Howden Joinery Group Annual Report 2021

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FY2021 Annual Report · Howden Joinery Group

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Annual Report and Accounts 2021
Howden Joinery Group Plc

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The UK’s number 1
trade kitchen supplier

Available through the
Trade only

Howdens at a glance
The UK’s largest trade kitchen supplier

1. 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 800 depots

2. We source

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

3. We deliver excellent service across
our nationwide local depot network

5. We are worthwhile for all concerned

Outcomes
•
•

Happy builders and end-users
Sustainable profit growth 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

4. 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

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Performance
in 2021

Operational highlights

Financial highlights

£2.1bn

Revenue

(2020: £1.5bn)

61.6%

Gross margin

(2020: 60.1%)

£515m

Net cash at year end

30 new UK
depots

10 new depots
in France

17 new kitchen
ranges

Good progress on our
ESG commitments

Making more
product in our
own factories

Continuing to
strengthen our
digital offering

“ 2021 was a very successful year for Howdens as
we both delivered record financial results and
progressed our strategic plans for the business.

Our performance demonstrates the strength of our
trade-only, in-stock business model and our ability
to meet heightened demand for our products.”
Andrew Livingston – CEO

£402m

Operating profit

(2020: £196m)

£390m

Profit before tax

(2020: £185m)

53.2p

Earnings per share

19.5p

2021 full year dividend

(2020: 24.9p)

(2020: 9.1p, plus special dividend of 9.1p)

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£134m

Dividends paid in year

(2020: £nil)

£50m

Shares bought back

(2020: £10m)

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Howden Joinery Group Plc Annual Report & Accounts 2021

We make the
builder’s life simpler

We help our trade customers achieve
exceptional results for their customers.

The better they do, the better Howdens does.

Contents

The strategic report

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

16 Chairman’s statement
20 Chief Executive’s statement
29 Key performance indicators
32 Financial review

38 Risk management
40 Principal risks and uncertainties
46
67 Going concern and Viability statements
70 Other Directors’ statements

Sustainability matters

Governance

2018 UK Corporate Governance Code
application and compliance
96 Nominations Committee report
106 Remuneration Committee report
134 Audit Committee report
142 Sustainability Committee report
144 Directors’ report

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

152
186
195 Company balance sheet
196 Company statement of changes in equity
197

Notes to the Company financial statements

74 Corporate governance report
Board of Directors
76
78 Key Board activity
80
82 Directors’ duties (Section 172(1) statement)
84

Stakeholder engagement

Executive Committee and Company Secretary

Financial statements

148 Consolidated income statement
Consolidated statement of
148
comprehensive income
149 Consolidated balance sheet
150
151 Consolidated cash flow statement

Consolidated statement of changes in equity

Additional information

200 Parent company and all subsidiary undertakings
201 Five year record
202 Shareholder and share capital information
204 Shareholder ranges as at 25 December 2021
204 Corporate timetable
205 Advisors and registered office

Howden Joinery Group Plc Annual Report & Accounts 2021
Howden Joinery Group Plc Annual Report & Accounts 2021

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic report

How we
create value

Howdens at a glance
and 2021 performance

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

Chairman’s statement
Howdens has grown steadily to become
the leading supplier of kitchens in the UK.

Sustainability report
Why sustainability matters to us.

Chief Executive’s statement
To help our trade customers achieve
exceptional results for their customers.

Financial review
2021 current trading and outlook for 2022.

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.

Going Concern and Viability

01 Howdens at a glance

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

16 Chairman’s statement
20 Chief Executive’s statement
29 Key performance indicators
32 Financial review
38 Risk management
40 Principal risks and uncertainties
46
67 Going concern and Viability statements
70 Other Directors’ statements

Sustainability report

Howden Joinery Group Plc Annual Report & Accounts 2021

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 10

See page 11

See page 46

See page 72

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

Strategy

Business model

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

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

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

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See page 13

See page 14

We respond to external opportunities and mitigate threats

Markets

Risks

See page 12

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 in it.

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Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic report

Our purpose

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

Our culture and values

Staff

Customers

Environment
and 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
25 years, and it continues
to be at the heart of what
we do.

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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 value

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 their kitchens.

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

Worthwhile for our suppliers

• Profitability, convenience, service, support

• 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 wage, plus local profit-sharing and incentives

and excellent rewards and recognition for outstanding
performance

• An entrepreneurial culture, with central support

• A growing company with opportunities to develop and

progress. Structured career development programmes

best service

• Scale – good opportunities for them to build a profitable

business

Worthwhile for our other stakeholders

• Delivering consistent long-term value for shareholders with

a growing dividend and return of surplus cash

• Helping end-users at each stage of their buying decision

•

Important local employer and good neighbour in over
750 communities

• Giving back to local and national charities

• Responsible purchasing and environmental policies

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Howden Joinery Group Plc Annual Report & Accounts 2021

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Strategic report

Our market

Our strategy

The kitchen market
• 29 million homes in the UK. 18 million owned and 11 million rented
• The kitchen remains the heart of the home
• The market continues to shift from DIY to ‘Do It For Me’
• Howdens sells to the Trade sector, who supply a broad range of markets,
including owner-occupied homes, private rentals and social housing

• Our Contracts division supports the increasing demands of the new build market

Trusted by the trade

Highest Net Promoter Score® with the
Trade for the past 3 years1

Market leaders in key metrics that are
important to the Trade1

Universal Brand Awareness by the Trade1

Lowest
Price

Quality

Customer
Service

Stock
Availability

Our purpose

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

Achieved via:

Our long-term strategic objectives

Measured by:

KPIs

Reach more builders

Grow market share. Increase
trade convenience.

Operational excellence

• Sales growth

Increase customer service, efficiency,
trade value and profitability.

• Profit before tax

• Cash

• Depot openings

• Health & Safety

• FSC® or PEFC certified

raw materials

• Waste recycling

Product innovation

Prudent financial management

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

Giving us the tools to do the job.

Growing our market
• Product to compete at all price
points. Take more market share

• Continue excellent customer

satisfaction with both builders
and end-users

1 Source: Brand Tracker (Nov 2020)
2 Office of National Statistics

• Reach More Builders

With 450K+ customer accounts Howdens
supply to 1 in 3 tradespeople. Opportunity
to grow customer base further.

1.4m
tradespeople
in the UK2

Underpinned by:

Our strategic initiatives
• Evolving our depot model

• Developing our digital platforms

• Improving our product range

• Expanding our international

and supply management

operations

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information
14

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 of our own cabinets, over

4.5 million in 2021, 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 around the world, including appliances,
joinery, flooring and hardware. We offer everything necessary
to complete any kitchen.

Distribution

• Our in-house distribution operation delivers from our factories
and central warehouses to our network of over 800 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 our 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 helping them choose, plan
and design their dream kitchens.

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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 get

paid by their customer before they need to pay us. Online account
management and anytime ordering tools 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 profitable
investment in the business and to support a growing dividend.

• Surplus cash after investment and dividends is returned to

shareholders through share buybacks.

Communities and environment

• Employment opportunities and good neighbour in around

800 communities.

• Supporting local and national charities.

• Responsible ESG practices and policies.

• See our Sustainability report (page 46).

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Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic report

Chairman’s
statement

A year of significant progress
and record results

“ Howdens achieved exceptional financial
results through satisfying unprecedented
demand as the economy recovered from the
lockdown phase of the pandemic.”

“ We maintained industry leading availability

at a time when scarcity presented significant
challenges to many people and businesses.”

“ This robust performance highlights the
strength of our trade-only, in-stock, local
business model, which enabled us to satisfy
pent-up demand as people chose to spend
more on their homes.”

Richard Pennycook

Chairman

Demonstrating the strength and
resilience of our business model

When a crisis strikes, people, systems and organisations are
tested to the limit. The global pandemic has inflicted such tests
on all of us over the past two years. For Howdens it has been
a period which has highlighted the quality of our leadership
team, the resilience of our business model, the strength of
our balance sheet and the dedication of our colleagues. Or
to put it more simply – the power of our culture. Despite the
significant challenges of the pandemic, we have kept our
trade customers operating and in turn they have been able
to continue to provide critical services keeping millions of
homes and businesses functioning. Our overriding priority
has remained the health and safety of our colleagues and
other stakeholders.

If 2020 was all about crisis management, 2021 was about
positioning the business to be a long-term winner once
recovery starts, whilst at the same time handling the
ongoing challenges of COVID-19 restrictions. Your Board is
pleased to report that the Company achieved exceptional
financial results through satisfying unprecedented demand
as the economy recovered from the lockdown phase of the
pandemic. We maintained industry leading availability at a
time when scarcity presented significant challenges to many
people and businesses. This robust performance highlights
the strength of our trade-only, in-stock, local business model,
which enabled us to satisfy pent-up demand as people chose
to spend more on their homes.

Financial performance and strategy

2021 was an outstanding year for Howdens with the Group
achieving record financial results. Overall, 2021 revenue was
up 35.3% compared with 2020, and 32.2% ahead of 2019, with
gross margins 150 basis points ahead of 2020 at 61.6% (2020:
60.1%) but still 70 basis points behind 2019 (2019: 62.3%).
This was an encouraging performance as we appropriately
balanced mix with significantly higher overall volumes. We
were particularly pleased with margin in the second half,
when we were able to pass on the inflationary pressures
seen in the supply chain and of course benefited from our
vertical integration.

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Profit before tax was £205.0m ahead of last year at
£390.3m (2020: £185.3m; 2019: £260.7m). This exceptional
performance reflected strong market demand and our
excellent response to logistical and supply chain issues
brought about by COVID-19 and Brexit, which caused product
shortages elsewhere in the industry. Earnings for the year
were 53.2p per ordinary share, an increase of 113.7% on the
prior year and up 52.0% on 2019 (2020: 24.9p; 2019: 35.0p).
Strong cash generation remains one of the great hallmarks
of this business and we delivered another good performance
despite investing in additional inventory to ensure high levels
of stock availability for our customers. Further details of
our operational performance can be found in Paul Hayes’
Financial Review starting on page 32.

This year we have also remained firmly focused on executing
our organic growth strategy at pace under the leadership
of Andrew Livingston and his team. The pandemic has
confirmed to your Board that our strategy is the right one and
we continue to invest in deeper vertical integration, depot
expansion in the UK and France, and product innovation.
You can read more about our progress on many fronts this
year in Andrew’s statement, starting on page 20.

Capital allocation and returns
to shareholders

Our approach to capital allocation has primarily focused
on achieving sustainable profit growth by investing in and
developing our vertically-integrated business. We also want to
maintain and grow our ordinary dividend in line with earnings
growth, to reward shareholders with an attractive ongoing
revenue stream. Howdens has an appropriately prudent risk
appetite towards balance sheet management, which was a
significant strength as company balance sheets were placed
under pressure during the early stages of the pandemic.
After allowing for these uses of cash, we remain committed
to returning any surplus capital to shareholders.

Within its definition of surplus capital, the Board believes it is
appropriate for the Group to be able to operate through the
annual working capital cycle without incurring bank debt.
There is seasonality in working capital balances through the
year, particularly in advance of our peak trading period in
the second half. We also take into account that the Group has
significant property lease exposure for the depot network, and
a large pension scheme that has only recently moved into a
surplus (on a technical provisions basis).

This prudent approach has been borne out over the past two
years with the balance sheet being a source of great strength
through the challenges of the pandemic. While in the crisis
phase of COVID-19 the Board took decisive action to conserve
capital, but as markets have recovered we have progressively
reinstated our capital priorities including the return to paying
dividends in 2021 and the return of surplus capital in the
second half year. These returns were only made after having
repaid all Government support received early in the pandemic.

The Board has reviewed its capital allocation policy
considering the current economic environment to ensure
it is clearly defined and retains a disciplined approach to
enhance shareholder value. This prioritises our strategy of
continuing to invest in depots, manufacturing and logistics
capabilities and related strategic investments, while delivering
a progressive dividend. Our policy will be that where year
end cash is in excess of £250m we expect to return surplus
cash to shareholders, which provides sufficient headroom
to support organic growth, our working capital requirements
and ongoing investment in our strategic priorities. At this level
of cash, the balance sheet will remain strong with a leverage
of approximately 0.7x EBITDA after taking into account
lease liabilities.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportFinancial statementsAdditional information19

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Further reading

See my introduction to our
Governance report

See our Sustainability report

See our Board of Directors

Page 74

Page 46

Page 76

Chairman’s statement continued

On this basis, we have announced a further £250m share
buyback programme which we aim to complete over the next
12 months. This is in addition to the £50m share buyback
programme announced with the half-year results and
completed during the second half of 2021.

During 2020, no interim dividend was paid, but a final dividend
of 9.1p per ordinary share and a special dividend of 9.1p per
ordinary share were paid in June 2021 in respect of 2020.
Taking into account the Group’s continued excellent prospects
and strong financial position, in July 2021 the Board declared
an interim dividend of 4.3p per ordinary share. The Board is
recommending a final dividend for 2021 of 15.2p per ordinary
share, giving a total 2021 dividend of 19.5p per ordinary share.
The final dividend will be paid on 20 May 2022 to shareholders
on the register on 8 April 2022.

Governance

One of my key responsibilities as Non-Executive Chairman
is to ensure good corporate governance for Howdens. The
business 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 strong trading performance this year has been
underpinned by governance practices which give the business
the resilience to prosper even in challenging times and to
preserve the value it creates. It would be easy to assume
that this resilience was inherent within the business, given
its healthy and strong culture, but that is not necessarily the
case. There is no place for complacency in any business, and
your Board focuses closely on clarity of accountabilities and
reporting lines, careful planning, and relentless execution.
While our meetings during 2021 inevitably focused on the
impacts of the COVID-19 crisis and the health and wellbeing of
our employees and customers, much of the Board discussion
this year was also about ensuring resilience in many aspects
of our business and the clarity of our long-term strategy.
You can read about our progress in the Governance Report
beginning on page 72.

Sustainability

In addition to COVID-19, an overarching theme for 2021 has
been sustainability. Businesses and individuals have been
challenged to consider the sustainability of their behaviours to
try and prevent irreversible climate change and to address the
social inequities that we face.

The opportunity to have a positive impact on our environment
is a key component of our growth plans. The only way we
can continue to grow in a way that supports our business,
mitigates our risks and addresses the needs of our
stakeholders, is to ensure our sustainable behaviour and
attitude remains embedded in our business model. We
describe Howdens as being ‘worthwhile for all concerned’
and ‘creating the conditions for everyone to succeed’ and
this means our business needs to be worthwhile for our
people, our customers, our suppliers, the environment and the
communities we work in.

Following the Group’s strategic review of its ESG priorities
in 2020, good progress was made against our four key
commitments during 2021. We are significantly ahead of our
plan to eliminate waste to landfill and were pleased to be one
of the first companies in the UK to achieve carbon neutrality in
our manufacturing operations. We have also made significant
progress toward full adoption of the Task Force on Climate-
related Financial Disclosures (TCFD) recommendations for the
first time, one year ahead of requirement.

Each of our depots represents a place in a local community
and our people are encouraged and empowered to participate
in community life. In 2021, the Group donated around £2.0m to
good causes.

You can read about our progress this year in our Sustainability
report on starting on page 46.

“ 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 people

Howdens’ strategy will only be successful if we continue to
invest in and develop our people. We are committed to their
development at all levels of the organisation and have an
ambitious training and skills agenda commensurate with
the social mobility we foster through our progressive and
meritocratic working practices. Much of our training this year
through necessity has taken place online due to COVID-19 but
we rose to the challenge by delivering fives times more online
training sessions than in 2020.

A key priority is developing the next generation of Howdens’
people and we currently have over 570 apprentices working
in a range of tailored programmes throughout all areas of
our business. We recruited over 250 new apprentices in
2021 and we are pleased to celebrate the success of over
150 employees who successfully completed their training
programmes this year. You can read more about our progress
in the people section of the Sustainability report starting on
page 46, and in Andrew’s Statement.

Looking ahead

Howdens made excellent progress last year on many fronts
despite considerable challenges. We have an attractive
business model and a clear growth strategy which,
coupled with a strong balance sheet, positions us well for
sustainable growth in 2022. We recognise that for the time
being uncertainty is likely to remain in some of our markets,
but consider ourselves well placed to outperform in the
years ahead.

We announced in February that I will retire as
Chairman in September 2022, consequently this will
be my last statement as Chairman of Howdens. This
aligns with the Company’s Board succession plan
and good governance practice, including the UK
Corporate Governance Code requirement for a Chair
to step down after nine years on the Board.

It has been a privilege to serve this very fine
Company, which represents everything that British
business should be. I am extremely proud of our
11,000 people who have again stepped forward in
often difficult personal circumstances to deliver
these record financial results. On behalf of the
Board, I would like to thank them for their passion,
commitment and hard work – they are
what makes Howdens special.

Richard Pennycook
Chairman

23 February 2022

Howden Joinery Group Plc Annual Report & Accounts 2021

GovernanceFinancial statementsAdditional information

Chief Executive’s
statement

2021 was a very successful
year for Howdens as we both
delivered record financial
results and progressed our
strategic plans for the business.

•

Our performance demonstrates the
strength of our local, trade-only, in-stock
business model and our ability to meet
heightened demand for our products.

We continue to invest in our depot
network, market-leading products, in our
manufacturing and supply chain and our
digital capabilities, all of which improve
service to our customers and will help us
take advantage of market opportunities.

Andrew Livingston

Chief Executive Officer

Sales across Periods 10 and 11 exceeded those initially
targeted by the business with both periods returning record
results and relatively more sales accruing earlier in the
two periods combined. In the final two periods of the year
the business continued to perform very well against tough
comparators and we have made an encouraging start to 2022.

In 2021 we successfully navigated the dual challenges of
sharp rises in demand and the well-publicised stock shortages
in many markets and our product categories.

I’m extremely grateful for the efforts of everyone across
the business in 2021 and very proud of what the team has
delivered, including the attitude and approach to health and
safety which everyone has taken. In 2021 we moved and
processed a record volume of goods, in no small part thanks
to the efforts to keep safety awareness high.

We are well positioned in the current marketplace and
for the future and we have initiatives in place to further
strengthen our market position.

Perspectives on 2021 results

Importance of our business model

Howdens has delivered a very strong performance in
2021, reporting record sales and profits for the year
during a period of exceptional trading conditions.

UK sales increased significantly on 2019 and more so versus
2020 when first half trading was materially impacted by the
onset of the ‘Spring Lockdown’ at the start of the second
quarter. The increase in sales versus 2019 trended upwards
across the year and UK sales passed the milestone of £2 billion
for the first time.

Our profitability improved, with Group profit before tax versus
2019 increasing at a higher rate than revenues and our gross
margin exceeded that reported for 2020 as we mitigated input
cost pressures with disciplined pricing.

We made good progress on our strategic plans both for the UK
business and for our international operations, which delivered
a strong performance.

We have moved our ESG agenda forward and I am pleased
to report that our factories in Howden and Runcorn both
achieved carbon neutral status in 2021. In respect of waste
reduction, we achieved 99% depot waste avoiding landfill
across all UK depots, versus 60% in 2019, having reached zero
waste to landfill in our manufacturing and distribution facilities
in 2020.

The business delivered strong cashflow and we continued
to maintain a robust balance sheet. This has given us the
flexibility both to invest in our growth plans for the business,
and at the same time provide shareholders with enhanced
cash returns in the form of an increased final dividend and a
£250m share buyback programme.

These results demonstrate the strength of our
local, trade-only, in-stock model, which has helped
us to be there for our customers during a period of
heightened demand.

A strong product line-up, high stock availability and a very
engaged team together with the ongoing investments in our
strategic initiatives, including digital, have all contributed
to our record performance in 2021, as have the measures
we took in 2020 to support our customers, who on average
have spent more with us, and we ended the year with a record
number of customer accounts.

We serviced heightened demand, without compromising
overall service levels and benefited from the extended delivery
times amongst our competitors.

We believe our customers have an even greater level of trust
in our own capability to have the right product available as
and when they need it. The feedback we are getting from our
regular Builder Forums also cites many examples of how we
are there for customers, not only on stock but also on service
generally, which helps them run their businesses.

Feedback on the new features we added to our digital platform
has been very positive. These features amongst other things
help customers, who have been very busy this year, to save
time and money.

We also increased prices, which helped us mitigate the
significant rises in input costs which we have seen over the
year. As well as protecting gross margin, we delivered a
significant rise in volumes in the year.

In 2020, we flexed our traditional ‘P11’ sale period, when sales
are typically more than double those of other periods, across
both Periods 10 and 11 for the first time and we did so again in
2021. This approach helps builders book in more kitchen fits
over a longer period, benefits supply chain management and
helps our depot teams to service demand. Our teams in turn
were incentivised for performance in each of P10 and P11 and
for the periods combined.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernance22

Chief Executive’s statement continued

Update on strategic initiatives

Fully aligned with our trade-only
focus and entrepreneurial culture,
and based around our core building
blocks of Service & Convenience,
Trade Value and Product
Leadership, these are:

Evolving our depot model

Improving our product range and supply
management

Developing our digital platforms

Expanding our international operations

1) Evolving our depot model

High service levels, including local proximity and
immediate availability are very important to our
customers and we have continued to extend our UK
depot footprint in 2021.

We are opening all new depots in our updated format which
is designed to provide the best environment in which to do
business and to make space utilisation and productivity
gains in a cost-effective way, by using vertical racking in the
warehouse section of the depot.

In 2021, we opened 31 new depots, up from the 16 opened in
2020. We now believe there is potential for at least 950 depots
in the UK, including c.25 in Northern Ireland, and we plan to
open around 25 new depots in 2022.

We have also continued with our revamp programme
for existing depots, concentrating on our older
estate where the largest incremental sales uplifts
are expected. The programme is delivering additional
sales and has received very positive feedback from
depots and customers.

During the year, including relocations, we reformatted a total
of 62 depots, taking the total number of revamped depots to
103 at the year-end.

The scale and scope of the revamps has been refined, with an
average cost per depot of circa £225,000 going forward with
an average payback of less than 4 years.

Including relocations, we plan to reformat around 70 more
depots in 2022 and to re-rack the warehouses of a further 35
sites without other modifications at that time.

At the end of 2021, we had 210 UK depots trading in
the updated format and we expect to end 2022 with
around 305, having also re-racked the warehouses
of a further 133 depots without other modifications.
By the end of 2022, such depots, in aggregate, will
represent around 55% of our UK estate.

“ 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”

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.

2) Improving product range and supply management

Range management

As product lifecycles shorten, managing the number
of kitchen ranges efficiently is crucial for both
our customers, who want best availability, and for
profitability.

New product for 2022 features 20 new kitchens.

Features of our 2022 new product introductions will
include:

We are managing range introductions and clearances so
that our 2022 current range count is around 80, organised in
nine families. New products for 2021 featured 17 new kitchen
ranges with total sales well ahead of 2020 and 2019.

We are now placing greater emphasis on building out
our share of higher priced kitchens where we have been
historically under-represented. Such kitchens contributed
more to our kitchen mix by volume in 2021, in a year in which
sales and volumes across all price bands increased. feature
in our new kitchen line-up for 2022 and we have been able to
bring these more proven new kitchen styles to market more
quickly.

•

launching new products across entry level kitchen ranges,
which have traditionally been our strongest performers,
by adding new ranges in both modern and shaker styles
including the introduction of our new entry priced smooth
shaker kitchen family Witney, which is available in three
matt colours;

introducing more higher-priced kitchens, including adding
new colours for our timber shaker families introduced
last year; and launching a new builder-friendly ‘in-
frame’ solution, a look often associated with high street
independents; and

•

refreshing our most successful families with new market
leading colours.

Howden Joinery Group Plc Annual Report & Accounts 2021

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Chief Executive’s statement continued

Update on strategic initiatives continued

Regional cross-docking centres (‘XDCs’)

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

In 2020 we initiated a programme to make an improvement to
stock replenishment via XDCs. We know that our customers
value our high levels of stock availability and XDCs improve
stock replenishment by supplementing depots’ core weekly
deliveries with a daily top-up service. This improves the
service levels they can deliver to customers and frees up more
time and resources to focus on sales and service reducing the
need for inter-depot stock transfers.

Primary

This year we have significantly increased the number of
depots serviced by XDCs and feedback from depots and
customers using the service has been very positive. By
rebalancing where we hold stock and changing the delivery
pattern of some lines to depots, depots can allocate more
warehouse space to faster selling lines and can reduce stocks
of slower moving lines while providing a high level of service
across the product range.

By the year end, we had 6 XDCs operating in the UK with the
service available to around 400 depots, up from 120 at the end
of 2020. We plan to roll out the XDC service to all our depots
during 2022, taking the number of XDCs to 12 in total.

Primary

Weekly

Primary

Overnight

Daily

Depot

Customer

GREAT!

Depot

XDC

Customer

It’ll be here
by 9am…

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

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

balancing cost and overall supply chain availability, resilience and
flexibility”

Manufacturing and supply chain

Our dedicated manufacturing and supply chain is
critical to the success of our in-stock offer.

We supply all product, whether manufactured or sourced, to
all depots, each of which have individual and changing day to
day requirements.

In 2021 we continued to hold ‘safety’ stock as a contingency
against unexpected demand patterns and interruptions to
supply and we are utilising multi-modal freight routes to ship
in-bound goods and materials where appropriate.

Last year we broadened the range of products we protect in
this way and increased the number of weeks cover we have on
some lines.

In 2022, we will continue with our policies on safety stocks to
support our customers.

We have subsequently been investing in expanding HWS’s
capacity and, to support this further, in February we acquired
Sheridan Fabrications Ltd, a leading industry specialist for the
manufacture, fabrication, laser templating and installation of
premium worksurfaces.

The acquisition increases our manufacturing capacity and
will lead to lower installation costs, with associated margin
benefits. The business is based in Normanton, West Yorkshire
and employs around 200 people.

We intend increasing the scale and scope of our
manufacturing operations at Howden and plan to
reconfigure the site so that it is dedicated primarily
to manufacturing.

To support continued growth plans we have acquired 5 acres
of land and, subject to detailed planning, we are committed to
acquire an additional 20 acres of land to extend our factory at
Howden, East Yorkshire.

We keep under review what we believe it is best to
make or buy, balancing cost and overall supply chain
availability, resilience and flexibility.

In particular, we will increase the manufacturing capacity for
cabinets with new panel machining and rigid assembly lines
and a new machining line for shaker doors.

In 2019, investment in manufacturing technology enabled us
to make the kitchen frontals for our popular Hockley kitchen
ranges. We then committed to further investment to make
frontals for more of our kitchen ranges, at the same quality as
we can source externally but at a lower cost and at a reduced
lead time to delivery.

With this investment, we plan to have the capability to
manufacture kitchen doors for most of our ranges and we
expect that the new lines will be operating by early 2025.
At the same time, we will retain the benefits of sourcing from
external suppliers, who will continue to provide around half
of our kitchen frontals.

We expect the new frontal lines located at our Howdens site
to be operational in the second half of 2022. Our second
architrave and skirting line is scheduled to be completed
in July 2022, enabling us to service in-house more of the
substantial increase in demand we have seen for these
products.

We also plan to invest in a new, purpose-built warehouse
and distribution near the Howden site and once built, both
the picking and dispatch will migrate there. This will enable
the Howden site to be dedicated primarily to manufacturing,
allowing it to flow and operate more efficiently, with room for
further expansion if needed.

We are also upgrading our bespoke solid surface
worktop capabilities, which is a growing segment
of the market, supporting our aim of increasing our
share of the higher-priced segment of the kitchen
market.

We first partnered with three fabrication companies to develop
a design, template and fit capability and then acquired the
assets of a solid surface fabricator which we branded as
Howdens Work Surfaces (‘HWS’).

Howden Joinery Group Plc Annual Report & Accounts 2021

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Strategic report

Chief Executive’s statement continued

Update on strategic initiatives continued

3) Developing our digital platforms

Our digital strategy reinforces our model of strong
local relationships between depots and their
customers by raising brand awareness, and further
supports the business model with new services and
ways to trade.

It also frees up time for depot staff and customers to use more
productively.

In 2021 we have seen increased activity on our web
platform and growth in our social media presence.

‘Impressions’ were present in 28% more organic search results
a month with site visits at 24 million, 11% ahead of last year.
The time users spent looking at pages increased by 20% and
the number of pages viewed per session was up 11%.

Across our social media sites our follower base was
c.400,000, up 49%, with our monthly reach up 34% and
1.3m users actively engaging monthly.

Take-up and usage of online account facilities
which enable our trade customers to manage their
accounts and make payments at any time, continues
to increase.

New account registrations exceeded 100,000 for the year and
the service is being used across the week, both in and out of
hours on average twice weekly per account. Payments made
per account increased 70%.

In February 2021, ‘Anytime Ordering’ was launched, providing
efficiencies for depots and customers alike.

Developed with input from customers, features of the service
include enabling account holders to see their confidential
prices, order product and quote for individual jobs out of
hours. There is also a scheduler for customers to select
a collection depot and pick-up time of their choosing and
we have seen average weekly logins on our trade platform
increase by 160%.

In Autumn 2021, we launched new search functionality on
www.howdens.com to help our customers with both improved
product search and extended search results to connect to
documents and other features.

We have also invested in capabilities which help end
users interact with Howdens online at each stage of
their buying decision.

For example, at the turn of the year, we launched ‘Real
Kitchens’ which utilises user generated content to showcase
Howdens’ kitchens in peoples’ homes. Image views were
17.2 million in 2021 and this content is being used both by
consumers and our designers to streamline the buying and
design process.

“ We have made an encouraging start to 2022 and we are confident

in our resilient business model across changing market conditions”

4) Expanding our international operations

Prospects for 2022

In 2019 we refocused onto a city-based approach
in France serving solely trade customers. The
business’ performance has been encouraging
and has given us confidence to accelerate our
investment in more depots in this region.

Revenues of €58.4m were 37% ahead of 2020 and 54%
ahead of 2019.

We believe appreciation of the advantages of our trade-only,
in-stock model with our high service levels and competitive
pricing is growing and our account base grew by 37% in 2021.

We opened 10 depots in France in 2021, ending the year with
a total of 40 in France and Belgium and we plan to expand our
footprint to 60 depots by the end of 2022, 40 being located in
the Paris area.

In 2022, we will also be opening for business in the
Republic of Ireland.

As in France we will be using a ‘city-based’ approach which
fits the population distribution of the region.

Initially we will test the model with 5 depots around Dublin,
and we expect all of these to be open by June 2022.

The depot teams will be supported by our UK infrastructure
and the Group’s digital platform.

We are well planned on our strategic initiatives which
are aimed at increasing our market share profitably.

High stock availability was a major contributor to our
performance in 2021 and in 2022 we will continue with
our policies on safety stocks across the board, including
heightened emphasis on stock manufactured at Howdens.

20 new Kitchen ranges will be on sale by mid-June, and we
have a programme of ‘Rooster’ promotions in place to keep
Howdens front of mind.

Howdens Work Surfaces will be rolled-out to all regions,
backed by recent investment.

We will continue to invest in key capabilities including in
improvements to service and availability by utilising XDCs
and we are increasing the range of services and functionality
we offer online.

We will be manufacturing more in the UK, as our investments
in our new kitchen door and skirting capabilities come on
stream and Howdens Work Surfaces is rolled out.

During 2022, we plan to open circa 25 depots in the UK and
refurbish around another 70 existing depots to the updated
format.

In France we plan to have around 60 depots trading by
the end of 2022, and we are opening for business in the
Republic of Ireland.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information28

Chief Executive’s statement continued

Key performance indicators

We have made an encouraging start to 2022 and we
are confident in our resilient business model across
changing market conditions.

We are currently offsetting inflationary pressures through
price management and cost control, underpinned by
our service-led business model and the scale of our
manufacturing and sourcing operations. Sales in our first
two periods have continued to advance versus comparable
periods in 2021.

The number of surveys we are doing, and the value of our lead
bank suggest our customers remain busy at present.

We are expecting further significant rises in input costs and
are mindful of the challenges these, together with general
inflationary pressures and macro-economic uncertainties
may present to our sales volumes and profitability as the
year progresses and we are up against record comparators,
including for our peak trading periods, following a year
of heightened demand for our products in a market
characterised by shortages and extended lead times to
delivery amongst our competitors.

However, we have, at present, the momentum for another
successful year in 2022 and the plans in place to deliver one.

Andrew Livingston
Chief Executive Officer

23 February 2022

Links to:

Strategy

Risk

Remuneration

Financial

Progress

We have made good progress, and were pleased to see
total Group sales of £2.1bn in 2021, up 35.3%.

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2017

2018

2019

2020

2021

Progress

Profit before tax increased by 110.6% in 2021 to £390m,
representing good progress.

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2017

2018

2019

2020

2021

Progress

We are pleased with our progress. We have
continued to invest for future growth and have
also returned £184m in dividends and buybacks.

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

Why we measure it

We aim to cover our investment needs, to retain at least one
year’s working capital requirement, to pay a progressive
dividend and to return surplus cash to shareholders
(see page 34 for more details).

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.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information30

Key performance indicators continued

Links to:

Strategy

Risk

Remuneration

Non-Financial

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 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 plan to
expand our depot network in France and will be opening in
the Republic of Ireland in 2022.

Links to strategy, risks and remuneration

Reach more builders.

Failure to maximise growth potential.

Deterioration of model & culture.

Health & Safety

Why we measure it

We have around 11,000 employees working in our factories,
our logistics operation, our support sites and our depots
and we need to keep them all safe at work.

Links to strategy, risks and remuneration

Operational excellence.

Health & Safety.

Use of FSC® or PEFC
certified materials

Why we measure it

We use almost a third of a million cubic metres of chipboard
and MDF in our factories. FSC® and PEFC are the two
main certification bodies. Ensuring that all our MDF and
chipboard is certified by them gives us assurance over
their provenance. See page 62 for more details.

Links to strategy, risks and remuneration

Product innovation.

Product relevance. Continuity of supply.

Progress

We ended 2021 with 30 more depots in the UK
and 10 more in France, in line with our plans.
We plan to continue to expand our network in 2022.

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Production waste recycling

Progress

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 benefits
stakeholders as it reduces our emissions and our costs.

Links to strategy, risks and remuneration

Operational excellence.

Prudent financial management.

We are pleased to maintain the result that 100%
of our production waste was reused recovered or
recycled. See page 64 for more details.

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2018

2019

2020

2021

2017

2018

2019

2020

2021

Progress

Regrettably our rate of RIDDOR-reportable injuries
increased from 2020 to 2021. We are taking actions
to address this. See page 60 for more detail.

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

100%

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information32
32

Financial
review

•

Good progress on strategic
initiatives

Record growth in revenue
and operating profit

Strong cashflow with
investments in inventory

19.5p 2021 full year dividend
and £250m share buyback
programme announced

Paul Hayes

Chief Financial Officer

Financial results for 20211

Revenue

Total Group revenue of £2,093.7m was ahead by 35.3% (2020:
1,547.5m; 2019: £1,583.6m). UK depot revenue grew 35.4% to
£2,043.4m (2020: £1,509.6m; 2019: £1,550.3m). UK revenue
increased by 33.7% on a same depot basis2 to £2,017.7m
(2020: £1,508.8m); this excludes the additional revenue from
depots opened in 2021 and 2020 of £25.6m (2020: £0.8m).

Depot revenue in Continental Europe was £50.4m (2020:
£37.9m; 2019: £33.3m). On a local currency basis, revenue at
our depots in France and Belgium increased by 37.3% and by
32.5%, respectively on a same depot basis2.

Gross profit

Gross profit was £1,289.0m (2020: £930.0m; 2019: £986.2m).
The £359m increase compared with 2020 reflected a positive
volume and mix impact of £282m and higher pricing of £107m.
There were also £30m of cost pressures reflecting the net
impact of higher commodities, freight costs and foreign
exchange. These factors contributed to an increase in gross
margins of 150 basis points versus the prior year to 61.6%
(2020: 60.1%; 2019 62.3%) as we appropriately balanced mix
with higher overall volumes.

The £303m increase in gross profit compared with 2019
reflected growth in sales volumes of £254m and changes in
price of £91m partly offset by £42m of product cost pressures.
This included the net impact of significant increases in input
costs including commodities, freight and transportation
partially offset by initiatives to reduce costs.

Operating profit

Operating profit was strongly ahead of last year and 2019
at £401.7m (2020: £195.7m; 2019: £260.0m on a pre IFRS
16 basis) and the operating profit margin was 19.2% (2020:
12.6%; 2019 16.4%).

Selling and distribution costs and administrative expenses
(SD&A) increased by 20.8% to £887.3m (2020: £734.3m;
2019: £726.2m). As expected, costs increased due to
continued investments in areas across the business.
Compared to 2020 this included £11m on UK depots opened
in 2020 and 2021 and £13m on French depots in the period.

The information presented relates to the 52 weeks to 25 December
2021 and the 52 weeks to 26 December 2020 unless otherwise stated.

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

Revenue1 £m

Group:

Howden Joinery UK depots – same depot basis2

UK depots opened in previous two years

Howden Joinery UK depots – total sales

Howden Joinery Continental European depots

Revenue €m

France and Belgium – same depot basis2

Depots opened in previous two years

France and Belgium – total sales

2021

No. of depots

2,093.7

2,017.7

25.6

2,043.3

50.4

55.3

3.1

58.4

731

778

2020

1,547.5

1,508.8

0.8

1,509.6

37.9

41.7

0.9

42.6

1 The information presented relates to the 52 weeks to 25 December 2021 and the 52 weeks to 26 December 2020 unless otherwise stated.

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

We also invested £28m in warehouse and transportation
initiatives which included the investment in regional XDCs
and £10m in promotional sales and marketing costs and
digital platforms. £70m of additional costs were also incurred
in the existing depot network as a result of the significant
increase in volumes and there was also a £21m increase in
other operating costs.

Profit before and after tax

The net interest charge was £11.4m (2020: £10.4m; 2019:
£0.7m credit, on a pre IFRS 16 basis) principally reflecting
the additional interest expense on our lease liabilities. Profit
before tax of £390.3m was strongly ahead of the prior year
(2020: £185.3m; 2019: £260.7m).

SD&A costs increased in 2021 compared with 2019 by
£161.1m. Investment in executing our strategy included £33m
on new depots in the UK opened since 2019, and £17m on new
depots in France. Other growth initiatives included logistics
investments of £38m (including XDCs) and £13m of marketing
and digital investment. This was partly offset by £17m of the
non-repeat benefit of depot closure costs in Germany and the
Netherlands, and lease amortisation charges consequent
upon adopting IFRS 16. Between 2019 and 2021 the increase
in revenue in the older UK depots resulted in £50m of
additional costs.

The tax charge on profit before tax was £75.8m (2020:
£37.7m; 2019: £51.7m) as a result of the higher operating
profit and represented an effective tax rate of 19.4% (2020:
20.3%; 2019: 19.8%). As a result, profit after tax was £314.5m
(2020: £147.6m; 2019: £209.0m). Reflecting the above and
the reduced share count following share buy backs, basic
earnings per share were 53.2p (2020: 24.9p; 2019 35.0p).

During 2020 we were granted a patent on a new plastic leg
design which we have incorporated into our cabinets. We
applied for the patent in 2017 and there is a potential to claim
tax relief under HMRC patent box rules. We will review the
potential scale of any claim with our advisers before deciding
whether to make a claim under these rules.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information
34

Financial review continued

How we make cash and how we spend it

Cash generation and use

£1,000

+£531m

-£86m

-£2m

-£19m

-£73m

-£86m

-£134m

+£3m

-£50m

Operating
cash flows –
pre leases

Lease
Payments

Working
capital
changes

Pension
contribution

Tax
paid

Capital
expenditure

Dividends
paid

Share
buybacks

Other

m
5
1
5
£

Closing
net cash

m
£

£800

£600

£400

£200

m
1
3
4
£

Opening
net cash

Uses of cash

2020

£30.0m

£69.7m

£9.8m

2021

£18.5m

£85.9m

£50m

£133.6m

Howdens’ approach to capital structure

Investing in organic growth:

Progressive ordinary dividend growth

• Open new and revamp existing depots

• Dividend cover of 2.5x to 3.0x

• Disciplined range management

• Optimise manufacturing & logistics

• Grow digital platform

• Sustainable growth through the cycle

Return surplus cash to
shareholders:

• After organic investment needs

Modest investment in
adjacencies:

• Vertical integration eg solid surfaces

• Seasonal working capital movements

• Land purchases for expansion

• Fund pension scheme

• Distribute cash >£250m*

Pension deficit

Capex

Share buyback

Dividend

broadly equivalent to gearing of 0.7x Net Debt to EBITDA after taking into account total lease liabilities.

Cash

The net cash inflow from operating activities was £437.4m
(2020: £329.2m). Net working capital increased by £1.7m due
to higher levels of business activity. Debtors at the end of the
period were £39m higher than at the beginning of the period,
creditors were £84m higher and stock was £47m higher due
to our actions to increase levels of safety stock to support our
customers. Capital expenditure was £85.9m (2020: £69.7m).
Corporation tax payments were £73.1m (2020: £32.2m), and
dividends amounted to £133.6m (2020: nil). Share buy backs
totalled £50.0m (2020: £9.8m) and the cash contribution
to the Group’s pension schemes in excess of the operating
charge was £18.5m (2020: £22.2m). The interest and principal
paid on lease liabilities totalled £85.8m (2020: £87.6m).

Reflecting the above, there was a net cash inflow of £84.6m
(2020: £163.3m), leaving the Group with net cash at year
end of £515.3m (26 December 2020: £430.7m). The Group
has access to a £140m asset backed lending facility which
remained undrawn at the balance sheet date.

Capital allocation and returns to
shareholders

Our approach to capital allocation has primarily focused
on achieving sustainable profit growth by investing in and
developing our vertically integrated business. We also want to
maintain and grow our ordinary dividend in line with earnings
to reward shareholders with an attractive ongoing income
stream. After allowing for these uses of cash, Howdens remains
committed to returning any surplus capital to shareholders.

Within its definition of surplus capital, the Board believes it is
appropriate for the Group to be able to operate through the
annual working capital cycle without incurring bank debt,
noting that there is seasonality in working capital balances
through the year, particularly in advance of our peak trading
period in the second half. We also take into account that the
Group has a significant property lease exposure for the depot
network, and a large defined benefit pension scheme that has
only recently moved into a small surplus.

On this basis, the Board has decided that the Group will
undertake a £250m share buyback programme which we aim
to complete over the next 12 months. This is in addition to the
£50m share buyback programme announced with the half-
year results, which was completed during the second half of
2021.

During 2020, no interim dividend was paid, but a final dividend
of 9.1p per ordinary share and a special dividend of 9.1p per
ordinary share were paid in June 2021 in respect of 2020.
Taking into account the Group’s prospects and strong financial
position, in July 2021 the Board declared an interim dividend
of 4.3p per ordinary share. The Group’s unchanged dividend
policy is to target a dividend cover of between 2.5x and 3.0x
and Board is recommending a final dividend for 2021 of
15.2p per ordinary share, giving a total dividend of 19.5p per
ordinary share. The final dividend will be paid on 20 May 2022
to shareholders on the register on 8 April 2022.

Howdens has a prudent risk appetite towards balance sheet
management, an approach which has been borne out over
the past two years with the balance sheet being a source
of great strength through the challenges of the pandemic.
While in the crisis phase of COVID-19 the Board took decisive
action to conserve capital, but as markets have recovered, we
have progressively reinstated our capital priorities including
the return to paying dividends in 2021 and also the return of
surplus capital in the second half of the year. These returns
were only initiated after having repaid all government support
received early in the pandemic.

The Board has reviewed its capital allocation policy
considering the current economic environment to ensure
it is clearly defined and retains a disciplined approach to
enhance shareholder value. This prioritises our strategy of
continuing to invest in depots, manufacturing and logistics
capabilities and related strategic investments while delivering
a progressive dividend. Our policy will be that where net
cash is excess of £250m we expect to return surplus cash to
shareholders which provides sufficient headroom to support
organic growth, our working capital requirements and ongoing
investments in our strategic priorities. At this level of net
cash, the balance sheet will remain strong with a leverage
of approximately 0.7x EBITDA after taking into account
lease liabilities.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information36

Financial review continued

Pensions

At 25 December 2021, the defined benefit pension scheme was
in a surplus at £141m (26 December 2020: deficit of £48m)
on a IAS 19 basis. This movement from a deficit to a surplus
was primarily a result of an increase in the net discount rate
which was a benefit of £113m, a £25m cash contribution and
an increase in asset returns of £58m. The current service,
administrative and finance charges totalled £7m. The defined
benefit pension scheme closed for future accrual from
31 March 2021. The scheme’s funding level on an IAS 19 basis
was 104.1% (2020: 99.0%) at the end of the financial year and
in accordance with the scheme rules, deficit contributions
were suspended in July 2021.

Current trading and outlook for 2022

Current trading

The following table shows sales in the first two periods of the
new financial year (to 19 February 2022) in absolute terms, on
a same depot (LFL) basis1 and adjusted for working days.

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.

Revenue growth (%)

UK depots

Continental European
depots**

Periods 1–2

17.1

LFL%

15.6

21.4

18.9

Periods 1–2
Adjusted*

LFL %

19.5

18.0

Foreign currency risk

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

The net favourable impact of exchange rates on currency
transactions in the year was £5.2m. The principal exchange
rates affecting the profits of the Group are set out in the
following table.

Principal exchange rates versus UK pound (£)

1.50

1.25

1.00

0.75

0.50

0.25

1.38

1.33

1.28

1.34

1.16

1.18

1.12

1.10

United States dollar (US$)

Euro (€)

Average rate

2021 Year-end

2020 Year-end

* compared with 2021 which had 38.5 trading days, 1 more than 2022.
Continental European depots are the same in both 2021 and 2022.

** excludes 5 French depots which will be closed in 2022.

We have made an encouraging start to 2022 and are confident
in our resilient business model across changing market
conditions. We are continuing to execute and invest in our
strategy and see many attractive medium-term opportunities
for profitable growth and increased volumes.

We are currently offsetting inflationary pressures through
price management and cost control, underpinned by
our service-led business model and the scale of our
manufacturing and sourcing operations.

We remain watchful of macro-economic uncertainties and
vigilant for any potential headwinds in our markets.

During the second half of 2022 we will be trading against
record revenue comparatives which includes our all-important
peak trading period.

While it is still early in the new financial year, we have, at
present, the momentum for another successful year in 2022
and the plans in place to deliver one.

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

Howden Joinery Group Plc Annual Report & Accounts 2021

Counterparty risk

Interest rate 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.

The Group has not had any borrowings during 2021 and does
not consider interest rate risk to be significant at present.

New accounting standards

None of the new accounting standards that came into effect
during 2021 had a material implication for the Group.

Cautionary statement

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

By order of the Board

Paul Hayes

Chief Financial Officer

23 February 2022

Funding and liquidity

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

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 2021 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 2021 year end, the Group had £515m of net cash and
£138m of funds available to borrow under the committed
borrowing facility.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information38

Risk management

Our approach to risk

When we look at risks, we specifically think about internal and
external drivers of operational, hazard, financial and strategic
risk areas over short, medium and long-term timescales. We
consider the effects they could have on our business model,
our culture and our strategy which we set out starting at
page 8, and which we encourage you to refer to as you read
this section.

Integration into our risk management

We consider climate-related risks as part of our operational
risk management process and we record this in our risk
registers, albeit that they tend to have longer timelines. Using
the business-owned risk management approach is the best
way to ensure mitigations are dealt with effectively. We use
a specific emerging risk identification and management
approach, with dedicated reporting to the Executive
and Board.

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.

The Board sets and regularly reviews their risk appetite for
key and principal risks. This appetite is used by the Executive
Committee when considering risk mitigation strategies.

In 2022 we are enhancing the way in which we document and
monitor risk appetite to further develop the understanding
of what is an acceptable level of risk to take for the different
types of risks we are exposed to.

Climate-related risks

Identification

Our next steps

We will continue to develop our climate risk approach.
Planned activities for 2022 and beyond include:

• Continuing to improve our risk identification process,

incorporating more data streams and trends.

• Challenging the business on the effectiveness and
accuracy of mitigation plans, including evidence of
progress.

•

Implementing specific climate-focused risk register reviews
and developing our Executive and Board reporting.

Emerging risks

We consider emerging risks as part of our risk management
approach using both internal expertise and external
resources to identify emerging issues and their potential
impact. In 2021 we enhanced our approach to improve risk
insight over three separate risk horizons:

Horizon One – (Current issues out to 12/18 months) – Typically
operational in nature and already robustly covered by the
current process.

Horizon Two – (12/18 months to 5 years) – Includes those risks
that may impact on achievement of our strategic objectives
as well as new risks our strategic objectives may present to
the business.

In 2021 we developed our approach further to improve
our climate risk insight. We use a combination of our long-
standing, bottom-up process and horizon scanning to
identify climate-related risks. During the year we conducted
specific climate risk assessments with subject matter experts
across the whole business focusing on both the physical and
transitional risks of climate change.

Horizon Three – (5 years plus) – Risks that may shape our
strategic direction beyond the next 5 years.

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

Key areas of emerging risk are:

Management

• Climate (see our TCFD reporting starting on page 52)

The business manages climate-related risk in our operational
teams, led by the relevant Executive risk owner. The
operational teams are responsible for mitigation, in line
with our wider risk approach.

• Digital development

• People

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

1 Identification

Functional management and leaders formally identify risks
twice a year providing both a bottom-up and a top-down
perspective. We record these in functional risk registers for
each area of our business. We also conduct ad hoc reviews of
new and emerging risks throughout the year as they arise.

4 Monitoring and reporting

We provide a consolidated key risks report to the
Executive Committee and Board for review, using
escalation criteria previously set by them. Mitigation plans
and the progress against them are also reported. The Board
consider and agree the key risks, appetites and mitigation
strategies which are fed back to risk owners. We conduct this
exercise twice yearly and it is used to determine the Group’s
principal risks.

Risk Governance

2 Assessment

We assess risks using a Group-wide scoring mechanism
that considers both the likelihood of occurrence and the
potential impact. We prioritise them by their risk score and an
assessment of the level of exposure against our risk appetite
is conducted. Risk that exceed our appetite may require
additional risk response.

3 Response

Risks that require a response have additional
mitigation strategies agreed and a future action
plan drawn up together with a timeframe. We assign
responsibility for implementation of action plans.

Key activities

People responsible

Reports/documents

Risk monitoring and reporting
• We determine our principal risks from the
key risk report and agreed with Executive
Committee and Board.

• Executive Committee and Board challenge

and agree the Group’s key risks, appetites and
mitigation strategies twice yearly.

• Key risks, assessments and responses are

consolidated into a key risk report.

Risk response
• Where risks exceed our appetite, mitigation

plans are drawn up by functional leaders and
agreed with Executive Committee.

Risk assessment
• Risks are prioritised using a Group-wide

scoring mechanism and are compared to
our risk appetite.

Risk identification
• We conduct operational risk register reviews
regularly to monitor current and emerging
risks.

• We review internal/external emerging issues

prior to each register review.

Top-down
Board
Executive Committee
Audit Committee
Risk team

Principal risks
We consolidate the principal risks from the
key risk report. These are those risks that we
consider could have a potentially material
impact on our operations and/or achievement
of our strategic objectives.

Key risk report
We consolidate our key risk report from the
risk registers. This report outlines the highest
scoring risks, emerging risk issues, the biggest
influences to our risk profile and changes to the
risks reported. The key risk report also provides
a Group-wide perspective on risks escalated.

Risk register
We record risk registers for each functional area,
aligned with the operating model of the business.
The register includes all of the information
required to accurately capture the risk and is
maintained on our risk management information
system. We identify an owner for each risk
register responsible for its maintenance as well
as the risks it contains.

Functional leaders
Operational management
Risk team

Bottom-up

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information40

Principal risks and uncertainties

Principal risks

• No new principal risks
• 1 risk score has increased – Supply Chain

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 impact
Lower likelihood

Higher impact
Higher likelihood

Higher

t
c
a
p
m

Lower impact
Lower likelihood

Lower impact
Higher likelihood

Lower

Risk

1 Supply chain

2 Market conditions

3 Business model & culture

4 Maximising growth

5 People

Likelihood

Higher

6 Health and safety

7 Cyber security

8 Product

9 Business continuity & resilience

COVID-19
COVID-19 continues to have an effect on our business.
Our rapid implementation of an appropriate governance
framework and risk mitigations during 2020 allowed us to
maintain a safe working environment and continue to trade
throughout 2021. Over the year we have learned that several
of the actions we took were key to ensuring the impact of
COVID-19 was minimised. These actions included:

• Working closely with our suppliers and optimising

stockholding for high-risk products.

• Using our supply chain resilience to respond to inbound

transport disruption.

• Rapid roll out of new IT platforms allowing our staff to

continue to work and serve our customers.

• Prompt deployment of equipment and training for

employees to enable remote working.

These actions continue to help deal with the impacts of
COVID-19 into 2022, including our ongoing management of
new variants. Further to this, our learning will help us be better
prepared for any future pandemics as well as improve our
wider business continuity management approach.

Links to strategy

Reach more builders

Operational Excellence

Product innovation

Prudent financial management

Brexit
The Trade and Cooperation Agreement that came into force
at the end of the transitional period on the 24 December
2020 provides a framework for trade between the UK and the
EU. Any breakdown of this agreement has the potential to
bring with it some risk for all companies operating in the UK
and the European Union. The main areas of potential risk for
Howdens include:

• Free Trade & Customs Risks

— Loss of free trade status – Tariffs or quotas on imported

goods leading to higher prices.

— Exit from the customs arrangements – Supply chain
delays due to new customs regime and increased
administrative burden.

— No regulatory co-operation – regulatory uncertainty

should standards diverge, potentially affecting sales of
UK goods in the EU and vice versa and product risks.

• Strategy & Business Plan Risks

— Consumer/Investor uncertainty – Potentially impacting

on sales and future growth strategy.

— Currency and stock market volatility – Increased costs

due to currency fluctuations.

We continue to actively monitor the ongoing relationship
between the EU and UK and reconsider our mitigation plans
and potential impacts as part of our risk process.

2021 Principal risks
The arrows alongside each risk show the year on year change

1. Supply chain

Over 2021 the scoring of this risk has increased as a result of ongoing global supply chain difficulties.

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

• Where appropriate we enter into long-term contracts to secure supply of key

products, services and raw materials.

• Wherever possible we have multiple-sourcing strategies for our key

products, to reduce the effect of a supply failure.

• We have invested in our supply chain operations and this investment gives

us increased capacity and agility.

• We are investing in new warehouse space to support our distribution

capabilities and equip them for growth and peak trading.

• Increased stock holding of at-risk products to help ensure continuity of
supply during continued Brexit uncertainty & COVID-19 difficulties.

• We obtained Authorised Economic Operator (AEO) preferred importer/

exporter status to reduce potential customs delays.

Mitigation actions in 2021

• Increased our safety stocks further to reduce the potential risk of global

supply constraints.

• Increased warehousing capacity with the use of our third distribution centre

in Raunds.

• Increased the number of deliveries to our depots during our peak trading

period to ensure availability.

• Secured HGV driver resources ahead of demand, ensuring continuity of

supply to the depots.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information
42

Principal risks and uncertainties continued

2021 Principal risks continued
The arrows alongside each risk show the year on year change

Links to strategy

Reach more builders

Operational Excellence

Product innovation

Prudent financial management

2. Market conditions

4. Maximising growth

Risk and impact

Mitigating factors

Risk and impact

Mitigating factors

• Our products are mostly sold to

• We have proven experience in managing both selling prices and costs,

• We see a significant potential for growth.

• The opportunities and challenges related to growth are a major area of

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.

and remain agile to take swift action as required.

• 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 to emerging market risk factors.

Mitigation actions in 2021

• Maintained focus on continuing COVID-19 impacts across our supply chain

and business.

• Frequent scenario planning based on latest information to ensure our plans

were appropriate to changing market conditions.

3. Business model & culture

Risk and impact

Mitigating factors

• Our future success depends on

continuing to maintain our values, our
unique business model and our locally
enabled, entrepreneurial culture.

• 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.

• Our values, business model and culture are at the centre of our 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 2021

• Regular ‘Town Hall’ meetings held to bring together teams and discuss our

successes and challenges ahead.

• Embarked on our ESG programme enhancement, with a key element focusing

on re-enforcing our core values and further embedding our equality,
diversity and inclusion standards.

• Howdens’ Worthwhile foundation created to further develop our

charitable efforts and support our business model through training of
our builder customers.

This brings both opportunities and
challenges.

• 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.

focus throughout the business, at all levels.

• We continue to invest in our depot environment, people, services, and

systems, and our manufacturing and distribution capabilities to equip them
for growth.

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

business model and culture.

• Plans to continue with our expansion of our operations in France and

other territories.

Mitigation actions in 2021

• Converted more UK depots to the new depot environment.

• Opened more depots in the UK.

• Opened more depots in France.

• Strengthened our solid worksurface offering with the introduction of

Howden Work Surfaces.

• Improved our service offering through our core logistics sites to ensure

our ability to support growth.

5. People

Risk and impact

Mitigating factors

• The success of our business is so

fundamentally driven by our people, their
strength of spirit, drive, and unwavering
customer focus.

• Our operations could be adversely

affected if we were unable to attract,
retain and develop our colleagues or if we
lost a key member of our team.

• We invested heavily in our employee value proposition, always striving to
provide the best possible working environment and growth opportunities
for all our colleagues.

• We support our colleagues with a wide variety of apprenticeships,

accreditations and development programmes across all areas of our
business.

• We use the Remuneration Committee to ensure that key staff are

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

• We work continuously to ensure that appropriate continuity and succession
plans are in place. We will continue to focus on leadership development and
succession planning.

Mitigation actions in 2021

• We continued to ensure our working environments remained COVID-19 safe

for all of our workers and brought in remote working for all of our offices, in line
with Government advice, to reduce the Health & Safety risk to all personnel.

• Wellbeing programme introduced, with targeted training for our staff based

on their role.

• Equality, diversity & inclusion (EDI) Programme further developed with

specific goals established.

• Increase in apprenticeship offerings.

• Joined the Government Kickstart employment programme and supported

several new Kickstart roles.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Principal risks and uncertainties continued

2021 Principal risks continued
The arrows alongside each risk show the year on year change

Links to strategy

Reach more builders

Operational Excellence

Product innovation

Prudent financial management

6. Health and safety

8. Product

Risk and impact

Mitigating factors

Risk and impact

Mitigating factors

• Howdens is about people and

relationships. We have over 800
depots, 11,000 employees, hundreds of
suppliers and hundreds of thousands of
customers.

• Care for the health and safety of

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

• If we do not 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.

7. Cyber security

• Since the beginning of our business, we have invested in safe ways of
working. We have developed dedicated health and 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 and safety at

every level of the business, led by the Executive Committee.

• Rapid implementation of a COVID-19 governance framework and risk

mitigations secured a safe working environment as the pandemic developed.

Mitigation actions in 2021

•

Maintained COVID-19 safe practices in line with government advice.

• Increased Health & Safety Advisor resources in the France to support

ongoing expansion.

• Continued to provide regular updates to all staff on our response to changing
COVID-19 guidance and regulation in all the countries in which we operate.

Risk and impact

Mitigating factors

• We depend on a core set of critical IT

• We place focus on training our people in cyber security, as we recognise

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, or a
financial loss.

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 2021

• We continue to review our cyber security posture and engage with third

party expertise to provide insight and assurance.

• Further development of our multi-factor authentication (MFA) and tools for

staff required to work remotely owing to Government guidance.

• Face to face, targeted awareness training at key staff meetings throughout

the year.

• Ensuring that we have products that

• Our dedicated product team regularly refresh our offerings to meet builders’

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.

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. Several new products were
introduced during the year across all product categories.

Mitigation actions in 2021

• 17 new kitchen ranges launched.

• Solid worksurface offering brought in-house.

• Restructured our product team providing greater insight and resilience.

• Further developed our website and marketing offering to builders and end-

users to provide new tools to make their lives easier.

9. Business Continuity & Resilience

Risk and impact

Mitigating factors

• We have key business operations and
locations in our infrastructure that are
critical to business continuity. These
operations are essential for ensuring
our customers can get the product and
services they want when they need them.
They include areas such as our Credit
Control Department, our Manufacturing
& Logistics operations and key IT
systems.

• We maintain and regularly review our understanding of what our critical

operations are.

• We ensure resilience by design, building high levels of protection into key

operations and spreading risk across multiple sites where possible.

• We ensure appropriate business continuity plans are in place for these and
have a Group-wide incident management team and procedures established.

Mitigation actions in 2021

• Ongoing monitoring of the potential COVID-19 impacts on the continuity of

our operations.

• Reviewed our continuity plans covering our sourcing and logistics

approaches to support peak trading.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Sustainability Matters

Worthwhile for
all concerned

Why sustainability matters
Our sustainable business model and culture.
Our material areas, KPIs and commitments.

Our TCFD reporting
Climate risks and opportunities.

Our people
Health, safety and wellbeing. Career
opportunities and support for development.

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

Our communities
Local projects and national partnerships.

48 Why sustainability matters to us

50 Our four main ESG commitments

52 Our TCFD reporting

58 Our impact on stakeholders

60 Our people

62 Sustainable supply chain

63 Sustainable product

64 Our environment

66 Our communities

48
8

Our four main ESG
commitments
Update on progress.

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

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

Our environment
Reducing waste, lowering net emissions.

Zero waste
to landfill

100%

Manufacturing
& distribution

Howden Joinery Group Plc Annual Report & Accounts 2021
Howden Joinery Group Plc Annual Report & Accounts 2021

Why Sustainability matters to us

Generating long-term value

Our 2021 TCFD implementation project

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 own 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.

We have around 800 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.

Mitigating our risks
We discuss our principal risks beginning on page 38.
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 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 at: www.
howdenjoinerygroupplc.com/sustainability/group-health-
safety-and-sustainability-policies. In 2021 the Board set up a
Sustainability Committee, whose report begins on page 142.

Reporting on the recommendations of the Task Force on
Climate-Related Financial Disclosures (‘TCFD’) will become
mandatory for us in 2022. However, we realise that there is
a growing stakeholder pull for climate-related information,
and also potential business benefits in starting our TCFD
implementation right now.

In 2021 we have built on our existing climate risk and
governance structures and have begun a wide-ranging TCFD
implementation project, which we report on in more detail
beginning on page 52.

The material sustainability areas for
us and our stakeholders

We’ve organised the main body of this report into five sections,
reflecting our material sustainability areas:

People: keeping them safe, offering rewarding careers.

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

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

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.

In 2020, as part of a wide-ranging 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, commitments
and targets

Our sustainability KPIs cover safety, use of wood from certified
sources, and avoiding sending waste to landfill. You can find
them on pages 60 to 64.

Our 2020 ESG strategic review resulted in four strategic
commitments, which we report on at pages 50 to 51. It also
resulted in a number of targets and research projects in each
of our material areas, which we report on under the relevant
area. As we work towards the commitments, learn more about
the targets and research projects, and move further down our
road to TCFD implementation, this may lead to new KPIs and
key metrics in the future.

UK’s leading responsible
kitchen business
A sustainable product offering,
responsibly manufactured or sourced,
that meets the needs of the builder and
the end-consumer

Our vision

A unique and
sustainable culture
Maintaining and building on our culture
of being worthwhile for all concerned.
Continuing to grow a sustainable
business that appeals to current and
future stakeholders.

Leader in risk and
resilience governance
An agile and resilient business,
proactively managing ESG risks, with
transparent high-quality stakeholder
reporting.

Represented by:

Our four strategic commitments

Zero waste
to landfill
Maintain zero waste to
landfill in manufacturing and
distribution. Zero waste to
landfill in depots over time,
with target of less than 5% by
end of 2022.

See more on pages 50 to 51.

Carbon neutral
manufacturing
Carbon neutral manufacturing
by the end of 2021.

Best practice in UK
behavioural safety
and wellbeing
Maintain international
safety standard ISO 45001
in our manufacturing and
distribution operations.
Achieve ISO45001 in our depot
network by the end of 2021.

Highly effective
ESG reporting and
disclosure
Progressive, phased
implementation of high-
quality TCFD reporting.
Implement the ISS ESG
reporting platform in 2021.

Underpinned by:

Our material sustainability areas

People

Keeping our 11,000
employees safe and
well. Supporting
their growth, offering
them great rewards
for success, and
opportunities to grow
with us.

Sustainable
supply chain
Certified raw materials
from sustainable
sources. Responsible
purchasing, working
with our international
network of over
250 main suppliers.
Efficient distribution.

Sustainable
product
Continuous research
and evolution of
our products and
packaging. Refining our
efficient manufacturing
processes and working
with our suppliers on
bought-in product.

Our
environment
Reducing waste,
lowering emissions,
working with the
Carbon Trust to
achieve continuing
improvements.

Communities

Being a responsible
member of over 800
local communities
in the UK and
internationally.
Supporting a range
of local and national
charities.

See more, starting at page 60.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information50

Our four ESG strategic commitments

Progress on our four ESG strategic commitments

Environment
UK’s leading responsible kitchen business

Zero waste to landfill

Carbon neutral manufacturing

100%

Manufacturing
& distribution

99.1%

Depots

100%

Achieved in 2021

Social
A unique and sustainable culture

Governance
Leader in risk and resilience governance

Best practice in UK Behavioural
Safety and wellbeing - ISO 45001

Highly effective ESG reporting
and disclosure, including KPIs

100%

Manufacturing
& distribution

Work complete in
depots, independent
audit in progress

TCFD and ISS
implementations
are underway

Progress in 2021

In 2020 we achieved zero waste to landfill in our
manufacturing and distribution, and we have maintained
that in 2021. Rather than sending our waste offsite to be
burnt for energy recovery, we took the slower but more
responsible method of using the principles of the ‘Waste
Hierarchy’ and maximising the amount that we can reuse,
recover or recycle.

It’s a lot more challenging to achieve zero waste to landfill
in our network of almost 800 UK depots. From a baseline
of 60% of depot waste avoiding landfill in 2019, we set the
target of getting to over 95% by the end of 2022. We’ve
exceeded that in 2021, with 99.1% of depot waste avoiding
landfill, and we are busy trying to find solutions for the
remaining 0.9%.

Our commitment was to achieve carbon neutral
manufacturing by 2021. We are pleased to announce
that we have achieved this on schedule, and have
received confirmation from the Carbon Trust (with
evidence provided in accordance with PAS 2060:2014 –
Specification for the demonstration of carbon neutrality).

Manufacturing accounts for around 40% of our total
Scope 1 and 2 emissions, and is entirely under our control,
so it makes sense for us to start there. Our approach was
to reduce emissions as much as possible with current
technology or renewable energy, and then to offset
residual emissions with Gold Standard carbon offsets
(shown on the independent GSF Registry here: https://
registry.goldstandard.org/credit-blocks/details/227403).

Our commitment was to achieve the international
safety standard ISO 45001 across our manufacturing,
distribution and depot network by the end of 2021.

We achieved the ISO in our factories and distribution
network in 2020. In 2021 we completed the work in our
depots but were not able to achieve accreditation before
the end of the year due to COVID-19 restrictions on
auditors visiting our depots.

We passed our Stage 1 audit in the depots, carried out by
the British Safety Council, with a score of 100%. The final,
Stage 2, audit is scheduled to complete in early 2022, and
we look forward to reporting the results once it is finished.

Our first commitment was to implement progressive,
phased TCFD reporting. TCFD is not mandatory for us
until our 2022 year end but we realise the importance of
climate risk information to stakeholders and so we have
begun our TCFD reporting journey this year and you can
find the detail starting on page 52.

Our second commitment was to implement the ISS
external ESG reporting platform to enable us to
objectively benchmark ourselves against peers and
to help stakeholders by giving them easier access to
detailed ESG information. We have implemented ISS
in 2021, and are in the process of verifying our scores,
checking our data, and making sure that it is complete
and current.

Worthwhile for all concerned

Alignment to UN SDGs

Our material SDGs

UN SDG description and relevant targets under each SDG

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.

‘ Ensure sustainable consumption and production patterns’

SDG targets: 12.2, 12.5, 12.6, 12.7.

‘ Take urgent action to combat climate change and its impacts’

SDG targets: 13.1, 13.2.

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

SDG targets: 15.1, 15.2.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Our TCFD reporting

Our progress on TCFD implementation

We are taking TCFD implementation seriously. Our approach is to build it into the business from the bottom up because that will
help us find opportunities as well as risks, and will help us measure and manage them to increase long-term stakeholder value.

We’ve made a lot of progress on our path to TCFD implementation this year, but we’ve still got some way to go. Unsurprisingly
we’re more mature around governance and risk management, while we’re closer to the start of our journey in areas such as
scenario planning.

We’ve been working with external TCFD implementation specialists on a range of projects across the business. We aim to move at
pace, but to balance that with making sure that we take sufficient time to build the TCFD principles into our operating processes -
because that’s where we see the opportunities for generating long-term value.

The table below shows where we are now, the progress we’ve made this year, and what we still need to do.

TCFD recommended disclosure

Our disclosure

Developments in 2021

Focus areas for 2022 and beyond

GOVERNANCE

A. Describe the Board’s oversight of climate-related risks

• The Board looks at material climate-related risks and

and opportunities.

opportunities when setting and monitoring Group strategy

• The Board considers climate risks as part of its overall risk

review processes described in detail at page 38

• The Board monitors our progress on key climate-related

commitments via in-person reports from our Director of ESG

• The Board set up a Sustainability Committee to oversee

sustainability strategy, consider strategic proposals from
management and make recommendations to the Board.
Their report is on page 142

• The Sustainability Committee also consider Howdens’

position on emerging climate issues, metrics and targets
and our commitment to other climate-related goals

• The Sustainability Committee will meet regularly during 2022
and make recommendations to the Board as appropriate

• The Director of ESG will report to the Sustainability

Committee at each meeting. There will be a detailed review
of the Group’s roadmap to Net Zero

B. Describe management’s role in assessing and managing

• The Exec’s job is to execute Group strategy and implement

• Management engaged external specialists in TCFD

• Management will review the materiality impact assessments

climate-related risks and opportunities.

programmes to manage and mitigate climate risks and take
advantage of opportunities

• The Director of ESG advises both the Board and the Exec

implementation (Top Tier Impact Strategies Limited) to
give support as we carry out climate materiality impact
assessments and scenario planning

and scenario analysis in 2022

• The Director of ESG will work with the Executive Committee

to develop sustainable strategies during the year

STRATEGY

A. Describe the climate-related risks and opportunities the
organisation has identified over the short, medium, and
long term.

• We’ve completed our initial climate materiality assessment

and are reviewing the draft results

• Once we’ve thoroughly reviewed them, we’ll able to talk
about our material risks and opportunities in more detail

•

Implemented a comprehensive TCFD project across the
business

Interviewed over 30 key stakeholders to identify potential
material climate risks and opportunities

• Carried out an initial review and assessment of materiality

• Scrutinising and testing the results of our initial review with

operational areas, ExCo and Board

• Building material risks and opportunities into our strategic

planning

B. Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.

• We’re at the beginning of our journey on the impact of risks

• Physical climate risks assessments of supply chain

and opportunities

• We’ve done a physical climate risk assessment over various
timeframes, and we’re reviewing the results. Once we’ve
done this, we’ll be able to think how best to build them into our
strategy and planning

locations

• Built three climate transition scenarios specific to our

business

• Carried out initial impact workshops with Group-wide

participants

• Exploring ways of building material risks and opportunities
into strategic and financial planning and decision making

C. Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2°C or lower scenario.

• We’ve constructed draft climate impact scenarios based on
our initial assessment of material risks, including one aligned
with below 2°C

• Once we’ve reviewed the results of these draft scenarios and
are happy that they are sufficiently robust, we will be able to
understand their impact on our strategy in more detail and
use them to model potential financial impacts

• Working towards Howdens-specific scenario planning has

• Testing the draft scenario results. Discussing with

been a big part of our TCFD project

• We’ve taken specialist external advice

• We’ve built our initial scenarios from scratch, based on

detailed stakeholder interviews and our initial assessment
of materiality

management, ExCo and Board. Building financial models
from the scenarios

• Further iterations of the scenarios, with refinement of inputs

as necessary

•

Identifying the implications for our risks, opportunities,
metrics and strategy

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Our TCFD reporting continued

TCFD recommended disclosure

Our disclosure

Developments in 2021

Focus areas for 2022 and beyond

RISK MANAGEMENT

A. Describe the organisation’s processes for identifying

and assessing climate-related risks.

• We combine our long-standing, bottom-up risk process with
improved identification of medium and longer-term risks
through horizon scanning. See pages 38-39 for more detail

B. Describe the organisation’s processes for managing

• We manage climate-related risks in the same way as our

climate-related risks.

C. Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation’s overall risk management.

other risks (see page 38), albeit that time horizons may be
longer

• A member of the Exec owns each risk and leads the

relevant operational teams as they control day-to-day risk
management and mitigation

• They have always been part of our overall risk identification
and management process described in detail at page 39

• The main difference between climate-related risks and other

risks is that we typically use longer time horizons when
looking at climate risks

METRICS AND TARGETS

A. Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its
strategy and risk management process.

• We have long-standing KPIs on use of FSC® and PEFC raw

materials and on production waste recycling – we report on
these at page 63 and page 64

B. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (GHG) emissions and the related risks.

• We’re reviewing the outputs of our detailed 2021 TCFD

project to see if this suggests extra or alternative KPIs, as
well as to identify whether there are any other important
climate-related metrics

• See our SECR reporting, starting on page 64

• We consider the risks relating to emissions as part of our
overall climate risk reporting, summarised on page 57

• Built the outputs of our inherent climate risk assessment

• Continue to improve our risk identification process,

into operational risk registers

incorporating more data streams and trends

• Worked with advisor to refine our process for assessing

• Assess key metrics and targets, and the operational plans

climate risks

to meet them

• Adapted our risk process to capture key climate metrics and

targets

• Carried out a specific, climate-focused round of risk register
reviews to educate operational teams with the aim to ensure
that we manage climate risks as effectively as other risks

• Challenge the business on the effectiveness and accuracy

of mitigation plans, including evidence of progress

•

Implemented a new emerging risk identification and
management approach, with dedicated reporting to Exec
and Board

• Started project to capture Board risk appetite for climate

risks

• Continue with specific climate-focused risk register reviews

• Continue to develop reporting to Exec and Board

• First iteration of an ESG metrics dashboard for the business

•

• Beginning to consider how climate-related metrics might
build into consideration of future investment decisions

Internal review and stakeholder consultation of any
potential new KPIs

• Consider appropriate scope of assurance over climate-

related data

• Assessed our material sources of Scope 3 emissions

• Continue to refine assumptions for Scope 3 emissions

and investigating how we can report on them and what
assumptions that would involve

where we don’t have all the information. Beginning to report
Scope 3 emissions where we have reliable data

• Selected appropriate assumptions and started to

investigate which of our Scope 3 emissions we can try to
gather reliable data on

C. Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets.

• We are currently researching and developing these targets

as part of the overall TCFD implementation process

• Research and development of potential new TCFD

• Develop quantitative metrics and targets for material

metrics and targets, based on the outcomes of the TCFD
implementation project so far

climate risks and opportunities and assign to the senior
executive team

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Our TCFD reporting continued

Main risks and opportunities from our scenario modelling so far

Details of the scenarios

As we describe in the ‘Strategy’ section of our TCFD reporting
on page 52, we’ve begun our work on climate scenario
planning in 2021. We looked at both physical and transition
risks and held a series of workshops with stakeholders from
across the business to identify and discuss material risks
and opportunities. Our discussions concentrated on the time
period to 2030, which we further split into short term (to 2023),
medium term (to 2026) and long term (to 2030).

We developed three scenarios to frame our discussions of
potential climate risks and opportunities:

Where governments and regulators act quickly and take
the lead with a series of measures aimed at achieving
the Paris Agreement targets. This scenario envisages
swift action, a high level of legislation and emphasis
on mechanisms such as carbon pricing and financial
incentives for decarbonisation.

Where lack of agreement between governments leads
to an initially slow pace of change, but where a series of
social tipping points see a response to climate change
which is led by citizens putting pressure onto governments
and companies to act.

Where there is some commitment from governments,
companies and citizens to a net zero transition, but where
these commitments aren’t always fully developed or
enforced, and may sometimes be overridden by political,
commercial or individual concerns in the short and
medium term, requiring more severe policy action and
enforcement in the longer term.

Results and next steps

Our initial scenario modelling work has given us an increased
understanding of the qualitative impacts of climate change
on our business across various time horizons, although we
recognise that it is an iterative and dynamic process.

The results of our scenario modelling agreed with the results
of our existing business risk management process starting on
page 38, in that they did not identify any significant short-term
climate-related risks.

Under each scenario there were a number of possible
medium and long-term risks and opportunities, which we
have summarised below. Our next step will be to develop this
analysis, which will include quantifying the material impacts
and setting a strategic direction to mitigate the risks and
maximise the opportunities.

Opportunities

Brand

Delivering on our aim to be the UK’s leading responsible kitchen business and creating a brand that is
recognised as a leader in managing climate-related risk could result in increased sales, greater brand
awareness, increased market share and increased attractiveness to current and future employees

Cost reduction

Continuing to focus on energy efficiency, pushing through our targeted improvements and taking
future steps on the path to decarbonisation could lead to a lower cost base. Relevant factors could
be things such as:

• Access to grants, subsidies and favourable tax treatment for adopting decarbonisation technologies

• Absolute reductions in energy consumption will lower costs, particularly in times of rising energy prices,

extended application of carbon pricing and an increase in the underlying carbon price

Access to capital

Building a climate resilient strategy and communicating it effectively to the market could increase the
demand for our shares and could also give us access to lower-cost bonds and loans.

Product design

Taking the lead in producing sustainable products before our competitors could increase our competitive
advantage and market share.

Risks

Sourcing

Future physical or legal barriers arising from climate change could bring challenges to sourcing some of
our products in the future – principally items which we currently source from overseas. Causes could be
things such as:

• Carbon pricing

• Pressure on supply chains to decarbonise, especially in emerging markets

• Trade tensions between countries with different Paris Agreement emission-reduction targets

• Some current raw materials could increase in cost or become unavailable in the future, so alternatives

would have to be found

Operations

The physical risk to our operations from climate change e.g. extreme weather events and rising sea
levels could require additional capital expenditure or could interrupt operations.

We have carried out a physical risk assessment of our locations in the UK and on our key suppliers’
locations around the world, based on the latest climate science. Our assessment looked at physical risks
such as coastal flooding, rising sea levels, heat stress and drought in certain regions and locations, using
timeframes up to 2030.

Our assessment didn’t highlight any significant risks in the short-term. Our next step is to carry out
further analysis of possible medium and long-term risks so that we can quantify them and take
appropriate mitigating actions if necessary.

Decarbonisation

Decarbonisation of e.g. our distribution and depot fleets could require transitional investment and/or
adjustments to current working practices.

Customer
expectations

Failure to meet customer demands for sustainable products could reduce market share.

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58

Sustainability Matters
Our impact on stakeholders

Environment

270,000m3

of chipboard from sustainably
managed UK forests

100%

of manufacturing waste
reused recycled or recovered

14,000

tonnes of waste sawdust converted
to energy to heat our factories

People

610

apprentices in training. Tailored apprentice
programmes across the Group

11,000

full-time jobs with prospects. In UK
manufacturing, in over 800 local depots
and in distribution, systems and support

100%

of UK employees in share ownership schemes

The wider economy

£70m

of rent paid to over 650 commercial landlords

£430m

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

£290m

of working capital extended to over 420,000
small businesses in our peak trading period.
No fees, up to 8 weeks to pay

£86m

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

Shareholders

£134m

dividends paid

£50m

share buyback

Community & charity

17th

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

£2.0m

in total, in cash and stock donations, given
to local charities and community activities
across our network in the UK and Europe

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People

£550m

of wages, salaries and benefits paid
to our employees

£260m

cash contributed to our pension
schemes in the last 5 years

Employing people in over

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local communities

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Howden Joinery Group Plc Annual Report & Accounts 2021
Howden Joinery Group Plc Annual Report & Accounts 2021

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Sustainability Matters
Our people

Keeping our people safe and healthy

Rewarding careers, opportunities to develop and thrive

2021 highlights

• Our safety KPI has increased from 162 RIDDOR1 reportable
injuries per 100,000 employees in 2020 to 196 in 2021.
This is also above the 2020/2021 HSE All-Industry rate of
185, although the HSE have publicly said that their rate in
2020/21 is likely to be an underestimate and will not give a
meaningful comparison.

• Despite the increase in RIDDOR-reportable injuries, our

Injury severity rate has remained flat from 2020 to 2021
at 33.4 hours lost per 100,000 hours worked.

Reportable injuries/100k employees
Reportable injury rates increased in 2021

300

250

200

150

100

• Our working practices were significantly disrupted in 2021
by COVID-19 working restrictions on social distancing,
COVID-19 fatigue and the ‘Pingdemic’. These factors all
reduced operating capacities in a year of record demand.
We were busier than ever and we employed more people
than ever – all of whom were fully trained but were gaining
experience. These factors were key contributors to the
unwelcome rise of injuries that we reported as RIDDORS
because they resulted in absences from work for more than 7 days.

2016

2017

2018

2019

2020

2021

HSE all-industry rate

Howdens

• Our priority for 2022 is to return to pre-COVID standards, to reduce reliance on modified working conditions and to

ensure that all of our colleagues are able to work consistently safely.

• We actively promote employees to report all injuries and incidents, no matter how minor, because we know that a

mature health and safety culture is built on full, open and blame-free reporting.

•

In 2021 we also supported our employees’ mental health and wellbeing through our ‘Safe to talk’ programme. Sponsored
by Andy Witts, the Chief Operating Officer of our Trade division, the programme was launched with a video message
from Andy emphasising that it’s ‘OK not to be OK’, encouraging staff to seek help and reminding them of the confidential
independent helpline, available to all staff, to help them with a range of health and wellbeing issues.

•

We were awarded Highly Commended status by the Institute of International Risk and Safety Management (IIRSM) in the
‘Outstanding risk management practice’ category, recognising our approach to managing safely through COVID-19.

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.

ONGOING WORK:
Continue with our behavioural safety
and safety culture approach across the Group.

2021 update: See page 51. We have completed our work,
passed the Stage 1 audit, and are awaiting the results of the final
audit which was delayed by the pandemic but is taking place in
early 2022.

2021 update: We have continued to focus on personal safety
responsibility & safety leadership. All our manufacturing and
distribution senior leadership team attended the NEBOSH
‘Excellence in Safety Leadership’ course in 2021.

TARGET:
Achieve the British Safety Council’s ‘5-Star’
safety standard at all manufacturing and
logistics sites by the end of 2023.

2021 update: This target is under review. The impact of COVID-19
has meant that we haven’t been able to schedule an external
audit of our progress for almost two years, which has caused
significant upset to our project plan. We still aim to achieve 5-Star
standard, but we are currently reviewing our timescales.

We have an HSE survey planned for Q1 2022, which will help us
to measure progress and identify next steps.

ONGOING WORK:
Develop a Group wellbeing strategy in 2021.

2021 update: We have begun work in this area. See above for our
‘Safe to talk’ programme, We have also introduced trained Mental
Health First Aiders and Wellbeing Representatives and delivered
training on managing mental health.

‘RIDDOR injuries’ are injuries reportable to the HSE under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013.

• We’ve continued to invest in people. Much of our 2021 development activity
has had to take place online but we still delivered 112,000 hours of training.

• We’ve got an apprentice programme to be proud of. We currently have 610
apprentices on a range of tailored programmes throughout all areas of
the business. They are a mixture of new starters, recruited into apprentice
positions and training at a foundation level, and existing employees who are
taking an apprenticeship route to gain higher level skills and professional
qualifications. We recruited 616 apprentices in 2021, and we were pleased
to celebrate the success of our 155 employees who successfully completed
apprentice programmes in the year.

•

We understand the value that apprentices can bring to our business, and
we try to offer as many in-house apprenticeship programmes as possible.
Where we are not able to use all of our Apprenticeship Levy credit we have
partnered with EN:Able Futures, passing on surplus Levy credits to them so
that they can offer apprenticeships in building and construction trade skills,
including kitchen fitting. In this way, we are helping to address the demand
gap for skills in the trade and also help to train the next generation
of Howdens customers.

• We improved employee benefits in 2021. This included increasing company
pension contribution levels and launching a ‘Buy as you Earn’ share scheme
to encourage colleagues to benefit from our future success. Under the
scheme, colleagues can buy shares out of pre-tax pay, and we also give
them free matching shares. We also improved how we communicate with
colleagues about their benefits, supporting them to make informed choices.

•

Employee engagement is critical to our success. We continue to use
employee forums and our union reps to get feedback on a wide variety of
topics, and our Executive remain connected to our employees through
regular site visits and hosting regional board meetings, where feedback is
acted upon and leaders held to account.

The fast track for Vicky

Vicky Cuff joined Howdens as a
Fast Track Assistant Manager
Apprentice at the end of 2019.
The apprenticeship programme
involved a 12—15 month mix of on
the job experience and study. Vicky
was only 8 months into her role
when the position of Depot Manager
was advertised, but her manager
encouraged her to apply. Vicky had
made such a positive difference in
her role that she was offered the
position. She went on to complete
her apprenticeship with distinction
and has already delivered the
depot’s best ever year. Not only
that, Vicky is already demonstrating
her leadership qualities supporting
her own apprentices to develop
and progress.

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.

2021 update: We have Executive Committee sponsors for each
strand of our EDI project: Theresa Keating leads on ethnicity;
Andy Witts leads on disability and Julian Lee leads on gender. We
have also set up an EDI subcommittee with employees at different
levels from across the Group who are working with the sponsors.

Our focus is to develop action plans to address the areas where
we can make the biggest difference. To do this, we’re engaging
with employees, listening to their experiences and priorities, and
looking at what data we already have and what new data we need
to be able to set targets and measure progress.

We have also developed bespoke EDI training sessions and have
begun to roll them out across the Group.

2021 update: Subjectively we know that people can thrive with
Howdens. For example, many of our current depot managers
joined us with few formal qualifications in an entry-level position
and are now running their own businesses, selling millions of
pounds worth of kitchens and being responsible for teams of
staff and hundreds of customer accounts.

The challenge when we began the investigation phase of this
project this year was that many objective measures of social
mobility require data on employees’ history and background
which is not part of the recruitment process. We are considering
ways to gather objective data for the future whilst continuing to
encourage our employees to grow with us and to support them in
their development with a range of tailored programmes across
the business. Kirsty Homer is the Executive Committee sponsor.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information62

Sustainability Matters
Sustainable supply chain

Sustainability Matters
Sustainable product

Certified wood, responsible purchasing, efficient distribution

Product development and re-engineering. Sustainable sourcing strategy

2021 highlights

• We used over 270,000 cubic metres of chipboard and
61,000 cubic metres of MDF in our factories in 2021 –
enough to fill the Albert Hall more than 3 times – so we
need to know where our timber comes from.

• FSC® or 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.

• 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.

100%

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

• Our transport fleet drove around 16 million miles in 2021 so we need it to be both efficient and

safe. All of our trucks comply with the latest emissions standards, and we’ve fitted refinements
to the standard build to increase efficiency and reduce emissions even further. We are ready to roll out a trial of
Hydrotreated Vegetable Oil (‘HVO’) in 2022. HVO is a sustainably-sourced second-generation biofuel, which is made from
plant-based materials and can replace diesel without requiring engine modifications. It has the potential to reduce CO2,
nitrogen oxide and particulate emissions compared to diesel.

• 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.

• 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.

• 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 fuel 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.

2021 update: We are slightly ahead of target for 2021 and
are making progress towards our 2023 target. Against a 2020
baseline of 9.89 MPG, we have achieved a 1.3% improvement
with our 2021 12 month rolling average of 10.02 MPG. Given that
our distribution fleet covered around 16 million miles in 2021, this
increase in efficiency reduced our emissions by just over 250
tonnes of CO2, as well as saving money by using less fuel per mile.

2021 update: This target is all about maximising efficient truck
loading. Empty space is inefficient. It increases our emissions
and our costs. Against a 2020 baseline of 10.68 KgCO2/M3, and
a target of 10.15 KgCO2/M3, we have delivered a 6.2% rolling
12-month emissions reduction in our own fleet with a figure of
10.02KgCO2/M3.

Sustainability is integral to our new product development

•

We’ve formalised a change in our approach to new product design and sustainability is now one of five standard pillars
of consideration when designing new products.

Making sustainability part of business as usual

Quality

Cost

Design

Availability

Sustainability

Product re-engineering

Improving the sustainability of our products by design

• We manufactured over 4.5 million cabinets in 2021, so this is an area which we control and where we can make a big
difference. That’s why we are trying to produce a fully recyclable cabinet. At present we’re at around 90%, and we’re
working on how to improve this even further.

• We’re also looking at the beginning of our cabinet’s lifecycle and aiming to maximise the percentage of recycled materials that
they are made from. At present 35% of the wood content in the chipboard used to make our cabinets is recycled. Some of that
is from our own wood waste which we collect from depots and take back to our main board supplier who then recycles it into
new board. We’re using our membership of the Ellen MacArthur Foundation Network to look at other circular opportunities.

Our sourcing strategy

•

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.

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
certification by the end of 2022.

2021 update: At the end of 2021, 95.5% of all our kitchen frontals
were made from FSC® or PEFC certified materials. We are on track
to achieve our 100% target by the end of 2022. All the frontals
which we manufacture ourselves are certified, and we insist
that all new frontals which are manufactured by third parties are
accredited. The small number of frontals which are not accredited
belong to old ranges which have been discontinued and will no
longer be offered for sale after the first quarter 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.

2021 update: Our new Supplier Code of Conduct has been
issued to all suppliers, and mandates that they use the Sedex
responsible sourcing platform. We are in the process of working
with our suppliers to make sure that they are on credible
pathways to achieving this.

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

2021 update: 100% of the cardboard packaging used in our own-manufactured frontals and panels is recycled, recyclable and FSC® certified.

The packaging we use to protect our cabinets uses a specialist type of paper as part of the packing cushion which is recyclable and FSC®
certified but which is not made using recycled cardboard. Our packaging suppliers have tested alternatives and established that in order to
make the cushions 100% recycled the processes they would have to adopt would have a more detrimental effect on the environment than
continuing with the current product. We continue to look for a recycled alternative.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information
64

Sustainability Matters
Our environment

Reducing waste, responsible operations, lowering emissions

SECR – Emissions reporting

2021 highlights

• Maintaining zero to landfill in 2021 in our

manufacturing and logistics operations. We were very
pleased to achieve this in 2020 through our approach
of 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. We have
maintained this performance in 2021 and this is our
target for the future.

• Less than 1% to landfill in our UK depots in 2021. This
metric is part of one of our main ESG commitments, and
we’ve made significant progress in 2021. See page 50 for
more details.

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

100%

•

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 encourages us to look for improvements.

• Sawdust-to-heat. In 2021 we converted 14,000 tonnes of sawdust into energy in biomass boilers at our Runcorn and
Howden factories. This is enough sawdust to fill 17 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 40,000mWh
of energy from our biomass boilers, equivalent to the average electricity consumption of over 11,000 households.

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.
2021 update: Exceeded 2021 interim target. See page 50.

COMMITMENT: Carbon neutral manufacturing by the end of 2021.

2021 update: Achieved. See page 50.

SECR Reporting

Energy efficiency initiatives

Use of renewable energy sources and carbon offsets

We have held the Carbon Trust Standard for Carbon since
2012, with a commitment to reduce TCO2e/£m turnover by
2.5% p.a. Examples of our main measures to achieve this were
replacing inefficient assets with energy-efficient equipment
(such as LED lighting, efficient extraction system drive motors,
compressed air system optimisation with leak detection), and
logistics fleet efficiencies through driver training and trailer
fill optimisation. Our new warehouse campus of 1.6m ft2 at
Raunds is built to a BREEAM Very Good status, and we started
decarbonisation of our car fleet with 150 hybrid & electric
vehicles introduced in 2021.

Since January 2021, our UK manufacturing sites bought all
grid electricity from renewable sources backed by Renewable
Energy Guarantees of Origin. This avoided equivalent carbon
emissions of 4,125 tCO2e. This is reflected in our market-based
emissions which we are reporting for the first time in 2021.
Our factories at Howden and Runcorn are heated by biomass
boilers with fuel certified as sustainable and recognised
under the Renewable Heat Incentive scheme by OFGEM. In
2021, these boilers generated 41,882mWh of heat. In 2021,
we also purchased 12,648 tCO2e of Gold Standard carbon
offsets in support of our achievement of carbon neutrality at
our Howden and Runcorn manufacturing sites. Details of the
offsets, together with a link to the independent certification
registry are on page 50.

Turnover increased by 35%, gross emissions increased by 12%, gross carbon
intensity (turnover-based) ratio improved by 17%
Emissions reporting methodology

We have used HM Government Environmental Reporting Guidelines including Streamlined Energy and Carbon Reporting
guidance. Scope 1 and 2 carbon emissions are calculated in accordance with the WRI GHG Protocol, A Corporate Accounting
and Reporting Standard (Revised edition), using the UK published DEFRA 2021 emissions factors. Market-based emissions are
reported in accordance with the GHG Protocol Scope 2 Guidance – An amendment to the GHG protocol.

Our calculations are subject to internal quality checks at the initial data analysis and final report collation stages. They are
not yet externally validated. The boundary of our reporting is all Scope 1 and 2 emissions within Howden Joinery Group Plc
operational control, including all subsidiaries and international operations in France and Belgium. There are no process
emissions within Howdens as defined in the GHG Protocol. Biomass emissions are pro-rated across 365 days due to the metering
systems output alignment outside of the reporting period in this report.

Scope 1 – Direct: Gas

Scope 1 – Direct: Diesel

Scope 1 – Direct: Other fuels

Scope 1 – Direct: Biomass

Scope 1 – Direct: Total

Scope 2 – Indirect: Electricity (location based)

Scope 2 – Indirect: Electricity (market based)

TOTAL Scope 1 and 2 Gross emissions (location based)

TOTAL Scope 1 and 2 Gross emissions (market based)

Carbon offsets tCO2e
TOTAL Scope 1 and 2 Net emissions (market based)

Turnover (£m)

Carbon Intensity ratio (tCO2e per £m turnover) Gross (location based)
Inflation adjusted intensity ratio (tCO2e per £m turnover) Gross (location based)

Additional carbon intensity ratio (tCO2e per £m turnover) Net (market based)
Additional Inflation adjusted intensity ratio (tCO2e per £m turnover) Net (market based)

Energy consumption used to calculate above emissions (kWh)
Proportion of CO2 emissions generated in the UK:

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

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

2020

13,032

24,744

629

651

39,057

11,967

51,024

(9,168)

41,856

1,547.5

33.0

34.4

2021

15,707

27,626

1,684

642

45,659

11,585

7,460

57,243

53,118

(12,648)

44,595

2,093.7

27.3

29.9

19.3

21.1

308,287,234

274,272,777

99.0%

98.6%

99.1%

98.8%

60.0

50.0

40.0

30.0

20.0

2017

2018

2019

2020

2021

Total Carbon emissions – Gross (‘000s tCO2e)
Carbon Intensity ratio (tCO2e per £m) – Gross (location based)
Carbon Intensity ratio inflation adjusted (tCO2e per £m) –
Gross (location based)

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information66

Sustainability Matters
Our communities

Going Concern and Viability statements

Local and national donations and partnerships

Going Concern

2021 highlights

Giving back to local communities

Howdens depots are part of the communities in which they serve. Our employees are from the communities where they
work and through their work they build networks and relationships with local builders, local businesses and local people.
That is why we think that our employees know what charitable support their communities need.

Every Howdens depot has a charity pot for use in their area. They can support larger, national charities if appropriate or
they can donate to hospices, youth sports clubs or community groups. Whatever they think is best for the people in their
community. Depots can also donate stock where needed. This was perhaps best demonstrated by our Belgian depots who
donated €11k of kitchen appliances to help the relief efforts following the summer floods.

In 2021 Howdens donated £2.0m to a diverse mix of charities and community groups. More information on our support of
local communities can be found at https://www.howdens.com/help-and-advice/about-us/charities

Inspiring and motivating young people

In 2020 we reported that Howdens had donated a fully fitted double-decker bus to the ‘I can & I am’ charity. The charity’s
purpose is to inspire confidence in young people and ‘inflate balloons of self-belief’. The bus enables the ‘I can & I am’ team
to visit schools and host workshops for children.

In 2021, Howdens began a £100k partnership with ‘I can & I am’. This donation is used to
cover the running costs of the bus and enable the ‘I can & I am’ team to focus on delivering
workshops and mentoring. Since May 2021, over 3,300 children have attended workshops
on the bus, the majority of whom were between 10 and 15. Find out more at: https://www.
icanandiam.com/the-bus/

Solutions for independent living

Howdens continues to donate accessible kitchens to Leonard Cheshire Disability
and installed 14 during 2021 (2020: 5).

Our kitchens have a huge impact on Leonard Cheshire’s service users, enabling
them to build and develop their life skills through cooking. This is beneficial for wellbeing with many recipients of our
accessible kitchens noting that their confidence has improved, and they have become more independent as a result.

Our partnership with Leonard Cheshire is now in its seventeenth year and we look forward to donating more accessible
kitchens and finding solutions for independent living in the year ahead.

Results of our 2020 ESG Strategic Review – Future commitments, targets and ongoing work

ONGOING WORK: Improve how we organise our charitable giving and better help the
communities in which we work, whilst retaining our core strength of local giving
through local networks.

2021 update: In 2021 we incorporated the Howdens Worthwhile Foundation and
will apply for charitable status for the foundation in 2022. The Howdens Worthwhile
Foundation will help us better coordinate our charitable and community efforts.
We believe that our efforts are most effective when they are aligned to our values.
The local depot donations will continue to be central to the work of the Howdens
Worthwhile Foundation, but it will also look for other opportunities to support the wider
community under three broad themes: inspiration, motivation and perspiration.

We will provide an update on the work of the Howdens Worthwhile Foundation in the
2022 Annual Report.

The Directors have adopted the going concern basis in
preparing the financial statements 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.

A ‘severe but plausible’ downside scenario.
This scenario starts with the base case described above –
and models a going concern period where those sales
are down by 7% and margin is down by 2%.

Going concern review period

The going concern review period covers the period of
12 months after the date of approval of these financial
statements. The Directors consider that this period continues
to be suitable for the Group.

Assessment of principal risks

The Directors have reached their conclusion on going concern
after assessing the Group’s principal risks. Pages 38 to
45 give more detail on these risks, their potential impacts
and mitigations, and include a discussion of the effects of
COVID-19 and Brexit.

Whilst all the principal risks could have an impact on the
Group’s performance, the specific risks which could most
directly affect going concern are the risks relating to
continuity of supply, changes in market conditions, and
product relevance. The Directors note that the Group is
currently holding additional amounts of fast-moving stock
items as a specific mitigation against supply chain disruption,
and they consider that the other effects of these risks would
be reflected in lower sales and/or lower margins, both of which
are built into the financial scenario modelling described below.

Review of trading results, future trading
forecasts and financial scenario modelling

The Directors have reviewed trading results and financial
performance in 2021, as well as early weeks’ trading in 2022.
They have reviewed the Group balance sheet at December
2021, particularly noting that the Group is debt-free, has
cash and cash equivalents of £515m, and has appropriate
stock levels.

This level of reduction in sales and margin has been
chosen as it replicates the worst fall ever experienced in
the Group’s 25-year history. It is worse than the combined
effect of COVID-19 and Brexit on 2020 actual performance
where sales were down 2.3% on the previous year and
margin was down by 2%.

This scenario includes capital expenditure which is
lower than in the base case, but which is still in line with
our announced strategic priorities for growth, namely:
new depot openings and refurbishments; additional
investment in our manufacturing sites, and additional
investment in digital. This scenario models a reduction in
most of the variable cost base in line with the reduction in
turnover. It includes dividends at a level of dividend cover
in line with the Group’s stated policy, but it assumes no
share buybacks.

A ‘reverse stress-test’ scenario. This scenario starts
with the severe but plausible downside 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 further mitigating actions.

Capital expenditure in this scenario has been reduced to
a ‘maintenance’ level. Variable costs have been reduced
in line with the reduction in turnover on the same basis as
described in the severe but plausible downside scenario.
It assumes no dividends or share buybacks.

Results of scenario testing

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

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

A ‘base case’ scenario. This is based on the final 2021
Group forecast, made in November 2021 and including the
actual results of the 2021 peak sales period.

In the reverse stress-test scenario, the results show that sales
would have to fall by a significant amount over and above
the fall modelled in the plausible downside scenario 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.

The basis of this scenario has been approved by the
Board. It assumes future revenue and profit growth in line
with management and market expectations as well as
significant capital expenditure to support that growth and
cash outflows for dividends and share buybacks.

e
c
n
a
n
r
e
v
o
G

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Going Concern and Viability statements continued

Going Concern continued

Long-term prospects and viability

Long-term prospects and viability continued

Borrowing facilities available but not
included in the scenario modelling

The Group has a bank facility which allows borrowing of up
to £140m, which expires in December 2023 and whose other
main details are set out in note 19 to the financial statements.
The facility has not been used at any time since it was set up.
All the going concern scenarios are modelled on the basis that
the Group does not draw on this facility.

Conclusion on going concern

Taking all 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 Group will have adequate resources to
continue in operational existence for the going concern review
period set out above. Accordingly, they continue to adopt the
going concern basis in preparing these financial statements.

Assessment of long-term prospects

The Directors have assessed the Group’s long-term
prospects, solvency and liquidity, with particular reference
to the factors below:

Current position

• History of profitable trading, with strong net profit margins.

• Cash and cash equivalents balance at December 2021 of

£515m.

• 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. Unused, but available if needed.

• Strong relationships with suppliers and customers, built

on trust.

•

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

Robust disaster recovery and business continuity
framework.

Strategy and business model

• Proven, successful business model.

•

Demonstrated agility and resilience of the business
model to adverse economic conditions.

•

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 45,
together with details of the principal risks and mitigations.

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

The Directors consider that the reasonably foreseeable
financial effects of any reasonably likely combination of the
Group’s principal risks are unlikely to be greater than those
effects which were modelled in the severe but plausible
downside and reverse stress-test scenarios.

Results of scenario testing

The results of the base case and plausible downside scenario
modelling showed that the Group would have sufficient cash
over the viability assessment period and would not need to
use its lending 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 Group would need to use its borrowing facility at
any point over the viability period was over three times the
fall modelled in the severe but plausible downturn scenario.

None of the scenarios relied on the Group making use of its
lending facility.

Conclusion on viability

Having considered the Group’s current position, strategy,
business model and principal risks in their evaluation of the
prospects of the business, and having reviewed the outputs
of the scenario modelling, the Directors concluded that they
have a reasonable expectation that the Group will continue
to operate and to meet its liabilities in full and as they fall due
during the three year period to December 2024.

Assessment of viability

Time period and scenario modelling

The Directors’ review of the Group’s long-term viability used
a three-year period to December 2024. This was considered
to be the most suitable period as it aligns with the Group’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 takes the base case described in
the discussion of going concern above and extends it over
the viability assessment period. It assumes an increase in
sales and profit, capital expenditure in line with our plans
for growth and investment in our strategic priority areas,
and cash outflows for shareholder returns.

The severe but plausible downturn scenario takes the
same decline over the going concern period as described
in the discussion of going concern above, and then
assumes a phased recovery over the rest of the 3-year
period. It assumes that sales recover cautiously. On
gross margin, which had been modelled at 2% down on
the base case over the going concern period, the model
assumes an improvement of 1% each subsequent year,
thereby returning to the base case margin level by the
end of the viability assessment period. It assumes capex
which is less than the base case, but which is still in
line with investing in our strategic priorities, dividends
in line with our current level of dividend cover, and no
share buybacks.

In the reverse stress-test scenario, the model assumed a
phased recovery of margin and profit on the same bases
as for the severe but 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.

Further reading relevant to going concern and viability

Principal risks and mitigations, including a review of the risks arising
from COVID-19 and Brexit

Management actions to secure stock availability

Trading results

Balance sheet

Details of our £140m borrowing facility

Pages 38 to 45

Page 24

Pages 32 to 37, and the
Financial Statements

Page 149

Page 169

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

Pages 186 to 194

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information70

Other Directors’ statements

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
82 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 82 and 83. On page
83, 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 145
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 2021

Strategic reportGovernanceFinancial statementsAdditional information72
72

Governance

How we
preserve value

Corporate governance report

Board of Directors

Key Board activity

Nominations Committee report

Remuneration Committee
report

3,530 (+16%)

Total Executive Director – Fixed vs Variable Pay

Executive Committee
and Company Secretary

Section 172(1) statement and
stakeholder engagement

UK Corporate Governance Code
application and compliance

Audit Committee report

32 (+23%)

2 (0%)

3 (0%)

2020

2021

Fixed

Variable

106

Sustainability
Committee report

74 Corporate governance report

Board of Directors

78 Key Board activity

Executive Committee and
Company Secretary

Directors’ duties (Section 172(1)
statement)

Stakeholder engagement

2018 UK Corporate Governance
Code application and
compliance

96 Nominations Committee report

106 Remuneration Committee report

134 Audit Committee report

142 Sustainability Committee report

144 Directors’ report

134

142

Howden Joinery Group Plc Annual Report & Accounts 2021

Corporate
governance report

Board meeting attendance

Richard Pennycook (7/7)
Karen Caddick (7/7)
Andrew Cripps (7/7)
Geoff Drabble (7/7)
Louise Fowler (7/7)
Paul Hayes (7/7)
Andrew Livingston (7/7)
Debbie White (7/7)

Using the corporate governance report
Board and Executive Committee profiles and
Part 1:
key Board activity during the year.

Part 2: Directors' duties and section 172 disclosure.

Part 3: Stakeholder engagement.

Part 4: UK Corporate Governance Code compliance.

2022 Annual General Meeting (AGM)
Details of the 2022 AGM may be found in the
'Additional information' section on page 202.

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 202 and 203.

Richard Pennycook

Chairman

Introduction from the Chairman
I wrote in this report in 2020 that COVID-19 had impacted all
of our lives in ways we could not have imagined a year ago.
Sadly, this continues to be true. We started the year locked
down, although thankfully still trading, and the first two Board
meetings of the year were held virtually. Once again, we
are having to manage with a further wave of the pandemic
and, as before, we will prioritise the health and safety of our
employees and customers first.

Resilience

Our strong trading performance this year has been
underpinned by good governance practice, which has given
the business the resilience to prosper even in challenging
times. It would be easy to assume that this resilience was just
inherent within the business, but that is not the case. It comes
from good governance, clear accountabilities and reporting
lines, careful planning and relentless execution.

A good example of this resilience in action can be seen in
the position taken in relation to safety stock. Long before
consensus had moved from ‘just in time’ to ‘just in case’,
Howdens had built significant safety stocks in order to
safeguard its in-stock offering. Originally done as a measure to
safeguard against the impact of Brexit, contingency stocks of
fast-moving products have been increased since the start of
the pandemic. This meant that, even in the face of significant
disruption in global supply chains, Howdens was able to
continue to supply its customers with kitchens. The Board
received regular updates from the Supply Chain Director as
well as updates from the CEO and CFO and were supportive of
the position taken on inventory.

Our stakeholder relationships are also vital in building
resilience and safeguarding value, and the Board will
continue to focus on these relationships. Our contingency
stock build would not have been possible without strong
supplier relationships. Similarly, our relationship with
employees meant that we were not impacted by the HGV
driver shortage as others were. But in addition to fostering
good stakeholder relationships, resilience also comes from
good business as usual governance safeguards. During the
year the Board continued to prioritise health and safety, risk
and whistleblowing. In early 2022, the Board will appoint new
auditors (more information on this can be found on pages 137
and 138) and we will ask shareholders to approve an updated
Directors' Remuneration Policy (which begins on page 111).

Sustainability

With the exception of COVID-19, the overarching theme for
2021 has been sustainability. Businesses and individuals
have been challenged to consider the sustainability of their
behaviours to try and prevent irreversible climate change and
to address the social inequities that we face. In 2021, we have
built on our existing climate risk and governance structures
and have begun a wide-ranging Task Force on Climate-Related
Financial Disclosures ('TCFD') implementation project, which
we report on in more detail beginning on page 52.

The Board also set up a Sustainability Committee during the
year to provide a separate forum, not impacted by the time
pressures of the wider Board agenda, in which these matters
could be properly considered. The report of the Sustainability
Committee is set out on page 142. More detail on sustainability
initiatives can be found in our Sustainability Matters report,
which starts on page 46.

This is clearly an area where the Company will engage with
stakeholders and report in greater detail going forwards.

Pensions

2021 was a significant year for the Company and the Board
in respect of the Defined Benefit Pension Plan (the 'Plan').
During the year, the Plan's funding position improved so
that it was in surplus on a technical provisions basis. It has
remained there since and, due to the funding arrangements
agreed with the Pension Trustees, Company contributions to
the deficit have ceased. The Plan was also in surplus on an
IAS 19 accounting basis.

In January, the Board approved the closure of the Plan to
future accrual. The rationale for doing so was very clear:

it would ensure greater certainty and predictability of Plan
costs which would help support the long-term viability of
the Company. The two-tier pension structure which had
developed was also at odds with Howdens’ underlying ethos
that it should be worthwhile for all concerned and provision
of more equitable pension benefits across the workforce was
also a determining factor when considering closure. While
difficult for those employees affected, Howdens goes into
2022 with a much-improved retirement savings offering for
the majority of its employees which, from April 2022, will be
aligned across the organisation.

Such decisions demonstrate that the principle of worthwhile
for all concerned continues to form the basis upon which all
Board decisions are made.

Board and Executive Committee structure

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

Kirsty Homer
Group HR Director

Mark Slater
Commercial Director

Theresa Keating
Group Finance Director

Richard Sutcliffe
Supply Chain Director

Julian Lee
Operations Director

Andy Witts
COO: Trade

Company Secretary

Forbes McNaughton

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

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information

Corporate governance report continued
Board of Directors

Executive Directors

Non-Executive Directors

Key to Board Committee membership

Audit Committee

Remuneration Committee

Nominations Committee

Sustainability Committee

Chair of 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.

Andrew Livingston
Chief Executive Officer

Paul Hayes
Chief Financial Officer

Richard Pennycook
Independent Non-Executive
Chairman

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

Appointed

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

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

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

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.

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

Geoff 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.

Other listed company appointments

Karen Caddick
Independent
Non-Executive Director

Andrew Cripps
Independent
Non-Executive Director

Louise Fowler
Independent
Non-Executive Director

Debbie White
Independent
Non-Executive Director

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

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

Louise was appointed to the
Board in November 2019.

Debbie was appointed to the
Board in February 2017.

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 RSA Insurance Group
Plc (now RSA Insurance Group
Limited), 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 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 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
also provides valuable insight
given the investment the
Company continues to make in its
digital programme. Louise is an
Honorary Professor in Marketing
at Lancaster University
Management School.

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
CFO and as Chair of the Audit
Committee of the charity
Wellbeing of Women ensures
Debbie has strong financial
awareness and competence.
Debbie is currently interim
HR Director at BT Plc and has
also supported Howdens
management in the formation
and delivery of its Equality,
Diversity and Inclusion (EDI)
programme.

Non-Executive Director at
LondonMetric Property Plc

None

Chairman of On the
Beach Group plc

Chairman of Ferguson Plc
Chairman of DS Smith Plc

None

Deputy Chair of
Swedish Match AB

Non-Executive Director
of Assura Plc

Non-Executive Director
of PAVmed Inc.1

Committee Membership

Howden Joinery Group Plc Annual Report & Accounts 2021

The Board considered Debbie’s appointment as Non-Executive Director of PAVmed Inc. prior to her appointment. The Board was satisfied that Debbie had the
requisite time available to commit to her responsibilities in her role as Non-Executive Director of Howdens. Further information is available on page 92.

Strategic reportGovernanceFinancial statementsAdditional information78

Corporate governance report continued
Key Board activity

Set out below and on the facing page are highlights of the matters
the Board considered in 2021 and will consider in 2022. 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 2021 timeline, 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.

Reporting from our whistleblowing helpline is also considered by
the Board on a biannual basis.

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 45. We have reviewed our risk management processes
and remain satisfied that they are robust and effective.

Shareholder engagement

Information about how we engage with shareholders can be found
in our section on Stakeholder Engagement on pages 88 and 89.

2021

January
• Health and safety

February

April

May – AGM

• ESG update

• Health and safety

• Defined Benefit Pension

• Draft 2020 preliminary

• Group Policies and

Plan closure

• 2021 budget

•

Investor relations update

Executive Committee presenters:

results

Statements

•

Investor relations update

• Dividend Reinvestment

Plan introduction

• Share Incentive Plan

expansion

• Strategic planning
(separate session)

Executive Committee presenters:

• Draft 2020 Annual Report
and Accounts and 2021
AGM documents

• Dividend and capital

returns strategy, including
Special Dividend

•

Investor relations update

• Risk update

• Non-Executive Directors’

fees

• Principal Advisors

Executive Committee presenters:

2022

Details of how the meeting
was held in a COVID-safe
manner may be found on
page 88. All resolutions were
passed with the requisite
majority.

September

November

• Warehousing proposal

• Update on strategic

June

• Health and safety

• Appointment of new
external auditor

• Pensions update2

July
• ESG review (including EDI)

• Health and safety

• Strategy update, including

capital allocation

• Broker update

•

Investor relations update

• Digital update

• Draft interim results
and announcement

• Principal Risks

• Supply Chain update

• France and Belgium

update

• Health and safety

•

Investor relations update

• Pensions Scheme Act

2021 training

Executive Committee presenters:

initiatives

• Periods 10 and 11
performance

• Health and safety

• Pensions update2

•

Investor relations update

• Schedule of Matters

Reserved for the Board
and Board Committee
Terms of Reference

• 2022 Board calendar

Executive Committee presenters:

January

• 2022 Budget

• Health and safety

• Whistleblowing report

•

Investor Relations

• Governance update

February

April

May

• Draft 2021 preliminary

results, draft 2021 Annual
Report and Accounts and
2022 AGM documents

• Shareholder and capital

returns

• Strategic opportunities
and long-term planning

• AGM – further details on

page 202

• Health and safety

• Pensions

•

Investor Relations

• Review of Principal Risks

• Health and safety

• Board evaluation feedback

• NED fees

• Principal advisor review

• Approval of principal

advisors

June
• Trading update

• AGM feedback

July

• HR update

• France and Belgium

• Health and safety

• Draft 2022 Interim results

• Key risks review

• Broker update

• Whistleblowing report

September
• Supply chain update

• Manufacturing and
logistics update

November
• Trading and commercial

update

• Health and safety

• Employee engagement

•

Investor relations update

• Health and safety

• Corporate governance

•

Investor relations update

• Key risks

update (including
presentation from the
Group’s corporate lawyers)

• Board Committees’ Terms

of Reference review

• Schedule of Matters

Reserved for the Board
review

• 2022 Board calendar

Executive Committee presenters

Rob Fenwick (Chief Governance Officer)1

Julian Lee (Operations Director)

Kirsty Homer (Group HR Director)

Andy Witts (COO: Trade)

Mark Slater (Commercial Director)

Richard Sutcliffe (Supply Chain Director)

Theresa Keating (Group Finance Director)

Andy Gault (Group Digital Director)

Rob retired from the Executive Committee in February 2021.

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.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information80

Corporate governance report continued
Executive Committee and Company Secretary

Executive Committee members

Company Secretary

Kirsty Homer
Group HR Director

Theresa Keating
Group Finance Director

Julian Lee
Operations Director

Mark Slater
Commercial Director

Richard Sutcliffe
Supply Chain Director

Andy Witts
Chief Operating Officer: Trade

Forbes McNaughton
Company Secretary

Appointed

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

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

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

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

Experience and contribution to creating value in the business

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.

Kirsty is key in ensuring the
business has the right people
and talent to fulfil its strategic
aims. Following the retirement
of the Chief Governance
Officer, Kirsty has led the
business's Equality, Diversity
and Inclusion (EDI) agenda
and has been instrumental in
designing its EDI strategy and
gaining agreement on priority
areas.

Executive Directors

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.

Theresa leads the key controls
project, which is improving
the business's capability to
identify operational, IT and
financial controls which
mitigate our key and principal
risks. Following the retirement
of the Deputy CEO & CFO at the
end of 2020, Theresa has also
provided valuable stability
and continuity in the Finance
function.

Prior to joining Howdens,
Julian worked in a number of
strategic and operational roles
within the Silentnight Group.
He joined Howdens in 2003 as
a leader of the Manufacturing
Division and from 2005 to
2009 was head of international
sourcing and supply chain in
Asia. Since 2009, Julian has
made a major contribution
to the transformation
of our supply chain and
operations and in 2020, he
was appointed Operations
Director, encompassing both
manufacturing and logistics.

Julian leads our strategic
manufacturing investments,
including increased in-house
manufacturing capability and
capacity.

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, The Walt Disney
Company and Dixons Carphone.

Mark's role as Commercial
Director includes range
management, which is one of
the business's key strategic
initiatives. Balancing choice and
new product with disciplined
range management is crucial to
ensuring both availability and
profitability.

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

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

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

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.

Richard's role as Supply
Chain Director encompasses
optimising stock holdings
across the business and
ensuring Howdens maintains
market leading stock
availability. He is also leading
the XDC project, which is
delivering superior service
levels and availability to
depots.

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.

Andy has overall responsibility
for the performance and
culture of depots and
associated support functions
in the UK and Ireland. He
oversees the evolution of
our depot estate, including
our strategically important
depot reformatting and the
opening of new depots. He is
key in ensuring our depots
build trusted relationships with
local tradespeople.

Experience and contribution to
preserving value in the business

Forbes joined the Company as Deputy
Company Secretary in 2012 following
a period of secondment from KPMG.
He is a fellow of the Corporate
Governance Institute (CGI) and is
Secretary to the Executive Committee
as well as to the Board of Directors.

Forbes is the link between the
Executive Committee and the Board
and is responsible for managing
a number of external stakeholder
relationships such as with the
Pensions Trustees and external
regulators. He is the head of the legal
function in addition to his corporate
governance responsibilities.

Andrew Livingston
Chief Executive Officer

Paul Hayes
Chief Financial Officer

Andrew and Paul’s profiles
may be found on page 76

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Corporate governance report continued
Directors' duties

Section 172(1) statement
A director of a company is required to act in a way they consider, in good faith, would
most likely promote the success of the company for the benefit of its members as a whole.
In doing this, the director must have regard, amongst other matters, to the following:

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

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

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

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

Workforce
The interests of the Company’s employees.

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

...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 2021
please see pages 78 and 79.

The Board regularly considers feedback from the Company’s
stakeholders. These are set out in detail on pages 84 to 89.
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. The Board also
established the Sustainability Committee during the year to
consider environmental and societal matters in more detail
(see pages 142 and 143 for more detail on the Committee's
duties and remit). The work of this committee will directly
affect the Board's decision making.

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 2021.

Defined Benefit Pension Scheme Closure
In January 2021, the Board approved the closure to future
accrual of the Defined Benefit Pension Plan ('DB Plan') with
effect from 31 March 2021. The closure followed a period
of formal consultation with DB Plan members, the DB Plan
trustees and collective bargaining groups.

When considering the closure of the DB Plan, the Board was
keenly aware of the competing interests of the stakeholders
involved and therefore ensured its decision making was
ultimately driven by the need to offer pension provision
which was worthwhile for all concerned and sustainable in
the long-term. In line with this, the Board was clear that the
defined contribution scheme (DC Plan), into which DB Plan
members would move and in which most UK employees were
participating already, needed to be made more competitive
in addition to the DB Plan closure, and it therefore approved a
competitive new DC Plan design.

In coming to its decision to close the DB Plan and to approve
a new design for the DC Plan, the Board was mindful of the
potential negative impact on existing DB Plan members’ future
pension benefits; however, it considered that the following
benefits of the closure were substantial:

•

Greater certainty and predictability of DB Plan costs and
contributions from the Company, which in turn supports
the long-term viability of the Company to the benefit of
its investors, workforce, customers, pensioners, and
suppliers; and

•

Provision of more equitable pension benefits across the
workforce and greater flexibility of pension benefits to
tailor to individuals’ circumstances.

To further reduce the impact of closure on DB Plan members,
and in line with feedback given during the consultation period,
the Board approved the use of transition payments and a
change to the rules to allow DB Plan members who remained
employed until retirement to use their top up DC Plan funds as
their tax-free retirement lump sums.

Capitol Park – warehousing strategy
In September 2021, the Board approved a new warehousing
facility close to our Howden site. The rationale behind such
a decision was to further support the successful vertical
integration strategy by securing long-term warehousing for its
manufactured stock, the manufacturing capabilities for which
had seen significant investment approved in 2020.

In reaching its decision to approve the lease of the Capitol Park
facility, the Board considered the likely consequences of its
decision in the long-term. Whilst the Board was mindful of the
impact of increased in-house manufacturing capability on
some existing supplier relationships, it noted that the benefits
of the proposals included shareholder value creation and
environmental benefits, the leasing of one large site being more
cost and energy-efficient than the leasing of several smaller
sites over a wider geographic spread. In addition, Capitol
Park will afford the business the flexibility to use more of the
space at the Howden site for manufacturing in future, further
supporting its vertical integration strategy. The Board also
noted that there was the potential for job creation through the
lease of an additional site and that the additional warehousing
space supported the business model by ensuring the Group
could remain in-stock for the benefit of its trade customers.

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.

Shareholder returns – special dividend
Following the decision to suspend dividend payments in 2020
due to the impacts of the COVID-19 pandemic, the Board
approved the payments of a final dividend (in respect of the
year ended 26 December 2020), a special dividend, and an
interim dividend in 2021.

In coming to its decision to pay a special dividend (equivalent
to the cancelled 2019 final dividend), the Board considered the
health of the Group’s finances, future investment opportunities,
expected peak working capital requirements, and trading
outlook, and noted the strong trading and cash performance
in the second half of 2020. The Board also took this decision
following the repayment of all financial support the business
received in 2020 under the Government Coronavirus Job
Retention Scheme and the payment of any deferred payments
ahead of agreed schedules (see page 79 of the 2020 Annual
Report and Accounts). This was the right thing to do at the
time given the Board’s wider statutory obligation to society
as well as its shareholders. Shareholder feedback at the time
was also supportive of the decision. However, once other
stakeholders had ‘been made whole’, the Board considered it
important that cash returns to shareholders should resume
and that shareholders, a significant number of whom are also
employees in the Group, should receive a one-off additional
return given the strong position of the Group.

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Corporate governance report continued
Stakeholder engagement

•

Howdens' stakeholders

Workforce

Engagement with our workforce
includes the following:

• Regional Board meetings

• Employee engagement surveys

• Senior leadership meetings

• Town hall meetings

• Trade union and works council meetings

in manufacturing

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Stakeholder and forms of engagement

Workforce

pages 84 to 85

Trade customers

pages 86 to 87

Suppliers

Pensioners

Shareholders

pages 86 to 87

pages 88 to 89

Non-Executive Director responsible for
workforce engagement

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

Regional directors are leading the follow-up locally, using
a combination of general results sharing and one-to-one
discussions. Results are being compared across regions to
identify further trends.

Regional Board meetings

Regional Board meetings are a forum for the depot leadership
team and Executive Committee members to discuss strategy
and day-to-day business matters on a regular basis. Our
COO of Trade attends all meetings and all regional directors,
area managers and depot managers attend the meetings
applicable to their region. Our CEO attends a number of these
meetings each year. Certain support functions (including
Finance and HR) also regularly attend. One Regional Board
meeting is held per region per period, providing over 100
opportunities each year for two-way discussions about critical
business issues.

Building on the success of the all-employee survey in
2019, the business will participate in the Best Companies
engagement survey for all employees in March 2022.

In addition, informal feedback sessions are hosted by area
managers to address local issues and are usually organised
into sessions by job role, but may also be organised by
depot or a specific issue. Issues raised are often of a local
nature and are resolved locally. Where there are broader
issues, area managers will liaise with the wider business
for a resolution. These forums also act as an opportunity to
exchange best practice as well as to meet colleagues from
other depots.

Defined Benefit Pension Plan ('DB Plan') consultation

Senior Leadership Meetings (‘SLMs’)

At the end of 2020 and beginning of 2021, team briefings with
management groups and trade union representatives were
held to gather views on the proposed closure to the DB Plan to
future accrual. Internal communication channels were used
to keep the workforce informed of the consultation progress
and the outcomes of the process. The closure of the DB Plan
was agreed with the Pension Trustees and the trade union, and
approved by the Board to take effect in March 2021. Further
information regarding the outcome of the consultation is
available on pages 83 and 89).

Local engagement surveys and employee forums

Following a period of significant sales growth and the
introduction of new ways of working in depots due to COVID-19,
the trade leadership team decided to use local engagement
surveys to understand how our depot teams were feeling and
to get feedback on local issues.

Feedback from the surveys identified common strengths
across the depot network, including knowing and
understanding what the expectation was of individuals,
believing depot managers are committed to quality, and
believing Howdens to be a great place to work. Common areas
for development were also identified and included wanting
more opportunities to learn and develop and the opportunity
to do what they do best.

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.

Howden Joinery Group Plc Annual Report & Accounts 2021

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Strategic reportGovernanceFinancial statementsAdditional information

Corporate governance report continued
Stakeholder engagement continued

Trade customers

Engagement with our trade
customers includes the following:

• Local depots

• Builder forums

• Cabinet research groups

• Customer surveys

Suppliers

Engagement with our suppliers
includes the following:

• Supplier conference

• Category team relationships

Local depots

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 2021, the Regional Board meetings were held both
in-person and virtually. From these meetings, managers were
able to feedback directly to the CEO, COO of Trade and other
senior executives about any matters affecting their depots and
their customers.

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.

Supplier conference

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.

In 2021, due to COVID-19 restrictions, the business hosted its
annual supplier conference, ‘Playing to Win’, virtually. The
conference was used to maintain the ongoing conversation
with our key partners, informing them of the key initiatives
and business priorities and to ensure we continued to take
advantage of the range of opportunities throughout the year.
The session was attended by over 100 senior executives
from our key partners who were given the opportunity to ask
questions to our senior leadership team.

In 2021, 11 forums were held with our trade customers, 9
of which were held virtually. In response to feedback from
the forums, we made a number of product and process
improvements, including improving how our back panels
are fixed to our base cabinets by investing in an automated
process at our Runcorn manufacturing site and by trialling a
new size of worktop in selected depots to gauge demand.

The business will once again host Builder Forums in 2022.
Depending on the COVID-19 measures in place at the time,
these may be held virtually or in-person.

Cabinet research groups

In 2021, four research groups were conducted in-person with
a cross section of small builders, landlords, and developers
within COVID-safe environments. The participants involved
were selected to ensure a balanced mix of customer
participants, all of whom had purchased and installed a
minimum of two kitchens in the last 12 months.

The sessions were hosted by an independent agency and
focused on our cabinets and those of our trade and retail
competitors. In particular, cabinet construction, quality and
ease of installation were considered. These sessions are
key to ensuring that our cabinets are the best in the trade
market. Our 2021 session results showed that customers
still favour Howdens' rigid units over our competitors' and
rank our specification as the best in the market.

However, the feedback also confirmed further opportunities
to improve our specification and packaging solution even
further. Initiatives are currently underway to explore these
opportunities further.

As a result of earlier cabinet research groups, we have
halved the allowable tolerance on key cabinet features,
making our cabinet measurements even more precise,
which enables better assembly of our kitchens by
our customers. We achieved this by improving our
manufacturing capability on production lines and by
implementing exacting controls in our processes. To ensure
these new tolerances are maintained, investment was
made in a highly accurate, 'state of the art' laser measuring
system, which will also be used going forward to validate
continuous improvement activities.

Customer surveys

We run a monthly online survey with over 40,000 of our
trade customers to gain insight into their trade job activity,
the proportion of their spend with us versus competitors,
and their overall business 'optimism'. We also use these
surveys to engage customers on specific topics such
as stock availability in the market, their perception on
customer service, product quality, and range feedback. This
knowledge allows us to be ‘on the pulse’ of what is going on in
the market and to understand the challenges that our trade
customers face.

Supplier meetings

Category team relationships

Throughout 2021, it was extremely important we continued
to work closely with our suppliers to navigate the ongoing
global supply chain challenges and disruption and to maintain
the in-stock promise to our trade customers. In the first half
of 2021 this was mostly done virtually as we were unable to
travel due to COVID-19 restrictions. However, in the second
half of the year as restrictions were lifted we were able to visit
our key partners, which in turn contributed to us overcoming
any supply chain challenges that we faced ahead of our peak
trading period.

Supplier Code of Conduct

In 2021 we updated and re-issued our Supplier Code of
Conduct to our supply base. This reinforced our expectations
of the supply base and supports the commitments we have set
out as part of our sustainability agenda (further information
is available in the Sustainability Matters report beginning on
page 46).

Our internal commercial structure is organised into
categories. The use of categories 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.

Despite the challenges around travel and material lead-
times we have continued to work closely with our key
partners on product development. This has continued at
pace across all our product categories with a significant
amount of new product being introduced throughout the
year. This has ensured our trade customers have been able
to access the latest trends and products from our depots.

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Corporate governance report continued
Stakeholder engagement continued

Pensioners

Engagement with our pensioners
includes the following:

• Board engagement with the Trustee Board

• Plan closure consultation

• Newsletters

• Triennial valuations

Shareholders

Engagement with our shareholders
includes the following:

• Annual General Meeting

• Shareholder meetings and Roadshows

• Shareholder consultations

• Asset reunification

At 25 December 2021, the Howden Joinery Defined Benefit
Pension Plan (the ‘Plan’) had over 10,500 members, of whom
over 6,300 were deferred members, and over 4,100 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 every year and provide an update on matters
affecting the membership.

In 2021, the Company engaged with the Trustee Board on a
number of matters outside of the normal engagement cycle
of investment and funding strategy, including the proposed
closure of the Plan to future accrual and new climate-related
regulations.

Annual General Meeting (AGM)

At the time of the 2021 AGM, the UK Government's Coronavirus
rules restricted socialising indoors to those in the same
household (or within a support bubble) and stipulated that
travel should be minimised wherever possible. While the rules
allowed for meeting others for work (where it was necessary),
this did not include shareholder meetings of public companies.

The 2021 AGM was therefore held with three employee
shareholders, one of whom was the Company Secretary
and the other the CFO. The minimum quorum required by the
Articles of Association was therefore met. The Chairman was
also in attendance and chaired the meeting.

However, the Company was keen that its shareholders should
be provided with the opportunity to submit any questions
they had 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.

Plan closure consultation

Triennial valuations

At the end of 2020, the Company entered into consultation
with active members (individually and collectively with the
trade union) and the Trustee Board on a proposal to close the
Plan to future accrual with effect from 31 March 2021.

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
31 March 2020 was completed in April 2021.

During the consultation, all parties had the opportunity to
raise their views with the Company, and as a result of this
process and the feedback received, the Company agreed
enhancements to the original proposal. This included the use
of transition payments and a change to the rules to allow Plan
members who remained employed until retirement to use their
top up defined contribution scheme funds as their tax-free
retirement lump sums.

Following the closure of the Plan, the active employee
members joined the Company’s defined contribution pension
scheme and, as part of the project to review pension benefits
across the business, the Company has increased employer
contributions to the defined contribution pension scheme for
all employees.

Following the review, the Company agreed to maintain
deficit repair contributions at the rate of £30m per year,
with an agreed 'switch off' mechanism if full funding on the
Technical Provisions basis was met. Full funding on this level
was achieved and therefore the deficit repair contributions
were suspended in July 2021.

The Company and Trustee Board have also engaged and
agreed a long-term funding objective for the Plan with the
aim to reduce reliance on the Company. The Trustee Board
has an agreed approach to de-risking and triggers and
regularly updates the Company.

Through the questions facility, shareholders submitted
questions regarding future dividends, our depots in France,
and the environmental credentials of the paper used for our
annual reports and notices of AGM. The Company's response
to these questions may be found on our website: www.
howdenjoinerygroupplc.com/investors/share-price/annual-
general-meeting

Shareholder meetings

Following both the full year results and half year results
announcements, the Executive Directors spoke with investors
owning around one-third of the Company.

Following the release of the full year results in February 2021,
feedback from investors included that the Company's ever
strengthening competitive position was encouraging, and that
the Company's prudent balance sheet management had been
a significant advantage throughout 2020.

Following the release of the half year results in July 2021,
management once again spoke with investors who referred to
uncertain market conditions ahead, but expressed confidence
in the Howdens business model and competitive position.

In addition, during the year the Chairman met with
shareholders to discuss a wide range of governance
matters. The Remuneration Committee and Audit
Committee Chairs were also available to meet with
shareholders during the year and will be so again in 2022.
The Committee Chairs will also present on the work of their
respective committees at the 2022 AGM.

Directors' Remuneration Policy consultation

The Chair of the Remuneration Committee invited the
Company's principal shareholders and shareholder
representative groups to consult on the updated
Remuneration Policy. She met with all those that requested
meetings and provided written responses to others. Further
information about the consultation and its outcomes may be
found on page 122 of the Remuneration Committee report.

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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. During the year, the Company was compliant with all
Provisions of the Code, except for Provisions 38, 40 and 41.

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. In 2021, our Chief Financial Officer
(who was appointed to the Board on 27 December 2020)
received 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 108 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.

Provision 40 provides that when determining executive director
remuneration policy and practices, remuneration committees
should address whether remuneration arrangements promote
effective engagement with the workforce. Provision 41 provides
that the annual report of remuneration committees should
include a description of the engagement that has taken place
with the workforce to explain how executive remuneration
aligns with wider company pay policy. The Remuneration
Committee did not directly consult with the workforce on
Executive Director pay arrangements during 2021; however,
the Committee receives reports from management on pay
and benefits across the workforce to ensure that there is
good alignment on remuneration across the organisation as a
whole. In addition, in 2021, the Board approved an update to the
Company's Share Incentive Plan ('SIP'), our UK all-employee
share plan, which allows all employees with shares held in the
SIP trust to exercise voting rights on those shares. This means
our UK employees with SIP shares (a majority of the workforce)
are able to vote on the Directors' remuneration report and the
Directors' Remuneration Policy (when applicable) at general
meetings of the Company. The Remuneration Committee will
keep under review the need to engage the workforce more
directly on executive remuneration arrangements. Details
of how Executive Director pay is considered in the context
of the workforce is set out on page 123 of the Remuneration
Committee report.

Section 1:
Board leadership and company purpose

Section 1:
Board leadership and company purpose continued

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.

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 2021, the Company (led by the Board) increased
shareholder returns, paid more tax, employed more people
and contributed to the communities in which we operate. More
information on our sustainable business model and strategy
can be found on pages 13 to 15 and our contribution to wider
society can be found in our Sustainability Matters report
beginning on page 46.

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
help to preserve the value that the business generates and
how they support the strategy. For example, we have set out
the way our remuneration structure supports our strategic
aims on pages 124 and 125.

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.

An explanation of our purpose, values and strategy are
set out in the Strategic report which starts on page 8. The
Board regularly discusses the importance of Howdens’
unique culture and are mindful that it remains aligned with
its purpose, values and strategy. 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 84 and 85.

Integrity and sympathy to the Howdens culture are
paramount when the Board recruits new members to
the Board. More information about our recruitment and
inductions process can be found on page 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 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 123.

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

The Board is 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 29 to 31.

More information on our risk processes, including our
principal and emerging risks, can be found on pages 38 to
45. Our Audit Committee report provides a summary of our
internal control framework on page 140.

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 84 to 89. How the Board
members discharged their ‘section 172’ statutory directors'
duties is described on pages 82 and 83.

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 2021 Board evaluation concluded that the Board was
effective, professionally run and had worked well during the
year. Further information about the outcomes and process of
the 2021 Board evaluation may be found on pages 104 and 105
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.

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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 has 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 76 and 77. 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 74. Similarly, the number of each
Board Committee’s meetings and attendance may be found
on the following pages: 96 (Nominations Committee), 106
(Remuneration Committee), 134 (Audit Committee), and 142
(Sustainability Committee).

During the reporting period, Debbie White's appointment
as Non-Executive Director of the NASDAQ-listed company,
PAVmed Inc, was authorised by the Board. Prior to the
appointment, the Board considered whether Debbie could
allocate enough time to her role as a Non-Executive Director of
Howdens and was satisfied that she had the requisite time to
fulfil the new role as well as her current role with the Company.

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).

Members of the senior management team regularly presented
to the Board on their respective areas of the business
(see pages 78 and 79 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 141.

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 101 of the Nominations
Committee report and the Board’s diversity policy is
available on page 100.

The Nominations Committee regularly reviews the skills
matrix and the tenure of each Board member (see pages
98 and 101 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 page 97).

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.

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 98.

The tenure of each Director may be found on pages 101
and 102. 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 two years to just over eight years, and the
average tenure is just over five 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 2021 Board evaluation process and outcomes
may be found on pages 104 and 105 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 76 and 77. 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
2022 AGM Notice. The Board recommends that shareholders
vote in favour of the re-election of all the Directors.

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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 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 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 134.

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 pages 70 and 71.

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
'Risk management' and ‘Principal risks and uncertainties’
sections (see pages 38 to 45) and are satisfied that it
accords with the Code and with the Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting. As described in the Audit Committee
report on page 140, a key controls project is ongoing across
the Group to focus and further strengthen our overall control
framework. This work to further enhance internal controls
will lead to better assurance and efficiencies through
opportunities to formalise and automate controls in a
consistent way across the Group.

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 'Risk management' and
‘Principal risks and uncertainties’ sections (see pages 38
to 45. 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 106.

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 109 of the
Remuneration Committee report.

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.

By order of the Board

Richard Pennycook
Chairman

23 February 2022

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 123.

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Nominations
Committee report

Nominations Committee 2021
meeting attendance

Richard Pennycook (4/4)
Karen Caddick (4/4)
Andrew Cripps (4/4)
Geoff Drabble (4/4)
Louise Fowler (4/4)
Debbie White (4/4)

Key activities in the year ahead

•

All current Directors will stand for re-election
at the AGM on 12 May 2022.

Regular updates from the Group HR Director on
senior management succession will be provided
to the Committee.

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

A review the Boardroom Diversity Policy will be
undertaken.

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

Board gender split

Howdens1
Females:

37.5%

FTSE 2502
Females:

36.8%

Female

Male

1 Figures correct as at 25 December 2021.

Figures derived from the 2022 FTSE Women Leaders Review.

Richard Pennycook

Nominations Committee
Chairman

Introduction from the Committee Chairman
The role of the Nominations Committee continues to evolve.
Whilst maintaining its core responsibilities of succession,
composition and evaluation, the Committee recognised
in 2021 that there were parts of the Committee’s remit,
particularly around diversity, which required a more
dedicated forum.

Sustainability

At the Nominations Committee meeting in September, the
Committee discussed and recommended to the Board that
a separate committee of the Board be established to ensure
sufficient time and attention was being afforded to key
environmental and social priorities. This committee, called the
Sustainability Committee, was established in November 2021
and its first report can be found on page 142.

Going forwards the Sustainability Committee will have
responsibility for considering the ongoing work of the Equality,
Diversity, and Inclusion ('EDI') Group, which continues to have
a Board sponsor in Debbie White, as well as initiatives on social
mobility and apprenticeships.

The Nominations and Sustainability Committees will continue
to work together closely where their respective remits overlap,
such as on Boardroom diversity.

Succession

Despite the fact that there were no changes to the Board
in 2021, it has nevertheless been a busy year for the
Nominations Committee. The Committee was involved with
new appointments to the Executive Committee and undertook
the search to identify my successor as Chairman of the Board
(and indeed the Nominations Committee). Further details in
respect of each of these appointments are set out later in
this report.

Composition

The Nominations Committee remains mindful of the
importance of broadening diversity within leadership and
senior management teams. We remain pleased that half
of the Non-Executive Directors on the Howdens Board are
female, but we are aware that gender representation is not
the only means by which a board achieves diversity. Similarly,
we understand the need to improve gender, racial and other
imbalances throughout our organisation, but particularly in
senior leadership roles.

We have disclosed our boardroom gender and ethnicity
data within this report but we will work with the Sustainability
Committee during 2022 to determine whether greater
disclosure and targets would be in the best interests of
the Group.

Evaluation

As in 2020, an internal Board evaluation process was
undertaken in respect of the 2021 review. Circumstances once
again dictated that this review was also undertaken remotely.
More information on the Board evaluation process and
outcomes are set out on pages 104 and 105.

Richard Pennycook
Nominations Committee Chairman

2021 Nominations
Committee activity

February

Committee meeting
• Board effectiveness, balance of skills, and time commitment

• Board succession and recommendations for AGM elections

• Draft 2020 Nominations Committee Report

April

Committee meeting
• Board evaluation follow up

• Executive Committee succession

• Non-Executive Director succession

July

Committee meeting
•

Executive Committee succession

September

Committee meeting
• Board update and skills matrix update

• Sustainability Committee proposal

• Board diversity policy review

• Nominations Committee Terms of Reference

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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.

Diversity

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.

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

Group gender diversity as at 25 December 2021

The percentages shown in brackets below indicate the change since 2020.

Male

Female

Board

Grades 1 to 32

3,530 (+16%)

32 (+23%)

2 (0%)

3 (0%)

5 (0%)

6 (-25%)

114 (+2%)

7,978 (+10%)

Senior Management1

Group3

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, the Republic of Ireland, and Isle of Man.

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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 FTSE Women Leaders
Review (formerly 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 2023,
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 25 December 2021, 37.5% of Board
members were women. Both of the Executive Directors
were male. There were no ‘non-white’ members of the
Board members as at 25 December 2021.

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 25 December 2021

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.

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 2021. However, the process normally used
in relation to appointments is set out below. 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.

The process for the Chairman’s succession is set out in the
case study on page 103.

Appointment

Where it is identified through Board succession planning
that a non-executive appointment is required to the Board,
the Nominations Committee will engage an external search
consultancy to undertake the process of recruiting a new
Non-Executive Director. The external search consultancy
would be made aware of our Boardroom Diversity Policy (if
they were not already) and the Nominations Committee would
specifically task them with producing a diverse shortlist of
candidates for the position.

The skills matrix (the current version of which may be found on
page 98), together with the collective knowledge, experience
and diversity of the Board and the length of service of the
Directors, would be used by the Committee to highlight where
there were opportunities for a new Non-Executive Director to
contribute to the skillset of the Board and would inform the
search that external search consultancy undertake.

Following longlisting and shortlisting processes, and prior
to any recommendation being made by the Nominations
Committee to the Board, the preferred candidate would
meet with each existing member of the Board.

Induction

Working with the Company Secretary, new Directors
undertake an induction programme tailored to the needs of
the individual. However, they will generally include a number
of site visits and meetings with members of the Executive
Committee, key employees and advisors. Site visits include our
manufacturing sites, our distribution centre and depots. New
Directors will also be provided with a mixture of documentation
including Company publications, Board materials and some
formal information on the role and responsibilities of UK-listed
company directors.

The Group’s induction programme for newly appointed
Directors will continue to be centred on familiarisation with the
Group’s operations, key individuals and external advisors.

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Nominations Committee report continued
Succession continued

David Sturdee will join as CCO in the first quarter of 2022.
David has spent much of his career with Yum! Brands, most
recently as Chief Operating Officer and Chief Customer Officer
for Pizza Hut Europe.

The Nominations Committee will continue to work with the CEO
and Group HR Director on senior management succession and
development in 2022.

Senior management succession

The Committee received regular updates regarding senior
management1 succession planning (see Nominations
Committee activity on page 97). These updates included
the planning and processes involved with the appointment
of a new Chief Customer Officer. Further detail may be
found below.

Chief Customer Officer

A new Executive Committee role was created in 2021 with
the aim of placing even greater emphasis on the customer
in Howdens' day-to-day decision making. The Chief
Customer Officer (CCO) will focus on customer strategy and
engagement, using data and insights from Depot Managers
and working closely with the Commercial and Trade teams to
help inform our approach to products, services and the overall
customer experience of Howdens. The Chief Customer Officer
will also be accountable for digital innovation.

Company and Executive Committee tenure as at 25 December 2021

Years

Andy Witts

Theresa Keating

Mark Slater

Julian Lee

Richard Sutcliffe

Kirsty Homer

Andrew Livingston

Paul Hayes

e
e
t
t
i

m
m
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e
v

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

i
t
u
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e
x
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Company Tenure

Executive Committee Tenure

Case study
Chairman Succession
Responsible for leading the Board and having
responsibility for its overall effectiveness in directing
the Company, the Chairman is the underpin for good
corporate governance within a company.

In preparedness for the ninth anniversary of the
Richard Pennycook’s appointment to the Board in
September 2022, the Nominations Committee, under
the leadership of the Senior Independent Director,
commenced the search for his successor in 2021. At
no point was the incumbent Chairman involved in the
process of selecting his successor.

The Nominations Committee agreed a scope and
candidate profile and engaged Russell Reynolds to
conduct the external search for a new Chairman2.
The Committee requested that a diverse long-list
of candidates, in respect of gender, ethnicity and
background, be produced.

Following the long-list process, a short-list has
been agreed which includes female candidates.
Candidates will meet with members of the Nominations
Committee and the CEO. Following these meetings, the
Nominations Committee will propose an appointment
to the Board.

On 18 February 2022, noting that the succession
process was at an advanced stage, the Company
announced that Richard Pennycook had indicated
his intention to retire from the Board with effect from
17 September 2022 and that an announcement
regarding the appointment of his successor would
be made in due course.

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’.

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

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105

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 2021 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
As the evaluation was structured as an internal evaluation
of the Board, it 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.

There were no changes to the membership of 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 2021.

The Board worked well as a group and 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 praised management’s performance during
the year and it was 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.

It was further noted that the evaluation would provide
a good introduction to the Board for an incoming Chair,
particularly around the recommendations for further
effectiveness improvements.

Highlighted strengths

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.

•

Board and Committee processes continued to ensure
high corporate governance standards were maintained
throughout the year. The external audit tender process was
especially regarded as being a significant success.

Improved financial reporting outside of Board and
Committee meetings (following feedback in the 2020
evaluation process).

•

Continued focus on stakeholder safety and wellbeing.

Following feedback in the 2020 Board evaluation, the
Committee also proposed to the Board in 2021 the
establishment of the Sustainability Committee, a new sub-
committee of the Board. While it was noted that the additional
focus on sustainability matters was both important and
welcomed, the members of the Nominations Committee were
clear that environmental and social matters are inextricably
linked to the business, and this link should not be diluted by
the establishment of the new Sustainability Committee.

By order of the Board

Richard Pennycook
Nomination Committee Chairman

23 February 2022

Recommended areas for development and actions
going forward

•

Developing the focus on long-term, strategic matters in
Board meetings in 2022.

Continuation of the focus on Non-Executive
Director succession planning, paying regard to the
recommendations of the Parker and FTSE Women
Leaders Reviews.

•

Further development of informal methods of
communication outside of Board and Committee meetings.

Influence on Board composition
Members of the Board discussed the recommendations of
the Parker and FTSE Women Leaders Reviews. In 2022, the
Nominations Committee will continue its focus on succession
planning and will ensure that when it looks to recommend new
appointments, that the process has been inclusive of not only
a broad range of mindsets, but also a variety of backgrounds,
including race and ethnicity.

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107

Remuneration
Committee report

Remuneration Committee 2021
meeting attendance

Annual Remuneration
Committee Chair’s statement

Karen Caddick (6/6)
Andrew Cripps (6/6)
Geoff Drabble (6/6)
Louise Fowler (6/6)
Debbie White (6/6)

Key activities in the year ahead

•

Implement the Directors' Remuneration Policy in
respect of incentives for 2022 (both annual bonus
and PSP).

Engage with shareholders on the draft Directors'
Remuneration Policy for presentation for approval
at the 2022 AGM.

Approve an updated Executive Committee
Remuneration Policy (for members of the Executive
Committee other than the Executive Directors).

Monitor reward performance and ensure the
incorporation of risk in the Company’s incentive
structure.

Karen Caddick

Remuneration
Committee Chair

I am pleased to present the Howden Joinery Group Plc
Remuneration Committee report for 2021. 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 updated our Remuneration Committee report last 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. Directors’ Remuneration Policy

(to be proposed to shareholders at the 2022 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 2021

Part 3

Implementation of policy in 2022

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.

2021
2021 has been a busy year for the Remuneration Committee.
It has had to navigate the legacy impact of COVID-19 on
remuneration, both for Executive Directors and Senior
Management. I reported in this report last year that the
Committee had agreed not to exercise upward discretion to
the incentive outturns for the 2020 annual bonus and 2018
PSP resulting in both awards lapsing in full. This was despite
the significant contribution made by the Executive Directors to
Howdens during what was an extremely challenging year, I am
therefore pleased that remuneration outturns for 2021 have
improved in line with exemplary performance of the business
during the year.

The Remuneration Committee has continued to regularly
monitor the employee remuneration experience across all
roles, particularly depot roles and those in manufacturing
and logistics, to ensure that there is alignment between the
experience of the wider workforce and that of our senior
management. There remains good alignment as a result of
the unique incentive culture across all roles at Howdens.

As stated, we believe that the current policy is fit for purpose
and has served Howdens and its shareholders well. We
intend to maintain the overall structure of our remuneration
arrangements and are not proposing any major changes to
policy. Some minor changes are proposed to provide greater
flexibility over the next three year policy cycle. These are set
out on page 111.

During the second half of 2021, the Committee’s attention
turned to the Directors’ Remuneration Policy, which will
be put out for shareholder approval at the 2022 AGM. This
is considered in more detail below and in a case study on
page 122.

The Committee also worked with the Nominations Committee
to agree a remuneration package for a new Chair of the
Board which would attract a high calibre individual, whilst
keeping within market norms. It also considered the impact on
members of Senior Management of the closure of the Defined
Benefit pension plan to future accrual.

I will be presenting a summary of the work of the Committee in
2021 at the AGM on 12 May 2022.

As reported on page 90, the Remuneration Committee did not
consult with the wider workforce on Executive Director pay
arrangements in 2021. The Committee has safeguards in place
(as considered in this report), which ensure good alignment on
remuneration across the organisation as a whole. During 2021,
the Board also approved an update to the Share Incentive
Plan ('SIP') rules, which means that all eligible employees
with shares in the SIP, which is the significant majority of UK
employees, have a de facto say on Executive Director pay
when such matters are considered at general meetings.

Given the consistency in approach on our Directors'
Remuneration Policy, I hope that it will continue to attract the
same levels of shareholder support we have seen in previous
approval cycles.

Policy
Our existing remuneration policy was approved by
shareholders at the 2019 AGM and is due to expire at the
2022 AGM. The Remuneration Committee is satisfied that the
Directors’ Remuneration Policy operated as intended during
the year and a copy of the current policy can be accessed
in full at www.howdenjoinerygroupplc.com/governance/
remuneration-policy

Over the course of the year the Committee has undertaken
an in-depth review of our current arrangements and carefully
considered what may be required under the policy over the
next remuneration policy cycle. We need to ensure that our
Executive Directors and Senior Management are rewarded
and motivated in line with shareholder interests as we deliver
the next stage of our growth plans.

Howdens' sustained profit growth has led to the creation
of significant shareholder value through shareholder
distributions and increases in share price. The resulting
increase in market capitalisation means that we are
anticipating inclusion in the FTSE 100 index over the coming
policy cycle. The Committee is therefore mindful of the need
to have a policy that allows us the flexibility over its lifetime
to adapt our arrangements as we grow. Our remuneration
philosophy is (and has always been) to pay above-market
levels of reward for above-market levels of performance.
We continue to believe this is the right approach.

2021 reward outcomes

Annual bonus

For the 2021 annual bonus, performance was based on the
delivery of both profit and cash flow targets. For the full year
we have reported an increase in sales of 35% (+32% versus
2019) and an increase in profit of 111% (+50% versus 2019),
continuing the momentum seen in the second half of 2020.

This strong financial performance meant full year profit
before tax ('PBT') and cash flow were above our maximum
outperformance targets resulting in a bonus of 150% of salary
for our Executive Directors.

Performance Share Plan (PSP)

Similarly, the 2019 PSP with performance measured to FY 2021
is based on three-year PBT growth per annum. Over the three
year period of the 2019 PSP cycle, our PBT has increased by
17.2% per annum. In line with performance targets requiring
5% per annum PBT growth to achieve threshold vesting and
15% per annum PBT growth to achieve maximum vesting, the
award will therefore vest in full.

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

2022 reward and incentives

Salary

Salary increases for the Executive Directors for 2022 will be
in line with the wider workforce. These will be effective from
1 January 2022 following the alignment of the salary review
date across the Howdens business.

Annual bonus

For the 2022 annual bonus, we replicated the methodology
and PBT and cash flow measures used in the 2021 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 first 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
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 and
inclusion of TSR in the 2022 PSP will mean that it is a measure
in all in-flight PSP awards.

For the 2022 PSP, 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. Profit
represents a fundamental performance metric for the
business, and is used throughout the organisation, from
our depot teams to executives, to reward performance. It
is therefore important to us that PBT continues to have a
majority weighting within the PSP, whilst ensuring this is
complemented by a relative measure with the TSR element.

Our recent practice has been to set PBT targets using a
range of 5% to 15% CAGR above the prior year’s reported
performance. For 2022, we intend to amend this approach.
A 15% annual growth rate is a very high target to achieve
over three years and successive business cycles and is very
unusual in the FTSE as a whole. We therefore propose to
amend the upper target to 12%, which is still towards the upper
end of other companies’ practice. We believe this provides
significant stretch for management with strong alignment to
shareholder interests.

In addition, we have concluded that as a result of the increase
in the size and complexity of Howdens in recent years, the
current incentive opportunity for the CEO is no longer aligned
to our remuneration philosophy (to pay above-market
levels of reward for above-market levels of performance).

Howden Joinery Group Plc Annual Report & Accounts 2021

From 2022 we intend to grant PSP awards to the CEO at 270%
of salary to recognise the increased size and scale of the
business, and to provide an appropriate incentive for him
to continue to lead the delivery of our ambitious plans. This
is the maximum opportunity permitted under our current
shareholder-approved remuneration policy. No changes are
proposed to the CFO LTIP of 220% of salary.

To ensure that the remuneration philosophy is upheld, we will
continue to ensure that performance targets are suitably
stretching for the level of remuneration available within the
context of our internal expectations and external forecasts.
More detail on each of the PSP measures is set out on
page 129.

Pensions
We reported in 2019 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 2021, Andrew Livingston’s pension supplement,
received in lieu of Company pension contributions, reduced
by 4% to 14% of basic salary. In May 2022 Andrew’s pension
supplement will be aligned to the Company pension
contributions of the wider workforce, which is currently 8%
of basic salary and will increase to a maximum of 12% in April
2022. Paul Hayes’ pension supplement received in lieu of
Company pension contributions was aligned to that of the
wider workforce upon appointment in line with policy. As such,
his pension supplement received in lieu of pension increased
to 8% in April 2021 and will increase to 12% in April 2022 (in line
with the wider workforce).

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 and will ensure fairness in
pensions across the Company.

As previously reported, the Committee reviewed the impact
of closure on affected members of senior management
prior to the Board’s decision to close the plan to future
accrual. It concluded that transition arrangements for
affected employees were appropriate and had been applied
consistently regardless of role. As such, there was not a
significant risk to the business of the Board implementing its
proposals set out in the consultation.

Senior management and the wider workforce
In addition to the Executive Directors, the Howdens
Remuneration Committee also sets remuneration for senior
management1. The Committee also received updates on
the ongoing employee benefits review and all-employee
remuneration related policies in order to provide the context
for, and to ensure alignment with, the policy on Executive
Director remuneration.

In 2019, the Committee adopted a dashboard in line with
Provision 33 of the UK Corporate Governance Code, which
shows some of the key internal and external measures that
the Committee members are aware of when determining
Executive Director and senior management remuneration
(further detail on the dashboard may be found on page 123).

I hope the information presented within this report
provides a clear explanation as to how we have operated
our remuneration policy over 2021 and how we intend to
implement it for 2022. 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 2022.

Karen Caddick

Remuneration Committee Chair

The Howdens Remuneration Committee classifies ‘senior management’ as
members of the Executive Committee (excluding Executive Directors), the
Company Secretary and the Head of Internal Audit and Risk.

How the Committee exercised
discretion for the incentive period
ending 25 December 2021
The Committee considered the financial performance
for the incentive period ending 25 December 2021. PBT
for the year was £390.3m and cash flow was £529.0m.
Three-year PBT increased by 17.2% per annum. The
Committee considered whether the incentive outturns
projected for the 2021 annual bonus and 2019 PSP were
proportionate to financial performance and whether
there were any other external factors of which the
Committee was aware that would make decreasing the
payments under these awards appropriate.

In reaching its conclusion, the Committee considered
the remuneration experience structures and policies for
the workforce as a whole in 2021, 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. The Committee took all of these
matters into consideration and agreed that the vesting
in full of these awards without adjustment or withholding
was the right overall outcome.

In addition, the Committee exercised discretion to align
the treatment of vested share awards (which were
subject to post-vesting holding period restrictions)
granted before 2019 for good leavers with the position
that now applies under the Plan rules. If the Committee
did not exercise its discretion, these awards would
have been pro-rated to employees' leave dates under
the old Plan rules. The Committee was mindful that the
pro-rating of awards for good leavers in post-vesting
holding periods had been removed in the 2019 update
to the LTIP rules as it was felt to be excessively punitive
and as such the Committee would not be required to
exercise similar discretion in the future as the rule only
applied to awards made between 2016 and 2018. After
careful consideration, the Committee agreed to exercise
discretion and as such no pro-ration would be applied to
the 2017 PSP awards.

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

2021 Remuneration Committee activity

January

July

Committee meeting
• 2020 Annual Bonus outcomes

• 2021 Annual Bonus operation

• 2021 LTIP measures

• Pension changes impact analysis

Committee meeting
• Workforce earnings analysis

• 2021 AGM season and market update

• Update on outstanding awards

• Directors' Remuneration Policy planning

February

August

Committee meeting
• Shareholder feedback on CEO pay

• Remuneration Policy Working Group begins meeting

• 2021 incentive considerations (including workforce reward,
shareholder alignment, CEO pay ratio and gender pay gap)

September

• Governance update

• Draft 2020 Directors' remuneration report

• 2021 share awards planning

• Chair fee

April

Share award grant
• SIP Free Share grant to all UK employees approved

• PSP granted to Executive Directors and Senior Management

Committee meeting
• Shareholder feedback on remuneration

• Pensions update

• Salaries review

• LTIP leaver treatment

May

AGM
• Remuneration report approved by shareholders

Committee meeting
• Update on Directors' Remuneration Policy review

October

• Remuneration Policy Working Group disbands

November

Committee meeting
• Update on Directors' Remuneration Policy review

• Update on outstanding awards

• Risk and rewards consideration

• 2022 Remuneration Committee calendar

• Review of Committee’s terms of reference

December

Shareholder communication
• Remuneration Committee Chair communication with

shareholders on proposed new Directors' Remuneration Policy

Directors’ Remuneration Policy

Fixed

Variable

Howdens’ Directors' Remuneration Policy, as set out in our 2018 Annual Report and Accounts, was approved by shareholders at our
2019 AGM. Our current Policy expires at the 2022 AGM and therefore, following careful review, we present a revised policy below with
the intention that it will apply for three years from the date of the 2022 AGM. The policy has supported the success of our business
and continues to be aligned both with our long-term strategy and wider market norms. The changes detailed in the summary below
demonstrate that the policy remains broadly unchanged from the version approved by shareholders in 2019, albeit there are some
minor revisions. A case study on the Directors’ Remuneration Policy review and approval process is set out on page 122.

Summary of changes to the Remuneration Policy

Remuneration Element Method

Annual bonus

The current remuneration policy in respect of the bonus opportunity is that 150% of salary is the normal
opportunity level, with an opportunity of 200% of salary available in ‘exceptional circumstances only’. It is
proposed that the ‘exceptional circumstances’ wording be removed from the policy, such that during the life
of the policy the usual bonus award level could be increased by up to 50% of salary to 200% of salary if it is
felt to be appropriate to reflect the performance and market positioning of Howdens. We would consult with
shareholders if we were to consider raising the level of bonus opportunity. For FY 2022, the current annual
bonus level of 150% of salary will be maintained, with the position reviewed each year thereafter.

Annual bonus
deferral

Annual bonus deferral changes from 30% of any bonus earned deferred for a period of two years to
at least 30% of any bonus earned deferred for a period of two years.

Performance
Share Plan (PSP)

The minimum percentage of the PSP based on financial metrics will reduce from 100% to 75%. This will give the
Committee greater flexibility when determining performance measures and will allow for the introduction of
non-financial measures, such as ESG-related measures, up to 25% of the maximum opportunity.

Underlying principles
When determining the Directors' Remuneration Policy, the Committee was mindful of its obligations under Provision 40 of the
UK 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

Remuneration arrangements
should be transparent and
promote effective engagement
with shareholders and
the workforce.

Simplicity

Remuneration structures
should avoid complexity and
their rationale and operation
should be easy to understand.

Risk

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 Company invited its principal shareholders and shareholder representative groups to
consult on the updated Directors' Remuneration Policy and received supportive feedback.
The draft policy was updated following feedback from shareholders, details of which can be
found on page 122.

All UK employees are awarded Free Shares in the Company through the Share Incentive
Plan ('SIP'). UK employees are also able to participate in a partnership and matching shares
programme (known as the 'Buy As You Earn' scheme or 'BAYE') which also operates through
the SIP. Further information on workforce engagement can be found on pages 84 and 85.

The Remuneration Policy has received positive feedback from stakeholders in relation to its
simplicity.

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.

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.

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Fixed

Variable

Predictability

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.

Proportionality

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.

Alignment to culture

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 116 and were
communicated when the Directors' 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 the first half and as such both the 2020 annual
bonus and 2018 PSP lapsed in full. While 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. In 2021 the business’s strong trading performance was reflected in high
levels of variable reward.

The Committee remains confident that the awards used to ensure continued delivery of
strategy and long-term performance are working as intended.

The Committee remains 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.

Future policy table – Executive Directors
The table below sets out the key components of Executive Directors’ pay packages, including why they are used and how they
are operated in practice.

Remuneration is benchmarked against rewards available for equivalent roles in a suitable comparator group. In addition to
benchmarking, the Committee considers general pay and employment conditions of all employees within the Group and is
sensitive to these, to prevailing market conditions, and to governance requirements.

Element and how
it supports our
strategy

Base salary

Recognises the
market value of
the Executive
Director’s
role, skill,
responsibilities,
performance
and experience.

Benefits

Provides a
competitive
level of benefits.

Operation

Opportunity

Performance
Measures

Salaries are reviewed
annually, and are
effective from 1 January
each year. Salaries will
not be changed outside
of the annual review,
except for in 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.

None.

Salaries are set with consideration of each Executive Director's performance in role and
responsibilities, and within a range defined by a market benchmark derived from companies
of a comparable size operating in a similar sector. 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.

Reviews will also take into account the performance of the individuals, any changes in their
responsibilities, pay increases for the wider workforce and internal relativities.

2021 and 2022 salary levels are detailed on page 128.

Howdens pays the cost
of providing the benefits
on a monthly basis or
as required for one-off
events.

Benefits are based upon market rates and include receipt of a car allowance, health
insurance and death-in-service insurance payable by the Company.

None.

Element and how
it supports our
strategy

Annual Bonus

Incentivises annual
performance over
the financial year.

Deferral links
bonus payout
to share price
performance over
the medium term.

Operation

Opportunity

Performance Measures

For 2022 the annual
bonus will be based
on PBT and cash flow
measures.

The Committee retains
the flexibility to use
alternative measures
during the life of this
policy, subject to
at least 75% of the
bonus being based on
financial metrics.

Performance is assessed annually against targets made up of at
least 75% financial metrics.

At least 30% of any bonus earned is deferred into shares. Shares
are paid out on the second anniversary of deferral date.

The Committee has the discretion to adjust the bonus outcome
in light of overall underlying performance. Any adjustment made
using this discretion will be explained in the following Annual Report
on Remuneration.

Payment is subject to continued employment.

Malus provisions apply for the duration of the performance period
and to shares held under deferral.

Clawback provisions apply to cash amounts paid for two years
following payment. Therefore clawback and/or malus will operate
on the award for a total period of up to two years after the
performance period.

Clawback may be applied in the following scenarios:

• material misstatement of accounts;

• erroneous assessment of a performance target;

• where the number of plan shares under an award was incorrectly

determined; or

• gross misconduct by a Director.

The threshold for the annual bonus
will be dependent on the individual
measures used each year. For
2022, the annual bonus will be
based on PBT and cash flow, with
threshold payout being 20% of
salary.

The maximum opportunity under
the annual bonus is 200% of salary.

For FY 2022, the annual bonus
level of 150% of salary will be
maintained, with the position
reviewed each year thereafter. The
opportunity could be increased in
future years if the Remuneration
Committee felt it was appropriate
to reflect the performance and
market positioning of the Company.

The Remuneration Committee
would consult with shareholders if
it were to consider raising the level
of bonus opportunity beyond the
current level.

Performance Share Plan (PSP)

Focuses
management
on longer-term
financial growth
than addressed by
the annual bonus.
Long-term financial
growth is key to
the generation of
shareholder value.

Executives have the opportunity to participate in the PSP on an
annual basis. The PSP operates over a three-year vesting cycle.

Under the PSP, awards will generally be granted towards
the beginning of the performance period and vest based on
performance over the following three-year performance period.
Malus provisions apply for the duration of the vesting period.

The Committee has the discretion to adjust the PSP outcome in light
of overall underlying performance. Any adjustment made using
this discretion will be explained in the following Annual Report on
Remuneration.

Vested awards are subject to a two-year holding period following
vesting, during which no performance measures apply.

Clawback provisions apply for the duration of the holding period,
through which vested awards maybe reclaimed in the event of:

• material misstatement of accounts;

• erroneous assessment of a performance target;

• where the number of plan shares under an award was incorrectly

determined; or

• gross misconduct by a Director.

No dividends accrue on unvested shares.

The threshold for the PSP will
be 15% of maximum. This may
be amended by the Committee
dependent on the maximum
opportunity in a given year.

The maximum opportunity under
the PSP is 270% of salary.

For 2022, the PSP will
be based in full on PBT
growth and relative
TSR.

The Committee retains
the flexibility to use
alternative measures
during the life of this
policy, subject to
at least 75% of the
PSP being based on
financial metrics.

Shareholding
requirement
strengthens
alignment of
interests between
participants and
shareholders.

Executive Directors are expected to retain vested shares from
deferred bonus and long-term incentive awards (net of income
tax and national insurance contributions) until they reach the
minimum requirements.

Unvested deferred bonus and long-term incentive shares are
not taken into account. PSP shares within a holding period are
counted towards the requirement.

Executive Directors will be
required to retain 100% of their
shareholding requirement (i.e.
200% of base salary or full actual
holding if lower) for two years
post-cessation from the Board of
Howden Joinery Group Plc.

Howden Joinery Group Plc Annual Report & Accounts 2021

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Remuneration Committee report continued
Directors’ Remuneration Policy continued

Element and how it
supports our strategy

Operation

Pension

Opportunity

Performance
Measures

Provides competitive
long-term savings
opportunities.

Executive Directors will be entitled to participate in the Howdens Retirement Savings Plan with contribution
rates in line with the wider workforce. The level of salary supplement is aligned to the maximum pension
benefit available to the Executive Director.

None.

All-employee share incentive plan

To encourage
employee share
ownership.

Executive Directors are able to participate in the tax-
advantaged Share Incentive Plan available to
all eligible UK employees.

The maximum participation levels will be set based on
the applicable limits set by HMRC.

None.

Performance measures and targets
As part of the Committee’s review of our remuneration arrangements, we have considered the appropriateness of the
performance measures that we have historically used, as well as the potential merits of incorporating measures, which deliver
increased focus on other elements of our financial performance. Following careful review, the Committee believes that the
current measures continue to be appropriate for our business, and therefore for the 2022 awards PBT and cash flow will continue
to be the measures used for the annual bonus and PBT and relative TSR will be used for the PSP.

We want to continue to ensure that the Committee is positioned to maintain alignment between incentives and the challenges
facing the business, as such, during the life of this policy it may become appropriate to amend the performance measures used
for our incentives. It is for this reason that we safeguard the flexibility in our policy to change performance measures, subject to
at least 75% of the bonus and 75% of the PSP being based on financial metrics.

Annual bonus
The table below sets out additional information on performance conditions relating to the 2022 annual bonus:

Measure

Definition

How targets are set

PBT

Cash flow

Pre-exceptional profit before tax from continuing
operations.

Set by the Remuneration Committee with reference to
Howdens’ Budget and analysts’ consensus forecasts.

Net cash flow from operating activities, taking into
account the efficiency with which working capital is
used, and adjusted for exceptional items.

Cash flow targets generated by Howdens’ financial
model, based on modelled scenarios under which
threshold, target and outperformance levels of PBT
are achieved.

Commercial sensitivity precludes the advance publication of bonus targets but targets will be disclosed retrospectively in the
Annual Report on Remuneration. For 2021 targets please see the annual bonus targets and outcomes tables on page 127.

Performance Share Plan
The PSP will be based on nominal PBT performance and relative TSR for the 2022 award. Targets are considered by the
Remuneration Committee to provide a range that represents long-term success for Howdens, and are kept under review in light
of analysts’ consensus forecasts and inflation forecasts. In the event that inflation significantly increases, the Committee will
reconsider the operation of this measure to ensure that the use of nominal targets is appropriate. The intended targets for 2022
PSP grants are detailed on page 129.

115

Fixed

Variable

Remuneration policy for other employees
The remuneration policy described above applies specifically to Executive Directors of the Group. However, the Remuneration
Committee believes it is appropriate that all reward received by senior management is directly linked to the performance
of the Company and aligned with shareholder value. Accordingly, Executive Committee members participate in the same
incentive schemes as the Executive Directors at a reduced level to ensure alignment between the leadership team and with our
shareholders. Below this level, the promotion of share ownership is cascaded through all tiers of management. Individuals within
the upper tiers of the organisation participate in a similar bonus plan that is linked to PBT and cash flow. These individuals also
participate in a PSP, which vests dependent on the same performance measures as the PSP awarded to Executive Directors.
Share grants are made at a reduced level to a wider population within Howdens that do not use performance conditions. These
awards are made in order to encourage share ownership throughout the Company.

Non-Executive Directors' Remuneration Policy
The Group’s policy on Non-Executive Director (NED) and Chairman fees and benefits is set out below.

Operation

Opportunity

Performance Measures

NEDs are not eligible
to participate in any
performance related
arrangements.

The fees for the Non-Executive
Directors are determined
by the Chairman and Chief
Executive and approved by
the Board.

The fee for the Chairman
is determined by the
Remuneration Committee
while the Chairman is absent.

No other services are
provided to the Group by
Non-Executive Directors.

Fees for Non-Executive Directors are set out
in the statement of implementation of policy
on page 128.

The fees reflect the time commitment and
responsibilities of the roles. Accordingly,
committee chairmanship, Senior Independent
Director (SID) and the Non-Executive Director
responsible for employee engagement fees are
paid in addition to the NEDs’ basic fee. Committee
chairmanship fees apply only to the Audit and
Remuneration Committees. The Chairman
receives no fees in addition to the Chairman’s fee.

Fees may be reviewed every year, and are set
within a range defined by a market benchmark of
comparably sized companies and having regard
to the base salary increase payable to the wider
workforce. Benchmarking is typically undertaken
every three years.

Non-Executive Directors are entitled to receive expenses in respect of reasonable
travel and accommodation costs.

None.

Element and how
it supports our strategy

Fees

To attract NEDs who
have a broad range
of experience and
skills to oversee the
implementation of
our strategy.

Benefits

To attract NEDs who
have a broad range
of experience and
skills to oversee the
implementation of
our strategy.

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Directors’ Remuneration Policy continued

Statement of consideration of employment conditions elsewhere in the Group
The Committee has carefully reviewed the requirements of the revised 2018 UK Corporate Governance Code (the 'Code').
Embedding the new Principles of the Code, including increasing awareness of the pay arrangements across the wider Group will
be a significant focus for the Committee during 2022 as the Board continues to seek to adopt leading standards of governance.

When making decisions on Executive reward, the Remuneration Committee will continue to consider the wider economic
environment and conditions within the Company and will review and enhance its processes in this regard. In particular, the
Committee considers pay conditions for the wider workforce when reviewing base salaries for Executive Directors in addition to
a range of applicable pay ratios. For 2022, salary increases for the wider workforce are around 3% of salary.

Additionally, some of the Company’s workforce are unionised or belong to a works council. Howdens maintains open lines
of communication with these bodies and the Committee is always made aware of any relevant information in relation to
remuneration policy.

Statement of consideration of shareholder views
The Committee remains committed to maintaining an ongoing and transparent dialogue with its shareholders. This Directors'
Remuneration Policy was shared with our major shareholders and shareholder representation bodies in advance of the
publication of this report. Feedback received was carefully considered by the Committee and incorporated where appropriate
into the proposed policy.

2022 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 beneath the charts.

117

Fixed

Variable

Approach to recruitment remuneration
The treatment and design of the various elements of remuneration paid to new recruits is set out in the table below. The
Committee’s policy is to pay no more than is necessary to attract appropriate candidates to the role. However, in unusual
circumstances, an arrangement may be established specifically to facilitate recruitment of a particular individual. Any such
arrangement would be made only where critical to the recruitment of an exceptional candidate, and within the context of
minimising the cost to the Company.

Component

Policy

General

Pension

Annual bonus

Long-term
incentives

Replacement
awards

The Committee’s approach to recruitment remuneration is to pay no more than is necessary to attract
appropriate candidates to the role. Any new Executive Director’s ongoing package would be consistent with
our remuneration policy as set out in this report.

The Executive Director will be able to participate in the defined contribution scheme or to receive a
supplement payment in line with the wider workforce.

The Executive Director will be eligible to participate in the annual bonus scheme as set out in the
remuneration policy table. The maximum potential opportunity under this scheme is 200% of salary.

The Executive Director will be eligible to participate in the PSP set out in the remuneration policy table
Accordingly, the Executive Director may be offered a maximum opportunity under the PSP of the 270% of
salary in performance shares.

The Committee may grant the Executive Director awards to replace awards from a previous employment
that are forfeited. Should replacement awards be made, any awards granted would be no more generous
overall in terms of quantum or vesting period than the awards due to be forfeited. In determining the quantum
and structure of these commitments, the Committee will take into account the fair value and, as far as
practicable, the timing and performance requirements of remuneration foregone.

Service contracts and letters of appointment
All Executive Directors' employment contracts are not fixed term, but 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
Director 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 from the Company.

Value of package

Andrew Livingston

Paul Hayes

In their service contracts, Executive Directors have the following remuneration-related contractual provisions:

Maximum +

17%

22%

40%

20%

4,488

Maximum +

19%

25%

37%

18%

2,603

Maximum

22%

28%

50%

3,584

Maximum

24%

31%

45%

2,122

On-target

35%

23%

41%

2,178

On-target

38%

25%

37%

1,312

Minimum

100%

773

Minimum

100%

502

1,000

2,000

3,000

4,000

5,000

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 2022, alongside their 2022 pension entitlement, and actual
benefits received in 2020/21 (as a proxy for 2022).

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 270% of salary for Andrew Livingston and 220% of salary for Paul Hayes. The overall policy maximum is 270% of salary.
Target opportunity is calculated as 50% of maximum (135% of salary for Andrew Livingston and 110% of salary for Paul Hayes).

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 PSP.

• Receipt of a salary, which is subject to annual review

• Receipt of a car allowance

• Health insurance and death-in-service insurance payable by the Group

• Eligibility to participate in any bonus scheme or arrangement which the Company may operate from time to time, subject to

the plan’s rules

• Participation in the Company’s pension plan

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. Copies of the Directors’ service contracts and letters of appointment are
available at the Company’s registered office during usual business hours.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information118

119

Remuneration Committee report continued
Directors’ Remuneration Policy continued

Policy on payment for loss of office
The treatment of the various elements of remuneration payable to Executive Directors in a loss of office scenario is set out in the
table below. In exceptional circumstances an arrangement may be established specifically to facilitate the exit of a particular
individual; however, any such arrangement would be made within the context of minimising the cost to the Company. The
Committee will only take such a course of action where it considers it to be in the best interests of shareholders. Full disclosure
of any payments will be made in accordance with the new Remuneration Reporting regulations.

Component

Policy

General

Base salary
and benefits

Annual bonus

When determining any loss of office payment for a departing individual, the Committee will always seek
to minimise cost to the Company whilst seeking to reflect the circumstances in place at the time. As an
overriding principle there should be no element of reward for failure.

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 Director would have received
if still in employment with the Company.

Where an Executive Director’s employment is terminated after the end of a performance year but
before the payment is made, the Executive Director may be eligible for an annual bonus award for that
performance year subject to an assessment based on performance achieved over the period. No award
will be made in the event of gross misconduct.

Where an Executive Director’s employment is terminated during a performance year, a pro-rata annual
incentive award for the period worked in that performance year may be payable subject to an assessment
based on performance achieved over the period.

Long-term incentives
and deferred annual
bonus

The treatment of outstanding deferred annual bonus is governed by written agreements with individuals
and the treatment of long-term incentive awards by the rules of the relevant plan. Individuals are defined
as either a good or bad leaver for the purposes of outstanding incentive awards. Good leavers are those
leaving under pre-specified circumstances (such as retirement, ill-health or disability) or those deemed by
the Committee at its absolute discretion as a good leaver given the circumstances surrounding the loss of
office. All other leavers are bad leavers.

If an individual is a good leaver or dies then they will either continue to hold the award which will vest on the
normal vesting date based on Howdens’ performance (where applicable), or the Committee may exercise
discretion to accelerate vesting of the award, pro-rated to reflect the extent to which the performance
targets have been met (allowing for the curtailed performance period). In both scenarios, the amount
vesting is pro-rated for the proportion of the period elapsed when the individual leaves.

If an individual is a bad leaver then all awards to which they are conditionally entitled will lapse in full.

Post-cessation
on shareholding
requirement

Upon departure individuals will be required to retain 100% of their shareholding requirement (or full actual
holding if lower) for a period of two years post-cessation from the Board of Howden Joinery Group Plc.

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)

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).

Profit before tax (PBT)

The graph below illustrates the Company’s historic
PBT performance.

Howdens historic TSR

Howdens historic PBT (£m)

1,000

900

800

700

600

500

400

300

200

100

0
2012

£390.3m

£237.0m

£238.5m

£260.7m

£188.8m

£219.6m

£232.2m

£112.1m

£133.9m

£185.3m

400

350

300

250

200

150

100

2013

2014

2015

2016

20 17

2018

2019

2020

2021

2012

2013

2014

2015

2016

20 17

2018

2019

2020

2021

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 2020 to 2021 compared to
the total returns to shareholders of the Group and the two incentive performance measures PBT and cash flow.

600

550

500

450

400

350

300

250

200

150

100

m
£

+19.8%

m
3

3
5
5
£

m
7
.
1
6
4
£

+1,773.5%

m
6

3
8
1
£

m
8

9
£
20

Total spend on pay

Total returns to shareholders

+110.6%

m
3

0
9
3
£

m
3

5
8
1
£

PBT

+81.4%

m
0
9
2
5
£

m
7
.
1
9
2
£

Cash flow*

* Net cash flow from operating activities is the definition used for the annual bonus scheme (see page 114).

Howden Joinery Group Plc Annual Report & Accounts 2021

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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, with the exception
of 2020, the annual bonus has performed strongly and that long-term incentives have reflected the challenging market
conditions following the 2016 referendum on membership of the European Union, although the long-term incentive plan
vested in full for 2021.

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

2012

2013

2014

2015

2016

2017

2018

CEO single figure (£'000)

3,401

5,168

6,221

5,225

3,098

1,268

2,569

Annual bonus (% of maximum)

LTIP vest (% of maximum)

51%

100%

63%

89%

64%

56%

48%

100%

35%

75%

2019

1,391

76%

0%*

2020

816

2021

3,951

100%

* 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

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

CEO single figure

Annual bonus (% of maximum)

LTIP vest (% of maximum)

%
o
f

m
a
x
m
u
m

100

121

Fixed

Variable

CEO pay ratio table

Year

2021

2020

2019

2018

Method

25th percentile pay ratio

50th percentile pay ratio

75th percentile pay ratio

135:1

31:1

71:1

122:1

113:1

25:1

58:1

100:1

93:1

21:1

48:1

81:1

During 2021, 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 2021. 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.

It should be noted that the CEO did not receive any remuneration relating to a long-term incentive or share awards in 2020 or
2019. He also did not receive any annual bonus in 2020 during which time all other employees received variable performance
bonus pay. The combination of these factors resulted in a lower than anticipated CEO pay ratio in 2020 and 2019.

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)

£29,278

£20,872

£34,867

£25,160

£42,405

£30,713

25th percentile

50th percentile

75th percentile

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 2021 to 31 December 2021. Joiners, leavers and part time employees’ earnings
have been annualised on an FTE basis (excluding any payments of a one-off nature).

Where bonus payments are made on a weekly, monthly or quarterly basis, we included payments made in the 2021
compensation year; however, for annual bonus payments, we estimated the bonus due to employees for the 2021 compensation
year (payment is due in March 2022). P11D values are based on the 2020/21 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. Our pay structures vary between roles to deliver an appropriate balance
between fixed and variable pay. 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 often 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 provided across the business and are mindful that
consistency of approach and fairness are two key principles important drivers for change.

Howden Joinery Group Plc Annual Report & Accounts 2021

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122

Remuneration Committee report continued
Directors’ remuneration report

Part 1: Company performance and stakeholder experience continued

Case study
Directors' Remuneration Policy Review

The Directors' Remuneration Policy was last approved by
shareholders at the 2019 AGM. As such, an updated policy
must be approved by shareholders no later than the AGM
in 2022.

The context for the 2022 Directors Remuneration Policy
review is important when considering the new policy
proposals set out on pages 111 to 118. Between 2016 and
2018, profit growth was largely flat and the Company’s
share price reflected that fact. Since the appointment of
Andrew Livingston as CEO, there has been an increase
in share price (at the time of writing) of 88% and a TSR
of 102%. This has resulted in a significant increase in
market capitalisation and could place Howdens within the
FTSE 100 over the coming policy cycle. The Committee
is therefore mindful of the need to have a policy that
allows us the flexibility over its lifetime to adapt our
arrangements as we grow.

That said, the Committee believes that the existing policy
is largely fit for purpose and we have maintained the
overall structure of our remuneration arrangements,
subject to a couple of minor changes. A summary of
proposed change to the Directors' Remuneration Policy
can be found on page 111. The full policy can be found on
pages 111 to 118.

Policy review process

The Remuneration Committee has discussed the policy
review since Spring 2021 but it was agreed at the July
Committee meeting that a working group comprising the
Remuneration Committee Chair, Chairman, CEO, CFO,
Group HR Director, Company Secretary and the advisors
to the Remuneration Committee would undertake a
comprehensive review of the existing policy and make
recommendations to the Remuneration Committee at
an additional meeting in September.

The working group met a number of times over
the summer and presented its conclusions to the
Remuneration Committee in September. It was agreed
that the current policy, and in particular the bonus and
long-term incentive constructs, remain appropriate for
the three-year policy cycle. Minor amendments were
proposed and the Committee agreed to revisit these at
the Committee meeting in November.

Whilst the working group included the Executive Directors
and the Chairman of the Board, the approval of the
draft policy was the responsibility of the Remuneration
Committee, which is comprised exclusively of
independent Non-Executive Directors. No changes to
the policies applicable to Non-Executive Directors were
proposed from the current shareholder-approved version
of the Policy.

Following the approval of the proposals by the Committee,
a letter was sent from the Remuneration Committee Chair
to the Company’s top 20 shareholders and shareholder
advisory groups inviting their input on the proposals.

As part of the review, the working group and the
Remuneration Committee considered whether it was
appropriate to introduce measures for Executive
Directors’ variable pay based on ESG metrics. The
Committee concluded that the existing policy provided
enough flexibility to introduce such measures in the
annual bonus in the future if it was deemed appropriate
(provided they did not exceed the percentage of non-
financial measures afforded by the policy). It was
concluded that the Group’s ESG metrics were not yet
robust enough and there was not yet a discernible enough
link between ESG strategy and performance and therefore
a meaningful link between pay and performance could not
be established. The Committee agreed to keep this under
annual review.

The Remuneration Committee Chair engaged with
a number of shareholders ahead of the Committee
meetings in January and February 2022. Following
feedback from shareholders, the Committee agreed to
update the draft policy to reduce the minimum percentage
of financial measures for the PSP from 100% to 75% to
allow for non-financial measures, particularly those
measures linked to ESG targets, to be used for the long-
term incentive in the future.

In addition, while not related to the updated policy, the
Committee have agreed not to proceed with a proposal
to change the base point for the 2022 PSP following
shareholder feedback. The proposal was to use a blended
performance figure for the PBT measure to negate the
volatility in markets (and consequently, Howdens’ results) in
recent years. 2021 PBT outturn will now be used as the base
point for the 2022 PBT performance measure for the PSP.

The updated policy will be subject to a binding shareholder
vote at the AGM on 12 May 2022.

123

Fixed

Variable

All-Director remuneration relative to average employees (audited)
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 from financial year 2019 onwards and will ultimately provide a five-year view of the
change in individual Director’s pay relative to the change in average employee pay.

% change in Basic Salary

% change in Benefits

% change in Bonus

2020 to 2021

2019 to 2020

2020 to 2021

2019 to 2020

2020 to 2021

2019 to 2020

Average Howden Joinery
Group Plc employee
remuneration1

Average Howdens Group
employee remuneration

–

(15)%

–

38%

–

12%

In the financial year ended 25 December 2021, Howden Joinery Group Plc did not employ any individuals.

% change in Basic Salary / Fees

% change in Benefits

% change in Bonus

2020 to 2021

2019 to 2020

2020 to 2021

2019 to 2020

2020 to 2021

2019 to 2020

Executive Directors

Andrew Livingston1

Paul Hayes2

Former Executive Director

Mark Robson3

Non-Executive Directors

Richard Pennycook

Karen Caddick4

Andrew Cripps

Geoff Drabble4

Louise Fowler5

Debbie White

12%

–

18%

22%

515%

(85)%

–

(50)%

84%

–

(51)%

(100)%

(89)%

100%

390%

100%

(100)%

–

(100)%

–

In 2021, following shareholder consultation, Andrew Livingston's salary was increased by 12%. The rationale for this increase may be found on page 105 of the
2020 Annual Report and Accounts. In 2020, Andrew received a relocation allowance as permitted under the Director’s Remuneration Policy.

2 Paul Hayes was appointed to the Board on 27 December 2020 and therefore did not receive a salary, benefits or bonus as a Director in respect of the 2020

financial year. Comparative figures cannot therefore be calculated for the periods reported above.

3 Mark Robson retired from the Board on 26 December 2020 and therefore did not receive a salary, benefits or bonus as a Director in respect of the 2020 financial

year. Comparative figures cannot therefore be calculated for the periods reported above.

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 for 2019 to 2020 are predominantly due to these changes.

Louise Fowler was appointed to the Board in November 2019 and did not receive a full year of fees in respect of that year. The percentage change between 2019
and 2020 was therefore substantial as the figures are not pro-rated for the purposes of the above calculations.

Wider workforce considerations
The Remuneration Committee received updates from the Group HR Director in respect of average salary of an employee in
2021 versus the respective periods in 2020 and 2019 for depot, manufacturing, and logistics roles. 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 Provision 33 Dashboard, which includes information such as the CEO pay ratio, gender pay gap
statistics, and the salary, bonus, pensions, benefits and share plan arrangements available to the wider workforce.

Howden Joinery Group Plc Annual Report & Accounts 2021

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124

Remuneration Committee report continued
Directors’ remuneration report

Part 2: Application of policy in 2021

In this section of the Directors’ remuneration report we set out how the Committee has executed policy for 2021. Disclosures in
this section are retrospective and where applicable are shown against prior year comparator.

2019 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 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

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.

Benefits

The Company pays the cost of providing benefits on a monthly basis
or as required for one-off events.

Pension

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 workforce.

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 108.

Link to strategy

Salaries reflect the market value
of the Executive’s role in addition
to their skill, responsibilities,
performance and experience.

Link to strategy

Our Policy provides a
competitive level of benefits.

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.

125

Fixed

Variable

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.

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.

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.

Performance period:
3 years

Additional deferral period:
2 years

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 free or matching SIP shares held in the SIP trust that were awarded to an
Executive Director less than three years beforehand are not counted towards the shareholding requirement. SIP partnership
and dividend shares, which do not have a holding period, are counted towards the shareholding requirement.

In 2019, a post-cessation shareholding requirement was introduced in the Directors' 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 131 for the 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 2022 and the prior year are set out of page 128.
Non-Executive Directors are also entitled to receive expenses in respect of reasonable travel and accommodation costs.

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Remuneration Committee report continued
Directors’ remuneration report

Part 2: Application of policy in 2021 continued

Single figure of remuneration (audited)

Salary/Fees

Taxable Benefits

Pension

Total Fixed

Bonus

LTIP

Total Variable

Fixed

Variable

Total
Remuneration

£000s

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

Executive
Directors:

Andrew Livingston

650

578

Paul Hayes

425

–

Former Executive
Directors:

Mark Robson

–

452

Total

1,075

1,030

Non–Executive
Directors:

Richard
Pennycook

Karen Caddick

Andrew Cripps

Geoff Drabble

Louise Fowler

Debbie White

261

256

Total

590

575

–

132

–

163

106

–

760

476

816

–

975

638

–

113

–

596

–

122

219

1,236

1,412

1,613

–

261

256

592

578

–

2,216

–

3,191

638

–

3,951

816

1,114

–

596

2,216

0 3,829

0 5,065

1,412

–

261

256

592

578

Total current Executive Director fixed vs variable pay

Taxable Benefits

100%

24%

2020

2021

76%

Fixed

Variable

Notes to the single figure table

Executive Directors

Salary

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 2022 can be found on page 128.
The peer group used is reviewed whenever benchmarking
is performed, and the Committee applies judgement in
identifying appropriate peer group constituent companies.
The individual’s level of total remuneration against the market
is considered at the same time.

Benefits are based upon market rates and include
receipt of a car allowance, non-exclusive use of a
driver, health insurance and death-in-service insurance
payable by the Company. Following Andrew Livingston’s
appointment as CEO, the Remuneration Committee
agreed that the Company would pay reasonable hotel
costs in order to provide flexibility whilst he undertook
the logistical demands of the role. 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 pages
108 and 114.

127

Fixed

Variable

Annual Bonus (Audited)

Targets

Our annual bonus for 2021 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:

22.5%

Threshold

Target

Outperformance

PBT component

Cash flow component

£185.3m
(17% of salary)

£246.0m
(3% of salary)

£259.1m
(63.67% of salary)

£306.0m
(11.25% of salary)

£272.1m
(127.5% of salary)

£313.0m
(22.5% of salary)

70% of the annual bonus will be paid in cash and 30% of the annual
bonus will deferred as shares, which will vest two years following the
deferral date (subject to continued employment).

Outcomes for the year

The PBT figure for the year in relation to the annual bonus is £390.3m.
The cash flow figure for the year in relation to the bonus was
£529.0m. In aggregate, the Executive Directors will receive an annual
bonus of 150% of salary for 2021.

PBT (% of salary)

Cash Flow (% of salary)

Total Bonus (% of salary)

Total Bonus (£'000)

Andrew Livingston

Paul Hayes

127.5%

22.5%

150%

975

127.5%

22.5%

150%

638

Annual
Bonus
Outcome

100%

127.5%

Opportunity

Actual

Target not reached

Performance Share Plan ('PSP') (Audited)

Vest: 100%

Targets

The PSP awards granted from 2016 to 2019 have been measured against
PBT growth over a three-year period. The PBT growth for the 2019 award
was measured between FY 2018 to FY 2021. Any shares that vest under the
PSP award are subject to a two-year post-vest holding period for serving
Executive Directors.

Outcomes for the year

The 2019 PSP had a threshold requirement of 5% PBT growth p.a. and a
maximum requirement of 15% p.a. At the threshold requirement, 15% of the
award would have vested. The PBT for 2021 was £390.3m, and therefore
growth on FY 2018 was 17.2% p.a. The award will therefore vest at 100% of
maximum opportunity at the beginning of May 2022.

£975,713 of Andrew Livingston's 2019 PSP award was attributable to share
price increases. The share price at the date of grant was 502.6p and the three
month average to 25 December 2021, the price on which the value of the
award is calculated, was 898.0p.

PSP
Outcome

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Remuneration Committee report continued
Directors’ remuneration report

Part 3: Implementation of policy in 2022

In this section of the Directors’ remuneration report we set out how the Committee has implemented policy for 2022.
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 2022.

Non-Executive Director fees
Fee increases from 2022 are set out in the table below.

2022

2021

Fee

Effective date

Fee

Effective date

Basic
NED Fee1

£60,250

Chair
Fee

SID
Fee

£273,000

£16,000

1 January 2022

Committee
Chair Fee

£13,300

£58,500

£265,000

£15,500

£12,900

1 July 2021

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.

Executive Director base salaries

Base salary increases from 2022 are set out in the table below. For 2022, salary increases for the wider workforce are around 3%
of salary.

Executive Directors

Salary (£'000)

Effective date

Salary (£'000)

Effective date

Andrew Livingston

Paul Hayes

670

438

1 January 2022

650

425

1 January 2021

–

2022

2021

In the 2020 Remuneration Committee Report, it was reported that the increase to Executive Directors’ base salaries would
revert to the usual cycle of annual salary reviews that applies at Howdens each year in July. Subsequent to this, the annual
salary review date for all Howdens employees was changed to 1 January. The Remuneration Committee has agreed to align
the increase in base salaries for Executive Directors and Senior Management to 1 January to provide alignment with the wider
workforce. The Board has also agreed to align the effective date for increases in Non-Executive Director fees with the wider
workforce and these will also be effective from 1 January.

Annual bonus measures

The table below sets out annual bonus measures for 2022. 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 2022 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

129

Fixed

Variable

Performance Share Plan (PSP) measures

Set out below are the performance measures and relative weightings for each of the measures. For 2022 the maximum
opportunity under the PSP is 270% of base salary for Andrew Livingston and 220% of base salary for Paul Hayes. The
performance period is three years, measured over the relevant financial years, starting with the financial year of grant.
See page 132 for scheme interests awarded in 2021.

PSP measure:

PBT growth

Measure weighting

67%

PBT growth performance condition

PBT component
vesting schedule

12% p.a.

5% p.a.

Less than 5% p.a.

PSP measure:

Relative TSR

Measure weighting

33%

Straight-line vesting between these points

Payout level

100% of maximum

15% of maximum

Comparator group
and averaging period
for TSR performance

• Companies ranked up to 50 above and 50 below Howdens by market capitalisation in the FTSE All Share

index at or shortly before the start of the performance period (excluding Investment Trusts).

• One month TSR average for the month preceding the first day of the performance period and one month

TSR average for the final month of the performance period.

Performance
assessment

Performance against comparator group

Equal to or above upper quartile

Payout level

100% of maximum

Straight-line vesting between these points

Equal to median

Below median

15% of maximum

Under the terms of the Directors' Remuneration Policy approved by shareholders at the 2019 AGM, the 2022 PSP awards will be
subject to a two-year post-vesting holding period.

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Remuneration Committee report continued

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.

Loss of office payments or payments to past Directors (audited)
No loss of office payments or payments to past Directors were made in the year under review other than those paid to Mark
Robson, as disclosed in the 2020 Directors' remuneration report.

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 FTSE 250 REIT. Andrew
received £54,937.54 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 are invited to participate in the Howdens Retirement Savings Plan (the 'Plan') or receive an amount in lieu of
membership of the Plan. More information on pension entitlements for Executive Directors can be found on page 108 and in the
Directors' Remuneration Policy at www.howdenjoinerygroupplc.com/governance/remuneration-policy

The table below sets out the payments made in lieu of membership of the Plan for the Executive Directors who served during the
year. No additional benefits become receivable if Executive Directors retire early.

Accrued pension at 25 December 2021 (£'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

Executive Directors

Andrew Livingston

Paul Hayes

–

131

Fixed

Variable

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 Share Plan awards 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

Shares owned outright (including by connected persons)2,5

Current shareholding (% of salary)¹

Guideline met

Unvested deferred bonus shares

Share awards subject only to continued employment3,5

Share awards subject to performance conditions and continued employment4

Options subject to performance conditions

Vested but unexercised options

Current Executive Directors

Andrew Livingston

Paul Hayes

200%

144,766

146,577

203%

20,242

203

689,040

–

200%

94,655

7,051

15%

–

125,436

–

Based on a share price of £8.98, being the three-month average price to 25 December 2021, and basic salary as at 25 December 2021. This is calculated by using
only those shares owned outright by the Executive Directors and their connected persons at 25 December 2021 and the Executive Director’s salary at that date.

Includes Share Incentive Plan ('SIP') partnership and dividend shares.

Includes only SIP free and matching shares.

4 Performance Share Plan awards under the Long-Term Incentive Plan.

Between the end of the period (25 December 2021) and 23 February 2022, Paul Hayes has acquired 38 SIP Partnership Shares and 6 SIP Matching Shares. No
other changes to the Executive Directors' total shareholdings (including any holdings of their connected persons) have occurred between the end of the period
and 23 February 2022.

Non-Executive Director shareholdings (audited)
There is no shareholding requirement for Non-Executive Directors.

Shareholding1,2:

Including shares held by connected persons.

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

2 No changes to the Non-Executive Directors’ total shareholdings (including any holdings of their connected persons) have occurred between the end of the period

and 23 February 2022.

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Remuneration Committee report continued
Directors’ remuneration report

Part 4: Additional disclosures continued

Scheme interests awarded during the financial year (audited)
During 2021, the Executive Directors were invited to participate in the Performance Share Plan (PSP) and Share Incentive Plan
(SIP), as set out in the table below. Further information on conditional shares and SIP free and matching shares may be found in
note 25 on page 177:

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

PBT component vesting schedule

Performance period

Grant date

Vesting date

Additional holding period

CEO

191,843

£1,430,000

CFO

125,436

£935,000

Proportion of PSP award subject to the performance condition

33%

67%

Position at which Howdens ranks
compared to comparators

At or above upper quartile

Proportion of TSR portion
of Award that may vest

100%

Straight line vesting between these two points

At median

Below median

Annualised PBT growth over
Performance Period

15% p.a.

15%

Proportion of PBT portion
of Award that may vest

100%

Straight line vesting between these two points

5% p.a.

Less than 5% p.a.

15%

Performance measured from FY2020 to FY2023

6 Apr 2021

6 Apr 2024

2 years

1 Based on a share price of £7.454, being the closing price on 1 April 2021.

Nature of award:

Free and Matching Shares under the SIP1

Award type

Grant date

Vest date

Number of shares
under award

Award price2

Face value of
award2

CEO

CFO

Free Shares

6 Apr 2021

6 April 2024

Matching Shares

12 Oct 2021

12 Oct 2024

Free Shares

6 Apr 2021

6 Apr 2024

Matching Shares

12 Oct 2021

12 Oct 2024

Matching Shares

19 Nov 2021

19 Nov 2024

Matching Shares

17 Dec 2021

17 Dec 2024

£7.454

£8.360

£7.454

£8.360

£9.248

£8.680

£245.98

£200.64

£245.98

£50.16

£46.24

£43.40

Free and Matching Share awards under the SIP do not have performance conditions; however, there is a service condition of three years from the Grant date
during which time the participant must remain employed by a UK Howdens Group company to avoid forfeiting the award.

2 The face value of the award is calculated using the share price at grant (the 'Award price').

133

Fixed

Variable

Consideration by the Directors of matters relating to Directors’ remuneration
The Committee met six times during 2021 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.

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 usually attends each meeting of the Remuneration Committee.
Fees paid to PwC in relation to remuneration services provided to the Committee in 2021 totalled £171,350 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 2021. PwC is a member of the Remuneration Consultants’ Group which operates a code of
conduct in relation to executive remuneration consulting.

Voting at the 2021 AGM
The results of the advisory vote on the Directors’ remuneration report at the 2021 AGM may be found in the chart below, along
with the results of the 2020 and 2019 AGMs.

For¹

Against

AGM Voting Outcomes

2021

Report

For 95.36%

Against 4.64%

Withheld2 147,941

2020

Report

For 98.28%

Against 1.72%

Withheld2 4,495,906

Report

2019

For 96.68%

Against 3.32%

Withheld2 4,093,923

Policy

For 97.15%

Against 2.85%

Withheld2 689,992

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

23 February 2022

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134

135

Audit Committee
report

Audit Committee 2021
meeting attendance

Andrew Cripps (6/6)
Karen Caddick (6/6)
Geoff Drabble (6/6)
Louise Fowler (6/6)
Debbie White (6/6)

Key activities in the year ahead

• Review of the Annual Report and Accounts
and preliminary results announcement.

• KPMG’s appointment as auditor to be

recommended to shareholders at the AGM.

• Shareholder update by the Audit Committee

Chair at the AGM.

• Review of the 2022 interim results.

• Consideration of internal audit’s annual plan,

independence, resources and findings.

• Review of key controls.

• Approval of the 2023 Audit Committee calendar.

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 2021.

It has been a busy year for the Audit Committee. In addition to
ensuring effective external and internal audits, the Committee
has undertaken a number of projects.

We also concluded the process of selecting a new external
auditor in 2021. We have provided a detailed case study of
the external audit tender process on page 138 of this report
given the vital role an effective external audit performs. The
Committee are looking forward to the fresh perspectives a new
external auditor will bring from 2022. We thank Deloitte for two
decades of independent scrutiny of our annual accounts and
recommend KPMG for appointment at the AGM.

As reported in this Committee report last year, Howdens is
undertaking a project to review the Group's internal controls in
order to reappraise and document key controls and strengthen
the controls environment. This is an extended project that will
continue into 2022. The scope of the work includes the mapping
of core processes, IT general controls (ITGC) and a programme
of enhancements to existing fraud risk management
activity. The Group is systemising its control framework to
provide greater segregation of duties. The Audit Committee
will continue to receive updates from management on this
important project in 2022.

The Committee continued its programme of presentations
from management, particularly in the key areas of divisional
finance, compliance and information security, including cyber
risk. Receiving updates from the Head of Information Security
remains a vital part of the Committee’s agenda in helping to
address the risk of a cyber security incident.

The Committee undertook its regular governance reviews
during the year and worked with the newly formed
Sustainability Committee and the Board in developing controls
over the implementation of Task Force on Climate-Related
Financial Disclosures (TCFD). More information on the Group’s
approach to TCFD can be found on pages 52 to 57.

Finally, it was pleasing to receive the FRC’s letter in respect
of their thematic review of IAS 37 ‘Provisions, Contingent
Liabilities and Contingent Assets’ relating to the disclosures
in our 2020 Annual Report and Accounts. The FRC did not
raise any questions or queries to which the Group needed to
respond and only recommended minor improvements to our
existing disclosures1. This demonstrates the Group’s continued
commitment to high quality, transparent reporting and robust
corporate governance practices.

I look forward to reporting directly to shareholders at our
AGM and responding to questions.

Andrew Cripps
Audit Committee Chair

2021 Audit Committee activity

February

July

Committee meeting
• 2020 draft Annual Report

and Accounts and Full Year
Announcement

• External audit report

• External audit policies

• External audit tender

•

Internal audit report

• Key controls project

• Discussion with external

auditors (without
management present)

Committee meeting
• 2021 half year results,

including going concern
considerations

• External auditor half year

review

•

Internal audit report

• Key controls project update

• Conflicts of interest review

• Discussion with external

auditor (without
management present)

April

September

Committee meeting
• External audit tender

•

Internal audit report

Committee meeting
Internal audit report
•

• Corporate governance

• Key controls project update

• Discussion with Head of
Internal Audit (without
management present)

reform update from external
auditor

• Effectiveness of the external
auditor and audit processes

•

Information and cyber
security reviews

• Audit Committee
effectiveness

• Discussion with Head of
Internal Audit (without
presence of management)

May

AGM
• The reappointment of the external auditor and authority for
the Directors to determine the auditor’s remuneration were
approved by shareholders

June

Additional Committee meeting
• Prospective external audit candidate presentations

• Decision to recommend KPMG as external auditor from 2022

• Review of fraud controls

• Depot financial controls
and compliance review

November

Committee meeting
• 2021 external audit plan

• Terms of reference review

• 2022 internal audit plan

• 2022 Audit Committee

• Key controls project update

calendar

• Consideration of a more
formalised Audit and
Assurance Plan

• Discussion with external

auditor (without
management present)

The FRC asks that companies make clear
the inherent limitations of their review and
that their review was based solely on our
report and accounts and did not benefit from
detailed knowledge the Howdens business
or an understanding of the underlying
transactions entered into.

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Audit Committee report continued

Inventory obsolescence provisioning

The Group’s in-stock model (further information about which
may be found on page 14) 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. In 2021, management continued
to take a strategic position on additional safety stock to try and
minimise the impact on depots from the issues seen in global
supply chains caused by COVID-19.

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.

It was noted that the upward trend in discount rates ahead
of inflation, coupled with better than projected asset returns,
resulted in the Pension Fund moving into surplus on an IAS 19
basis. The Committee concurred that this asset be regarded
as recoverable in the balance sheet.

Distributable reserves

As reported in the 2020 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 196.

Financial reporting

Results review

The Audit Committee reviewed the Group’s 2021 Annual Report
and Accounts and the half-yearly financial report published in
July 2021.

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.

The Committee also received regular updates in respect of the
key controls project during the year. More information on the
key controls project can be found on page 140.

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's reports detailed the results of their
procedures in relation to these 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 2021
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 2021 and 2020

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.

The Committee received regular updates on the proposed
corporate governance reforms as set out in the Government
White Paper ‘Restoring trust in audit and corporate
governance’.

Committee effectiveness

An effectiveness review was carried out on the Committee
and its members as part of the wider Board evaluation
process. 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.

The Committee also undertakes an Audit Committee
effectiveness self-assessment questionnaire each year.
Audit Committee specific training plans and audit and
assurance policies were two areas which the Committee
agreed to consider further.

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 140) 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 141.

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 25 December 2021 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.

The Committee Chair 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.

Andrew will present a summary of the work of the
Audit Committee to shareholders at the 2022 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 FTSE 250 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.

External auditor*

External auditor

Deloitte LLP (Deloitte)

External auditor tenure

20 years

Lead audit partner

Claire Faulkner

Lead audit partner tenure

5 years (of a 5 year cycle)

New external auditor
to be engaged

2022

Total fees paid to
auditor in the year

£0.8m (Non-audit fees accounted
for £0.1m of the total fee)

* The information above is correct as at 25 December 2021.

External audit tender

Following a comprehensive external audit tender process
during the year, the Audit Committee made a recommendation
to the Board to appoint KPMG LLP as the Group’s external
auditor from 2022. The Board will recommend KPMG's
appointment to its shareholders at the 2022 Annual General
Meeting. A case study on the external audit tender process
can be found on page 138.

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Strategic reportGovernanceFinancial statementsAdditional information138

139

Case study
External Audit Tender Process

Having retained the same audit firm, Deloitte LLP, for the previous 20 years, the Audit Committee decided to run a
tender process for a new external auditor before the Statutory Auditors and Third Country Auditors Regulations
2017 obliged the Group to do so in 2023. The Committee was aware that best practice was to coincide the change of
auditor with the end of the current engagement partner’s five-year term and decided early in 2021 that it would not
take advantage of the flexibility afforded by the FRC due to the impact of COVID-19 to extend auditor and engagement
partners’ terms by one year.

The Committee were particularly mindful of the key statutory and regulatory requirements set out by the Competition
and Markets Authority (CMA), Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) applicable to
the external auditor tender process and received legal advice in respect of these at the outset of the process.

2019
The Audit Committee identified the key experience
required of a new auditor, including experience of
FTSE 100 audits, capital market transactions and
cross border audits in view of the expected growth
of the Group over the appointment period (up to ten
years). These requirements were compared with the
full range of audit firms, including those outside of
the 'Big 4'. Once a short-list of firms with the requisite
experience had been established, management was
tasked with ensuring that none of these firms were
offered new work which would potentially compromise
their independence as prospective auditors.

2020
Having identified two preferred audit firms for the
full tender process, presentations were made by
the Group to each firm. The firms were requested
to propose three potential engagement partners
for evaluation. It was communicated to each of the
audit firms that the Audit Committee's preferred
process was first to get to know and select potential
engagement partners from each firm, followed by a
presentation of information relevant to the audit and
due diligence process concluding with final proposals
and face to face presentations. The tender process
was paused during COVID-19 restrictions.

2021

February

An update on the tender process was provided to the
Audit Committee. It was agreed that Debbie White would
join the Committee Chair in the detailed selection and
evaluation process for additional non-executive input.

Each firm submitted three potential engagement
partners who were evaluated using a pre-agreed
evaluation list.

Subsequent to the February Audit Committee meeting,
and having confirmed their independence, a tender
timetable was agreed with the shortlisted audit firms.
Non-disclosure arrangements were put in place and
request for proposals (RFPs) issued by the Group.

A data room was populated and was made available to
the two audit firms ahead of management presentation
meetings.

May

Each prospective audit partner met with senior
management and all members of the Board ahead
of the final evaluations.

Clear directions were provided for written proposals
to the Committee to include:

• Explanation of approach to independence

• Audit approach and use of technology

• Team structure, continuity and succession planning

• Materiality assessment

• Assessed key audit risks

• Approach to controls, use of Internal Audit

• Approach to technical accounting issues

• Approach to regulatory and disclosure compliance

• Reporting to the Audit Committee

• Approach to transition from the incumbent auditor

• Assurance of professional scepticism, challenge and

highest audit quality

June

The Audit Committee considered the written proposals
and presentations from each of the tendering audit
partners at an additional Audit Committee meeting. After
careful consideration, the Audit Committee concluded
that both audit firms were suitable for appointment but
that the Committee’s preferred auditor was KPMG LLP.

KPMG have been shadowing Deloitte during the 2021
audit to familiarise themselves with Company processes
as part of the wider transition arrangements put in
place. Shareholders will be asked to approve KPMG’s
appointment for the 2022 audit at the AGM in 2022.

Audit Committee report continued

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 2021, 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
2021 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.

Details of the fees paid during the year to Deloitte may
be found in the table on page 137 and in note 5 to the
consolidated financial statements (page 158).

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.

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Audit Committee report continued

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.

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
four years.

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 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.

Key Controls

As reported in the 2020 Annual Report and Accounts, work is
underway to review 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.

Good progress in delivery of the project continued throughout
2021 with regular updates being provided to the Audit
Committee. Internal project management and governance
frameworks were determined to be working effectively and
the Committee was satisfied with the progress made during
the year.

The Committee remains committed to the activities to
strengthen the control environment regardless of the
outcome of the White paper 'Restoring Trust in Audit and
Corporate Governance' although it is likely that this will
guideprioritisation and activity for 2022.

Internal audit

The internal audit team has continued to develop its
capabilities during the year. This includes continued
development of data analytics and systemisation of controls.
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:

•

Internal Audit’s programme of work and resources and
approved its annual plan and budget.

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.

Independent assurance

The Committee assessed the coverage of independent
assurance by reviewing the annual internal audit plan against
the Group’s key controls.

Internal audit effectiveness

The Committee considered that the Internal Audit function
remained effective and provided a comprehensive level of
assurance through its programme of work.

In previous years, the Audit Committee has commissioned an
external assessment of the internal audit function every five
years in order to assess the performance and effectiveness of
the Internal Audit department. The last external assessment
was undertaken by Grant Thornton in 2017.

In 2021 the Audit Committee commissioned an external
quality assessment (EQA) readiness assessment (a standard
developed by the Chartered Institute of Internal Auditors) of the
internal audit function. An EQA evaluates conformance with the
International Professional Practices Framework (IPPF), which
includes the Code of Ethics, the Core Principles, the Definition
of Internal Audit and the International Standards for the
Professional Practice of Internal Auditing (the IIA Standards).
The readiness assessment concluded that the function’s
processes were effective and robust and would be sufficient
to meet the requirements of a full EQA. No areas reviewed were
considered to be of concern, although a small number of best
practice improvement recommendations were made.

Given the output of the EQA readiness assessment, the Audit
Committee agreed to reconsider external assessment of the
function in three years' time. As such, the next EQA readiness
assessment will be undertaken in 2024.

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.

Cyber and information security risk

The risk of a cyber security incident is considered to be one of
the Group’s principal risk. More information on this risk can be
found on page 44.

An update on cyber and information security was presented
to the Committee by the Head of Information Security and
the Director of Infrastructure and Service Delivery at the
Committee meeting in April.

The Committee noted that, in addition to the development of
technical controls to mitigate the increasing risk of a cyber
security incident, a strategy for Security Governance had
been implemented to ensure clear direction to the business.
The promotion of security risk management through improved
business engagement and targeted training were other key
area developed during the year. Biannual training on cyber
security is completed by all employees on a rolling basis.

There were no significant information security breaches
during the year and there had been no such breaches during
the preceding three year period.

Divisional controls

Senior management from the business are invited to discuss
the controls in their business areas. The Director of Finance
and the Head of Compliance for the Trade division gave
presentations on the key risks and control environments in
their area.

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 78 and 79).

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

23 February 2022

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143

Sustainability
Committee report

Sustainability Committee 2021
meeting attendance

Richard Pennycook (1/1)
Geoff Drabble (1/1)
Karen Caddick (1/1)
Andrew Cripps (1/1)
Louise Fowler (1/1)
Debbie White (1/1)

Key activities in the year ahead

•

Deep-dive review on skills.

• Establishing a Group-level commitment toward

Net Zero.

•

Presentations in respect of the Group-wide
diversity agenda.

•

Initiative updates from the Sustainability Director.

Richard Pennycook

Sustainability Committee
Chairman

Introduction from the Sustainability Chair
Whilst there has long been an expectation that companies
should behave in a socially responsible way, there has been
a marked change in the previous decade as to the political
and public will in relation to the advancement of progressive
environmental and social matters. We see the awareness of
these matters, such as the ‘decarbonsiation’ of the global
economy, waste reduction, levelling-up in respect of diversity
and ethnicity, and social mobility, and the willingness to act
from our customers, employees and shareholder.

ESG initiatives and reporting have been a recurring item on the
agenda of the Howdens Board. The business has responded
to increased focus on ESG matters by dedicating additional
resource and first appointing a Chief Governance Officer and
latterly a Director of Sustainability. But it is important that
leadership sets the tone from the top, particularly in relation
to setting strategy and metrics, and therefore (following
a recommendation by the Nominations Committee) the
Board established a dedicated committee in 2021 to review
sustainability initiatives and reporting. Delegating the
responsibilities which originally sat with the Board will allow
for additional focus and scrutiny and it is intended that the
Sustainability Committee will look to identify areas where
Howdens can really make a difference, as well as ensuring
high standards of governance and reporting in this area.

It is probably true to say that ‘ESG’ is used as a catch-all term
for almost all non-commercial or non-financial business
matters. Corporate governance, in its current form of a
codified set of rules against which companies must ‘comply
or explain’, has been in place for nearly 30 years and Howdens
has a well-developed set of Board and Committee practices
and systems which are designed to mitigate corporate
governance risks and failures. Howdens already has
developed high-quality financial and governance reporting
practices and therefore the remit of the Sustainability
Committee does not cover governance matters per se and
these remain a matter for the Board and its Committees.

It is expected that the function of the Sustainability Committee
will develop over time but we have set out below the core
role, remit and responsibilities of the Committee to provide a
summary of how the Committee will operate in 2022. We have
also disclosed some of the key work of the Committee during
the year, some of which was addressed by the Board prior to
the establishment of the Sustainability Committee.

Role, remit and responsibilities

The principal role of the Committee is to assist the Board
in articulating and developing its sustainability strategy
and providing oversight of sustainability initiatives across
Howdens, in line with the purpose, values, and strategy of
Howdens as established by the Board.

This includes monitoring of the content and completeness
of Howdens’ external statements, disclosures and other
reporting on Sustainability matters. The Committee shall carry
out the duties considered below in relation to any environment
and climate action and Howdens’ contribution to society.
However, it will also consider any other matters referred by
the Board or its Committees relevant to sustainability.

The Committee will carry out the following duties:

•

Oversee Howdens’ sustainability strategy, consider and
approve proposals from management on the content of
that strategy and recommend its adoption by the Board.

Monitor and review progress against priorities and
objectives, including compliance with public commitments
on sustainability matters.

Oversee management’s plans on environment and climate
action, including the setting, disclosing, and achievement
of targets.

Oversee and assess Howdens’ overall contribution to,
impact on, and role in society in the countries where it
operates.

Review external reporting and recommend for approval the
external statements and disclosures made by Howdens in
relation to sustainability, including the relevant sections
of Howdens’ Annual Report. This shall include keeping
under review the extent and effectiveness of Howdens’
external reporting of sustainability performance and its
participation in external benchmarking indices.

Consider Howdens’ position on relevant emerging
sustainability issues and consider and approve proposals
on Group targets and/or the Group’s commitment to non-
mandatory sustainability related objectives.

The Committee will liaise as necessary with all other Board
Committees as required.

Diversity: Equality, Diversity and Inclusion (EDI) Group

Howdens uses its apprentice levy across four key
investment areas:

•

Continuing to build our apprentice pipelines.

Developing existing employees.

Funding the education of construction apprentices.

Educating and enabling our trade customers to employ
apprenticeships.

The Sustainability Committee will undertake a deep-dive
review on skill in 2022.

More information on apprenticeships at Howdens can be
found in the Sustainability Matters report on page 46.

Task Force on Climate-Related Financial Disclosures
(TCFD)

Following updates to the Board during the year, the
Sustainability Committee considered and approved the
methodology and draft disclosures under TCFD. Supported by
external consultancy, TT Impact Strategies, the Group utilised
the following methodology for TCFD implementation:

1. Governance and oversight: Board and management

oversight to ensure that climate issues are embedded in
the strategic planning/ enterprise risk management

2. Assess materiality of climate-related risks: Understand
potential climate related risks and opportunities for
Howdens’ business involving all relevant internal
stakeholders

At the Sustainability Committee meeting in November, the
Committee received an update from the Group HR Director on
the progress made during the year in respect of the EDI Group.

3. Develop and define scenarios: Construct appropriate
scenarios to develop relevant narratives according to
Howdens’ context and business model

The Group’s EDI priorities were considered and an Executive
Sponsor was agreed for each priority. Each sponsor will
be supported by an internal and external resource and will
be responsible for building an action plan for their priority
area as well as having responsibility beyond their focused
demographic to steer the overall direction of the EDI strategy.

The Committee also noted that an employee engagement
survey would be undertaken in March 2022. This will be used
as an opportunity to communicate the EDI priorities and
collect the data needed to better understand the current EDI
landscape and to and measure progress.

Apprentices

Howdens has an externally recognised track record for
apprenticeships and we are proud of our strong success in this
area. Many of our commercial strengths are underpinned by
our home-grown model and, in conjunction with our focus on
social mobility, will remain an area of focus.

The development of skills both at Howdens and in the wider
construction industry will help sustain our business as
well as helping to address the skills gap in construction
more generally.

4. Evaluate business impacts: For each scenario (three

scenarios), identify key strategic and financial impacts –
qualitative to quantitative

Identify potential responses: Use the results to identify
realistic strategic responses to manage risks and
opportunities

6. Document and disclose: Communicate to relevant parties
– the inputs, assumptions, methods, outputs, and potential
management responses

The Group’s reporting under TCFD in respect of the year ended
25 December 2021 can be found on pages 52 to 57.

The Sustainability Committee will continue to receive updates
from management on how the outputs from the TCFD review
process are being implemented across the business as well as
the development of TCFD reporting in the future.

By order of the Board

Richard Pennycook
Sustainability Committee Chairman

23 February 2022

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information144

145

Directors’ report

The Directors have pleasure in submitting their report and the audited financial statements for the 52 week period ended
25 December 2021. Comparative figures relate to the 52 weeks ended 26 December 2020.

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 and streamlined energy and
carbon reporting (SECR): 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 65. Information required by
the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 as amended
by the Companies (Directors' Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018
(SI 2018/1155), may be found on pages 64 and 65.

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 90 to 95. 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 140. Risk management
arrangements information may be found on pages 38
and 39 and in the Principal risks and uncertainties section
beginning on page 40.

Diversity policies: The Board and Group diversity policies
are available on page 100 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 84 to 89.

Employees: Information about the total number of
employees and gender diversity statistics are located
on page 99. The average number of employees and
their remuneration are shown in note 6 on page 159. The
methods of engaging with the workforce may be found
on pages 84 and 85. 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, and in 2021 were invited to participate in a new SIP
Partnership and Matching Shares plan. Further details of
the SIP may be found in note 25 on page 177.

Howden Joinery Group Plc Annual Report & Accounts 2021

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 1 to 37.

Dividend: Dividend information can be found in the
Chairman’s statement on pages 17 and 18 and the
‘Financial review’ on pages 34 and 35.

Directors’ statement of disclosure of information to
the auditor: This statement may be found on page 70.

Located in the additional
information section:
Annual General Meeting (AGM): Information about the
AGM can be found on page 202. The recommendation to
appoint KPMG LLP as the Group’s auditor, can be found on
pages 134 and 137.

Share capital, substantial shareholdings and acquisition
of the Company’s own shares: Information in this regard
can be found on pages 202 and 203.

Indemnity and Insurance: Details of Directors’ Indemnity
and Insurance is located on page 203.

Significant agreements: Details of any agreements that
take effect, alter or terminate upon a change of control may
be found page 203.

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-UK 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

23 February 2022

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 is 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 48.

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

Anti-bribery
and corruption

Employees

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,
Conflicts of interest,
Corporate gifts and
hospitality, Anti-money
laundering, Anti-tax evasion
and Competition law policies.

Health & Safety Statement of
Intent (see Group website),
Market abuse compliance,
Data Protection and Privacy,
Whistleblowing.

• Greenhouse gas emissions and streamlined energy and carbon reporting

(pages 64 and 65).

• Discussion of the Company’s progress on implementing the recommendations of

the Task Force on Climate-Related Financial Disclosures (pages 52 to 57).

• Discussion of the UN Sustainable Development Goals and our progress on 'zero

waste to landfill' and carbon neutral manufacturing (page 50).

• 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 64).

• KPI on use of certified timber in our manufacturing processes (page 62).

• Discussions of our efforts to reduce waste and our responsible, energy-efficient

operations (page 64).

• Our impact on our stakeholders (starting on page 58) and engagement

with stakeholders (starting on page 84).

• Our work with local and national charities (page 66).

• Discussion of the UN Sustainable Development Goal 8 (Decent Work and Economic

Growth) (page 50).

• 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 85.

• KPI on Health and Safety and discussion of Health and Safety performance and

initiatives (page 60).

• Discussion of employee rewards and benefits, development opportunities and

apprentice schemes (page 61).

• Diversity policies and statistics (pages 99 and 100).

• Workforce engagement (pages 84 and 85).

• Directors’ Remuneration Policy (see Group website for the full policy or pages 124

and 125 for a summary of the policy). A proposed new policy is set out on pages 111
to 118.

We outline our business model on pages 14 and 15. All of our non-financial KPIs are presented together on pages 30 and 31.
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 2021

Strategic reportGovernanceFinancial statementsAdditional information146
146

147
147

Financial Statements

Our financial
performance

Revenue

Profit before tax

Net cash

Shares bought back

£2,094m (2020: £1,548m)

£390m (2020: £185m)

£ 515m (2020: £431m)

2017

2018

2019

2020

2021

£1,404m

£1,511m

£1,584m

£1,548m

2017

2018

2019

£232m

£239m

£261m

2020

£185m

£2,094m

2021

£390m

2017
2017

£241m

2018
2018

£231m

£267m

2019
2019

2020
2020

2021

£431m

£515m

Operating profit

£402m (2020: £196m)

EPS

53.2p (2020: 24.9p)

Dividends paid

£133.6m paid in 2021

£234m

£240m

£260m

£196m

2017

2018

2019

2020

2021

£402m

2017

2018

2019

2020

2021

30p

31p

35p

2017

2018

2019

£68.4m

£68.3m

£70.6m

25p

2020

£0m

53.2p

2021

£133.6m

2017
2017

2018
2018

2019
2019

2020
2020

£10m

£47.9m

£62.2m

£55.2m

148 Consolidated income statement

148

Consolidated statement of comprehensive income

149 Consolidated balance sheet

150

Consolidated statement of changes in equity

151

Consolidated cash flow statement

152

Notes to the consolidated financial statements

186

Independent auditor’s report to the members

2021

£50m

195 Company balance sheet

196

Company statement of changes in equity

197 Notes to the Company financial statements

Howden Joinery Group Plc Annual Report & Accounts 2021

Howden Joinery Group Plc Annual Report & Accounts 2021
Howden Joinery Group Plc Annual Report & Accounts 2021

148

149

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

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

Notes

2,093.7

(804.7)

1,289.0

(756.5)

(130.8)

401.7

–

(11.4)

390.3

(75.8)

314.5

53.2p

53.0p

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

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 gains/(losses) on defined benefit pension scheme

Deferred tax on actuarial gains and 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
25 December 2021
£m

52 weeks to
26 December 2020
£m

Notes

314.5

147.6

170.4

(33.5)

(8.5)

(2.3)

126.1

(12.7)

2.4

1.1

0.5

(8.7)

Non-current assets

Intangible assets

Property, plant and equipment

Lease right-of-use assets

Pension asset

Deferred tax asset

Prepaid credit facility fees

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

Capital redemption reserve

Share premium

ESOP reserve

Treasury shares

Retained earnings

Total equity

Notes

25 December 2021
£m

26 December 2020
£m

22.6

295.8

555.8

140.8

13.4

0.3

1,028.7

301.6

205.8

515.3

1,022.7

2,051.4

(57.5)

(384.7)

(25.9)

(468.1)

–

(533.7)

(37.7)

(20.4)

(591.8)

(1,059.9)

991.5

59.8

5.4

87.5

5.9

(27.1)

860.0

991.5

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

440.6

138.9

The financial statements were approved by the Board and authorised for issue on 23 February 2022 and were signed on its
behalf by:

Howden Joinery Group Plc Annual Report & Accounts 2021

Paul Hayes

Chief Financial Officer

Strategic reportGovernanceFinancial statementsAdditional information

150

151

Consolidated statement of changes in equity

Consolidated cash flow statement

Share
capital
£m

60.5

–

Capital
redemption
reserve
£m

Share
premium
account
£m

ESOP
reserve
£m

Treasury
shares
£m

Retained
profit
£m

Total
£m

4.7

–

87.5

–

(6.3)

(29.3)

498.1

615.2

–

(30.9)

At 28 December 2019

Impact of adopting IFRS 16

Tax effect of adopting IFRS 16

Adjusted opening balance after adopting IFRS 16

60.5

4.7

87.5

(6.3)

(29.3)

Accumulated profit for the period

Other comprehensive income for the period

Total comprehensive income for the period

Current tax on share schemes

Deferred tax on share schemes

Movement in ESOP

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

At 26 December 2020

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

Reclaim of forfeited dividends

Proceeds from sale of forfeited shares

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

Dividends

At 25 December 2021

–

(0.2)

–

60.3

–

(0.5)

–

0.2

–

4.9

–

0.5

–

87.5

–

59.8

5.4

87.5

–

3.9

–

(1.1)

(3.5)

–

10.5

–

(1.1)

–

5.9

3.6

470.8

147.6

587.9

147.6

(8.7)

138.9

0.1

(0.2)

–

(9.8)

–

0.1

(0.2)

3.9

(9.8)

–

1.1

–

1.1

–

314.5

126.1

314.5

126.1

440.6

(0.1)

1.3

–

0.2

1.8

1.3

10.5

0.2

1.8

(50.0)

–

(133.6)

(27.1)

860.0

991.5

The ESOP reserve includes shares in Howden Joinery Group Plc with a market value on the balance sheet date of £41.7m (2020: £35.9m), 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 5,567,555 ordinary shares held in treasury, each with a nominal value of 10p (2020: 5,775,230 shares).

The nature and purpose of each of the other reserves is explained at note 22.

Notes

12, 13

Operating profit

Adjustments for:

Depreciation and amortisation of owned assets

Depreciation, impairment and loss on termination of leased assets

Share-based payments charge

Decrease in prepaid credit facility fees

Write down of property, plant and equipment and intangible assets

Operating cash flows before movements in working capital

Movements in working capital and exceptional items

Increase in inventories

(increase)/decrease in trade and other receivables

Increase in trade and other payables and provisions

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

Inflow from receipt of forfeited dividends

Inflow from sale of forfeited shares

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

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

401.7

40.6

74.8

10.1

0.3

3.2

530.7

(46.6)

(39.2)

84.1

(18.5)

(20.2)

510.5

(73.1)

437.4

(85.9)

0.1

–

(85.8)

(50.0)

0.4

0.2

1.8

(133.6)

(11.0)

(74.8)

(267.0)

84.6

430.7

515.3

195.7

34.5

79.5

3.6

0.3

–

313.6

(23.2)

2.3

91.2

(22.2)

48.1

361.7

(32.2)

329.5

(69.7)

–

0.6

(69.1)

(9.8)

0.3

–

(10.4)

(77.2)

(97.1)

163.3

267.4

430.7

(28.2)

599.8

720.8

Difference between pensions operating charge and cash paid

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information152

153

Notes to the consolidated financial statements

The principal accounting policies are set out below.

Revenue recognition

Intangible assets

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.

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

Foreign operations are included in accordance with the
policies set out in note 2.

Amendments to IAS 1 – Classification of liabilities as Current or
Non-Current

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

Amendments to IAS 12: Deferred Tax related to Assets and
Liabilities arising from a Single Transaction

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.

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. All
subsidiaries are 100% owned and the Group considers that it
has control over them all.

2 Significant Accounting Policies

Accounting period

The Group’s accounting period covers the 52 weeks to 25
December 2021. The comparative period covered the 52 weeks
to 26 December 2020.

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) No1606/2002 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 67. 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 186.

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
completion of services provided to customers outside the
Group, excluding sales taxes and discounts. Interest income
is recognised in the income statement as it accrues, using the
effective interest method.

Inventories

Inventories are stated at the lower of cost and net
realisable value. Cost includes an attributable proportion
of manufacturing overheads based on budgeted levels of
activity. Cost is calculated using a standard cost which is
regularly updated to reflect average actual costs. Provision
is made for obsolete, slow-moving, or defective items where
appropriate.

Property, plant and equipment

On adopting IFRS, the Group adopted the transitional
provisions of IFRS 1 to use previous revaluations of freehold
properties as the new deemed cost at the date of transition to
IFRSs.

All property, plant and equipment is stated at cost (or deemed
cost, as applicable) less accumulated depreciation, and less
any provision for impairment.

Depreciation of property, plant and equipment is provided to
write off the difference between their cost and their residual
value over their estimated lives on a straight-line basis. The
current range of useful lives is as follows:

Freehold property

50 years

Leasehold property
improvements and 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 regularly and
adjusted if appropriate.

Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.

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
obtaining, configuring or customising 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.

When the Group incurs configuration and customisation costs
as part of a cloud-based software-as-a-service agreement,
and where this does not result in the creation of an asset which
the Group has control over, then these costs are expensed.

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 as well as 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.

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Deferred tax

Provisions

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 only temporary
differences which are not provided for are in relation to tax
losses in UK and overseas subsidiary companies where it is
not expected there will be taxable profits against which these
losses can be utilised 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 are recognised when the Group has a present
obligation as a result of a past event, it is probable that the
Group will be required to settle that obligation, and a reliable
estimate can be made of the amount required to settle
the obligation.

Provisions are measured at the Directors’ best estimate of the
expenditure required to settle the obligation at the balance
sheet date, taking into account the risks and uncertainties
surrounding the obligation, and are discounted to present
value where the effect is material.

Pensions

Payments to defined contribution retirement benefit schemes
are charged to the income statement as they fall due.

The Group operates a defined benefit pension scheme which
closed to future accrual in 2021. 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 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 lease depot, warehouse, factory and office properties, as
well as other assets such as fork lift trucks, lorries, vans and
cars. 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 credit 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.

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.

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.

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
IFRS16 short-term lease exemption.

We remeasure the lease liability (and make a corresponding
adjustment to the related right-of-use asset) whenever:

Amounts treated as variable lease payments –
rent reviews

•

the lease term has changed, in which case the lease liability
is remeasured by discounting the revised lease payments
using a revised discount rate; or

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 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.

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 remeasurement of the lease liability.

The lease asset and liability are remeasured from the rent
review agreement date, based on the future agreed cashflows
at the new agreed rent.

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.

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157

Other payables

Other payables are stated at their fair value.

Share-based payments

The Group issues equity-settled share-based payments.
They are measured at fair value at the date of grant. The fair
value 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, and an estimate of any
expected credit losses.

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 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

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 liability.

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 regular reviews
of stock levels, as well as 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 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 of 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
25 December 2021
£m

52 weeks to
26 December 2020
£m

89.8

(40.6)

67.0

(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
25 December 2021
£m

52 weeks to
26 December 2020
£m

2,043.3

50.4

2,093.7

1,509.6

37.9

1,547.5

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.

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159

Carrying amount of assets

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

Depreciation of property plant and equipment

Amortisation of intangible assets

Depreciation and impairment of lease right-of-use assets

Cost of inventories recognised as an expense

Write down of inventories

Loss on disposal of fixed assets

Increase in allowance for expected credit losses on trade debts

Staff costs

Auditor’s remuneration for audit services

All of the items above relate to continuing operations.

25 December 2021
£m

26 December 2020
£m

1,991.9

59.5

2,051.4

1,638.2

49.0

1,687.2

25 December 2021
£m

26 December 2020
£m

982.8

32.5

1,015.3

795.1

22.8

817.9

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

82.8

7.0

89.8

63.1

3.9

67.0

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

5.2

(31.5)

(9.1)

(74.8)

(789.9)

(20.0)

(3.2)

(2.9)

(553.3)

(0.8)

0.4

(28.7)

(5.8)

(79.5)

(611.0)

(6.8)

–

(1.5)

(461.7)

(0.6)

A more detailed analysis of auditor’s total remuneration is given below:

Audit services:

Fees paid to the Company’s auditor for the audit of the Company’s
annual financial statements

Fees paid to the Company’s auditor and their associates for other services to the Group:

– the audit of the subsidiary companies pursuant to legislation

Total audit fees

Other services:

Audit related assurance services (review of the half-year results)

Tax compliance services

Tax advisory services

Total non-audit fees

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

(0.2)

(0.5)

(0.7)

(0.1)

–

(0.1)

(0.2)

(0.4)

(0.6)

(0.1)

–

(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
25 December 2021
£m

52 weeks to
26 December 2020
£m

(474.6)

(44.7)

(34.0)

(553.3)

(388.6)

(35.8)

(37.3)

(461.7)

Wages and salaries includes a charge in respect of share-based payments of £10.1m (2020: £3.6m).

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
25 December 2021
No.

52 weeks to
26 December 2020
No.

10,789

10,004

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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

Effect of changes in tax rate

Adjustments in respect of previous periods

Total deferred tax

Total tax charged in the income statement

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

–

0.6

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

(11.0)

(0.4)

–

(11.4)

(10.3)

(0.6)

(0.1)

(11.0)

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

77.3

(0.5)

76.8

0.4

(1.7)

0.3

(1.0)

75.8

33.6

0.6

34.2

4.8

–

(1.3)

3.5

37.7

UK Corporation tax is calculated at 19% (2020: 19%) of the estimated assessable profit for the period. Tax for other countries is
calculated at the rates prevailing in the respective jurisdictions.

(b) Tax relating to items of other comprehensive income or changes in equity

Deferred tax charge/(credit) to other comprehensive
income on actuarial difference on pension scheme

Change of rate effect on deferred tax

Deferred tax (credit)/charge to equity on share schemes

Current tax charge/(credit) to equity on share schemes

Total charge/(credit) to other comprehensive income or changes in equity

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

33.5

8.5

(1.3)

0.1

40.8

(2.4)

(1.1)

0.2

(0.1)

(3.4)

The Group’s effective rate of tax is 19.4% (2020: 20.3%). 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% (2020: 19%)

IFRS2 share scheme charge

Expenses not deductible for tax purposes

Overseas losses not utilised

Non-qualifying depreciation

Super deduction – capital allowances

Rate change

Other tax adjustments in respect of previous years

Total tax charged in the income statement

Patent box

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

390.3

74.1

(0.3)

1.7

2.2

0.6

(0.6)

(1.7)

(0.2)

75.8

185.3

35.2

0.2

0.5

1.4

1.1

–

(0.7)

37.7

During 2020 we were granted a patent on a new plastic leg design which we have incorporated into our sales of circa 5m of
kitchen cabinet units. We applied for the patent in 2017 and there is a potential to claim tax relief under HMRC patent box rules.
We will review the potential scale of any claim with our advisers before deciding whether to make a claim under these rules.

10 Earnings per share

From continuing operations

Basic earnings per share

Effect of dilutive share options

Diluted earnings per share

11 Dividends

52 weeks to 25 December 2021

52 weeks to 26 December 2020

Earnings
£m

314.5

–

314.5

Weighted average
number of shares
m

Earnings
per share
p

Earnings
£m

Weighted average
number of shares
m

Earnings
per share
p

591.2

2.1

593.3

53.2

(0.2)

53.0

147.6

–

147.6

592.3

2.7

595.0

24.9

(0.1)

24.8

Amounts recognised as distributions to equity holders in the period:

Interim dividend for the 52 weeks to 25 December 2021 – 4.3p/share

Final dividend for the 52 weeks to 26 December 2020 – 9.1p/share

Special dividend for the 52 weeks to 26 December 2020 – 9.1p/share

Dividends proposed at the end of the period (but not recognised in the period):

Proposed final dividend for the 52 weeks to 25 December 2021 – (15.2p/share)

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

25.3

54.2

54.1

133.6

–

52 weeks to
25 December 2021
£m

89.3

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13 Property, plant and equipment

Cost

At 28 December 2019

Exchange adjustments

Additions

Disposals

Reclassifications

At 26 December 2020

Exchange adjustments

Additions

Disposals

Reclassifications

At 25 December 2021

Accumulated depreciation

At 28 December 2019

Exchange adjustments

Charge for the period

Disposals

At 26 December 2020

Exchange adjustments

Charge for the period

Disposals

At 25 December 2021

Net book value at 25 December 2021

Net book value at 26 December 2020

Freehold
property
£m

Leasehold
property
improvements
£m

Plant,
machinery
& vehicles
£m

Fixtures &
fittings
£m

Capital
WIP
£m

39.4

–

3.1

–

0.4

42.9

–

12.2

–

55.1

(6.6)

–

(1.2)

–

(7.8)

–

(1.3)

–

(9.1)

46.0

35.1

64.9

–

11.1

–

15.9

91.9

–

6.6

(7.3)

0.9

92.1

179.0

0.1

6.5

(8.0)

7.1

184.7

(0.2)

8.7

(12.0)

9.8

191.0

147.1

0.3

27.5

(0.4)

7.6

182.1

(0.6)

29.6

(4.4)

0.4

207.1

(27.8)

(120.9)

(98.5)

–

(4.4)

–

(0.1)

(12.0)

8.0

(0.1)

(11.1)

0.4

(32.2)

(125.0)

(109.3)

–

(4.7)

7.3

0.1

(11.9)

11.3

0.2

(13.6)

4.3

(29.6)

(125.5)

(118.4)

26.6

–

13.6

–

(18.7)

21.5

–

22.7

–

(11.1)

33.1

–

62.5

59.7

65.5

59.7

88.7

72.8

33.1

21.5

TOTAL
£m

457.0

0.4

61.8

(8.4)

12.3

523.1

(0.8)

79.8

(23.7)

–

578.4

(253.8)

(0.2)

(28.7)

8.4

(274.3)

0.3

(31.5)

22.9

(282.6)

295.8

248.8

The Directors propose a final dividend in respect of the 52 weeks to 25 December 2021 of 15.2p per share, payable to ordinary
shareholders who are on the register of shareholders at 8 April 2022, and payable on 20 May 2022. The proposed final dividend
for the current period is subject to the approval of the shareholders at the 2022 Annual General Meeting, and has not been
included as a liability in these financial statements.

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 explained in the accounting policies note.

Cost

At 28 December 2019

Exchange adjustments

Additions

Disposals

Reclassifications

At 26 December 2020

Exchange adjustments

Additions

Disposals

Reclassifications

At 25 December 2021

Accumulated depreciation

At 28 December 2019

Exchange adjustments

Charge for the period

Disposals

At 26 December 2020

Exchange adjustments

Charge for the period

Disposals

At 25 December 2021

Net book value at 25 December 2021

Net book value at 26 December 2020

Intangible assets
in use
£m

Intangible assets
under construction
£m

45.7

0.1

1.7

(1.3)

4.4

50.6

(0.1)

5.6

(13.1)

3.3

46.3

(24.6)

(0.1)

(5.8)

1.3

(29.2)

0.1

(9.1)

10.6

(27.6)

18.7

21.4

3.8

–

3.5

–

(4.4)

2.9

–

4.4

(0.1)

(3.3)

3.9

–

3.9

2.9

TOTAL
£m

49.5

0.1

5.2

(1.3)

–

53.5

(0.1)

10.0

(13.2)

–

50.2

(24.6)

(0.1)

(5.8)

1.3

(29.2)

0.1

(9.1)

10.6

(27.6)

22.6

24.3

In April 2021, the IFRS Interpretations Committee (‘IFRIC’) published an agenda decision on accounting for configuration and
customisation costs incurred in implementing cloud-based software-as-a-service contracts. This decision clarified that where
the customer doesn’t control the underlying software and where the configuration and customisation costs don’t create a
separate intangible asset then the configuration and customisation costs should be expensed.

Following the publication of this agenda decision the Group carried out a review of its intangible assets and concluded that there
were assets with a net book value of £1.6m which it would not have capitalised if the IFRIC agenda decision had been effective
when the related costs were incurred. These amounts were written off in the current period and are included as part of the
intangible asset disposals shown above. The Group has amended its accounting policy for intangible assets to address the IFRIC
decision. The amended policy is at note 2 to these accounts.

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165

14 Lease right-of-use assets and lease liabilities

Nature of the Group’s leasing activities

Around 90% of our leases by value are for depot, warehouse, and office properties, as well the land at one of our factories. A
typical depot lease would be for a period of 10 to 15 years, with warehouse and factory leases being for significantly longer and
typical office lease periods being shorter. We also lease other smaller assets such as fork lift trucks, lorries, vans and cars, with
typical lease periods ranging up to around 5 years.

Our lease accounting policies are 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 and net loss on lease termination

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

25 December 2021
£m

26 December 2020
£m

510.9

44.9

555.8

70.0

495.8

48.4

544.2

86.5

25 December 2021
£m

26 December 2020
£m

(57.5)

(533.7)

(591.2)

£m

(70.0)

(510.5)

(580.5)

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

58.0

15.2

1.6

74.8

3.7

1.6

11.0

62.9

14.7

1.9

79.5

2.9

1.1

10.3

Cash flows and maturity analysis of lease liabilities

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

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

85.8

87.5

25 December 2021
£m

26 December 2020
£m

68.0

263.6

352.5

684.0

79.9

242.0

351.4

673.3

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
25 December 2021
£m

52 weeks to
26 December 2020
£m

3.3

3.6

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:

Retirement
benefit
obligations
£m

Accelerated
capital
allowances
£m

Company
share
schemes
£m

At 28 December 2019

(Charge)/credit to income statement

Credit outside the income statement – change of rate

Credit/(charge) outside income statement

At 26 December 2020

(Charge)/credit to income statement

Credit to the income statement – change of rate

Charge outside the income statement – change of rate

(Charge)/credit outside the income statement

At 25 December 2021

9.6

(4.0)

1.1

2.4

9.1

(2.3)

–

(8.5)

(33.5)

(35.2)

0.5

0.8

–

1.3

(1.1)

–

0.2

0.8

(0.3)

–

(0.2)

0.3

1.9

–

0.3

1.0

3.5

Other
temporary
differences
£m

1.1

0.4

–

1.5

1.4

1.0

–

Leasing
£m

3.6

(0.5)

–

3.1

(0.5)

0.7

–

3.3

3.9

Total
£m

15.6

(3.6)

1.1

2.2

15.3

(0.6)

1.7

(8.2)

(32.5)

(24.3)

Deferred tax arising from accelerated capital allowances can be further analysed as a £2.7m asset and a £2.5m liability (2020:
£3.0m asset and £1.7m liability).

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The presentation in the balance sheet is as follows:

Deferred tax assets

Deferred tax liabilities

25 December 2021
£m

26 December 2020
£m

13.4

(37.7)

(24.3)

17.0

(1.7)

15.3

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

25 December 2021
£m

26 December 2020
£m

169

159

The losses disclosed above relate to activities both in the UK and in overseas jurisdictions. Of the trading losses, £31m relate to
UK activities with the remainder being attributable to Belgium (£1m) and France (£31m). All of the non-trading losses and capital
losses are attributable to UK activities.

16 Inventories

Raw materials

Work in progress

Finished goods and goods for resale

Allowance against carrying value of inventories

25 December 2021
£m

26 December 2020
£m

16.0

5.6

322.9

(42.9)

301.6

10.2

4.8

274.1

(34.1)

255.0

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

25 December 2021
£m

26 December 2020
£m

166.5

34.3

5.0

205.8

132.4

29.0

5.2

166.6

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 expected credit losses on debtors is as follows:

Balance at start of period

Increase in allowance recognised in the income statement

Balance at end of period

25 December 2021
£m

26 December 2020
£m

12.9

2.9

15.8

11.4

1.5

12.9

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 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 make an allowance against them based
on any expected credit losses. This means that we consider 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 base
our assessment both on past experience and also on whether there are any other likely significant future factors which might
affect recoverability and influence our assessment of expected credit losses. We maintain regular contact with customers with
overdue debts and, where necessary, we take legal action to recover the receivable.

We make an allowance for expected credit losses for any specific amounts which we consider to be irrecoverable or only
partly recoverable. We also have a separate general allowance, which is based on historical default rates together with our
assessment of the effect of any other likely significant future factors which may affect expected credit losses. At the period end,
the total allowance for expected credit losses of £15.8m (2020: £12.9m) consists of a specific allowance of £3.7m (2020: £4.7m)
which has been made against specific debts with a gross carrying value of £4.7m (2020: £6.0m), and a general allowance of
£12.1m (2020: £8.2m). 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 £5.6m of debts in the period (2020: £4.4m). Included within our aggregate trade receivables balance are specific
debtor balances with customers totalling £42.6m before allowance for expected credit losses (2020: £29.0m before allowance)
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.

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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

25 December 2021
£m

26 December 2020
£m

24.8

5.6

2.6

9.6

42.6

14.9

2.9

1.6

9.6

29.0

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 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 0.02% pa.

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.

Assets pledged as security

In the event that the Group were to use its bank facility, it has pledged its trade receivables and inventory 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

25 December 2021
£m

26 December 2020
£m

178.8

86.6

26.3

93.0

384.7

161.0

72.5

17.1

49.8

300.4

Trade payables, other payables, and accruals principally comprise amounts due in respect of trade purchases and ongoing
costs. Their carrying value in both periods approximates to their fair value.

19 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 25 December 2021, the Group had available £138m of undrawn committed borrowing facilities, in
respect of which all conditions precedent had been met (26 December 2020: £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 SONIA plus a margin of 128.3 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. Under the terms of this scheme, employees
make pension contributions out of their salaries, and the Group also makes additional contributions.

The total cost charged to income in respect of this plan in the current period of £26.5m (2020: £12.2m) represents the Group’s
contributions due and payable in respect of the period. All of this amount was paid in the period as was also the case in the
previous period.

Defined contribution: other plan

The Group operates another defined contribution plan for its employees. The assets of this plan are held separately from those
of the Group, and are under the control of the scheme trustees. This plan began operation during 2006.

The total cost charged to income in respect of this plan in the current period of £0.7m (2020: £1.3m) 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 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.

The average credit taken for trade purchases during the period, based on total operations, was 59 days (2020: 55 days).

Accounting and actuarial valuation

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 5 April 2020 by the plan actuary. The actuary advising the Group has subsequently rolled forward
the results of the 5 April 2020 valuation to 25 December 2021. 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
25 December 2021. We are using CMI 2020 mortality tables, being the most recent tables available.

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171

Funding and estimated contributions

The Goup’s contributions in the current and prior periods are shown in the tables below. 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. Under the agreement, the scheme’s funding position is monitored on a monthly basis and deficit
contributions are to be suspended if the scheme’s funding position is 100% or greater for two consecutive months on a Technical
Provisions basis, and is resumed if the funding position subsequently falls back to below 100%.

The scheme’s funding reached 100% on a Technical Provisions basis part way through 2021 and remained in surplus on that
basis until the year end. Additional deficit contributions were suspended throughout this time.

The Group’s estimated total cash contributions to the defined benefit plan in the 52 weeks ending 24 December 2022 are £3m.
This is on the assumption that the scheme remains in surplus on the Technical Provisions basis and that there are no additional
deficit contributions in the year.

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 surplus at the current period end is £140.8m. 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 surplus at
the current period end is estimated at £65.6m, this estimate being based on an approximate roll-forward of the 2020 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 (gains)/losses

Total (credit)/charge

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

4.8

–

2.0

6.8

0.4

27.2

34.4

(170.4)

(136.0)

20.8

0.3

2.7

23.8

0.6

13.5

37.9

12.7

50.6

52 weeks to
25 December 2021

52 weeks to
26 December 2020

2.85%

2.55%

2.80%

3.50%

2.20%

4.30%

3.30%

2.85%

1.90%

86.6

88.4

87.6

90.3

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

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

Sensitivities

Assumption

Current valuation, using the assumptions above

0.5% decrease in discount rate

0.5% increase in inflation

1 year increase in longevity

Projected 2022 pension cost

Present value of
scheme liabilities at
25 December 2021

Total service
cost
£m

Net interest
(credit)/cost
£m

Net pension
(credit)/expense
£m

(1,513)

(1,675)

(1,600)

(1,566)

2.5

(2.7)

0.3

(1.0)

(1.6)

(0.2)

2.8

1.5

0.9

The sensitivities above are applied to the defined benefit obligation at the end of the reporting period, and the projected total
service cost for 2022. 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.

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173

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

25 December 2021

26 December 2020

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

435.7

172.5

–

91.4

–

232.2

114.0

–

10.6

21.1

–

0.6

148.6

––

100.9

–

175.6

150.1

–

423.0

141.3

–

85.0

–

237.5

103.0

–

104.9

40.2

–

2.6

137.8

–

71.6

–

117.7

128.7

–

1,077.5

575.8

1,134.9

458.4

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

As set out in the plan’s 2021 Annual Report and Accounts, signed in September 2021, the plan trustees’ long-term
asset allocation strategy is to target a 60% allocation of assets to ‘return-seeking assets’ and a 40% allocation to ‘risk-
reducing assets’.

The plan’s accounts then goes on to explain these classes of assets as follows:

‘Return-seeking’ assets target a higher expected return than that of risk reducing/matching assets and typically have a
higher associated volatility, relative to liabilities. These assets would typically involve equities and could possibly include
alternative asset classes such as different types of absolute return and hedge funds, infrastructure, property and illiquid credit
approaches. Assets used to predominantly manage liquidity and cashflows within the Secure Income portfolio are also deemed
‘Return-seeking’.

‘Risk-reducing’ (or matching) assets have characteristics that are broadly similar in nature to the liabilities. These assets are
predominantly bonds and could also possibly include other financial instruments such as interest rate and inflation swaps.

Analysis of plan members, scheme liability split and duration

Active members

Deferred members

Total members

Pensioners

Total No./average duration

No. of members

% of total liability

Duration (years)

20211

1,231

5,305

6,536

4,031

10,567

67%

33%

100%

The membership figures are as given in the plan accounts and are as at 31 March 2021, the date of the latest audited pension plan accounts. Since that date, the
plan has closed to further accrual and all non-pensioner members are now deferred members. The duration and % of liability figures are as calculated by the
Group’s actuary as at the Group’s current year end.

Active members

Deferred members

Subtotal

Pensioners

Total No./average duration

No. of members

% of total liability

Duration (years)

20202

1,342

5,440

6,782

3,871

10,653

66%

34%

100%

The membership figures are as given in the plan accounts and are as at 31 March 2020. The duration and % of liability figures are as calculated by the Group’s
actuary as at the Group’s 2020 year end.

Balance sheet

The amount included in the balance sheet arising from the Group’s obligations in respect of defined benefit retirement benefit
plan is as follows:

Present value of defined benefit obligations

Fair value of scheme assets

Surplus/(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

Movements in the fair value of the plan’s assets is as follows:

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

25 December 2021
£m

26 December 2020
£m

(1,512.5)

1,653.3

140.8

(1,641.0)

1,593.3

(47.7)

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

1,641.0

1,485.3

4.8

–

2.0

21.1

(132.9)

20.5

(44.0)

1,512.5

20.8

0.3

2.7

28.3

165.8

(19.9)

(42.3)

1,641.0

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

1,593.3

1,428.7

20.7

25.3

58.0

(44.0)

1,653.3

27.7

46.0

133.2

(42.3)

1,593.3

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Movements in the scheme surplus/(deficit) during the period are as follows:

21 Provisions

Deficit at start of period

Current service cost

Past service cost

Administration cost

Employer contributions

Other finance charge

Actuarial gains/(losses) gross of deferred tax

Surplus/(deficit) at end of period

Income statement

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

(47.7)

(4.8)

–

(2.0)

25.3

(0.4)

170.4

140.8

(56.6)

(20.8)

(0.3)

(2.7)

46.0

(0.6)

(12.7)

(47.7)

Amounts recognised in the income statement arising from the Group’s obligations in respect of the defined benefit plan are
shown below.

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

Additional provision in the period

Provision released in the period

Utilisation of provision in the period

At 25 December 2021

Property
£m

3.4

(0.2)

3.6

(0.3)

(0.9)

5.6

3.2

(0.2)

(1.6)

7.0

Warranty

Closure costs
£m

French post-
employment
benefits
£m

5.1

–

6.9

–

(4.0)

8.0

7.7

–

(4.8)

10.9

0.2

0.3

–

(0.2)

–

2.2

–

2.2

–

0.3

–

0.3

Total
£m

9.0

(0.2)

10.5

(0.3)

(5.1)

13.9

13.1

(0.2)

(6.4)

20.4

Amount charged to operating profit:

Effect of adopting IFRS 16 on the property provision in 2020

Current service cost

Past service cost

Administration cost

Total service cost

The total service cost is included in the financial statement heading Staff Costs.

Amount credited to other finance charges:

Interest income on plan assets

Interest cost on defined benefit obligation

Net charge

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

4.8

–

2.0

6.8

20.8

0.3

2.7

23.8

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

(20.7)

21.1

0.4

(27.7)

28.3

0.6

On adopting IFRS 16 in 2020, 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 lease assets.

Property provision

The property provision covers obligations to make dilapidation payments to landlords of leased properties. Following the
guidance in the IFRSs governing leases and provisions, our assessment is that, in general, the likelihood of a cash outflow for
dilapidations at the time of signing a lease is remote, and therefore it would be unusual for us to recognise any costs relating to
dilapidations at that time.

The point at which we change our assessment of the likelihood of a cash outflow for dilapidations from being remote to being
probable, and which therefore triggers our recognition of a provision for that probable outflow, typically occurs as we draw
towards the end of a lease. However, we monitor the condition of our properties and the need for dilapidation provisions on an
ongoing basis throughout the length of our tenancies, and we carry out regular repairs, maintenance and capital works.

The timing of any outflows from the provision is variable, and is dependent on the timing of dilapidations assessments and works.
Although circumstances will differ from property to property, a typical pattern would be that the outflow would occur within 1–3
years of the provision being made. The amounts provided are specific to each property and are based on our best estimate of
the cost of performing any required works or, in cases where we will not be directly contracting for the works to be done, our best
estimate of the outflow required to settle any claim from the landlord. Where the amounts involved are significant, we would
typically take advice on the likely costs from third-party property maintenance specialists.

The actual return on plan assets was £78.7m (52 weeks to 26 December 2020: £160.9m).

Warranty provision

Statement of comprehensive income

Amounts taken to equity via the statement of comprehensive income in respect of the Group’s defined benefit plan are
shown below:

Actuarial gain on plan assets

Actuarial gain/(loss) on plan liabilities

Net actuarial gain/(loss), before associated deferred tax

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

58.0

112.4

170.4

133.2

(145.9)

(12.7)

The warranty provision relates to the estimated costs 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 the historical data on the rate
and amount of claims to periodically revise our expectations of the amount of future warranty outflows and therefore the rate
at which it is appropriate to provide for warranty costs on each sale in the future.

Utilisation of the provision depends on the timing and amount of any warranty claims. As such, it can be variable from year
to year.

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177

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. There will only be an outflow from this provision 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. The calculation to arrive at the
best estimate of the required provision is revised periodically by third-party specialists and our provision is adjusted in line with
the results of this calculation if necessary.

Closure costs

Closure costs in 2021 relate to closing 5 depots in France, which did not align with our depot expansion plans. The commitment
to close the depots was made and communicated before the end of the current year. The closures and the related cash outflows
from the provision, are expected to complete during 2022.

22 Share capital and reserves

Ordinary shares of 10p each:

Allotted, called up and fully paid

52 weeks to
25 December 2021
No.

52 weeks to
26 December 2020
No.

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

Balance at the beginning of the period

602,863,861

604,663,861

Bought back and cancelled during the period

(5,290,034)

(1,800,000)

Balance at the end of the period

597,573,827

602,863,861

60.3

(0.5)

59.8

60.5

(0.2)

60.3

The Company has one class of ordinary share that carries no right to fixed income. The holders of ordinary shares are entitled to
receive dividends as declared and are entitled to one vote per share at meetings of the Company. All shares rank equally.

Description of the nature and purpose of each reserve shown in the balance sheet

The share premium represents the amounts above the nominal value received for shares sold. The capital redemption reserve
represents the nominal value of share capital bought back and cancelled. The share premium reserve represents the premium
above nominal value for any shares sold. The ESOP reserve relates to share-based payments and is explained at the foot of the
statement of changes in equity. The treasury share reserve represents the cost of shares bought from the market and held in
treasury. The retained earnings reserve represents the Group’s cumulative results.

23 Notes to the cash flow statement

Analysis of net cash

At 26 December 2020

Cash flow

At 25 December 2021

Cash at bank
and in hand
£m

Current asset
investments
£m

400.7

89.6

490.3

30.0

(5.0)

25.0

Cash and
cash equivalents,
and net cash
£m

430.7

84.6

515.3

The current asset 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 17.

24 Financial commitments

Capital commitments

Contracted for, but not provided for in the financial statements:

– Tangible assets

– Intangible assets

25 December 2021
£m

26 December 2020
£m

16.1

2.1

18.2

13.8

0.7

14.5

25 Share-based payments

1) Details of each scheme

The Group recognised a charge of £10.1m (2020: charge of £3.6m) 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.

Share Incentive Plan (‘SIP’)

This is a UK tax-advantaged ‘all-employee’ share plan under which the Company may grant the following types of awards to
eligible UK employees:

(i)

Free Shares, the vesting and forfeiture period is three years commencing on the date of grant and subject to continued
employment. The shares are not subject to any performance conditions. Dividends are payable on the Free Shares during
the vesting period. Voting rights are attached to Free Shares during the vesting period.

(ii) Partnership Shares, which do not have a vesting period as they are purchased using deductions from the gross pay
of participating employees. The shares are not subject to any performance conditions. Dividends are payable on the
Partnership Shares from grant. Voting rights are attached to Partnership Shares from grant.

(iii) Matching Shares, the vesting and forfeiture period for which is three years commencing on the date of grant and subject to
continued employment and retention of the associated Partnership Shares in the SIP trust. Matching Shares are granted to
participants in a ratio determined by the Company up to a maximum of two free Matching Shares for each Partnership Share
purchased. Matching Shares are not subject to any performance conditions. Dividends are payable on the Matching Shares
during the vesting period. Voting rights are attached to Matching Shares during the vesting period.

(iv) Dividend Shares, which do not have a vesting period as they are purchased using dividend monies payable on existing
SIP shares held in the SIP trust. The shares are not subject to any performance conditions. Dividends are payable on the
Dividend Shares from grant. Voting rights are attached to Dividend Shares from grant.

Free Shares, Partnership Shares, and Matching Shares must be kept in the SIP trust for five years from the date of grant to be
capable of being sold or transferred out of the SIP trust free of income tax and National Insurance contributions (exceptions
apply for ‘good leaver’ scenarios). Dividend Shares must be held in the SIP trust for three years from the date of grant to be
capable of being sold or transferred out of the SIP trust free of income tax liability.

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.

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179

(ii) Market value options, the vesting period for which was three years commencing from the date of grant with an exercise

2) Movements in the period

period of seven years (i.e. a total life of ten years). The vesting conditions for these options were as follows:

Date of award

Vesting based on growth in profits – from year ended December

– to year ended December

Award vests at 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

– 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

2013

2012

2015

12%

2012

2011

2014

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

– 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

Date of award

Performance Period – from year ended December

– to year ended December

Performance Conditions:

2018

2017

2020

15%

2020

2019

2022

2019

2018

2021

15%

2021

2020

2023

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

67%

Median

33%

Median

– TSR tranche vests at 100% if the Company is ranked compared to comparators in the

Upper quartile

Growth in pre-exceptional profit before tax (the ‘PBT tranche’) represents the following
proportion of the Award

– PBT tranche vests at 15% if profit grows over the Performance Period grow by

– PBT tranche vests at 100% if profit grows over the Performance Period grow by

33%

15%

67%

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.

52 weeks to 25 December 2021

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

SIP (i)
Number

2,685,127

329,076

(118,566)

(642,008)

2,253,629

854,403

15,264

7.96

1.0

7.45

0.00

LTIP (i)
Number

10,000

LTIP (iii)
Number

4,203,998

–

997,693

(600)

(1,877,012)

(9,400)

–

7.47

N/A

0.00

LTIP (iv)
Number

64,942

–

(51,296)

13,646

–

7.33

0.3

N/A

0.00

LTIP (ii)

Number

412,962

–

(7,926)

(97,607)

307,429

WAEP (£)

3.25

N/A

3.79

3.46

3.17

3,324,679

–

N/A

1.4

6.18

0.00

SIP (iii)
Number

–

18,806

(229)

–

18,577

–

N/A

2.9

8.68

0.00

Exercisable at end of period

307,429

3.17

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 (£)

–

8.34

–

N/A

Exercise price for all options (£)

1.28 to 3.79

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181

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

1.14

5.36

0.00

LTIP (ii)
Number

531,082

–

(2,521)

(115,599)

412,962

–

6.19

0.00

N/A

Exercise price for all options (£)

1.09 to 3.79

LTIP (iv)
Number

111,327

–

(46,385)

64,942

–

5.01

0.47

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

0.25

N/A

0.00

–

5.05

1.42

3.11

0.00

WAEP (£)

Recruitment Plan
Number

3.22

N/A

2.38

3.16

3.25

48,294

–

(48,294)

–

6.41

N/A

0.00

3) Fair value of awards granted

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 (%)

26 Related party transactions

Companies which are related parties

52 weeks to
25 December 2021

52 weeks to
26 December 2020

2.2

1.6 to 3.0

22.0 to 31.6

2.2

3.0

30.90

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

25 December 2021
£m

26 December 2020
£m

6.6

0.4

0.5

7.5

9.6

0.6

10.8

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.

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(b) Significant accounting policies

(e) Credit risk

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

25 December 2021
£m

26 December 2020
£m

166.5

515.3

132.4

430.7

193.8

161.0

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, and 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 in hand together with demand deposits,
and other short-term highly liquid current asset 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.

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, and credit agency 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

25 December 2021
£m

26 December 2020
£m

166.5

490.3

25.0

681.8

132.4

400.7

30.0

563.1

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, other than leases, are our trade creditors. These are capital liabilities, with no
associated interest, and are payable within one year. Our lease liabilities are disclosed at note 14.

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(g) Market risk

Interest rate sensitivity

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 the our financial assets
and liabilities to currency risk is as follows:

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 £1.1m (2020: increase by £1.3m).

25 December 2021
£m

26 December 2020
£m

For a decrease of 50 basis points, the current year figures would decrease by £1.1m (2020: decrease by £1.3m).

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

6.5

2.7

59.7

(39.3)

(7.5)

22.1

23.3

–

23.3

45.4

5.5

2.7

14.8

(32.9)

(5.2)

(15.1)

0.5

(0.2)

0.3

(14.8)

Foreign exchange sensitivity

As noted above, the Group is mainly exposed to movements in euro and US dollar exchange rates. The following information
details our sensitivity to a 10% weakening or strengthening in sterling against the euro and the US dollar. These percentages are
the rates used by management when assessing sensitivities internally and represent management’s assessment of the possible
change in foreign currency rates. The sensitivity analysis of our exposure to foreign currency risk at the reporting date has been
determined based on the change taking place at the end of the financial period, and based on the outstanding foreign currency
balances at the period end.

10% weakening of sterling to euro

10% strengthening of sterling to euro

10% weakening of sterling to US dollar

10% strengthening of sterling to US dollar

25 December 2021
£m

26 December 2020
£m

2.4

(2.0)

2.6

(2.1)

(1.7)

1.4

0.0

–

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:

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187

Independent auditor’s report
to the members of Howden Joinery Group Plc

Report on the audit of the financial statements

3.Summary of our audit approach

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 25 December 2021 and of the Group’s profit for the
period 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 27 and Company Notes 1 to 5

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”
(United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.

We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-
audit services provided to the Group and 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.

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 the net pension surplus

Within this report, all key audit matters have a similar level of risk when compared to the prior year as
identified by the following symbol:

Materiality

Scoping

The materiality that we used for the Group financial statements was £15.0m which was determined
on the basis of profit before tax.

Full audit procedures were performed over the Group’s UK trading and corporate entities, consistent
with 2020.

Significant changes
in our approach

The basis for determining materiality was changed back to profit before tax. In FY20 a number
of different metrics used by investors and other readers of the Financial Statements were
considered in order to reflect the volatility in the Group’s FY20 results 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.

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:

•

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 October-November (Period 21) 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;

• 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.

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5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

5.1. Valuation of the UK inventory obsolescence provision

Key audit matter
description

How the scope of our audit
responded to the key audit
matter

At the year end, the gross inventory balance, which principally relates to the UK is £344.5 million (2020:
£289.1 million), of which there is a £42.9million (2020: £34.1 million) allowance against the carrying
value. Whilst the Group continues to retain extra stock levels to mitigate against any impact of the
coronavirus pandemic and supply chain disruption, these stock lines relate to faster moving items
which under the Group’s policy do not attract a provision.

However, 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 136 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.

5.2. Appropriateness of the actuarial assumptions underlying the valuation of pension surplus

Key audit matter
description

There is a significant management judgement involved in the assessment of the actuarial assumptions
used to measure the net defined benefit pension surplus of £140.8 million (2020: deficit – £47.7 million),
particularly in respect of the discount rate, inflation and mortality rates applied. The valuation of gross
pension liabilities of £1,512.5 million (2020: £1,641.0 million) is materially sensitive to changes in these
underlying assumptions.

How the scope of our audit
responded to the key audit
matter

The defined benefit scheme closed to future accrual on 31 March 2021.

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 136 also refers to the
valuation of the defined benefit arrangements 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

gross liabilities;

• 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 rate. 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
schemes as at December 2021;

• considering whether, individually and in aggregate, the assumptions are appropriate;

• evaluating, together with our pension specialists, the impact of IFRIC 14 to determine the Group’s right

to recognise a defined benefit surplus;

• assessing the competence, capability and objectivity of the Group’s external actuaries, and

• 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.

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6. Our application of materiality

6.1. Materiality

7. An overview of the scope of our audit

7.1. Identification and scoping of components

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.

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.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements

Materiality

£15.0 million (2020: £11.0 million)

Basis for determining
materiality

3.8% of profit before tax

Rationale for the
benchmark applied

Profit before tax has been used as the basis for determining materiality
as it is one of the most relevant benchmarks for users of the accounts.

Company financial statements

£10.5 million (2020: £5.1 million)

0.9 % (2020: 0.4%) of net
assets

The Company does not trade
so materiality has been
determined using net assets.

PBT: £390.3m

Group Materiality: £15m

Component materiality range: £6.1m–£11.2m

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

70% (2020: 65%) of Group materiality

Group financial statements

Basis and rationale for the
benchmark applied

Our risk assessment, including our assessment of the Group’s overall
control environment; and history of prior period errors of which there
were a low number of corrected and uncorrected misstatements.

A lower performance materiality was used in the prior year to reflect
changes in the control environment in response to the coronavirus
pandemic.

Company financial statements

70% (2020: 65%) of Group
materiality

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 (2020:
£500,000), 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.

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 £6.1 million and £11.2 million. These locations represent
the principal business units and account for 97% (2020: 97%) of the Group’s net assets, 98% (2020: 98%) of Group revenue and
97% (2020: 96%) of Group profit before tax for the 52 weeks ended 25 December 2021. They were also selected to provide an
appropriate basis for undertaking audit work to address the risks of material misstatement identified above.

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. Where control improvements are identified, these are
reported to management and the Audit Committee as appropriate.

As noted on page 136 in the Audit Committee Report, the Group’s key controls project is on-going with the aim of reviewing the key
controls across the business to focus and further strengthen its overall control framework, specifically the Group’s operational,
IT and financial controls.

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.

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10. Auditor’s responsibilities for the audit of the financial statements

In addition to the above, our procedures to respond to risks identified included the following:

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, the Company Secretary and the Audit Committee about their own

identification and assessment of the risks of irregularities;

• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating

to:

identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;

» detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

•

the matters discussed among the audit engagement team and 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 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 framework 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, 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
health and safety regulations and employment legislation.

11.2. Audit response to risks identified

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.

• 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, the company secretary and external legal counsel concerning actual and

potential litigation and claims;

• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material

misstatement due to fraud;

• reading minutes of meetings of those charged with governance and reviewing internal audit reports; and

•

in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias;
and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and

•

the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

13. Corporate Governance Statement

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 67;

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 69;

the directors’ statement on fair, balanced and understandable set out on page 71;

the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 68;

the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on page 94; and

•

the section describing the work of the audit committee set out on page 135.

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Company balance sheet

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.

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 period ending 28 December 2002 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 20 years, covering
the periods ending 26 December 2020 and 25 December 2021.

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
23 February 2022

Non-current assets

Investments in subsidiaries

Prepaid credit facility fees

Current assets

Amounts owed by wholly-owned subsidiary companies

Other debtors

Cash and cash equivalents

Total assets

Current liabilities

Amounts owed to wholly-owned subsidiary companies

Total liabilities

Net assets

Equity

Called up share capital

Capital redemption reserve

Share premium

Treasury shares

Retained earnings

Total equity

Notes

25 December 2021
£m

26 December 2020
(restated)
£m

699.0

0.3

699.3

2,254.2

9.2

430.4

2,693.8

699.0

0.6

699.6

1,870.1

7.4

413.1

2,290.6

3,393.1

2,990.2

(2,252.7)

(1,833.4)

1,140.4

1,156.8

59.8

5.4

87.5

(27.1)

1,014.8

1,140.4

60.3

4.9

87.5

(28.2)

1,032.3

1,156.8

2020 comparatives for amounts due from and to wholly-owned subsidiary companies have been re-presented to show gross
amounts receivable and payable. There is no impact on the net assets or reserves of the Company.

The Company profit after tax for the 52 weeks to 25 December 2021 was £164.1m (52 weeks to 26 December 2020: profit after tax
of £233.7m).

The financial statements were approved by the Board and authorised for issue on 23 February 2022 and were signed on its
behalf by:

Paul Hayes

Chief Financial Officer

For and on behalf of Howden Joinery Group Plc, registered number 02128710

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Company statement of changes in equity

Notes to the Company financial statements

At 28 December 2019

Retained profit for the period

Buyback and cancellation of shares

Transfer of shares from treasury into share trust

At 26 December 2020

Retained profit for the period

Reclaim of forfeited dividends

Proceeds from sale of forfeited shares

60.5

–

(0.2)

–

60.3

–

4.7

–

0.2

–

4.9

–

Buyback and cancellation of shares

(0.5)

0.5

Called up
share capital
£m

Capital
redemption
reserve
£m

Share
premium
account
£m

Treasury
shares
£m

Retained
earnings
£m

Total
£m

931.8

233.7

(9.8)

1.1

87.5

(29.3)

–

1.1

808.4

233.7

(9.8)

–

87.5

(28.2)

1,032.3

1,156.8

–

1.1

–

164.1

0.2

1.8

0.2

1.8

(50.0)

–

1.1

(133.6)

Transfer of shares from treasury into share trust

Dividends declared and paid

At 25 December 2021

The Company’s distributable reserves at period end are:

Retained earnings

Treasury shares

Distributable reserves

–

59.8

5.4

87.5

(27.1)

1,014.8

1,140.4

25 December 2021
£m

1,014.8

(27.1)

987.7

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 200.

Basis of presentation

The Company’s accounting period covers the 52 weeks to 25 December 2021. The comparative period covered the 52 weeks
to 26 December 2020.

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 (2020: none), did not pay Directors’ emoluments (2020: £nil), and the fees payable to the
Company’s auditor for the audit of the Company’s annual accounts were £10,000 in both current and prior periods.

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Notes to the Company financial statements continued

3 Investments in subsidiaries

Shares in subsidiary
undertakings
£m

Long-term loans
to subsidiary
undertakings
£m

Total
£m

Cost and carrying value:

At 26 December 2020 and 25 December 2021

262.1

436.9

699.0

Details of all subsidiary companies are given on page 200.

4 Other debtors

Other debtors

Other tax and social security

5 Share capital

Ordinary shares of 10p each:

Allotted, called up and fully paid

25 December 2021
£m

26 December 2020
£m

0.3

8.9

9.2

0.3

7.1

7.4

52 weeks to
25 December 2021
No.

52 weeks to
26 December 2020
No.

52 weeks to
25 December 2021
£m

52 weeks to
26 December 2020
£m

Balance at the beginning of the period

602,863,861

604,663,861

Bought back and cancelled during the period

(5,290,034)

(1,800,000)

Balance at the end of the period

597,573,827

602,863,861

60.3

(0.5)

59.8

60.5

(0.2)

60.3

Additional information

200 Parent company and all subsidiary undertakings

201 Five year record

202 Shareholder and share capital information

204 Shareholder ranges as at 25 December 2021

204 Corporate timetable

205 Advisors and registered office

Howden Joinery Group Plc Annual Report & Accounts 2021

200

201

Parent company and all subsidiary undertakings
as at 25 December 2021

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

Howdens Cuisines SAS

Howdens Cuisines SRL

Howden Joinery (Ireland) Limited

Republic of Ireland

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

Suite 3, One Earlsfort Centre, Earlsfort Terrace,
Dublin 2, Ireland

Property Management:

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

Howden Joinery Properties Limited

Isle of Man

33–37 Athol Street, Douglas, Isle of Man, IM1 1LB

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)

Basic EPS (pence)

Summarised Balance Sheet

Non-current assets excluding leases and pension asset

Non-current lease right-of-use assets

Inventories

Receivables

Payables and provisions

Pension asset/(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 2021
52 weeks
£m

Dec 2020
52 weeks
£m

Dec 2019
52 weeks
£m

Dec 2018
52 weeks
£m

Dec 2017
53 weeks
£m

2,093.7

1,547.5

1,583.6

1,511.3

1,403.8

401.7

195.7

260.0

240.1

234.4

390.3

19.5

53.2

332.1

555.8

301.6

205.8

(468.7)

140.8

(591.2)

(411.7)

515.3

991.5

778

–

818

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

3.9

35.0

238.5

11.6

31.3

232.2

11.1

29.9

251.7

221.4

221.3

–

231.8

193.1

(272.2)

(56.6)

–

96.1

267.4

615.2

732

–

759

226.3

186.0

(261.9)

(36.0)

–

114.4

231.3

567.1

694

718

208.3

137.8

(245.0)

(109.3)

–

(8.2)

241.1

454.2

661

685

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-19 in early 2021, the 2019 final dividend of 9.1p/share was not paid. In 2021 there was no interim dividend declared, but (see
note 11 of these financial statements), there was a 2020 final dividend of 9.1p/share and also a special dividend of 9.1p/share, making a total of 18.2p/share for 2020.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information202

203

Shareholder and share capital information

Annual General Meeting
The 2022 Annual General Meeting (‘AGM’) will be held at
Freshfields Bruckhaus Deringer LLP, 100 Bishopsgate, London,
EC2P 2SR on 12 May 2022 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.

Dividend
Subject to the 2021 final dividend payment being approved
by shareholders at the AGM on 12 May 2022, the following
timetable will apply:

2021 Final Dividend

Ex-Dividend date

Record Date

Payment Date

7 April 2022

8 April 2022

20 May 2022

Dividend reinvestment plan (‘DRIP’)

Howden Joinery Group Plc (‘Howdens’) offers a DRIP for our
shareholders in eligible countries who wish to elect to use their
dividend payments to purchase additional ordinary Howdens
shares, rather than receive a cash payment. The DRIP is
provided and administered by Equiniti Financial Services
Limited (‘Equiniti’). Further details regarding the DRIP can be
found on Equiniti’s website: www.shareview.co.uk/info/drip

Dividend payments directly to a bank or building
society account

If you are a shareholder with a UK bank or building society
account, you can arrange through our registrar, Equiniti, to
have dividends paid directly to your account using a bank or
building society mandate. You can arrange this by completing
the form attached to a previous dividend confirmation you
have received, through Equiniti’s Shareview Portfolio website,
portfolio.shareview.co.uk (registration is required), or by
calling Equiniti on +44 (0) 333 207 6558.

Existing dividend mandate details can be amended to have
dividends paid to a different UK bank or building society
account. Dividend mandate details can also be de-selected if
you would prefer to receive payments by cheque.

Share Capital
As at 25 December 2021 the Company had only fully paid
up ordinary 10 pence shares in issue (‘Shares’). Below sets
out the share capital position at 25 December 2021 and at
26 December 2020:

Number of Shares

% change

25 Dec 2021

26 Dec 2020

Total Shares in issue

(0.88)% 597,573,827 602,863,861

Treasury Shares

(3.60)%

5,567,555

5,775,230

Shares with voting rights (0.85)% 592,006,272 597,088,631

Shares held in Treasury have no voting or dividend rights and
are used solely for the satisfaction of 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
Benefit Trust abstain from voting at the Company’s general
meetings and waive dividends. Shares held in the Share
Incentive Plan Trust, which have been allocated to employees
through UK all-employee shares plans, have both voting and
dividend rights.

Shares in public hands1 (‘Free float’ shares)

As at 31 December 2021, 0.93% of the Company’s issued
share capital was held in Treasury, 0.22% was held by
Directors, persons discharging managerial responsibility
(PDMRs), or connected persons of those Directors or PDMRs,
0.63% was held in employee share trusts (excluding any
allocated shares which are not forfeitable), and 5.3% was held
by major shareholders (those with holdings above 5%).

Free float shares therefore accounted for 92.94% of the
Company’s issued share capital at the 31 December 2021.

Acquisition of the Company’s own shares

During 2021, the Company repurchased and cancelled
5.3 million shares worth a total of £50m under its 2021
share repurchase programme. The repurchased shares
represented a nominal value of £530,000 and equated to
0.9% of the called up share capital of the Company at the
beginning of the period (excluding Treasury shares).

At the AGM on 6 May 2021, the Directors were granted
authority by shareholders to purchase up to 59,708,863 of
the Company’s ordinary shares through the market1. The
authority expires at the conclusion of the 2022 AGM or within
15 months from the date of passing the resolution (whichever
is earlier).

The definition of ‘Shares in public hands’ may be found in Listing Rule
6.14.3R. The Company considers shares which meet the definition of
‘shares in public hands’, as set out in the Listing Rules, to be ‘free
float’ shares.

Rights and restrictions

Issued share classes:

Ordinary only (fully paid)

Voting rights at general meetings:

One vote per share

Fixed income rights:

None

Individual special rights of control:

None

Holding size restrictions2:

Transfer restrictions2:

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.

Substantial shareholdings

As at 23 February 2022, the Company had been notified, in
accordance with Rule 5 of the Disclosure and Transparency
Rules, of the following voting rights as a shareholder of the
Company:

Substantial
Shareholder

% of total
voting rights

Date of last
notification

BlackRock, Inc

5.01%

28 January 2022

The percentage interest is as stated by the shareholder at the
time of notification and current interests may vary.

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.

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.

Governed by the general provisions of the Articles of Association (which
may be amended by special resolution of the shareholders) and prevailing
legislation.

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional information204

205

Shareholder Ranges as at 25 December 2021

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

160

127

180

111

229

927

5,374

1,044

113

74,671

307,904

398,563

4,641,974

4,627,176

17,863,430

562,304,549

590,218,267

1,904,098

2,351,555

804,571

1,165,070

311,989

126,277

693,000

6,598

7,356,560

2.13

1.69

0.73

2.39

0.86

1.48

3.04

12.32

71.42

13.87

1.50

0.80

0.05

0.01

0.03

87.68

0.01

0.05

0.07

0.78

0.77

2.99

94.10

98.77

0.32

0.39

0.13

0.19

0.05

0.02

0.12

1.23

Total

7,525

597,574,827

100.00

Principal Banker

Lloyds

25 Gresham Street
London
EC2V 7HN

Joint Financial Advisors
and Stockbrokers

Numis Securities Ltd

45 Gresham Street
London
EC2V 7BF

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

2022

Trading update

Annual General Meeting

Half-Yearly Report

Trading update

End of financial year

28 April

12 May

21 July

3 November

24 December

Howden Joinery Group Plc Annual Report & Accounts 2021

Strategic reportGovernanceFinancial statementsAdditional informationAnnual Report and Accounts 2021
Howden Joinery Group Plc

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