Good morning, everyone, and welcome to Hyattan's 2020 results presentation. I will begin by introducing our 2020 performance. Paul Hayes, our new group CFO, will then review our financial results for the year. I will then share my perspectives on our 2020 performance and our plans for 2021 and then we'll take questions. Highlands has performed well during a challenging year that has been significantly impacted by COVID-nineteen.
We adapted to COVID trading conditions while investing in and progressing our strategic plans for the business. Our performance demonstrates the strength of our trade only business model and our ability to continue to evolve the business whilst prioritizing the health and well-being of our staff and customers. The results for the year reflects the quarter 2 spring lockdown period followed by a year on year increase in second half sales and profit. U. K.
Sales in the first half were 29% lower than in 2019 with all of the shortfall attributable to trading in the quarter. U. K. Second half sales increased by 16% on 2019 with the increase in sales trending upwards across the second half, exceeding our expectations in latter periods. I believe this performance reflects the measures that we put in place to enable our people in all areas of the business to work safely together with those put in place to support our customers.
These measures comprised of new services, lower prices, combined with more margin flexibility for depots, high stock availability and a safe environment in which to trade. With people by necessity spending more time at home and end user concerns about further lockdown, We also believe people were choosing to spend more on their homes. We flexed our traditional period 11 sale period when sales are typically more than double those of other periods across periods 1011. With signs of pent up demand, reports of extended delivery times amongst our competitors and concerns about further lockdowns. We flex the sales period to help builders book in more kitchen fits over a longer period.
Sales across periods 10 and 11 exceeded those targeted by the business and period 11 alone still returned a record result. It also benefited supply chain management and the ability of our depot teams to service demand, which in turn were incentivized for performance in periods 10 and 11 combined. A founding principle of Highlands is to be worthwhile for all concerned. In these difficult times for all, We have supported staff and customers and continued to conduct other stakeholder relationships in a fair and responsible way. During the spring lockdown, we maintained an emergency provision to support the NHS, care workers and vulnerable people and we have continued to support charities.
Throughout 2020, we paid our landlords in full and honored and in some cases increased our orders from suppliers who in turn have supported us with high stock availability. Similarly, given Hyten's strong balance sheet and our trading performance, We repaid all of our 2020 furlough funding prior to year end and settled a number of other payments that we previously deferred, including taxes, pension deficit contributions and business rates waived by certain local authorities. And today, we are recommending that we resume dividend payments. The marketplace remains challenging and may be further impacted by COVID-nineteen, Brexit and underlying consumer confidence. We believe we are well positioned in such a market with our trade only, in stock and local model.
Based around our core building blocks of service and convenience, trade value and product leadership, We have initiatives in place to do this through evolving our depot model, by improving range and supply management and developing our digital capabilities. I will update you on these and our operations based in France after Paul has taken you through our financial results. Paul?
Thank you, Andrew, and good morning, everyone. I look forward to meeting you face to face when conditions allow. I joined Howdons in November and despite lockdown, The team has helped me get to grips with the business very quickly. I've visited our manufacturing sites, a number of depots and other locations and many of our people. I'm pleased to be announcing housing's 2020 full year financial results and you will be reassured to know that I will be presenting the financial results today in the well established format used by the company.
I believe that this will be the most effective approach in providing clear comparability. Let me start by looking at some of the headline numbers. These are reported by us for the first time under IFRS 16, the new lease accounting standard. Moving from left to right on the top row to begin with. As you can see, Houghton Joyneries U.
K. Revenue fell by £41,000,000 to £1510,000,000 a 3% decrease on 2019. Overall, group sales decreased by 2% after including our growing Continental European business. Gross profit fell by £56,000,000 to £930,000,000 The percentage gross margin of 60.1 percent was down from 62.3% in 2019. This included mix changes and as we explained in the first half results, the impact of carrying fixed manufacturing costs during reduced levels of production.
How's it going to be made an operating profit of £196,000,000 in the year, down from a £260,000,000 profit in 2019. Now moving down to the 2nd row. Net interest charges were up by £11,000,000 predominantly due to the adoption of IFRS 16. As a result, there was a profit before tax of £185,000,000 This compares to a profit of £261,000,000 in 2019. The cash flow was particularly strong in the year, and this included significantly lower shareholder payments with a share repurchase of £10,000,000 in the early part of the year before this was suspended.
There were no dividend payments in 2020, and I will talk about recommencing dividend payments a little later in the presentation. There's capital expenditure of £70,000,000 and a £30,000,000 contribution to the pension plan deficit. In addition, our cash flow was impacted by £60,000,000 beneficial phasing from higher payables despite payments being made in accordance with usual terms. The underlying cash balance is approximately GBP 370,000,000 I'll now go into some of the detail behind the headline numbers and start by talking about revenue. Houghton's U.
K. Turnover was £1510,000,000 and decreased by 2.6 percent on a total basis and down by 4.5% on a same depot basis. In Continental Europe, turnover was €43,000,000 which was a 13% increase. This is after adding 4 more depots during the year, bringing the total to 30. Sales growth was 2.5% on the same depot basis.
I will now show some more detail on the U. K. Performance on the next slide. In Q1, pre COVID, Sales were up 1.1% on a total basis and down 0.8% on a same repo basis. During Q2, We were most significantly impacted by the COVID-nineteen pandemic.
With the initial phase of lockdown, sales were down 56% on a total basis and down 57% on a same depot basis. We improved period on period in the second quarter as we found ways to operate the business safely. In the second half, sales recovered are up by 16% and we believe that our performance was supported by our full stock availability. Andrew will provide more details on this later. Overall, in H2, sales were up by 14% on a same depot basis.
Let me now talk you through the movement in PBT from £261,000,000 in 20.19 to £185,000,000 in 2020. Starting with gross profit that fell by £56,000,000 which is summarized in the chart on the right hand side. If we bridge from 20 nineteen's gross profit of $986,000,000 there was a £16,000,000 impact from pricing. Secondly, a large fall in sales volumes compared to 2019 reduced revenue by £20,000,000 There was a negative impact from mix of £9,000,000 a result of higher sales of lower margin products. This reflect changes in customer demand in the current environment such as an increase in sales of appliances.
These products are at good margins, but below the high average margin of the group. Also affecting cost of goods sold, we saw higher input costs. This resulted in a net decrease to gross profit of £5,000,000 As mentioned earlier, we're also impacted by carrying fixed costs at lower levels of production of around £6,000,000 as a result of COVID. Exchange rate movements in the year had a minimal impact on margin. Together, this gave a net fall in gross profit of £56,000,000 to $930,000,000 and a gross profit of 60.1%.
If I now turn to the other factors that contributed to the movement in PBT, referring back to the chart on the left. Operating costs increased by £8,000,000 which I will address in the next slide. Net interest and other finance charges were £11,000,000 higher than in 2019, reflecting the impact of adopting IFRS 16. The net result was a profit before tax of £185,000,000 I will now explain in more detail the main movements in operating costs. Operating costs increased from £726,000,000 in 2019.
Firstly, the incremental costs of the 38 depots that we opened in the U. K. In 2019 and the 16 depot openings in 2020 totaled £10,000,000 Costs in older UK depots decreased by £7,000,000 mainly reflecting reduced levels of activity and therefore variable costs, particularly in quarter 2. Cost increases incurred to support future growth totaled £9,000,000 This included the costs of the RONS development, which we previously announced, and digital developments. The impact of French decoys totaled £4,000,000 Other operating costs increased by £6,000,000 and closure of our Dutch and German depots in 2019 benefited the full year result by £6,000,000 Finally, costs reduced by a further £8,000,000 as a consequence of adopting IFRS 16.
This meant that operating costs overall rose by £8,000,000 to £734,000,000 I will now briefly turn to the remainder of the income statement. If we look at the 2nd column of numbers on the table, The impact on 2020 of adopting IFRS 16 was an increase in operating profit of £8,000,000 This is more than offset by an increase in related interest charges of £10,000,000 As a result, as we've seen, our profit before tax was £185,000,000 This led to a tax charge of £38,000,000 with an effective tax rate of 20.3%. This gave a profit after tax of £148,000,000 This resulted in earnings per share in 2020, 24.9p which compares with 35p in 2019. Turning to dividends. As you know, the dividend and share buyback programs were suspended in 2020.
In November, we indicated The Board would consider recommencing payments of dividends subject to the company's trading performance and financial position continuing to meet the Board's expectations. This would be subject to there being no further significant disruption due to COVID or otherwise. The Board has recommended that we pay a final dividend of 9.1p per share for 2020. This is in line with the group's established dividend policy between 2.5x and 3x dividend cover at 2.7x. It will be paid in June 2021 if approved by shareholders at a cost of approximately £54,000,000 In addition, the Board has Recommended a special dividend of a further 9.1p per share, which will also be paid in June 2021.
This is equivalent to the 2019 final dividend that was canceled. In respect of 2021, An interim and final dividend will be declared in line with our policy. The 2021 interim dividend will be 1 third of the 2020 full year dividend at 3p. The group has a strong balance sheet that has positioned us well in these challenging times and we face continued uncertainty. The Board regularly reviews its prudent capital structure against current trading and cash requirements to ensure it gets the appropriate balance between supporting the business and delivering appropriate shareholder returns.
This will include reviewing the level of shareholder returns once we see more stability. Let me now turn to cash flow. From a position of having net cash of £267,000,000 at the end of 2019, We ended 2020 with net cash of £431,000,000 although, as I explained earlier, The underlying cash balance was £370,000,000 The major movements since the end of last year were: Net working capital decreased by £70,000,000 which I will address shortly. Capital expenditure totaled £70,000,000 and was focused on growing our business and executing our strategy. It includes a spend on the final phase of our Rawlins Warehousing strategy, further delivering our digital capabilities and investments in new depots in both the U.
K. And France. We also acquired solid surface worktop production facilities that strengthen our product portfolio, and Andrew will talk about these shortly. Corporation tax payments were £32,000,000 As I've already described, we spent £10,000,000 repurchasing shares in the first half. There was £22,000,000 contribution to the pension scheme over and above the P and L charge.
The net result of these and other movements was a cash inflow of £163,000,000 meaning that we ended 2020 with net cash of £431,000,000 Now looking at the main movements in working capital. Net working capital decreased by £70,000,000 Within this, stock increased by £23,000,000 This was largely impacted by increases in contingency stock to protect against potential supply chain disruption from COVID and Brexit. This approach has bolstered our business model well during COVID-nineteen with good stock availability differentiating us from many of our competitors. Debt has decreased by £2,000,000 including a lower debtor book with Good Asia. As I mentioned earlier, Credit has increased by £91,000,000 impacted by high levels of stock receipts later in the year.
We have We've already seen this reverse in Q1 2021 and this should be taken into account when reviewing underlying levels of working capital. Let me now finish with some brief comments about current trading. The first two periods of the year saw total U. K. Sales rise by 5.1%, up 4.5% on a same depot basis.
Excluding week 1, which has included 2.5 trading days in 2020 With no trading in 2021, sales were up by 7.1% or 6.5% higher on a same depot basis. Clearly, there are currently various market uncertainties and a number of factors that need to be considered in forecasting this year's overall result. We are seeing continued uncertainty as consumers are feeling more cautious in letting tradespeople into their homes in light of the continued COVID pandemic and related restrictions. This is leading to variability in demand from our customers. We have implemented price increases, but we are currently seeing pressure on commodity pricing and freight costs.
We are also continuing and to take other measures to protect our employees and customers and to derisk our in house supply chain. We will closely manage the drivers around margin and focus on getting the right balance between pricing and volume in what remains an unusual market. We're continuing to roll out new depots and revamp existing depots. This reflects some initial success from the reformatted depots we have completed so far despite a rather challenging trading environment. We're continuing to invest in the business around its core strategic priorities and anticipate investing in the order of £80,000,000 this year in capital.
This is consistent with the amount that we were expecting in 2020 before COVID. In summary, Powdans has performed well through a challenging period and remains in a strong financial position. Although the business continues to face near term uncertainty, it is well positioned to deliver a clear organic growth strategy. Thank you. I will now hand you back to Andrew.
Thank you, Paul. I will start by talking about our performance in 2020 and our plans in 2021 using the initiatives we had in place for 2020 as a framework. Firstly, depot evolution. We are opening depots using our updated format designed to provide the best environment in which to do business with no material change to new depot fit out costs. In 2020, as a consequence of market conditions, we opened fewer than planned.
In the first half, we put our opening program on hold as we prioritize maximizing cash and finding ways depots could trade safely under COVID conditions. In the second half, we opened 16 new depots, mostly in the latter part of the year. We are now targeting around 35 U. K. Depot openings in 2021, including some more in Northern Ireland.
We also reformatted some more of our older depots and we continue to learn how best to apply this opportunity to our existing estate. During 2020, we reformatted 30 depots, having reduced the number of depots we were planning either to open or to re rack without further modifications. These were completed in line with our budgeted average cost of £225,000 per depot. In 2021, we plan to reformat 40 depots. We are budgeting for an average reformat cost similar to the 2020 level and we continue as we continue to refine the scope of the refurbishments.
In 2020, we also reracked the warehouses of 17 existing depots without other modifications and plan to re rack a further 20 in 2021. At the end of 2020, we had 117 U. K. Depots trading in the updated format, and we have reracked the warehouses of a further 79 depots without further modifications. By the end of 2021, we expect to have a total of around 192 U.
K. Depots trading in the updated format and have re racked a further 99 depots in total without further modifications at present. Next, range and supply management. New kitchen ranges introduced each year represent a significant portion of sales as product life cycles shorten and our customers want new product from us. Our 2020 new product featured 18 new kitchens, including 2 new styles plus more color options for existing families.
And we began using our new handleless cabinet platform to meet demand for a linear look at more affordable prices. Our new kitchen ranges were launched and in stock earlier than in 2019 and launches were synchronized with Rooster promotional offers. Earlier introduction meant we were well positioned with product as we returned to all depots trading and new product introduction kitchen sales We're ahead of last year's. 2021 new product includes 16 new kitchen ranges. These include a more traditional style TimberShaker range Elmbridge.
Initially available in 3 colors, It complements our contemporary shaker range and strengthens our £4,000 plus offering. We are adding colorways to our mid priced families and to our modern style Hockley kitchens, which have performed well since launch. We are also adding colorways to our entry level kitchen offers. We have developed a number of new added value deck of accessories to both our modern and shaker ranges that will enable customers to create a more personalized look. Our 2021 brochure, trade book and period 12 promotional materials were all in depots pre Christmas.
All of our new kitchens for 2021 will be in stock by the end of the second quarter, well ahead of our autumn sales period and 4 weeks earlier than last year. Disciplined range management is crucial for both best availability, which is highly valued by our customers and profitability. At the end of 2019, we had 67 current kitchen ranges. And we ended 2020 with 63, having cleared more ranges than we added during the year. We believe around 65 current ranges remains the right number for our market at present, and we will be managing range introductions and clearance to around this number in 2021.
Howden's 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. Our traditional replenishment model is based on weekly delivery to depots is cost effective and is particularly suited to replenishment of fast moving product and product with relatively predictable demand patterns. We are making an improvement to our by supplementing the depot's core weekly delivery order by introducing a next day service via regional cross docking center or XDC. By rebalancing where we hold stock and changing the delivery pattern of some lines to depots, depots can, for example, allocate more warehouse space to faster selling lines and can reduce contingent stocks of more slow moving ones. This makes it simpler and more efficient for Depas to deliver superior service levels and improve product availability, including for abnormally sized purchases.
And we are freeing up time and resources spent on stock management, for example, on interdepotransfares product. We are developing this capability with 3rd party logistics partners. And in the main, we are utilizing their existing infrastructure. The service is available to 120 depots at present. We expect to increase this to around 250 depots during the Q2.
Our dedicated manufacturing and supply chain is critical to the success of our in stock offer. It supplies all product to our depots, which each have individual and changing day to day requirements. Operating under COVID conditions and finding ways to reengineer how our factories operate and how we supply distribute to depots. Having initially closed substantially all of our manufacturing and supply facilities with the onset of the spring lockdown. We designed with employee consultation a series of social distancing measures, work processes and practices, which enabled us to reopen safely in April and maintain stock availability as demand and the number of depots trading changed.
Since then, We've continued to work with and develop appropriate COVID compliant processes. We can manufacture all product whilst maintaining social distancing and our efficiency whilst below pre COVID levels has progressively improved, and we were able to accommodate the significant rise in second half volumes. We took measures to protect our in stock offer against supply chain disruption and to accommodate regular patterns of demand by increasing levels of safety stock and using backup sources of supply. We did this first as part of our Brexit planning and again ahead of spring lockdown and enabled us to navigate local COVID outbreaks, which had the potential to disrupt inbound supply. Our ability to utilize our disaster recovery capacity helped us to maintain stock availability.
We also took some temporary additional storage space and we utilized immediately more of the warehouse capacity at bronze than planned when this became available on schedule in September 2020. Our stock strategy has also benefited from significant engagement with our supply base. We have long term relationships and agreements with many of our suppliers and being a manufacturer ourselves has helped us anticipate potential COVID risks in our supplier factories. We also operate on ex works rather than delivered terms with the majority of our suppliers, which enable us to work directly with our shipping partners to resolve logistical issues and to provide us with early warning of orders that might be running late. Stock availability is fundamental to our offer.
We've prioritized this in these uncertain times. In 2021, we are extending our policy to hold additional safety stock as a contingency against unexpected demand patterns and interruptions to supply. And we have broadened the range of SKUs that we protect in this way and increased the number of weeks cover we have on some lines. We keep under review what we believe it is best to make or buy both in terms of cost and overall supply resilience and flexibility. In 2019, investment in manufacturing technology enabled us to make the doors for our new Huxley kitchen ranges.
And we've committed to further investment, which will enable us to make frontals from more of our kitchen ranges at the same quality as we can source externally, but at a lower cost and a reduced lead time to delivery. And we will retain the benefits of sourcing from external suppliers We will continue to provide around half our kitchen frontals. The new frontal facility will be located at our Hyten site and we expect it to come on stream in the second half of twenty twenty two. We are also commissioning a second architrave and skirting line as our first line is now fully utilized and demand for these products has risen substantially in recent years. We expect the new line to be up and running during the first half of twenty twenty two.
We identified the need to upgrade our solid surface worktop offer, which is a segment of the market in which we are underrepresented relative to the number of kitchens we sell. We have partnered with 3 fabrication companies to develop a template and fit capability. And we took the opportunity to acquire the assets of a large U. K. Fabricator of solid surface worktops.
The assets were acquired at a competitive price with significant savings in the lead time to being able to manufacture versus building our own facility. We expect the factory, which is located near our Hygen site to be operational during 2021. Turning to our digital platform. We use digital to reinforce our model of strong local relationships between depots and their customers. During 2020, the digital investments we have made We're particularly instrumental in supporting our model at a time when relationships and ways of doing business were disrupted.
2020 saw increased activity on our web platform and growth in our social media presence, which also stimulates interest in viewing our products and services in hygens.com. Hygens.com impressions were present in 48% more organic search results a month and site visits increased by 53% year on year. Depot leads via the website increased by 88% and brochure requests by 39%. Across social media sites, our follower base at 213,000 was up 119%, with 8,000,000 users a month being reached and those actively engaging up by 165%. With restricted movement in the U.
K, hygens.com provided a key customer access point to the business and we extended the range of online services we provide. We rolled out online account facilities, which enable users to manage their accounts and to make payments at any time. By the year end, 30% of our credit account holders have registered for the service and the service has seen significant out of our usage. Around 43% of users use the service to make a payment with 68% of the users viewing documents. Curated on our website, We launched a call and collect service, which provided a way in combination with our endeavor measures for customers to trade safely with us following the onset of the spring lockdown.
A new personal kitchen design service was also made available online as well as enabling people to plan kitchens without the need for a depot or home visit. The service helps put Highlands front of mind earlier than in the procurement process. We continue to add new capabilities and content to our platform to support the local relationships depots have with their trade customers. This week, Anytime ordering became available for the first time through our Trade platform. Representing a major upgrade of our Call and Collect service.
It provides efficiencies for depots and customers alike. Developed with input from customers, Features of the service include bespoke pricing for each customer, which enables the account holders to see their confidential prices, order products and quote for individual jobs out of ours and a scheduler for them to select a collection depot and pickup time of their choosing. The service is integrated with our lead management system, which assists depots in managing their local relationships in a digital way. The lead management system was introduced in mid-twenty 20 and is now one of our most frequently used depot systems. Lastly, international.
In 2019, we refocused international onto a city based approach based in France. We closed our depot operations in Germany and the Netherlands and appointed a French national to lead the business. We renewed the focus on trade customers and open 5 depots, 4 around Paris, 1 in Lille. International's 2020 performance gives us the confidence to open more depots. International delivered a step change in performance post lockdown with second half sales increasing significantly year on year.
In France, lockdown occurred a little earlier than in the U. K. And we took a similar approach to reopening as in the U. K. With depots initially reopening in call and collect mode on a phased basis.
During May, as lockdown ended, Depots were able to trade in more normal ways with appropriate safety protocols in place. Whilst with the onset of lockdown, Total H1 sales were down around 18%. They increased significantly year on year in the final two periods of the half. Sales in the second half increased by around 38% in euro terms and were up 13% for the year as a whole. We believe customers are increasingly recognizing the advantages of our trade only in stock model, our service levels and our competitive pricing.
We opened 4 depots in the second half of twenty twenty, ending the year with a total of 30. On the basis of current performance of our depots in France, we are planning 11 depot openings for 2021, which is around the number of depots we can staff with heightened trained teams. Finally, prospects for 2021. Our first priority remains the safety of our people and customers, and we have contingency plans to enable us to trade under a range of COVID conditions that we've seen to date. We've increased our prices having lowered some during 2020 and aim to retain a profitable balance between margin and volume whilst aligning operating costs and working with suppliers to keep product and input costs controlled.
We believe high stock availability was a major contributor to our performance in 2020, and we will continue to manage our stock levels actively to protect availability both of manufactured and bought in product. We will have all our 2021 kitchens on sale earlier than last year with aligned rooster promotions to keep Houghton's front of mind. We will make improvements to service and availability by utilizing XDCs. We are making investments in our kitchen door, solid surface and skirting manufacturing capabilities. During 2020, with restricted movement in the U.
K, we increased the range of services we offer online. And in 2021, We will continue to add capabilities to our digital platform with anytime ordering as a centerpiece. In 2021, we plan to open 35 depots in the U. K, 11 in France and refurbish around 40 existing depots to the updated format. I am very pleased with our achievements in 2020, in particular how we both adapted to COVID trading conditions and progress with our strategic plans, which make us well prepared for what we expect to be a challenging market in 2021.
All of this is made possible by the character, skills and commitment of our people and I thank them all for what they have done. Thank you for listening. We'll now take your questions.
Thank you. And we will now take our first question. It comes from Ansley Lamlin of Canaccord. Please go ahead.
Hi. Good morning. Yes, just wondered if you could comment a bit more on the kind of cost pressures you're seeing and the expectations for gross margins. I mean, would you expect to still see a significant improvement in gross margin this year, maybe You're up to the 62% level. Any comments around that?
Secondly, just your thoughts on the share buyback, especially given something that we Should expect to see more of rather than share buyback. And then lastly, just obviously, the pound has strengthened against The dollar and migration against the euro, any kind of thoughts on the impact there on cost of goods sold and the sense that you might see? Thank you.
Yes. Thanks, Anthony. I guess 1 and 2 link in a way as part of your questions. We put through a price increase of around 4% at the start of the year. And at this point, given what's happened with kitchen demand and perhaps some kitchen demand being pushed out into later periods from what we've seen.
We are retaining some margin, but it's not clear enough yet to us where we're at. Cost pressures that we're seeing from suppliers are significant. We were pricing way around about 2% to 3% at the start of the year, but I don't think that's the end of the story for this year. We have seen Significant pressure on softwood and joinery products around about 10% to 12%, steel through appliances, in raw materials, glues and resins that occur in chipboard and so on, the 5% to 10%. So We would expect to see more price pressure coming through and we will deal with that as we sort of see appropriate coming through the year.
We look to move the margin forward, but we also look to keep a right balance between price and volume going through. So we ended out the year last year, 60%. We'd love to see an improvement on that, but I wouldn't comment on whether the figure you quoted is right or not. I'll just hand to Mark for a comment on it.
Yes. So in terms of Share buyback and dividends, then clearly our strong balance sheet has helped us well as we've gone through this uncertain time. And so we will continue to sort of review our level of dividend payments as a result of that. If you look at our underlying cash position, it's near £370,000,000 and we normally keep a sort of working Capital balance of around £100,000,000 to manage the business. So with our dividend announcement, clearly, we have more headroom than we normally have.
And we will continue to look at our sort of dividend strategy and the level of shareholder returns as we see more stability the marketplace. So it's something we're very conscious of and we'll continue to review. The other side of things obviously is the foreign exchange. Andrew's talked to the pressures we have from commodity side of things and we're obviously looking at our pricing and our price increases to manage that. We do we'll have some benefit from a stronger pound if that was to continue.
Sort of just to give you sort of a few numbers, A sort of full year benefit of a $0.01 improvement on the euro is worth about 1,300,000 and sort of $0.01 on the dollar is worth about €400,000 So you can see the sort of the level of benefit that we would get if we see the exchange rates stay where they currently are.
Now our next question comes from Christian Hirth of Numis. Please go ahead.
Thank you. Good morning, guys. Three questions for me, if that's okay. First of all, you ended the year with 748 U. K.
To get those 85 to come in 2021. You've got that target of 850 out there and then clearly that still remains the target. But I was just wondering as you stand today, Do you feel like there could potentially be some scope for upsides to that? The second one is just on the competitive landscape and What you're seeing there, you touched on perhaps some stock availability issues around competitors. And just to sort of any further update you have there would be great.
And then just finally, as we stand today, conversations with tradespeople, what you're seeing in terms of order intake, whether you've seen perhaps an uptick as some of this positive vaccine news has continued. Just any commentary around that would be great to appreciate it. Thank you.
Thanks, Christian. Yes, we I increased the number of depots that we sort of targeted from 800 after up to 850 when we introduced our new format that You've included better ways of managing stock in the depots and reducing some space. I Still think 8.50, around about 8.50 is the right sort of number. And I think it will get increasingly difficult as we roll out in our rollout to find those depots as we get sort of towards the end of So the rollout program. I think it is important to note, though, that our Refit program, which is making progress, gives good reason to believe that we can continue to grow like for like sales.
So yes, I think about 850 is the right sort of number. In terms of the competitive landscape, I think in our immediate competitor trade set, I think we played a very strong positioning on stock during the second half of last year. When we were seeing that some of our competitors are stitching off intakes from suppliers, we were doing quite the opposite and piling in. And When we made those decisions back in March, we had an eye firmly on coming back out strongly out of the lockdown and have in a very strong period 11, which takes time to build stock for and obviously having capability of manufacturing around here put us in a strong position. But yes, I don't know that an awful lot has changed within the immediate trade space next to us.
And we carry on playing our own game, and that's we keep focused on. We have continued to your 3rd question, Christian, on tradesmen, tradespeople, what they're sort of seeing. We've kept in touch with them a lot through the lockdown. We've even used Teams calls. So it gives you a sense of how close we get to some of our customers.
They're happy to come on Teams calls with us and talk. And they are busy. Their mix of business has certainly changed, and we would note that in periods 12. They're busy with joinery. They're busy with flooring projects, kind of stuff.
You probably noticed in period 2 that there have been some instances of Kitchens going out into periods 34 where customers Just been a wee bit uncomfortable at this point having the key part of their home being pulled apart. So I'd say the trades are busy.
Our next question comes from Geoff Lawrie of Redburn. Please go ahead.
Yes. Good morning, team. I'll break with tradition and ask two questions. First, can you talk a bit about Becoming more vertically integrated. You've clearly given us some sense that making frontals, Making hard surface tops feel like new departures.
How vertically integrated do you think you're going to end up? And second, a question for Paul. I appreciate you've only been in the business a few months, But what do you think of the financial model at Howden? How comfortable are you with running with 60 plus gross margins, mid teens EBIT margins? Is that the right shape for Howden as a business, do you think?
Thanks, Jeff. Look, I think we do a good job of reviewing on a consistent basis what's right to make versus buy. So we've got a particular view on trying to make everything and trying to buy everything up at the balance. We look at each individual case. There were 2 very obvious moves directly in front of us.
The first was and it's been in our thinking for some time. We make some of our basic frontals, some of our entry price frontals, but not quite a lot of the mid range. So we're building some capabilities to do more of that. I think it's important that we've got a good mix between what we make and some of the fashion elements that we get coming out of Italy. There's very big strength of manufacturing capability in Italy.
We want to keep that very interested in Houghton's too. So it's sort of rebalancing. We think that fifty-fifty is the right sort of balance between the 2. The skirting and architrade move was another obvious one. We put down some capability.
It's been a very strong element for us. It's been running 20 fourseven right the way through last year. The volumes are so big, we just have to put more down. That's not a particularly big investment. But if we make about a third of everything, We'll probably be moving it up to around it by 40%.
It's not I probably wouldn't want to comment any further beyond that. But I think there's a good mix between what we make, what we buy and get the benefits of having supply close to us, the flexibility, which has really been shown to have been a huge benefit during COVID when the teams can switch on particularly around when you get a strong peak demand like in period 11. The work surfacing thing was we've had a very strong laminate work surface business offer. We think the market is moving more towards solid surfacing. And we our modular range.
And it started off with us providing a modular range that we thought builders might want to fit. And I think a lot of our builders actually don't want to fit it. So we've got a fitting service that works for it, but it's limited in its scope. It doesn't you can't do some elements of the kitchens. So we know it's intended to extend out and work with 3rd party fabricators to do a solid surface as we move our kitchen ranges into slightly better areas like the Plus 4000 category with the ranges that we've launched.
And the initial work and the trials we've been doing with the 3 fabricators has been going very well. The opportunity came up to buy the largest work, solid work surfacer, a business that had gone bankrupt called Rotherhams. And we picked it up for very little money during COVID, brand new kit from Italy, the best kit that we would have wanted to buy ourselves. We bought the freehold for the land and We bought brand new buildings as well. But the team that have been in there, the family that have been running it couldn't get it operated and ended up running out.
So we bought the whole lot for GBP7 million, which we felt was very good value and we're getting it operating now. And then I'm handing over to Mark for the second question. Paul? I'm so sorry for Paul leaving. Hi, Geoff.
Hi, Geoff. Just on the financial model and my Initial reactions, clearly, Howlands has a very strong business model and a real clear focus on the customer. And I think the decentralized model works very effectively in that way and a really clear growth strategy. So when you sort of look at our book, we've got sector leading margins. I feel we're in a good shape to really continue to focus and deliver those.
Clearly, in the near term, there are some challenges around modest prices, etcetera. But I do feel confident that, yes, we can continue to make Good strong margins, particularly as Anne has talked to with us, we have vertically integrated model and that focus on the customer. So I think it's a strong business and we'll continue to obviously drive the business and balance that margin percentage versus the sort of the volume and the growth prospects of the business.
Understood. Thanks very much.
Thanks, Jeff.
Our next question comes from Clyde Lewis of CL
Good morning, Andrew. Good morning, Paul. Apologies, I think I've got 3, if I may. One was looking back, I suppose, at the second half of 2020 and obviously 16% growth is a big number. How much of that do you think was catch up from obviously the weak 2nd quarter.
And how much do you think was sort of, I suppose, underlying growth of the market on the back of what the extra saving from a lot of homeowners? That's the first one. The second one was on, I suppose, sort of what have you been trying to do with regards to the product design to Try and improve or make it easier for installation. One of the capacity constraints for kitchen fitting is obviously labor and That obviously stops you from selling more units. And as you highlighted with the trade customers having good order levels, How have you been trying to sort of develop sort of areas and products that speed up the installation process?
And the last one was on the number of active accounts, I suppose, that you've sort of seen over the last 6 to 12 months Particular, how that's evolved and whether the sort of the bad debt element has deteriorated in any way.
Yes. We were pleased with second half performance and it's sort of frustratingly very poorly tracked market in terms of market share. But our sense from the amount of conversations we have with our Depo managers, we're certainly winning a lot more than we would have lost in terms of kitchens in the second half of last year, and we've got tremendous momentum coming out. I'm sure there was some pent up demand and all of that. I wouldn't really hazard a guess.
We're also up against competitors being out of stock of appliances, not being able to get a hold of some chipboard, which would certainly have worked in our favor. So as we're thinking about sales in the second half of this year, we've got to bear that in mind. But I think in terms of the trade game, we would We clearly won. I think Kitchens is slightly different in a lockdown scenario versus home improvement DIY. Everybody is prepared to put up a shelf and take a bit of paintbrush.
And actually coming in and unplugging the core part of your house is a very difficult thing to do, and I think a lot of people didn't want to do that. So for us to grow at that sort of level in a market that I don't think really went very, very much up last year. It was pretty good.
Paul? In terms of the active accounts side of things, We see a similar level to what we had through this year. Obviously, we sort of saw very variable year, but we finished the year with about 465,000 which compares broadly over the last 2 years for 4.66,000 and 4.69000. So we see a pretty similar level of active accounts. And as you're aware, we constantly monitor and make sure that they are hectic and certainly will be accounted for.
I didn't quite get the second question. Could you ask that again about product installations?
Yes. Andrew, I mean, obviously, sort of anybody who sort of follows the Building industry is aware that there are a lot of sort of middle aged to older aged sort of builders and kitchen installers. And Speed of installation is a capacity constraint. So I'm wondering what are you sort of trying to do as a Overall business to design ways to make kitchen installation quicker and easier. Yes.
I think The volumes of can be installed.
Yes. Your question is a good one and it goes right to the heart of what Heidens does, particularly out of our manufacturing capability in rung corn and to a degree in height. And so every cabinet in our range is prebuilt and many of them come pre installed with fitted accessories, which is an unbelievable time saver for the builder. The other thing that we focus on hugely with our builder customers is the accuracy and squareness of our cabinets that make speed and ease of fit a big deal. That's why a lot of builders in the U.
K. Want to buy a Hygien's cabinet. So I'd say that the prebuilt nature of it all really speeds things up. We've been very thoughtful around appliances and appliance installations. And there are many, many features in our Lomero ranges that make them just much faster and more reliably fitted for general builders almost without the need to contact electrical installers, put normal plugs on them.
So there's I wouldn't do the answer justice now, but we've been very thoughtful around ease of fit. We work very closely with builder customers to improve it all the time.
We'll now take our next question. It comes from Charlie Campbell of Liberum.
Good morning, everyone. Yes. A couple from me really. I suppose just thinking about the gross margin and you've talked about kind of mix And I suppose, yes, more joinery, less kitchens. Are there any signs of that reversing?
When you talked about some kitchen orders being deferred into period 3, 4, What are the kind of the quotes and the sort of design activity? Is that leading you to think that you might see that Kitchen activity restarting or do you think you need to see kind of lockdown kind of unwound before that happens? Just sort of thoughts around that. And the second question, I think it's 2 parts, sorry, so maybe stretching into 3. But thinking about the overhead bridge From 2020 to 2021, there's an older depot number of minus 7 Last year, does that reverse out in full in 2021, do you think?
And then also just on France, And just wondering kind of the maturity curve. Is that the same as it was in the U. K. As we start think about kind of modeling that out. Thank you.
Thanks, Charlie. I think probably the first point to pick up is periods 12. Periods 1 particularly is not probably one of the weaker periods of guidance in the annual calendar because we've built our period 11 peak trading to try and take kitchens out of the market ahead of January's peak, which is a retailer peak. So I would have no question the retailers would have we talk about the kitchen joinery mix, not that far out. We do see good activity in our lead banks.
We see a good level of design activity. I think it just makes it a wee bit easier when lockdown comes back. So we come out of lockdown. So we're not pointing to anything that would really concern us here at sort of phasing.
And if I can take the question on overheads. As you appreciate, yes, there was some cost reductions in our older debt, because that was a Small predominance in the first half if you look at the split and then there was actually an increase in spend in the second half. So I think we will see that reverse as you picked up as well as we continue to invest in new depots and the growth sites Opportunities of the business in terms of looking at the cost base. I think the third question was around the maturity model of France. Again, that we've looked at that and we're gaining more experience on that and we feel it follows a similar profile to the one we we see in the U.
K. And as you can see, the French business appears to be progressing well.
Our next question comes from Sam Dindal of Stifel. Please go ahead.
Good morning, guys. Three questions from me. Firstly, on the medium term gross margin, sort of referring to Jeff's question. If you are vertically integrated more manufacturing, does that mean gross margins may Get above the 60%, 60% on a sort of 3 to 5 year view orders. So how do you see that progressing?
Secondly, on the digital initiatives, Can you give any color on sort of the conversion rates you're seeing from customers who go through the digital channel? And is there any initiatives you can do to sort of strengthen that going forward? And then finally, on the French business, are the new 11 decodes in new cities in 2021? And what would you see to take a bigger bang approach to expansion in France. Thanks.
Yes, great. Thanks for those 3. I think On the gross margin medium term question, there's a number of moving parts. Sure, we'll make more on some of the Kitchen elements that we make, it's Heartland territory, it's core margin driving stuff for us. I think that improves.
There are some other things that going on at reduce mix. We are becoming increasingly good. It's all cash driving. We're becoming increasingly good at our over the counter business. So everything around of hardware, joinery, flooring, where we're seeing significant growth as well.
So there'll be a mix slight mix difference over the period of time, but we would see an improvement a slight improvement over that sort of medium term time. On the digital initiatives, I mean, it's very live stuff for us. So We are seeing a lot of leads coming from end consumers into the business and they come through at a lower conversion rate than if a builder brings a lead to us. A lead from a builder, we convert at a very high rate, sort of plus 90. If a cold lead comes in off the web, it could be half that in terms of conversion probability.
Also leads that we get off the web, we wouldn't be doing anything other than appropriately introducing them to a builder. And sometimes these leads disappear and turn up with a builder and we see them coming back later on. So there's quite a mix that goes on. We feel good about making the brand sort of more aware to end consumers. It's a very well known brand, of course, in trade.
We have quite a low awareness amongst end consumers. So we see it all as opportunity. And the business, you say, in terms of trying to strengthen it, the business is learning how to deal with dealing with cold leads and doing very 11 depots in France, we've signed leases on 8 already, and we feel confident that we can get the other 3 done.
We are
following a city based approach in France. So we feel we've got quite a lot of work to do around Paris, where the majority of the openings have been. But there are a number of big other cities that we're looking to do. So Lyon will get another depot on the other side, but we feel there's strength in our approach around building capability in our people around the city and also awareness amongst our customers so the model gets understood. And it's not that similar to how we started to really use London as a strength to build reputation.
The sort of hold back, It's not a capital question for us. It's not about finding sites. We think we're doing a very good job finding sites. We think that customers are understanding the format. To be a heightened stepper manager, you've got to be entrepreneurial.
You've got to be able to drive the margin. You've got to run your business. We think we've developed people of high enough quality to do that for 11, and we're working very hard beyond that to find more capability. But Big Bang sort of is difficult when you need commercial leaders, but yes, we're doing a good job of growing it.
We'll now take our next question. It comes from Dudley Shanley of Goodbody.
Good morning, gentlemen. Two questions for me, if I may. Just to first of all to follow-up on the French question. Obviously, as you mentioned, the holdback is Commercial leaders, if we were to assume you could find the people over the long term, what are the sort of numbers you'd be thinking in terms of The depots given the city based approach. And then the second question is the depot conversions, the 30 that you did in FY 2020, Could you give some more color on the kind of initial success of that?
Pierre, why don't you start off, Lampal?
Okay. So So why don't I start on the Depo conversion and then I'll let Andrew talk about France, yes. In terms of the depot conversion, obviously, we've got a lot of experience over the last couple of years. And that although we've been in a rather uncertain sort of economic situation. But we've looked basically at how we reformat them, how we get the best out And I think what we've now sort of refined is the way of doing that and getting the balance right between the type of depot we're looking at, whether it's a sort of large or smaller depot and its level of sales.
What we are finding is that It's paying for itself the advantage of refitting a mature depot as you get a sort of good operational gearing on the incremental sales that you get through it. So we are seeing prospects of good payback. So in the order of a 4 year payback on the investment, we feel is something we can achieve on balance when we look at the portfolio. So we'll continue to appraise, but we feel that it's actually producing early success. I'll hand over to Andrew for the next I
think the best way to answer the French question is give a little bit of context of what's been going on there. So we've put a really good leader in place, Rolando Petain, who's both French and experienced in the sector, who has rebuilt the team, rebuilt out the business and really aligning it nicely to Huygens in the U. K. Around product and processes and so on. And he's also done a fantastic job of driving the culture and the competitive nature between the depots over there.
We have thought beyond the 11 next year, but it is a step by step approach. And I think that's appropriate at this stage because we've got to get reassurance that we can build out the depot managers. I think, I guess, is sort of theoretical and that would be sort of my hold back on it. But There's a big population in France. I think it would be more city based approach than perhaps here.
We've never really tested in fills between cities. So yes, Citi based approach.
Great. Thank you.
We'll now take our next question. It comes from Ami Galla of Citi.
Yes, thank you. Just two questions from me. My first question was on the stock availability initiative of yours to improve them at the depots. I'm wondering if that measure involves further stock investment in 2021 that we should be thinking about? And my second question is on the demand that you've seen since the Is there any regional differences that you can highlight at this stage?
Just repeat your second question again, please, Anne.
Yes. It's just on the regional demand trend on the current trading data that you've seen so far.
Regional demand trends, yes. I think so far
The regional demand trend, I'm sorry.
Yes. No, I've got it now. Thank you very much. Look, business has been okay, Solid, I would say, for the first two periods of the year. I think we're encouraged by what we've seen.
Scotland has been challenging given that it's really any remedial repairs going into houses. So we've had a hold back in Scotland without doubt. And I think London is a little bit softer, certainly for the first two periods, but looking stronger this period. So That's probably all there is to report with everybody else performing. On stock availability, Now XDC, just going back and sort of going over the reasons why we're doing this, it is to ensure that we find the easiest way of on time in full kitchens for our builder customers.
This is not in any way the stocking exercise. This is about depots being in stock more and more of fast selling SKUs, particularly top 200 SKUs and cabinets and so on. And XDC performs around the tail of the range. It does give us some options to trial some ranges without deploying stock before we're certain about doing it. It may give us some opportunities around clearing out stock at the end.
But we see the particular benefit and the reason for doing it is to be on time in full for builder customers. You know when an initiative is good in this business because you get a huge amount of pull from the depot managers who are a commercial of bunches you'll ever come across. And there is huge demand for XDC, particularly when you line it up with any time ordering and the opportunities that, that brings too.
It appears we have no further questions at this time. I'd like to hand the call back to Andrew for any additional comments.
Thank you very much for your time.
Thanks, everyone.