms of the Remuneration Policy approved by shareholders at the 2019 AGM, the 2021 PSP awards will be subject to a
two-year post-vesting holding period.

Strategic reportGovernanceFinancial statementsAdditional information122

123

Remuneration Committee report continued
Directors’ remuneration report

Part 4: Additional disclosures

In this section of the Remuneration Report more detail is provided in respect of a number of key disclosures. These disclosures
include Executive Director pension entitlements, shareholdings, external appointments and contractual arrangements. More
detail is also provided on the operation of the Remuneration Committee and AGMs voting performance.

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.

Loss of office payments or payments to past directors
Mark Robson stood down as a Director of the Company on 26 December 2020. He will continue to receive his base salary and
benefits pursuant to his service contract until 31 May 2021, during which period he will remain at the Company’s disposal. The
value of Mark’s base salary for the period to 31 May 2021 will be £189,048, the value of the payments received in lieu of pension
will be £34,029 and his other benefits for the period will be £8,0581. Following the termination of his employment on 31 May 2021,
Mark will receive a payment of £171,043 in lieu of basic salary in respect of his unserved notice period (paid in equal monthly
instalments). He will also receive payment for any accrued but unused holiday up to a maximum of £1,745. Mark will not receive
an annual bonus in respect of the period following 26 December 2020. In accordance with the Company’s approved loss of
office policy, unvested awards under the 2019 and 2020 Performance Share Plan will be pro-rated for the proportion of the
performance period in which Mark was employed and will vest on their normal vesting dates of 2 May 2022 and 7 August 2023
respectively, subject to satisfaction of performance conditions. Provided that Mark provides evidence to the Company to
demonstrate that he continues to satisfy the post-employment shareholding rule set out in section 6 of the Shareholding Policy
for so long as that requirement is in force, these awards will not be subject to a post-vest holding period. Mark’s share awards
held in the Share Incentive Plan will be released to him following his termination date. Mark’s deferred bonus shares awarded
pursuant to his 2019 bonus entitlements will vest on the normal vesting date subject to the rules of the Deferred Bonus Plan. All
payments to Mark will be subject to deductions for tax and national insurance contributions. Other than the amounts disclosed
above, Mark will not be eligible for any other payments for loss of office.

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 £51,775 in fees in respect of his role as Non-Executive Director. Andrew held this position upon appointment.
Paul Hayes does not have any external appointments. Executive Directors may retain the fees paid to them in respect of their
non-executive duties.
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 on the next page 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 chose to opt-out of the memberships of the plan and therefore received a salary supplement of 24% of base salary in lieu
of pension in 2020.

The benefits figure includes payment of a car allowance and health insurance. The value of the health insurance was calculated using the value of the 2020
benefit as proxy.

Accrued pension at 26 Dec 2020 (£'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

Fixed

Variable

Executive Directors

Andrew Livingston

Mark Robson

–

106

15/01/2019

–

113

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. No options were exercised by the Executive Directors during the year.

Shareholding requirement %

Shareholding requirement (number of shares)1

Owned outright (including connected persons)

Share awards subject only to continued employment2

Share awards subject to performance conditions and continued employment3

Options subject to performance conditions

Vested but unexercised options

Current shareholding (% of salary)¹

Guideline met

Current Executive Directors

Andrew Livingston

Paul Hayes

200%

179,024

138,442

246

761,967

–

155%

200%

131,031

–

Based on a share price of £6.487, being the three-month average price to 26 December 2020, and basic salary as at 26 December 2020. This is calculated by
using only those shares owned outright by the Executive Directors and their connected persons at 26 December 2020 and the Executive Director’s salary at
that date.

2 Share Incentive Plan.

3 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

470

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 24 February 2021.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information124

Remuneration Committee report continued
Directors’ remuneration report

Part 4: Additional disclosures continued

Scheme interests awarded during the financial year (audited)
During 2020 the Executive Directors were invited to participate in the Performance Share Plan (PSP) and Share Incentive Plan
(SIP), as follows:

Nature of award:

Award of conditional shares under the PSP

Number of shares under award

Face value of award1

Performance condition

TSR performance condition:

PBT performance condition:

TSR component vesting schedule

CEO

250,431

£1,278,200

Deputy CEO & CFO2

195,689

£998,797

Proportion of PSP award subject to the performance condition

67%

33%

Position at which Howdens ranks
compared to comparators

Proportion of TSR portion
of Award that may vest

At or above upper quartile

100%

Straight line vesting between these two points

At median

Below median

15%

PBT component vesting schedule

Annualised PBT growth over
Performance Period

Proportion of PBT portion
of Award that may vest

Performance period

Grant date

Vesting date

Additional holding period

15% p.a.

100%

Straight line vesting between these two points

5% p.a.

Less than 5% p.a.

15%

Performance measured from FY2020 to FY2022

7 August 2020

7 August 2023

2 years

1 Based on a share price of £5.104, being the closing price on 6 August 2020.

Mark Robson’s share awards under the 2019 and 2020 PSP will be pro-rated in line with the Good Leaver provisions in the Howdens Long Term Incentive Plan rules
to reflect his termination date from the Company. There is no accelerated vesting of these awards and they will vest in proportion to the performance achieved
by the Company in respect of each performance period. Shares awards will only be released to Mark Robson once he has demonstrated that he has maintained
the post-vesting shareholding requirement as set out in the Executive Director Remuneration Policy.

Nature of award:

Free Shares under the SIP

Number of shares under award

Face value of award1

Performance conditions

Grant date

Vesting date

CEO

£247

Deputy CEO & CFO

£247

None

7 April 2020

7 April 2023

1 Based on a share price of £5.360, being the closing price on 6 April 2020.

Consideration by the Directors of matters relating to Directors’ remuneration
The Committee met seven times during 2020 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 members of the Executive Committee, the
Company Secretary and the Head of Internal Audit and Risk), 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

125

Fixed

Variable

Provision 33 dashboard template
This dashboard shows some of the key internal and external measures and information presented to the Committee 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 dashboard is populated with
up-to-date information prior to each meeting where it is to be considered.

Workforce
Reward
• Salary

• Pensions

• Benefits

• Bonus

• Shares

Provision
40
• Clarity

• Simplicity

• Risk

External Ratios

CEO Ratio as at YE2019
25th percentile (vs prior year)
50th percentile (vs prior year)
75th percentile (vs prior year)

• Predictability

Gender Pay Gap

• Proportionality

Group

Prior Year

Current

Shareholder Alignment

Executive Director shareholdings

CEO as % of salary
DCEO & CFO as % of salary

Share price
performance

• Alignment to

culture

Mean pay gap

Median pay gap

Bonus mean gap

Bonus median gap

The Committee also considers the
appropriateness of introducing a maximum
cap on Executive reward for the coming year.

Advisors to the Committee
The Committee regularly consults with the CEO and the 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. 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 2020 totalled £119,200 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 2020. PwC is a member of the Remuneration Consultants’ Group which operates a code of conduct in
relation to executive remuneration consulting.

Voting at the 2020 AGM
The results of the advisory vote on the Directors’ remuneration report at the 2020 AGM may be found in the chart below, along
with the results of the 2019 and 2018 AGMs.

AGM Voting Outcomes

2020

Report

For 97.34%

Against 1.71%

Withheld 0.96%

Report

For 95.87%

Against 3.29%

Withheld 0.84%

2019

Policy

For 97.02%

Against 2.84%

Withheld 0.14%

2018

Report

For 96.63%

Against 3.19%

Withheld 0.18%

1. A vote 'for' includes those votes giving the Chair discretion.
2. A vote 'withheld' is not a vote in law.

By order of the Board

Karen Caddick
Remuneration Committee Chair

24 February 2021

For¹

Against

Withheld²

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

126

127

Audit Committee report

Andrew Cripps Audit Committee Chair

Introduction from the Committee Chair
I am pleased to present this Report covering the work of the
Audit Committee in 2020.

The Audit Committee has focused its attention on
maintenance of business controls in the face of changing
ways of working this year as well as ensuring effective external
and internal audit verification whilst working remotely. We
also looked more deeply into liquidity and sustainability
management in considering the immediate and longer-term
viability of the business.

We continued examining key control risks with particular
attention on four areas:

• Enhanced governance arrangements consequent upon

COVID-19 restrictions.

• Compliance with COVID-19 enhanced procedures at depots.

•

Financial controls over supply operations, including those
following establishment of separate commercial teams.

Information and cyber security risks including those arising
from increased remote working.

In each case the Committee noted the speed of response to
changing conditions as well as adoption of recommendations
from the internal audit team. The business adapted well to this
combination of evolving governance processes reinforced by
independent review from internal audit.

Howdens continues to evolve a more unified organisational
structure which both preserves local autonomy of depots
while broadening collaboration and expertise across supply
and business support. This, coupled with increased public
interest in internal control systems following the Kingman and
Brydon Reviews, precipitated a project to review the network
of internal controls in order to reappraise and document
key controls consistent with responsibilities of the revised
organisational structure. This project is sponsored by the CEO
and CFO with scrutiny from the Committee. We have provided
a case study on the key controls project on page 133.

We commenced the process of selecting a new external
auditor in 2020. Whilst the Committee remains comfortable
with the independent challenge currently provided by
Deloitte, best practice requires a new auditor, and the fresh
perspectives this will bring, from 2022.

2020 Audit
Committee activity

April
Meeting

May
AGM

• Effectiveness of the external
auditor and audit processes

• COVID-19 crisis
governance

• External audit retendering
(without external auditor
present)

• Discussion with external

auditors (without presence of
management)

• External audit timetable

• Cyber security

•

Internal audit report

• Discussion with Head of
Internal Audit (without
presence of management)

• Authority for the Directors
to determine the auditor’s
remuneration and the
reappointment of the
external auditor were
approved by shareholders

February
Meeting

•

IFRS 16 project update

• 2019 draft Annual Report and
Accounts and Preliminary
Announcement

• Audit Committee
effectiveness

• External audit report

•

Internal audit report

• External audit policies

2020

Audit Committee meeting attendance

Andrew Cripps (5/5)
Karen Caddick (5/5)
Geoff Drabble (5/5)

Louise Fowler (4/5)1
Debbie White (5/5)

Louise was unable to attend the Committee meeting in September due
to pre-existing commitments entered into prior to joining the Company.
She received all of the meeting papers in advance of the meeting and
was able to feedback her views to the Committee Chair.

A key element of this selection, which is the responsibility of
the Audit Committee, is to identify within the most appropriate
audit firm an engagement partner and senior team best
equipped to understand and constructively challenge the
business. We decided it would not be efficient to continue
this in 2020 whilst the Company was adapting to new ways of
working for COVID-19 and therefore plan to recommence the
process following announcement of the annual results.

I look forward to reporting directly to shareholders at our AGM
and responding to questions.

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.

The tender of external audit services.

Review of the 2021 interim results.

Consideration of internal audit’s annual plan,
independence, resources and findings.

Review of key controls.

Approval of the 2022 Audit Committee calendar.

July
Meeting

September
Meeting

November
Meeting

• Update on COVID-19 governance and

controls

• 2020 interim results, including going

• Key controls update

concern considerations

• External auditor half-year review

•

Internal audit report

• Conflicts of interest review

• Discussion with external auditor

(without presence of management)

• Update on COVID-19 governance

• 2020 external audit plan

• Review of key Supply finance risks

• 2021 internal audit plan

•

Internal audit report

• Terms of reference review

• Discussion with Head of Internal Audit
(without presence of management)

• 2021 Audit Committee calendar

• Discussion with external auditor

(without presence of management)

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information128

129

Audit Committee report continued

Financial reporting

Results review

The Audit Committee reviewed the Group’s 2020 Annual
Report and Accounts and the half-yearly financial report
published in July 2020.

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 discussed 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.

The matters shown below have been discussed with the 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 2020
Annual Report and Accounts are appropriate.

Areas of significant financial judgement

Inventory obsolescence provisioning

Validity of the actuarial assumptions

Area of significant financial judgement in 2020 and 2019

Inventory obsolescence provisioning

The Group’s in-stock model (further information about which
may be found on page 18) 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. This was particularly true during
2020 where the dual supply chain risks of COVID-19 and
Brexit resulted in the Group holding additional safety stock to
safeguard the in-stock model at a time of transferring to a new
national distribution centre.

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.

The Committee reviewed the processes used to value each
category of inventory, including the assumptions behind
obsolescence provisions, and were satisfied with the
judgements made.

Validity of the actuarial assumptions

The Committee carefully reviewed the report of the Company’s
actuaries and concluded that:

•

the actuarial assumptions applied to pension fund
liabilities, and in particular the discount, inflation and
mortality assumptions, were appropriate;

the valuation of pension fund assets was consistent; and

they concurred with the views of the external auditors.

IFRS 16, Leasing

This accounting standard, which took effect from the
beginning of 2020, requires recognition in the balance sheet of
‘right of use assets’ of some £550 million and a corresponding
lease liability, with relatively minor impact on profit before
tax (note 28 on page 174). The Committee monitored
implementation over the last year. Deloitte concur with the
Committee’s view that this change does not represent a
matter of significant judgement nor estimation as the majority
of the company’s leases are straightforward property leases
on similar terms and conditions.

Distributable reserves

As reported in the 2019 Audit Committee report, 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
included on page 188.

Governance

Governance updates

Updates on the latest governance practices for Audit
Committees and changes in reporting requirements
were provided by the external auditor. In addition to other
resources, members of the Audit Committee are members of
the Deloitte Academy, which provides updates on financial
and reporting matters.

Committee effectiveness

An effectiveness review was carried out on the Committee
and its members. The review concluded that the current mix
of financial, commercial and relevant sector experience of the
Audit Committee, and that of its advisors, was such that the
Committee could effectively exercise its responsibilities
to the Group in relation to risk and controls.

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 131) 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 133.

Competition and Markets Authority (CMA) Order
compliance

The Audit Committee confirms that the Company has complied
with the provisions of the Order throughout its financial year
ended 26 December 2020 and up to the date of this report.

Committee membership

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.

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 2021, he will also present a summary of the work
of the Audit Committee to shareholders at the Annual
General Meeting.

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 FTSE250 and other public companies.

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information130

131

Audit Committee report continued

External auditor

Deloitte LLP (Deloitte)

External auditor tenure

19 years

Lead audit partner

Claire Faulkner

Lead audit partner tenure

4 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)

* The information above is correct as at 26 December 2020.

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). As such, the
Committee will undertake an external audit tender during 2021
in order to appoint a new external auditor in 2022.

In coming to this decision, the Audit Committee considered
the continuing robust performance of the incumbent auditor,
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.

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 for the financial year 2021 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 6 May 2021 (details of the AGM may be
found on page 194).

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 2020, which included:

• A review of the independence of the external auditor and
the arrangements which they have in place to restrict,
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
2020 audit.

• The external auditor’s fulfilment of the agreed audit

plan and any variations from the plan.

• Evaluation from key management personnel and members

of the Committee of the external auditor’s exercise of
professional scepticism and challenge.

• 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.

External auditor fees

All relevant fees proposed by the external auditor must be
reported to and approved by the Audit Committee.

The only non-audit services provided by Deloitte in the year
was their review of the half-yearly financial report. No advisory
work has been requested from the auditor during the previous
three years.

Details of the fees paid during the year to Deloitte may be
found in the table above and in note 5 to the consolidated
financial statements (page 149).

Policy for Non-Audit Services Provided by
the External Auditor

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 took 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 minimis 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.

Performance expectations
for the external auditor

Specific auditor responsibilities

• Discuss the audit plan, materiality, 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 practice trends in reporting.

• 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information132

133

Audit Committee report continued

Controls and internal audit

Internal control framework

The Group has an established framework of internal controls,
which includes the following key elements:

• The Board approves the Group’s strategy and annual

budgets; the Executive Committee are accountable for
performance within these.

• 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.

A case study on the review of key controls may be found on
page 133.

Internal audit

The internal audit team has increased its capabilities
during the year, both through implementation of a new
audit management tool and enhanced technical expertise.
It has communicated an updated Internal Audit Charter
to management and thereby refreshed understanding of
responsibilities for internal controls and their verification,
based on the three lines of defence model.

The Committee reviewed:

Independent assurance

•

Internal Audit’s programme of work and resources and
approved its annual plan.

• The level and nature of assurance activity performed by

Internal Audit.

• Results of audits and other significant findings including
the adequacy and timeliness of management’s response.

• 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.

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 Finance for
the Supply Chain and Head of Compliance of the Trade division
gave presentations on the key risks and control environments
in their areas. An update on cyber and information security
was also presented by the Chief Information Officer and Head
of Information Systems Security.

COVID-19 crisis governance

In April, in addition to the updates received by the Board, the
Chief Governance Officer presented the governance and
control arrangements put in place to respond to the COVID-19
crisis to the Committee. This included presentation of the
governance principles adopted by the Executive Committee,
in particular its ‘people first’ approach. The Committee
noted how the Internal Audit team had worked alongside
management to provide assurance to the Committee over
key controls, both pre-existing and those which had been
introduced as a result of the crisis. In particular, the underlying
Health & Safety framework had been utilised to introduce new
controls and ways of working to incorporate social distancing
measures. Control, safety and risk implications of increased
remote working as well as internal audit’s confirmation of the
effectiveness of these controls continued to be reviewed at
each subsequent meeting.

More information on the Board’s governance response to the
COVID-19 crisis can be found on pages 80 and 81.

The Committee assessed the coverage of independent
assurance by reviewing the annual internal audit plan against
the Group’s key controls.

Case study
Key controls

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 74 and 75).

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

24 February 2021

During 2020 we have worked to clarify our key controls
across the business to focus and further strengthen
our overall control framework. Sponsored by the
CEO and CFO, and reporting regularly to the Audit
Committee, this project is improving our capability to
identify operational, IT and financial controls which
mitigate our key and principal risks. Phase 1 of this
project was delivered in 2020, with further phases
starting in H1 2021.

Our project streams will reinforce key responsibilities
across the business and their verification, assist new
systems design, and enable us to address regulatory
consequences of the Brydon and Kingman reviews
when these are known. The immediate results include:

• A sustainable approach for cataloguing, monitoring

and ownership of key controls.

• Embedding of operational ownership to measure

effectiveness.

•

An even stronger attestation process.

We see this exercise as both a necessity and an
opportunity to further strengthen our control
framework whilst protecting the essential Howdens
locally empowered culture.

Working alongside the project, the Internal Audit team
has embedded a new industry standard software
solution that integrates enterprise risk assessments
with independent control and audit activity. This
solution has enabled further development of risk-
based assurance and reporting capabilities, giving the
Audit Committee, Board and Executive Committee a
clearer view of control effectiveness.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information
134

135

Directors’ report

The Directors have pleasure in submitting their report and the audited financial statements for the 52 week period ended
26 December 2020. Comparative figures relate to the 52 weeks ended 28 December 2019.

In order to make our Annual Report and Accounts more accessible a number of the sections traditionally found in this report can
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 61.

Located in the Governance section:
2018 UK Corporate Governance Code (the ‘Code’):
Information on how the Company applied the Principles
and complied with the Provisions of the Code may be
found on pages 88 to 93. A copy of the 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 132.
Risk management arrangements information may be
found on pages 74 and 92 and in the Principal risks and
uncertainties section beginning on page 38.

Diversity policies: The Board and Group diversity
policies are available on page 98 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 82 to 87.

Employees: Information about the total number of
employees and gender diversity statistics are located
on page 97. The average number of employees and
their remuneration are shown in note 6 on page 149. The
methods of engaging with the workforce may be found
on pages 82 and 83. 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 25
on page 166.

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 67.

Dividend: Dividend information can be found in the
Chairman’s statement on page 9 and the ‘Financial
review’ on page 35.

Directors’ statement of disclosure of information to
the auditor: This statement may be found on page 67.

Located in the additional
information section:
Annual General Meeting (AGM): Information about the
AGM can be found on page 194. The recommendation to
reappoint the Group’s auditor, can be found on page 130.

Share capital, substantial shareholdings and
acquisition of the Company’s own shares: Information
in this regard can be found on page 194.

Indemnity and Insurance: Details of Directors’
Indemnity and Insurance is located on page 195.

Significant agreements: Details of any agreements that
take effect, alter or terminate upon a change of control
may be found page 195.

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

24 February 2021

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 and Accounts 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

Respect for
human rights

Sustainability and Corporate
Social Responsibility Statement
of Intent (see Group website).

Sustainability and Corporate
Social Responsibility Statement
of Intent, and Modern Slavery
Statement (see Group website).

Anti-bribery
and corruption

Anti-Bribery and Corruption,
Conflicts of interest, Corporate
gifts and hospitality, Anti-money
laundering, Anti-tax evasion and
Competition law policies.

Employees

Health & Safety Statement of
Intent (see Group website),
Market abuse compliance,
Data Protection and Privacy,
Whistleblowing.

• Greenhouse gas and emissions reporting (page 61).

• Discussion of how the Company’s ESG vision fits with the UN Sustainable

Development Goals (pages 52 and 53).

• 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 60).

• KPI on use of certified timber in our manufacturing processes (page 31).

• Discussions of our efforts to reduce waste and our responsible, energy-

efficient operations (page 60).

• Our impact on our stakeholders (starting on page 54) and engagement

with stakeholders (starting on page 82).

• Our work with local and national charities (page 62).

• Discussion of the UN Sustainable Development Goal 8 (Decent Work and

Economic Growth) (page 52).

• Our Modern Slavery Statement (see Group website) sets out how we

actively monitor suppliers and train our procurement staff.

• Internationally recognised labour standards form part of our contracts

of employment.

• The Board considers and approves 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 whistleblowing.

• We have a rolling programme of refresher training on Modern Slavery and

Anti-Bribery for our compliance team and buyers.

• Further information about our whistleblowing facility may be found on

page 83.

• KPI on Health & Safety (page 31).

• Discussion of Health & Safety performance and initiatives (pages 56

and 57).

• Discussion of employee rewards and benefits, development opportunities

(page 57).

• Apprentice schemes (page 57 and 58).

• Diversity policies and statistics (pages 97 and 98).

• Directors’ remuneration policy (see Group website for the full policy or

pages 108 and 109 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 31 and 32.
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 38.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information136

137

Revenue
£1,548m (2019: £1,584m)

Profit before tax
£185m (2019: £261m)

2016

2017

2018

2019

2020

£1,307m

£1,404m

£1,511m

£1,584m

£1,548m

2016

2017

2018

2019

2020

£237m

£232m

£239m

£261m

£185m

Net cash
£431m (2019: £267m)

2016

2017

2018

2019

2020

£227m

£241m

£231m

£267m

£431m

UK revenue was 1.1% higher than 2019 in the first quarter
and 55.9% lower in the second quarter. H2 UK sales
showed strong growth of 15.8%. A 13.6% increase in
European sales gave us full year revenue down 2.3%.

Profit before tax was £185m, down £76m from 2019.

2020 year end net cash of £431m (2019: £267m).

Operating profit
£196m (2019: £260m)

EPS
24.9p (2019: 35.0p)

2016

2017

2018

2019

2020

£237m

£234m

£240m

£260m

£196m

2016

2017

2018

2019

2020

29p

30p

31p

35p

25p

Operating profit reduced to £196m (2019: £260m), giving
an operating profit margin of 12.6% (2019: 16.4%).

Basic earnings per share were 24.9p (2019: 35.0p).

Returns to shareholders
Suspended in 2020. To resume in 2021.

2016

2017

2018

2019

2020

£10m

£145m

£116m

£131m

£126m

Share buybacks and dividends were suspended in 2020.
The Board propose to resume dividends in 2021. £108m
is proposed, including a special dividend equal to the
cancelled 2019 final dividend.

138 Consolidated income statement

138

Consolidated statement of
comprehensive income

139 Consolidated balance sheet

140

Consolidated statement of
changes in equity

141

Consolidated cash flow
statement

142

Notes to the consolidated
financial statements

177

Independent auditor’s report
to the members

187 Company balance sheet

188

Company statement of
changes in equity

189 Notes to the Company

financial statements

s
t
n
e
m
e
t
a
t
S

a
c
n
a
n
i
F

Howden Joinery Group Plc Annual Report & Accounts 2020

138

139

Consolidated income statement

Consolidated balance sheet

Continuing operations:

Revenue

Cost of sales

Gross profit

Selling & distribution costs

Administrative expenses

Operating profit

Finance income

Finance costs

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

Consolidated statement
of comprehensive income

Profit for the period

Items of other comprehensive income:

Items that will not be reclassified subsequently to profit or loss:

Actuarial losses on defined benefit pension scheme

Deferred tax on actuarial 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

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

Notes

1,547.5

(617.5)

930.0

(636.7)

(97.6)

195.7

0.6

(11.0)

185.3

(37.7)

147.6

24.9p

24.8p

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

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

Notes

Non-current assets

Intangible assets

Property, plant and equipment

Lease right-of-use assets

Deferred tax asset

Long-term prepayments

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

Lease liabilities

Trade and other payables

Current tax liability

Non-current liabilities

Pension liability

Lease liabilities

Deferred tax liability

Provisions

Total liabilities

Net assets

Equity

Share capital

147.6

209.0

Capital redemption reserve

Share premium

ESOP reserve

Treasury shares

Retained profit

Total equity

(12.7)

2.4

1.1

0.5

(8.7)

138.9

(47.1)

8.0

(0.7)

(1.9)

(41.7)

167.3

Notes

26 December 2020
£m

28 December 2019
£m

24.3

248.8

544.2

17.0

0.6

834.9

255.0

166.6

430.7

852.3

1,687.2

(70.0)

(300.4)

(22.2)

(392.6)

(47.7)

(510.5)

(1.7)

(13.9)

(573.8)

(966.4)

720.8

60.3

4.9

87.5

(3.5)

(28.2)

599.8

720.8

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

4.7

87.5

(6.3)

(29.3)

498.1

615.2

NOTE: the figures for the 52 weeks to 26 December 2020 include lease depreciation and lease-related interest charges accounted for under IFRS 16, whereas the
figures for the previous period account for leases under the previous leasing standard, IAS 17. This difference in treatment is because the Group has adopted IFRS
16 in the current period using the modified retrospective basis, which does not require restatement of prior periods. See note 28 for more detail on the effects of
adopting IFRS 16, note 2 for our IFRS 16 accounting policies and note 14 for the effect of IFRS 16 on the current period financial statements.

Paul Hayes

Chief Financial Officer

Howden Joinery Group Plc Annual Report & Accounts 2020

NOTE: the figures as at 26 December 2020 include lease-related right-of-use assets and liabilities, accounted for under IFRS 16. The figures at the previous period
end account for leases under the previous leasing standard, IAS 17. Under IAS 17, the Group’s leases were treated as operating leases and not recognised on the
balance sheet. This difference in treatment is because the Group has adopted IFRS 16 in the current period using the modified retrospective basis, which does not
require restatement of prior periods. See note 28 for more detail on the effects of adopting IFRS 16, note 2 for our IFRS 16 accounting policies and note 14 for the
effect of IFRS 16 on the current period financial statements.

The financial statements were approved by the Board and authorised for issue on 24 February 2021 and were signed on its
behalf by

Strategic reportGovernanceFinancial statementsAdditional information140

141

Consolidated statement of changes in equity

Consolidated cash flow statement

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 1

Transfer of shares from treasury into share trust

Dividends

At 28 December 2019

Impact of adopting IFRS 16 – see note 28

Tax effect of adopting IFRS 16 – see note 28

Share
capital
£m

61.5

–

(1.0)

–

60.5

–

Adjusted opening balance after adopting IFRS 16

60.5

Accumulated profit for the period

Other comprehensive losses 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

At 26 December 2020

–

(0.2)

–

60.3

Capital
redemption
reserve
£m

Share
premium
account
£m

ESOP
reserve
£m

Treasury
shares
£m

Retained
profit
£m

–

4.7

–

4.7

–

4.7

–

0.2

–

4.9

87.5

(8.8)

(32.9)

–

6.1

–

(3.6)

–

3.6

–

87.5

(6.3)

(29.3)

–

87.5

–

3.9

–

(1.1)

(3.5)

–

1.1

Total
£m

567.1

209.0

(41.7)

167.3

0.3

0.2

6.1

459.8

209.0

(41.7)

167.3

0.3

0.2

–

(58.9)

(55.2)

–

(70.6)

(30.9)

3.6

470.8

147.6

3.6

587.9

147.6

(8.7)

138.9

0.1

(0.2)

–

(9.8)

–

0.1

(0.2)

3.9

(9.8)

–

87.5

(6.3)

(29.3)

498.1

615.2

(28.2)

599.8

720.8

The line ‘Buyback and cancellation of shares’ for the prior period 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 has 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 period ended 28 December 2019,
which had an aggregate nominal value of £1m and a cost of £55.2m.

The ESOP reserve includes shares in Howden Joinery Group Plc with a market value on the balance sheet date of £35.9m (2019:
£38.7m), 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 5,775,230 ordinary shares held in treasury, each with a nominal value of 10p (2019:
6,015,580 shares).

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

Notes

Operating profit

Adjustments for:

Depreciation and amortisation of owned assets

Depreciation of leased assets

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

Decrease/(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

Decrease/(increase) in long-term prepayments

Dividends paid to Group shareholders

Interest paid - including on lease liabilities

Repayment of principal on lease liabilities

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

195.7

34.5

79.5

3.6

–

313.3

(23.2)

2.3

91.2

(22.2)

48.1

361.4

(32.2)

329.2

(69.7)

–

0.6

(69.1)

(9.8)

0.3

–

(10.4)

(77.2)

(96.8)

163.3

267.4

430.7

260.0

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

NOTE: The Group has adopted IFRS 16 in the current period, using the modified retrospective method of adoption which does not require prior period figures to be
restated. The main effects on the cash flow statement are: (i) current year operating cash flows add back amortisation of leased assets; (ii) changes in working
capital are calculated using the opening asset and liability balances after adjustments on adopting IFRS 16, and (iii) cash flows used in financing activities in the
current year include interest and principal payments on leased assets. See note 28 for more detail on the effects of adopting IFRS 16 – including adjustments to
opening assets and liabilities, note 2 for our IFRS 16 accounting policies and note 14 for the effect of IFRS 16 on the current period financial statements.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information

142

143

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
26 December 2020. The comparative period covered the
52 weeks to 28 December 2019.

Statement of compliance and basis of preparation,
including going concern

The group financial statements have been prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.

The financial statements have been prepared on the historical
cost basis, modified for certain items carried at fair value, as
stated in the accounting policies.

The financial statements are prepared on the going concern
basis as the Directors have a reasonable expectation that the
Company and Group will have adequate resources to continue
in operational existence for the foreseeable future.

The Directors did not identify any material uncertainties
leading to significant doubt about going concern status.
The reasons for this, together with details of the Directors’
assessment of principal risks and their review of trading
results and various financial scenario models, are described in
detail in the going concern statement.

Recognising the increased importance of the going concern
statement to users of the Annual Report and its close
relationship with the viability statement, and wanting to give
them due prominence, the Group presents both statements
together in the Strategic Report, beginning on page 63. The
auditor’s conclusion on going concern, together with details
of the work they performed, can be found in the audit opinion
beginning on page 177.

The principal accounting policies are set out below.

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 17: Insurance Contracts.

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.

Amendments to IFRS 16: COVID-related rent concessions.

Amendments to IAS 4: Insurance Contracts.

Annual Improvements 2018–2020 cycle.

Amendments to IAS 37: Costs of fulfilling an onerous contract.

Amendments to IAS 16: Property, Plant and Equipment

Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting policies.

Amendments to IAS 8: Definition of Accounting Estimates.

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.

Adoption of IFRS 16: Leases in the current period

We have adopted IFRS 16 in the current period, using the
modified retrospective basis of adoption. The effect of
adoption is shown at note 28, the revised lease accounting
policies are shown below in this note and disclosure of the
effect of IFRS on the current period is shown at note 14.

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.
Further details of all subsidiaries are given in the ‘Additional
information’ section at the back of this Annual Report.

Revenue recognition

Intangible assets

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.

Accounting policy for income from Government grants

In the first half of the current year, the Group recognised
amounts due from government-sponsored COVID-related
employee furlough schemes as a credit against the related
staff costs and not as an item of other income. These amounts
were repaid in the second half of the year and those entries
were then reversed.

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.

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:

Freehold property

50 years

Leasehold property
improvements & fittings

the period of the lease, or the
individual asset's life, if shorter.

Plant, machinery & vehicles

3–20 years

Fixtures & fittings

2–15 years

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.

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.

Current tax

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information144

145

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.

Foreign operations

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

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.

Lease assets and liabilities

We assess whether a lease exists at the inception of the related
contract. If a lease exists, we recognise a right-of-use asset
and a corresponding lease liability with effect from the date the
lease commences.

The lease liability

The lease liability is initially measured at the present value
of the lease payments due. As the discount rate inherent in
our leases is not readily determinable, we use the Group’s
incremental borrowing rate to discount the payments and
arrive at net present value.

The Group does not have a history of borrowing, and therefore
it does not have a credit agency rating. Therefore, we derive
the incremental borrowing rate by a process of:

• discussion with our bankers to estimate a reasonable proxy

credit rating for the Group;

• using an independent third-party borrowing rate curve,

giving indicative costs of borrowing for companies with a
comparable credit rating over various durations, and

• selecting borrowing rates from the appropriate points
on that curve to best match the duration of our lease
portfolios.

Our leases are on relatively simple terms. Lease payments
included in the measurement of the lease liability comprise
fixed lease payments, less any lease incentives. We do not
have variable lease payments which depend on an index,
residual value guarantees, purchase options or termination
penalties.

The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying
amount to reflect the lease payments made.

We remeasure the lease liability (and make a corresponding
adjustment to the related right-of-use asset) whenever:

•

the lease term has changed, in which case the lease liability
is remeasured by discounting the revised lease payments
using a revised discount rate.

the lease payments have changed as a result of a change
in an index, or, as is common with property leases, to reflect
changes in market rental rates. In these cases, the lease
liability is remeasured by discounting the revised lease
payments using the initial discount rate.

In any cases other than those described immediately above,
where a lease contract is modified and the lease modification
is not accounted for as a separate lease, the lease liability
is remeasured by discounting the revised remaining lease
payments using a revised discount rate.

The lease liability is presented as a separate item in the
balance sheet and is split between current and non-current
portions.

The lease right-of-use asset

The lease right-of-use asset comprises the initial measurement
of the corresponding lease liability and any initial direct costs
of obtaining the lease. It is subsequently measured at cost less
accumulated depreciation and any impairment losses.

Whenever we incur an obligation for costs to restore a leased
asset to the condition required by the terms and conditions of
the lease, a provision is recognised and measured under IAS 37.

Right-of-use assets are depreciated over the lease term as this
is always shorter than the useful life of the underlying asset.
Depreciation starts at the commencement date of the lease.
We do not have any leases that include purchase options or
transfer ownership of the underlying asset.

The right-of-use assets are presented as a separate line item in
the balance sheet.

Property leases treated as short-term leases when in
the process of being renewed

From time to time when renewing a property lease, the new
lease may not be formally signed before the end date of the
previous lease. In these circumstances, although both we
and the landlord will have agreed our willingness to renew
the lease in principle, and we may also have protection under
property law which grants us the right to renew the lease, our
interpretation of IFRS 16 is that there is no enforceable right to
renew the lease until the new lease is formally signed.

Therefore, we treat any lease payments made in this period
between expiry and renewal as short-term lease payments
under IFRS 16 and we expense them, taking advantage of the
IFRS 16 short-term lease exemption.

Amounts treated as variable lease payments –
rent reviews

It is common for property leases to contain a clause whereby
the rent is reviewed every five years and adjusted in line with
prevailing market rates. The process of agreeing rent reviews
can sometimes be a lengthy one, and some reviews are not
agreed until after their effective date.

In these cases we will continue to pay rent at the old rate until
the rent review is agreed and neither the lease asset nor the
lease liability is remeasured. If the new rent is agreed at a
higher rate than the old rent, there will be a one-off payment to
the lessor, covering the increase in rent for the period between
the date from which the rent review was effective and the date
on which the rent review was agreed.

This payment is treated as a variable lease payment and is not
included in the measurement of the lease liability.

The lease asset and liability are remeasured from the rent
review agreement date, based on the future agreed cashflows.

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information146

147

Share-based payments

Trade payables

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.

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.

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 on
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.

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
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 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
20, 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 16.

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.

4 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 to these consolidated financial statements.

The Howden Joinery business derives its revenue from the sale of kitchens and joinery products.

(b) Other information

Capital additions

Depreciation and amortisation

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

67.0

(34.5)

63.6

(34.5)

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
26 December 2020
£m

52 weeks to
28 December 2019
£m

1,509.6

37.9

1,547.5

1,550.3

33.3

1,583.6

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.

N.B. 2020 figures for carrying amount of total assets and non-current assets (excluding deferred tax assets) include IFRS
16 right-of-use assets of £14.9m in Continental Europe and £529.3m in the UK. No such assets were recognised in 2019, as is
explained in the note at the foot of the Group balance sheet.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information148

149

Carrying amount of total assets

A more detailed analysis of auditor’s total remuneration is given below:

Continental Europe

Non-current assets (excluding deferred tax assets)

Continental Europe

Additions to property plant and equipment and intangible assets

Continental Europe

5 Operating profit
Operating profit has been arrived at after (charging)/crediting:

Net foreign exchange gain/(loss)

Depreciation of property plant and equipment

Amortisation of intangible assets

Depreciation of lease right-of-use assets

Lease payments under operating leases

Cost of inventories recognised as an expense

Write down of inventories

Loss on disposal of fixed assets

Increase in allowance for doubtful debts

Staff costs

Auditor’s remuneration for audit services

All of the items above relate to continuing operations.

26 December 2020
£m

28 December 2019
£m

1,638.2

49.0

1,687.2

916.8

27.2

944.0

26 December 2020
£m

28 December 2019
£m

795.1

22.8

817.9

233.8

4.4

238.2

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

63.1

3.9

67.0

61.0

2.6

63.6

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

0.4

(28.7)

(5.8)

(79.5)

–

(611.0)

(6.8)

–

(1.5)

(461.7)

(0.6)

(2.5)

(28.0)

(6.5)

–

(85.1)

(586.5)

(8.4)

(1.4)

(0.1)

(440.7)

(0.6)

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)

Total non-audit fees

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(0.2)

(0.4)

(0.6)

(0.1)

(0.4)

(0.6)

(0.1)

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.

6 Staff costs
The aggregate payroll costs of employees, including executive directors, were:

Wages and salaries

Social security costs

Pension operating costs (note 20)

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(388.6)

(35.8)

(37.3)

(461.7)

(375.0)

(35.2)

(30.5)

(440.7)

Wages and salaries includes a charge in respect of share-based payments of £3.6m (2019: £4.9m). In the first half of the current
year, the Group recognised £21.5m due from government-sponsored COVID-related employee furlough schemes as a credit
against the related staff costs. These amounts were repaid in the second half of the year and those accounting entries were then
reversed in full.

Directors remuneration is shown in detail in the Remuneration Committee Report.

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
26 December 2020
No.

52 weeks to
28 December 2019
No.

10,004

9,903

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information
150

151

7 Finance income

Bank interest receivable

8 Finance costs

Interest expense on lease liabilities

Other finance expense – pensions

Other interest

Total finance costs

9 Tax

(a) Tax in the income statement

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

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

0.6

1.1

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(10.3)

(0.6)

(0.1)

(11.0)

–

(0.4)

–

(0.4)

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

33.6

0.6

34.2

4.8

(1.3)

3.5

37.7

47.9

(1.3)

46.6

5.3

(0.2)

5.1

51.7

UK Corporation tax is calculated at 19% (2019: 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 credit to other comprehensive income on actuarial loss on pension scheme

Change of rate effect on deferred tax

Deferred tax charge/(credit) to equity on share schemes

Current tax credit to equity on share schemes

Total credit to other comprehensive income or changes in equity

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(2.4)

(1.1)

0.2

(0.1)

(3.4)

(8.0)

0.7

(0.2)

(0.3)

(7.8)

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% (2019: 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 20.3% (2019: 19.8%).

10 Earnings per share

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

185.3

35.2

0.2

0.5

1.4

1.1

(0.7)

37.7

260.7

49.5

0.2

1.9

0.4

1.2

(1.5)

51.7

52 weeks to 26 December 2020

52 weeks to 28 December 2019

Earnings
£m

Weighted average
number of shares
m

Earnings per
share
p

147.6

–

147.6

592.3

2.7

595.0

24.9

(0.1)

24.8

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

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

Dividend proposed at the end of the period (but not recognised in the period):

Proposed final dividend for the 52 weeks to 26 December 2020 – (9.1p/share)

Proposed special dividend – (9.1p/share)

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

–

23.2

47.4

70.6

52 weeks to
26 December 2020
£m

53.9

107.7

The Directors propose a final dividend in respect of the 52 weeks to 26 December 2020 of 9.1p per share, payable to ordinary
shareholders who are on the register of shareholders at 21 May 2021, and payable on 18 June 2021.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information

152

153

The Directors also declare a special dividend of 9.1p per share, in lieu of the cancelled final dividend for 2019, payable to
ordinary shareholders who are on the register of shareholders at 21 May 2021, and payable on 18 June 2021.

The proposed final dividend for the current period is subject to the approval of the shareholders at the 2021 Annual
General Meeting.

Dividends have been waived indefinitely on all shares held by the Group’s employee share trusts which have not yet been
awarded to employees.

12 Intangible assets
The intangible assets shown below all relate to software, as detailed further in the accounting policies note.

Intangible assets
in use
£m

Intangible assets
under construction
£m

Cost

At 29 December 2018

Exchange adjustments

Additions

Disposals

Reclassifications

At 28 December 2019

Exchange adjustments

Additions

Disposals

Reclassifications

At 26 December 2020

Accumulated amortisation

At 29 December 2018

Exchange adjustments

Charge for the period

Disposals

At 28 December 2019

Exchange adjustments

Charge for the period

Disposals

At 26 December 2020

Net book value at 26 December 2020

Net book value at 28 December 2019

39.6

(0.1)

6.2

(1.3)

1.3

45.7

0.1

1.7

(1.3)

4.4

50.6

(19.4)

0.1

(6.5)

1.2

(24.6)

(0.1)

(5.8)

1.3

(29.2)

21.4

22.4

2.9

–

2.3

(0.1)

(1.3)

3.8

–

3.5

–

(4.4)

2.9

–

2.9

2.5

TOTAL
£m

42.5

(0.1)

8.5

(1.4)

–

49.5

0.1

5.2

(1.3)

–

53.5

(19.4)

0.1

(6.5)

1.2

(24.6)

(0.1)

(5.8)

1.3

(29.2)

24.3

24.9

13 Property, plant and equipment

Cost

At 29 December 2018

Exchange adjustments

Additions

Disposals

Reclassifications

At 28 December 2019

Adjustment on adopting IFRS 16 (note 28)

At 28 December 2019 after adopting IFRS 16

Exchange adjustments

Additions

Disposals

Reclassifications

At 26 December 2020

Accumulated depreciation

At 29 December 2018

Exchange adjustments

Charge for the period

Disposals

At 28 December 2019

Adjustment on adopting IFRS 16 (note 28)

At 28 December 2019 after adopting IFRS 16

Exchange adjustments

Charge for the period

Disposals

At 26 December 2020

Net book value at 26 December 2020

Net book value at 28 December 2019

Freehold
property
£m

Leasehold
property
improvements
£m

Plant,
machinery
& vehicles
£m

Fixtures &
fittings
£m

Capital
WIP
£m

38.6

–

0.6

–

0.2

39.4

–

39.4

–

3.1

–

0.4

42.9

(5.4)

–

(1.2)

–

(6.6)

–

(6.6)

–

(1.2)

–

(7.8)

35.1

32.8

71.7

–

5.2

(0.6)

5.2

81.5

(16.6)

64.9

–

11.1

–

15.9

91.9

178.7

(0.1)

8.1

(11.3)

3.6

179.0

–

179.0

0.1

6.5

(8.0)

7.1

133.8

(0.3)

15.9

(2.4)

0.1

147.1

–

147.1

0.3

27.5

(0.4)

7.6

184.7

182.1

(30.3)

(120.0)

(90.5)

–

(5.4)

0.5

(35.2)

7.4

(27.8)

–

(4.4)

–

0.1

(12.1)

11.1

0.1

(9.3)

1.2

(120.9)

(98.5)

–

(120.9)

(98.5)

(0.1)

(12.0)

8.0

(0.1)

(11.1)

0.4

(32.2)

(125.0)

(109.3)

10.5

–

25.3

(0.1)

(9.1)

26.6

–

26.6

–

13.6

–

(18.7)

21.5

–

59.7

46.3

59.7

58.1

72.8

48.6

21.5

26.6

TOTAL
£m

433.3

(0.4)

55.1

(14.4)

–

473.6

(16.6)

457.0

0.4

61.8

(8.4)

12.3

523.1

(246.2)

0.2

(28.0)

12.8

(261.2)

7.4

(253.8)

(0.2)

(28.7)

8.4

(274.3)

248.8

212.4

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information154

155

14 Lease right-of-use assets and lease liabilities
We present a description of nature of the Group’s leasing activities in note 28, which also shows the effect of adopting IFRS 16 in
the current year and discusses practical expedients and judgements on adoption.

Cash flows and maturity analysis of lease liabilities

We have set out the Group’s lease accounting policies in note 2.

Amounts recognised in the balance sheet

Right-of-use assets

Property

Vehicles, plant & machinery

Additions to right-of-use assets in the period

Lease liabilities

Current

Non-current

Amounts recognised in the income statement

Included in net operating expenses

Depreciation of right-of-use assets:

– property

– vehicles, plant & machinery

Impairment

Total – recognised in net operating costs

Expense relating to short-term leases

Variable lease payments, not included in the measurement of lease liabilities

Included in finance costs

Interest expense on lease liabilities

26 December 2020
£m

495.8

48.4

544.2

86.5

26 December 2020
£m

(70.0)

(510.5)

(580.5)

52 weeks to
26 December 2020
£m

62.9

14.7

1.9

79.5

2.9

1.1

10.3

52 weeks to
26 December 2020
£m

87.5

26 December 2020
£m

74.8

228.8

345.5

649.1

Total cash outflow for leases

Maturity analysis of lease liabilities

Contractual undiscounted cashflows due

– within 1 year

– 1 to 5 years

– more than 5 years

Sublettings

From time to time the Group has leases on properties which it no longer requires. The Group will sublease any such properties
wherever possible.

Sublease income recognised in the period

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

3.6

4.6

15 Deferred tax
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 29 December 2018

(Charge)/credit to income statement

Credit outside the income statement- change of rate

Credit/(charge) outside income statement

At 28 December 2019

On adoption of IFRS 16 (note 28)

Adjusted opening balance after adopting IFRS 16

(Charge)/credit to income statement

Credit outside the income statement- change of rate

Credit/(charge) outside the income statement

At 26 December 2020

Retirement
benefit
obligations
£m

Accelerated
capital
allowances
£m

Company
share
schemes
£m

Other
temporary
differences
£m

Leasing
£m

6.8

(4.5)

(0.7)

8.0

9.6

(4.0)

1.1

2.4

9.1

1.2

(0.7)

–

0.5

0.8

–

1.3

0.6

0.1

–

0.8

(0.3)

–

(0.2)

0.3

–

3.6

(0.5)

–

3.1

1.1

–

1.1

0.4

–

1.5

Total
£m

9.7

(5.1)

(0.6)

8.0

12.0

3.6

15.6

(3.6)

1.1

2.2

15.3

Deferred tax arising from accelerated capital allowances can be further analysed as a £3.0m asset and a £1.7m liability (2019:
£2.0m asset and £1.5m liability).

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information
156

157

The presentation in the balance sheet is as follows:

Deferred tax assets

Deferred tax liabilities

26 December 2020
£m

28 December 2019
£m

17.0

(1.7)

15.3

13.5

(1.5)

12.0

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

16 Inventories

Raw materials

Work in progress

Finished goods and goods for resale

Allowance against carrying value of inventories

26 December 2020
£m

28 December 2019
£m

159

147

26 December 2020
£m

28 December 2019
£m

10.2

4.8

274.1

(34.1)

255.0

8.7

5.7

255.3

(37.9)

231.8

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 19.

17 Other financial assets

Trade and other receivables

Trade receivables (net of allowance)

Prepayments

Other receivables

26 December 2020
£m

28 December 2019
£m

132.4

29.0

5.2

166.6

148.3

42.1

2.7

193.1

Trade and other receivables are not interest-bearing, and are on commercial terms. Their carrying value approximates to their
fair value.

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

26 December 2020
£m

28 December 2019
£m

11.4

1.5

12.9

11.3

0.1

11.4

The Group’s exposure to the credit risk inherent in its trade receivables is discussed in note 27. 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.

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 allowance for bad debts of £12.9m (2019: £11.4m) consists of a specific allowance
of £4.7m (2019: £4.6m) which has been made against specific debts with a gross carrying value of £6.0m (2019: £5.8m),
and a general allowance of £8.2m (2019: £6.8m). 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 £4.4m of debts in the period (2019: £6.9m). Included within our aggregate trade receivables balance are specific
debtor balances with customers totalling £29.0m before bad debt provision (2019: £27.7m 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information
158

159

An ageing analysis of these past due trade receivables is as follows:

1–30 days past due

31–60 days past due

61–90 days past due

90+ days past due

Total overdue amounts, excluding allowance for doubtful receivables

26 December 2020
£m

28 December 2019
£m

14.9

2.9

1.6

9.6

29.0

13.2

3.2

2.2

9.1

27.7

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 at bank and on hand together with demand deposits, and other short-term
investments (see below). 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 included in cash and cash equivalents at the end of 2020 comprised investments in short-term UK Gilts.
They had maturity dates ranging between 1 and 3 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 (0.04)% pa.

19 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 26 December 2020, the Group had available £138m of undrawn committed borrowing facilities, in
respect of which all conditions precedent had been met (28 December 2019: £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 permits (i) normal trade credit granted in the
ordinary course of business; (ii) up to £10m of additional secured borrowings, and (iii) vehicle and equipment hire purchase
transactions of up to a total of £20m.

20 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. Employees make contributions out of their
salaries, and the Group also makes additional contributions. The plan’s assets are held separately from those of the Group.

The total cost charged to income in respect of this plan in the current period of £12.2m (2019: £9.3m) represents the Group’s
contributions due and payable in respect of the period.

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.

Defined contribution: other plan

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 19.

18 Other financial liabilities

Trade and other payables

Current liabilities

Trade payables

Other tax and social security

Other payables

Accruals

26 December 2020
£m

28 December 2019
£m

161.0

72.5

17.1

49.8

300.4

96.4

71.1

11.3

62.6

241.4

The Group operates another defined contribution plan for its employees. Employees make contributions out of their salaries, and
the Group also makes additional contributions. The plan’s assets are held separately from those of the Group.

The total cost charged to income in respect of this plan in the current period of £1.3m (2019: £1.2m) represents the Group’s
contributions due and paid in respect of the period.

Defined benefit plan

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. In November 2020, the Company entered into a
consultation process with affected employees and collective bargaining groups regarding the potential closure of the defined
benefit Howden Joinery Pension Plan to future accrual. The outcome of the consultation was that the plan would be closed to
future accrual from 31 March 2021.

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, two independent
trustees, and three 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.

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.

Accounting and actuarial valuation

The ratio of average credit taken for trade purchases during the period, based on total operations, was 55 days (2019: 42 days).
Our payment terms have not changed during the year, and we have continued to pay our suppliers promptly, in line with their
agreed credit terms. However the rise in trade creditors at year end, which was due principally to a high level of stock receipts
and which we have already seen reversing in the first quarter of 2021, has caused a rise in the calculated ratio.

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.

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 April 2017 by the plan actuary. The April 2020 actuarial valuation has begun, but has not been
finalised at the date of approving these financial statements. The actuary advising the Group has subsequently rolled forward
the results of the April 2017 valuation to 26 December 2020. 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 26
December 2020. We are using CMI 2019 mortality tables, being the most recent tables available.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information160

161

Funding and estimated contributions

Sensitivities

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 25 December 2021 are £36m.

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 £47.7m. 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 £163.5m, this estimate being based on an approximate roll-forward of the 2017 triennial funding
valuation, updated for market conditions.

(b) Total amounts charged in respect of pensions in the period

Charged to the income statement:

Defined benefit plan – current service cost

Defined benefit plan – past service cost

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 to equity:

Defined benefit plan – actuarial losses

Total charge

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

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

20.8

0.3

2.7

23.8

0.6

13.5

37.9

12.7

50.6

17.2

–

2.8

20.0

0.4

10.5

30.9

47.1

78.0

52 weeks to
26 December 2020

52 weeks to
28 December 2019

2.45%

2.35%

2.45%

3.35%

2.10%

3.95%

2.95%

2.45%

1.30%

86.5

88.3

87.8

90.5

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

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 £93m, an increase in the operating charge of around £1.6m and an increase in pensions finance charge of around £0.7m.

An increase of 0.25% to the inflation rate would increase scheme liabilities by around 2.7%, or £45m, increase the operating
charge by around £0.6m and increase the pensions finance charge by around £0.6m.

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 £57m, to increase the operating charge by around £0.7m and to increase the
pensions finance charge by around £0.8m.

The sensitivities above are applied to the defined benefit obligation at the end of the reporting period, and the projected total
service cost for 2021. 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

Private equity

Alternative growth assets

– fund of hedge funds

– absolute return fund

Insurance-linked securities

Corporate bonds

Commercial property fund

Other secure income

Asset-backed securities

Cash and cash equivalents

Total

26 December 2020

28 December 2019

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

423.0

141.3

–

85.0

–

237.5

103.0

–

104.9

40.2

–

2.6

137.8

–

71.6

–

117.7

128.7

–

1,134.9

458.4

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

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.

Asset allocation

The following text explaining the plan trustees’ asset allocation strategy is taken from the plan’s 2020 Annual Report and
Accounts, published in September 2020:

The investment strategy currently in place has a 60% allocation to ‘return-seeking’ assets and a 40% allocation to ‘risk-reducing’
assets.

‘Return-seeking’ assets are generally higher risk instruments that over the longer term would be expected to produce a return
in excess of the Plan’s liabilities. The Trustee has made the decision that the Plan’s allocation to ‘return-seeking’ assets be split
between quoted equities, secure income assets and absolute return funds at 31 March 2020.

‘Risk-reducing’ assets are generally considered as lower risk and would typically be expected to move in a broadly similar
fashion to the Plan’s liabilities, due to changes in both interest rates and inflation. Within the ‘risk-reducing’ portfolio, the Trustee
has made the decision to invest in fixed and inflation linked government bonds as well as corporate bonds.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information162

163

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

Total members

Pensioners

Total No./average duration

No. of members

% of total liability

Duration (yrs)

20201

1,342

5,440

6,782

3,871

10,653

66%

34%

100%

1 The figures are on an IAS 19 basis and are as at 31 March 2020, the date of the latest agreed pension plan accounts.

Fair value at start of period

Interest income on plan assets

Contributions from the Group

Actuarial gains

Benefits paid, including expenses

Fair value at end of period

No. of members

% of total liability

Duration (yrs)

20192

Movements in the deficit during the period are as follows:

Active members

Deferred members

Subtotal

Pensioners

Total No./average duration

1,448

5,677

7,125

3,652

10,777

72%

28%

100%

2 The figures are on an IAS 19 basis and are as at 31 March 2019, 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 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

26 December 2020
£m

28 December 2019
£m

(1,641.0)

1,593.3

(47.7)

(1,485.3)

1,428.7

(56.6)

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

1,485.3

1,281.7

20.8

0.3

2.7

28.3

165.8

(19.9)

(42.3)

1,641.0

17.2

–

2.8

35.8

203.5

(6.6)

(49.1)

1,485.3

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

1,428.7

1,245.7

27.7

46.0

133.2

(42.3)

35.4

46.9

149.8

(49.1)

1,593.3

1,428.7

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(56.6)

(20.8)

(0.3)

(2.7)

46.0

(0.6)

(12.7)

(47.7)

(36.0)

(17.2)

–

(2.8)

46.9

(0.4)

(47.1)

(56.6)

Deficit at start of period

Current service cost

Past service cost

Administration cost

Employer contributions

Other finance charge

Actuarial losses gross of deferred tax

Deficit at end of period

Income statement

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 statements heading ‘Staff costs’.

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

20.8

0.3

2.7

23.8

17.2

–

2.8

20.0

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information164

165

Amount credited to other finance charges:

Warranty provision

Interest income on plan assets

Interest cost on defined benefit obligation

Net charge

The actual return on plan assets was £160.9m (52 weeks to 28 December 2019: £185.2m).

Statement of comprehensive income

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

(27.7)

28.3

0.6

(35.4)

35.8

0.4

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.

French post-employment benefits provision

This provision relates to a benefit which is payable to employees in our French subsidiary under French law on retirement. It is a
lump sum payable on retirement, not a recurring pension. It will only be payable if any of the eligible employees are employed by
our French subsidiaries immediately before their retirement.

The provision represents our best estimate of the potential liability and it is calculated based on several factors, mainly the age
profile and salary details of the current workforce in France, and the current rate of staff turnover.

Amounts taken to equity via the statement of comprehensive income in respect of the Group’s defined benefit plan are shown
below:

Closure costs

This relates to the costs of closing our trial operations in Germany and The Netherlands, which was completed in the current year.

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

133.2

(145.9)

(12.7)

149.8

(196.9)

(47.1)

22 Share capital

Ordinary shares of 10p each:

Allotted, called up and fully paid

52 weeks to
26 December 2020
No.

52 weeks to
28 December 2019
No.

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

Actuarial gain on plan assets

Actuarial loss on plan liabilities

Net actuarial loss, before associated deferred tax

21 Provisions

At 29 December 2018

Additional provision in the period

Provision released in the period

Utilisation of provision in the period

At 28 December 2019

Transferred to lease right-of-use assets
on adoption of IFRS 16

Additional provision in the period

Provision released in the period

Utilisation of provision in the period

At 26 December 2020

Property
£m

Warranty
£m

Closure
costs
£m

French post-
employment
benefits
£m

3.4

3.1

(0.9)

(2.2)

3.4

(0.2)

3.6

(0.3)

(0.9)

5.6

3.6

5.3

–

(3.8)

5.1

–

6.9

–

(4.0)

8.0

–

5.5

–

(5.3)

0.2

–

(0.2)

–

0.3

–

0.3

–

0.3

Total
£m

7.3

13.9

(0.9)

(11.3)

9.0

(0.2)

10.5

(0.3)

(5.1)

13.9

Effect of adopting IFRS 16 on the property provision

On adopting IFRS 16, the Group took advantage of the transitional provision to treat existing onerous lease provisions as lease
impairments and therefore transferred them out of Provisions on the balance sheet and set them against the lease assets.

Property provision

The property provision at December 2020 covers obligations to make dilapidations payments to landlords of leased properties.

The timing of outflows from the provision is variable, and is dependent on the timing of dilapidations assessments and works.

Balance at the beginning of the period

604,663,861

615,436,307

Bought back and cancelled during the period

(1,800,000)

(10,772,446)

Balance at the end of the period

602,863,861

604,663,861

60.5

(0.2)

60.3

61.5

(1.0)

60.5

23 Notes to the cash flow statement

Analysis of cash and cash equivalents

At 28 December 2019

Cash flow

At 26 December 2020

Cash at bank
and in hand
£m

218.5

182.2

400.7

Short-term
investments
£m

Cash and cash
equivalents
£m

48.9

(18.9)

30.0

267.4

163.3

430.7

The short-term investments 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 at note 2 and note 19.

24 Financial commitments

Capital commitments

Contracted for, but not provided for in the financial statements:

– Tangible assets

– Intangible assets

26 December 2020
£m

28 December 2019
£m

13.8

0.7

14.5

17.8

0.3

18.1

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information166

167

25 Share-based payments

1) Details of each scheme

The Group recognised a charge of £3.6m (2019: charge of £4.9m) 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 (iv) below, neither dividends nor dividend equivalents are
payable during the vesting period. The different types of awards are as follows:

(i)

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.

(ii) Market value options, the vesting period for which is three years commencing from the date of grant with an exercise period

of seven years (i.e. a total life of ten years). The vesting conditions for these options are as follows:

Date of award

Vesting based on growth in profits – from year ended December

Vesting based on growth in profits – to year ended December

Award vests at 25% if profits over the vesting period grow by

Award vests at 100% if profits over the vesting period grow by

Date of award

Vesting based on growth in profits – from year ended December

Vesting based on growth in profits – 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

2012

2011

2014

12%

2013

2012

2015

12%

2011

2010

2013

12%

2014

2013

2016

20%

If profits grow by a figure between the upper and lower thresholds for each year, the award vests on a sliding scale.

(iii) 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

Vesting based on growth in profits – 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%

Date of award

Performance period – from year ended December

Performance Period – to year ended December

Performance Conditions:

Total shareholder return (the ‘TSR tranche’) represents the following proportion of the Award

– TSR tranche vests at 15% if the Company is ranked compared to comparators at

– TSR tranche vests at 100% if the Company is ranked compared to comparators in the

Growth in pre-exceptional profit before tax (the ‘PBT tranche’) represents the following proportion of the Award

– PBT tranche vests at 15% if profits over the performance period grow by

– PBT tranche vests at 100% if profits over the performance period grow by

2019

2018

2021

15%

2020

2019

2022

67%

Median

Upper quartile

33%

15%

If profits grow by a figure between the upper and lower thresholds for each year, the award vests on a sliding scale.

(iv) 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information

168

169

2) Movements in the period

52 weeks to 26 December 2020

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 beginning 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 (£)

Freeshares
Number

2,778,447

456,274

(140,200)

(409,394)

2,685,127

811,357

19,890

5.74

1.1

5.36

0.00

LTIP (ii)

Number

531,082

–

(2,521)

(115,599)

412,962

–

6.19

–

N/A

Exercise price for all options (£)

1.09 to 3.79

LTIP (iv)
Number

111,327

–

(46,385)

64,942

–

5.01

0.5

N/A

0.00

LTIP (i)
Number

22,900

LTIP (iii)
Number

4,731,277

–

1,245,483

(3,700)

(9,200)

10,000

(1,541,943)

(230,819)

4,203,998

–

5.03

0.3

N/A

0.00

WAEP (£)

3.22

N/A

2.38

3.16

3.25

–

5.05

1.4

3.11

0.00

Recruitment
Plan Number

48,294

–

(48,294)

–

6.41

N/A

0.00

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 beginning 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 (£)

Freeshares
Number

LTIP (i)
Number

LTIP (iii)
Number

2,496,344

42,500

4,840,735

LTIP (iv)
Number

–

1,589,842

111,327

(11,500)

(1,690,324)

(8,976)

–

(8,100)

22,900

–

5.22

0.79

N/A

0.00

WAEP (£)

2.94

N/A

2.56

3.22

944,100

(208,500)

(453,497)

2,778,447

530,847

23,456

5.34

1.37

5.17

0.00

LTIP (ii)

Number

927,176

–

(396,094)

531,082

–

5.52

0.00

N/A

4,731,277

111,327

–

N/A

0.96

5.60

0.00

–

5.07

1.37

4.65

0.00

Recruitment
Plan Number

117,691

–

(69,397)

48,294

–

4.86

0.18

N/A

0.00

Howden Joinery Group Plc Annual Report & Accounts 2020

The fair value of awards granted is estimated on the date of grant using a binomial or a Monte Carlo option valuation model, as
appropriate for the type of award granted.

The key assumptions used in the model were:

Dividend yield (%)

Expected life of options (years)

Expected share price volatility (%)

52 weeks to
26 December 2020

52 weeks to
28 December 2019

2.2

3.0

30.9

2.2 to 2.6

0.6 to 3.0

N/A

Exercise price for all options (£)

1.09 to 3.79

3) Fair value of options granted

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information170

171

26 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 20.

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.

Short-term employment benefits

Termination benefits

Share-based payments

Other transactions with key management personnel

There were no other transactions with key management personnel.

27 Financial risk management

(a) Capital risk management

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

9.6

0.6

10.8

8.4

–

0.4

8.8

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 expected 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 19 – 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 22).

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

26 December 2020
£m

28 December 2019
£m

132.4

430.7

148.3

267.4

161.0

96.4

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 at bank and in hand, which is the term used in the balance sheet, 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. Cash and cash equivalents, which is the term used in the cash flow statement, comprises
cash at bank and in hand, as defined immediately above, together with any current asset investments.

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 17.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information172

173

(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 17 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

26 December 2020
£m

28 December 2019
£m

132.4

400.7

30.0

563.1

148.3

218.5

48.9

415.7

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 19 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

26 December 2020
£m

28 December 2019
£m

5.5

2.7

14.8

(32.9)

(5.2)

(15.1)

0.5

(0.2)

0.3

(14.8)

4.5

2.4

13.5

(18.8)

(3.1)

(1.5)

0.1

(0.1)

–

(1.5)

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:

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information174

175

Interest rate sensitivity

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 £1.3m (2019: increase by £0.4m).

For a decrease of 50 basis points, the current year figures would decrease by £1.3m (2019: 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. It shows their impact on the income statement.

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

26 December 2020
£m

28 December 2019
£m

(1.7)

1.4

–

(0.0)

(0.2)

0.1

–

28 Effect of adopting IFRS 16 in the current year
The Group has adopted IFRS 16 Leases for the first time in the current period, with a transition date of 29 December 2019. This
has replaced the previous lease accounting standard, IAS 17. The previous period has not been restated and is presented under
IAS 17.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the
previous requirement to recognise a provision for onerous lease contracts.

In the cash flow statement under IFRS 16 the Group separates the total amount of cash paid for leases into principal and interest
elements, both of which are presented within financing activities. Under IAS 17 operating lease payments were presented as
operating cash outflows.

Adoption and transition

We have adopted IFRS 16 using the modified retrospective approach. Consequently, we have not restated the 2019 comparative
figures on adoption, and we have discounted our leases using incremental borrowing rates as at the transition date.

For all our property leases and some of our vehicle leases – representing approximately 90% of our total lease commitments on
adoption by value – we measured the leases on adoption as if IFRS 16 had always been applied since the lease commencement
date. The remaining leases are measured as if the lease had started on the transition date.

We have elected to use the following permitted practical expedients on transition for some leases, where applicable:

•

to apply the portfolio approach, using a single discount rate for a group of leases which 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

to treat property leases as short term leases, and to expense their payments, if there is a short period between the old lease
ending and the lease renewal being signed. This is explained in more detail in the accounting policy at note 2

We have not elected to use the practical expedient to not recognise low value leases on transition.

Incremental borrowing rate

Our weighted average incremental borrowing rate on adoption was 1.74%. The range of rates used for individual leases varied
from 1.2% to 2.5%.

The nature of the Group’s leasing activities, and how their accounting has been affected by IFRS 16

Reconciliation of IAS 17 lease commitments at 28 December 2019 to opening IFRS 16 lease liability

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 these leases were all classified as operating leases and therefore were not recognised on the balance sheet.
Rent payments under IAS 17 were charged to income on a straight-line basis. The Group did not have any leases which were
classified as finance leases under IAS 17.

The effect of IFRS 16

Under IFRS 16 we now recognise these leases on the balance sheet, causing both our gross assets and gross liabilities to
increase. The addition to gross assets represents our right to use the leased asset, and the addition to gross liabilities reflects the
present value of our obligation to make future lease payments.

IFRS 16 also has a timing effect on the annual lease expense, which is no longer equal to the rent payable for that year. The total
income statement charge under IFRS 16 consists 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 is charged in the early periods of each lease
and less interest is charged in the later periods as the outstanding balance reduces, as with interest on a loan.

Rent-free periods and cash lease incentives are recognised under IFRS 16 as part of the measurement of the right-of-use assets
and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of
rental expenses on a straight-line basis.

Non-cancellable operating lease commitments at 28 December 2019 under IAS 17

Cancellable commitments, excluded under IAS 17 but included under IFRS 161

Total lease commitments on an IFRS 16 basis – before discounting

Effect of discounting

Opening lease liability at 29 December 2019 under IFRS 16

£m

586

651

(83)

568

IAS 17 required us to analyse ‘non-cancellable’ lease commitments. This meant that we only included property lease commitments until the time of the first break
clause in the lease. IFRS 16 requires us to include all payments where we think that we are reasonably likely not to exercise a break clause. Our default position on
measurement of leases under IFRS 16, based on both our past experience and our current intentions, is to assume that we will not exercise break clauses.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information
176

177

Analysis of opening balance sheet adjustment

In order to help users better understand the effect of adopting IFRS 16, the following analysis shows its effect on the opening
balance sheet and reserves.

Recognise:

Derecognise:

IFRS 16
assets
and
liabilities
£m

Rent-free
periods
and lease
incentives
£m

Prepaid
rents
£m

28 Dec 2019
Under IAS 17
£m

Non-current assets

Property, plant & equipment

212.4

–

Lease right-of-use assets

–

548.8

–

Current assets

Trade and other receivables

193.1

–

(15.0)

(9.2)

Non-current liabilities

Lease liabilities

Provisions

Current liabilities

Lease liabilities

–

(9.0)

(74.1)

–

(494.1)

Trade and other payables

(241.4)

–

21.9

Initial
direct
costs
£m

(9.2)

–

Reserves

Dr/(Cr) to opening reserves –
before deferred tax

–

19.4

15.0

(12.7)

9.2

Transfer:

Property
provision
to lease
assets
£m

29 Dec 2019
Under IFRS 16
£m

–

(0.2)

203.2

548.6

–

0.2

–

168.9

(74.1)

(8.8)

(494.1)

(219.5)

30.9

Independent auditor’s report
to the members of Howden Joinery Group Plc

Report on the audit of the financial statements

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 26 December 2020 and of the Group’s profit for the
year then ended;

the Group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and 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.

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 28 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 international accounting standards in conformity with the requirements of the Companies Act 2006 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’.

In addition to the amounts shown above, the Group recognised a deferred tax asset of £3.6m on adoption of IFRS 16, and a
corresponding credit to reserves.

2. Basis for opinion

Judgements on adopting IFRS 16

We do not consider any of the judgements applied in the adoption of IFRS 16 to be significant.

For some companies, there is significant judgement in deciding how to treat extension options and break clauses in leases, and
therefore how to determine the most likely lease term at the inception of the lease.

We do not have extension options in any of our leases. We typically have break clauses in property leases, but our best
assessment at the inception of a lease is that we are virtually certain not to exercise any break clauses and that the lease will
run to its maximum term. We do not feel that this involves significant judgement, and this is borne out by us having no significant
history of exercising break clauses in the normal course of business.

Some companies consider that there is significant judgement involved in arriving at a suitable incremental borrowing rate. We do
not consider that to be the case for us as we feel that our process – which we describe as part of the accounting policy for lease
liabilities at note 2 – is based on objective third-party data.

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. The
non-audit services provided to the group and parent company for the year are disclosed in note 5 to the financial statements.
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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Notes to the consolidated financial statements continuedStrategic reportGovernanceFinancial statementsAdditional information

178

179

Independent auditor’s report continued
to the members of Howden Joinery Group Plc

3. Summary of our audit approach

5. Key audit matters

Our evaluation of the directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of
accounting included:

How the scope of our audit responded
to the key audit matter

Key audit matters

The key audit matters that we identified in the current year were:

• valuation of the UK inventory obsolescence provision; and

• 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 £11.0 million which was determined
on the basis of considering a number of different metrics used by investors and other readers of the
Financial Statements. These consisted of profit before tax and revenue.

Full audit procedures were performed over the Group’s UK trading and corporate entities, consistent
with 2019.

Significant changes
in our approach

The basis for determining materiality was changed from profit before tax to a number of different
metrics used by investors and other readers of the Financial Statements to reflect the volatility in the
results of the Group arising from the impact of the coronavirus pandemic.

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.

•

testing of the mechanical accuracy of the model used to prepare the Group’s going concern forecast;

• evaluating the consistency of management’s forecasts with other areas of the audit;

• challenging the key assumptions within the going concern assessment including in relation to future sales projections and

specifically the Period 11 peak trading period;

• obtaining an understanding of the base and reasonable worst case scenarios together with the financing facilities available

to the Group, including the associated financial covenants;

• assessing the impact of reverse stress testing on the Group’s cash position and covenant calculations, including the

appropriateness of coronavirus and Brexit assumptions;

• evaluating the mitigating actions available to management, should these be required to offset the impact of the forecast

performance not being achieved;

• challenging the sufficiency of the Group’s disclosures over the going concern basis of preparation by reference to FRC

guidance and the requirements of IAS 1 Presentation of Financial Statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and Company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.

In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.

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 £289.1 million (2019: £269.6 million), of which
there is a £34.1 million (2019: £37.9 million) allowance against the carrying value. Whilst
the Group has retained extra stock levels to mitigate against any impact of the coronavirus
pandemic and Brexit, these stock lines relate to faster moving items which under the Group’s
policy do not attract a provision.

The scale of the Group’s product range means there is significant Management judgement
involved in determining the adequacy of the inventory obsolescence provision, 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 128 also refers to inventory provisioning as one of the
significant issues and judgements. Further information is included in note 3 and note 16.

Our audit procedures included:

• obtaining an understanding of relevant controls over the inventory obsolescence

provision;

• considering the appropriateness of the methodology used to calculate the inventory

provision;

• challenging the level of provision applied by Management to discontinued items by

independently recalculating the provision percentages;

• assessing the integrity of the underlying calculation by evaluating the accuracy of the

ageing of the discontinued inventory items;

• evaluating the appropriateness of the provisioning methodology by comparing the

brought forward provision to utilisation in the year to assess Management’s ability to
forecast accurately; and

• determining the completeness of the provision by assessing a sample of current

stock lines for slow moving items or sales below cost to evaluate whether additional
provisioning is required.

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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information
180

181

Independent auditor’s report continued
to the members of Howden Joinery Group Plc

5.2. Appropriateness of the actuarial assumptions underlying the valuation of pension liabilities

PBT: £185.3m

Group Materiality: £11m

Key audit matter description

How the scope of our audit responded
to the key audit matter

There is a significant Management judgement involved in the assessment of the actuarial
assumptions used to measure the defined benefit pension deficit of £47.7 million (2019:
£56.6 million), particularly in respect of the discount rate, inflation and mortality rates
applied. The valuation of gross pension liabilities of £1,641.0 million (2019: £1,485.3 million)
is materially sensitive to changes in these underlying assumptions.

Management has highlighted defined pension arrangements as a critical accounting
judgement and key source of estimation in note 3 to the financial statements. Further
information in respect of the pension scheme is included in note 20. The Audit Committee
report on page 128 also refers to the valuation of the defined benefit deficit as one of the
significant judgements considered by the Committee.

Our audit procedures included:

• obtaining an understanding of relevant controls over the key assumptions used to

determine the pension liability;

• with the involvement of our pension specialists, reviewing the valuation report prepared
by the Group’s external actuaries and assessing 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 2020.

• considering whether, individually and in aggregate, the assumptions are appropriate.

• assessing the competence, capabilities and objectivity of the Group’s external actuaries,
to evaluate whether they have sufficient and appropriate experience and are members
of the Institute and Faculty of Actuaries.

• assessing 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.

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:

Materiality

£11.0 million (2019: £12.5 million)

Group financial statements

Basis for determining
materiality

We considered the following metrics:

• profit before tax; and

• revenue.

Company financial statements

£5.1 million (2019: £5.0 million)

0.4% (2019: 0.5%) of net
assets

Rationale for the
benchmark applied

Using professional judgment we determined materiality to be
£11 million. In the prior year, materiality was determined on the
basis of 5% of statutory profit before tax.

In determining our benchmark for materiality we considered a number
of different metrics used by investors and other users of the Financial
Statements. This approach is a change from the prior year to reflect
the volatility in the results of the Group arising from the impact of the
coronavirus pandemic.

The Company does not trade
so materiality has been
determined using net assets.

Component materiality range: £5.1m–£10.5m

Audit Committee reporting threshold: £0.5m

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.

Performance materiality

65% (2019: 70%) of Group materiality

70% (2019: 70%) of Company materiality

Group financial statements

Company financial statements

Basis and rationale
for determining
performance materiality

Group

• our risk assessment, including our assessment of the Group’s overall control environment together

with the changes implemented in response to the coronavirus pandemic; and

• history of prior period errors of which there were a low number of corrected and uncorrected

misstatements.

Company

• our risk assessment and the fact the company is a non-trading investment holding company;

• 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 £500,000 (2019:
£625,000), 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information182

183

Independent auditor’s report continued
to the members of Howden Joinery Group Plc

7. An overview of the scope of our audit

7.1. Identification and scoping of components

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.

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 £5.1 million and £10.5 million. These locations represent
the principal business units and account for 97% (2019: 98%) of the Group’s net assets, 98% (2019: 98%) of Group revenue and
96% (2019: 98%) of Group profit before tax for the 52 weeks ended 26 December 2020. 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% (2019: 98%) of Group revenue and were audited by the Group team.

At 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.

7.2. Our consideration of the control environment

We have obtained an understanding of relevant controls over the key business cycles, including financial reporting, revenue,
inventory, fixed assets, expenditure and pensions. In addition, we have tested relevant controls over stock existence and
revenue.

Together with our IT specialists we tested controls over the revenue, inventory and financial reporting systems. We performed
testing on access security, change management and network operations.

As noted on page 133 in the Audit Committee Report, the Group has commenced a key controls project to focus and further
strengthen its overall control framework in light of the increasing size of the Group and increased public interest in internal
control systems following the Kingman and Brydon reviews.

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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.

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 course of 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 this gives
rise to a material misstatement in the financial statements themselves. 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.

We have nothing to report in this regard.

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.

10. Auditor’s responsibilities for the audit of the financial statements

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.

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

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.

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, 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 its 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 relevant internal specialists, including tax, 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 following valuation of the UK inventory obsolescence provision. 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
occupational health and safety regulations and employment legislation.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information184

185

Independent auditor’s report continued
to the members of Howden Joinery Group Plc

11.2. Audit response to risks identified

13. Corporate Governance Statement

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.

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

•

the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 63;

the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate set out on page 65;

the directors’ statement on fair, balanced and understandable set out on page 67;

the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
page 65;

the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on page 134; and

•

the section describing the work of the audit committee set out on page 126.

14. Matters on which we are required to report by exception

14.1. 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.

14.2. 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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information186

187

Independent auditor’s report continued
to the members of Howden Joinery Group Plc

Company balance sheet

15. Other matters which we are required to address

15.1. 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 renewals and reappointments of the firm is 19 years, covering the years
ending 28 December 2002 to 26 December 2020.

15.2. 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).

16. 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
24 February 2021

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 assets

Total assets less current liabilities

Net assets

Equity

Share capital

Capital redemption reserve

Share premium

Treasury shares

Retained earnings

Total equity

Notes

26 December 2020
£m

28 December 2019
£m

699.0

0.6

699.6

44.1

413.1

457.2

–

457.2

1,156.8

60.3

4.9

87.5

(28.2)

1,032.3

1,156.8

699.0

0.9

699.9

2.9

256.0

258.9

(27.0)

231.9

931.8

60.5

4.7

87.5

(29.3)

808.4

931.8

The Company profit after tax for the 52 weeks to 26 December 2020 was £233.7m (52 weeks to 28 December 2019: profit after
tax of £220.4m).

These financial statements were approved by the Board on 24 February 2021 and were signed on its behalf by

Paul Hayes

Chief Financial Officer

For and on behalf of Howden Joinery Group Plc, registered number 02128710

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information188

189

Company statement of changes in equity

Notes to the Company financial statements

At 29 December 2018

Retained profit for the period

Buyback and cancellation of shares 1

Transfer of shares from treasury into share trust

Dividends declared and paid

At 28 December 2019

Retained profit for the period

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

Dividends declared and paid

At 26 December 2020

Capital
redemption
reserve
£m

Share
premium
account
£m

Share capital
£m

Treasury
shares
£m

Retained
earnings
£m

61.5

–

(1.0)

–

60.5

–

(0.2)

–

4.7

–

4.7

–

0.2

–

87.5

(32.9)

–

3.6

–

87.5

(29.3)

–

1.1

–

717.5

220.4

(58.9)

–

(70.6)

808.4

233.7

(9.8)

–

Total
£m

833.6

220.4

(55.2)

3.6

(70.6)

931.8

233.7

(9.8)

1.1

–

60.3

4.9

87.5

(28.2)

1,032.3

1,156.8

The Company’s distributable reserves at period end are:

Retained earnings

Treasury shares

Distributable reserves

26 December 2020
£m

1,032.3

(28.2)

1,004.1

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 192. The Company is registered in England and the Company’s registered address is 40 Portman Square, London W1H 6LT.

Basis of presentation

The Company’s accounting period covers the 52 weeks to 26 December 2020. The comparative period covered the 52 weeks to
28 December 2019.

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 (2019: none), did not pay directors’ emoluments (2019: £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.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information190

191

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 28 December 2019 and 26 December 2020

262.1

436.9

699.0

Details of principal subsidiary undertakings are given on page 192.

4 Debtors

Other debtors

Amounts owed by subsidiary undertakings

Other tax and social security

5 Creditors: amounts falling due within one year

26 December 2020
£m

28 December 2019
£m

0.3

36.7

7.1

44.1

0.3

–

2.6

2.9

26 December 2020
£m

28 December 2019
£m

–

(27.0)

Owed to subsidiaries

6 Share capital

Ordinary shares of 10p each:

52 weeks to
26 December 2020
No.

52 weeks to
28 December 2019
No.

52 weeks to
26 December 2020
£m

52 weeks to
28 December 2019
£m

Balance at the beginning of the period

604,663,861

615,436,307

Bought back and cancelled during the period

(1,800,000)

(10,772,446)

Balance at the end of the period

602,863,861

604,663,861

60.5

(0.2)

60.3

61.5

(1.0)

60.5

192

Parent company and all
subsidiary undertakings

193 Five year record

194 Shareholder and share capital information

196

Shareholder ranges as at
26 December 2020

196 Corporate timetable

197 Advisors and registered office

n
o
i
t
a
m
r
o
f
n

a
n
o
i
t
i
d
d
A

Howden Joinery Group Plc Annual Report & Accounts 2020

192

193

Parent company and all subsidiary undertakings
as at 26 December 2020

Five year record

Parent company

Howden Joinery Group Plc

England and Wales

40 Portman Square, London, W1H 6LT

Country of registration
or incorporation

Registered office

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:

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

Howden Joinery Properties Limited

England and Wales

40 Portman Square, London, W1H 6LT

Howden Kitchens Properties Limited

England and Wales

40 Portman Square, London, W1H 6LT

Administration And Employee Services:

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

England and Wales

40 Portman Square, London, W1H 6LT

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 1EQ

The Company ultimately owns 100% of the ordinary share capital of all of the companies listed above.

Summarised Income Statement

Revenue

Operating Profit

Profit before tax

Full year dividend per share (pence) Note 1

Basic EPS (pence)

Summarised Balance Sheet

Non-current assets excluding leases

Non-current lease right-of-use assets

Inventories

Receivables

Payables and provisions

Pension liability

Total lease liabilities

Net cash & short term investments

Total net assets

Number of depots at end of year

France

Belgium

Netherlands

Germany

TOTAL

Capital expenditure

Dec 2020
52 weeks
£m

Dec 2019
52 weeks
£m

Dec 2018
52 weeks
£m

Dec 2017
53 weeks
£m

Dec 2016
52 weeks
£m

1,547.5

1,583.6

1,511.3

1,403.8

1,307.3

195.7

260.0

240.1

234.4

237.2

185.3

18.2

24.9

290.7

544.2

255.0

166.6

(338.2)

(47.7)

(580.5)

(544.8)

430.7

720.8

748

778

260.7

3.90

35.0

251.7

–

231.8

193.1

(272.2)

(56.6)

–

96.1

267.4

615.2

732

759

238.5

11.6

31.3

221.4

–

226.3

186.0

(261.9)

(36.0)

–

114.4

231.3

567.1

694

718

232.2

11.1

29.9

221.3

–

208.3

137.8

(245.0)

(109.3)

–

(8.2)

241.1

454.2

661

685

237.0

10.7

29.5

201.6

–

183.7

135.9

(244.8)

(106.0)

–

(31.2)

226.6

397.0

642

666

Note 1 – Dividends. In 2019, an interim dividend of 3.9p/share and a final dividend of 9.1p/share were declared, making a total of 13.0p/share. However, following
the disruption caused by the outbreak of COVID in early 2020, the 2019 final dividend of 9.1p/share was not paid. In 2020 there was no interim dividend declared,
but (see note 11 of these financial statements), there is a 2020 final dividend of 9.1p/share and also a special dividend of 9.1p/share, making a total of 18.2p/share.

Howden Joinery Group Plc Annual Report & Accounts 2020

Strategic reportGovernanceFinancial statementsAdditional information194

195

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 19), 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.

Shareholder and share capital information

Annual General Meeting
The 2021 Annual General Meeting (‘AGM’) will be held at UBS, 5 Broadgate, London, EC2M 2QS on 6 May 2021 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 5,775,230 ordinary shares in Treasury at the end of the period (26 December 2020). 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 25 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 2020, the Board responded quickly to COVID-19 by suspending shareholder returns. As a consequence, only £9.8m
of shares were purchased as part of the outstanding £50m 2019 share repurchase programme. 1.8 million ordinary shares
(representing a nominal value of £180,000) were repurchased in total during the year, which equated to 0.3% of the called up
share capital of the Company at the beginning of the period (excluding Treasury shares). All of the shares repurchased during
2020 were cancelled.

At the AGM on 7 May 2020, the Directors were granted authority by shareholders to purchase up to 59,784,828 of the Company’s
ordinary shares through the market2. The authority expires at the conclusion of the 2021 AGM or within 15 months from the date
of passing the resolution (whichever is earlier).

Substantial shareholdings

As at 24 February 2021, 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

BlackRock, Inc

% of total voting rights

Date of last notification

5.37%

December 2020

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.

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 2020

Strategic reportGovernanceFinancial statementsAdditional information196

197

Shareholder ranges as at 26 December 2020

Advisors and registered office

Corporate holders

0 to 1,000

1,001 to 5,000

5,001 to 10,000

10,001 to 50,000

50,001 to 100,000

100,001 to 250,000

Over 250,000

Individual holders

0 to 1,000

1,001 to 5,000

5,001 to 10,000

10,001 to 50,000

50,001 to 100,000

100,001 to 250,000

Over 250,000

Number of holders

Number of shares

Percentage of holders

Percentage 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

569,902,492

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

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

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

Total

8,768

604,664,861

100.00

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

100 Bishopsgate
London
EC2P 2SR

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

Corporate timetable

2021

Trading update

Annual General Meeting

Half-Yearly Report

Trading update

End of financial year

29 April

6 May

22 July

4 November

25 December

Howden Joinery Group Plc Annual Report & Accounts 2020

CBP006123

This document is printed on FSC® Certified Paper.
Pulps used are chlorine-free and acid-free.

FSC® – Forest Stewardship Council®. This product is made of material from
well-managed, FSC®-certified forests and other controlled sources which
ensures there is an audited chain of custody from beginning to end.

Strategic reportGovernanceFinancial statementsAdditional informationA

Made by us. Supplied
and fitted by the trade