TIDMKGF
RNS Number : 2540K
Kingfisher PLC
20 September 2016
Half year results for the 6 months ended 31 July 2016
Sales up 2.7% and retail profit up 8.7%, in constant
currencies
Underlying pre-tax profit of GBP436m, up 13.5%
Good early progress on ONE Kingfisher
Financial highlights % Total % Total % LFL*
Change Change Change
--------------------------------------------- --------- ---------- ----------
2016/17 2015/16 Reported Constant Constant
currency currency
--------------------- ---------- ---------- --------- ---------- ----------
Adjusted sales* GBP5,749m GBP5,382m +6.8% +2.7% +3.3%
Retail profit* GBP464m GBP410m +13.1% +8.7%
Underlying* pre-tax
profit GBP436m GBP384m +13.5%
Adjusted* pre-tax
profit GBP418m GBP384m +8.9%
Underlying basic
EPS 14.2p 12.3p +15.4%
Adjusted basic
EPS 13.6p 12.3p +10.6%
Half year dividend 3.25p 3.18p +2.2%
Net cash* GBP898m GBP435m n/a
--------------------- ---------- ---------- --------- ---------- ----------
Throughout this release '*' indicates first instance
of a term defined and explained in the Glossary
(section 5).
A reconciliation to statutory amounts is set out
in the Financial Review (Section 4).
* Total adjusted sales in constant currencies up 2.7%
(UK & Ireland* +3.1%; France* +0.3%; Other
International* +7.5%)
* Retail profit in constant currencies up 8.7% (UK &
Ireland +8.8%; France +1.6%; Other International
+34.2%)
* Underlying pre-tax profit of GBP436m, up 13.5% driven
by UK and Poland profit growth and GBP17m favourable
FX movements on the translation of non-sterling
retail profits
* Returned GBP317m of cash to shareholders year to date
(GBP157m dividend; GBP160m buyback)
* Net cash of GBP898m including significant working
capital timing benefits
-----------------------------------------------------------------------------------
ONE Kingfisher
Good early progress and on track with first year
strategic milestones:
* Unified & Unique Offer
o Implementing first unified ranges; sales are
encouraging and cost of change in line with expectations
o New ONE Offer & Supply Chain organisation (OSC)
global functions and roles started from early June;
initial set up costs lower than anticipated
* Digital
o Unified IT platform now in all B&Q stores (ahead
of plan) with back office & supply chain underway;
first Castorama France pilot store on track for
Q3
* Operational efficiency
o B&Q store closures 80% complete: 52 to date of
the 65 planned; 50 lease exits secured
o Goods Not For Resale* (GNFR) benefits delivering
earlier than plan: GBP12m in H1; raising FY guidance
from up to GBP20m to up to GBP25m
No change to 5 year transformation cost* guidance
of c.GBP800m:
* Updated cost guidance for FY 2016/17: transformation
P&L costs of c.GBP60m; transformation exceptional
costs of up to GBP10m
------------------------------------------------------------------
Statutory reporting 2016/17 2015/16 % Change
------------------------ ---------- ---------- ----------
Statutory sales* GBP5,749m GBP5,492m +4.7%
Statutory pre-tax
profit GBP427m GBP386m +10.6%
Statutory post-tax
profit GBP321m GBP318m +0.9%
Basic EPS 14.1p 13.6p +3.7%
------------------------------------------------------------------
Véronique Laury, Chief Executive Officer, said:
"It has been a productive first half. We have delivered a good
'business as usual' result with both sales and profit growth.
Performance has been driven by Poland and the UK, especially
Screwfix, and a stable profit performance in France. This has been
achieved alongside managing the start of our ambitious
transformation plan, based on creating a unified company where
customer needs come first.
"In the UK, the EU referendum has created uncertainty for the
economic outlook, even though there has been no clear evidence of
an impact on demand so far on our businesses. In France we remain
cautious on the short term outlook.
"Looking longer term, we are starting to build solid foundations
to enable us to deliver our five year transformation, which is our
key growth driver. We are making good progress on our strategic
milestones for this first year and we are on track. The level of
transformation activity will increase significantly, however given
the expertise and energy of our colleagues we continue to feel
confident about the challenges ahead."
Contacts
Investor Relations +44 (0) 20 7644 1029
Media Relations +44 (0) 20 7644 1030
Teneo Blue Rubicon +44 (0) 20 7260 2700
---------------------- -----------------------
This announcement can be downloaded from www.kingfisher.com or
viewed on the Kingfisher IR iPad App. We can be followed on Twitter
@kingfisherplc with the half year results tag #KGFHY. Kingfisher
American Depository Receipts are traded in the US on the OTCQX
platform: (OTCQX: KGFHY)
http://www.otcmarkets.com/stock/KGFHY/quote
Our next announcement will be the Q3 trading update (sales only)
for the period ended 31 October 2016 on 22 November 2016.
The remainder of this release is broken down into six main
sections:
1) ONE Kingfisher update
2) Trading review by division
3) FY 2016/17 Technical guidance
4) HY 2016/17 Financial review and, in part 2 of this
announcement, the half year condensed Financial Statements
5) Glossary
6) Forward-looking statements
Section 1: ONE Kingfisher update
The ONE Kingfisher five year plan, starting this year (FY
2016/17) will leverage the scale of the business by creating a
unified company, where customer needs always come first.
Our intention is that this five year transformation plan will
deliver a GBP500m sustainable annual profit uplift by end of year
5, over and above business as usual (BAU)*. Furthermore, until we
have unified our customer offer, we will have limited expansion,
the focus of which will be Screwfix UK and Europe in the
medium-term. The total expected cash cost of the transformation is
GBP800m (P&L, exceptional and capex).
The focus of the transformation plan is on three key strategic
pillars:
1. creating a unified, unique and leading home improvement offer;
2. driving our digital capability; and
3. optimising our operational efficiency.
See below for half year progress against the annual strategic
milestones of each of these strategic pillars:
1. Unified, unique and leading offer
We have started unifying our offer, with the same
products, presented everywhere in the same way.
This will deliver significant customer benefits
(newer products, higher quality, better sustainability,
lower prices, simpler ranges, clearer merchandising
and better packaging) alongside significant business
benefits (higher sales, fewer SKUs*, fewer suppliers,
cost price reduction (CPR) and improved processes).
* Achieve 4% unified cost of goods sold (COGS)
The first unified ranges (e.g. air treatment, light
bulbs, batteries and kitchen sinks) are being implemented,
as planned, from March 2016. Sales are encouraging
and cost of change to date is in line with expectations.
* Deliver new ONE Offer & Supply Chain Organisation
We are moving away from an organisation structure
with nine buying and logistics teams, in nine operating
companies which source and merchandise their own
ranges independently. Instead, we are reorganising
as ONE organisation, starting with our offer.
New unified global functions and roles started
from June, mostly as a result of internal moves,
leading to lower transformation exceptional costs
than originally anticipated for this year. New
range teams, located across the UK and France,
will work closely with operating companies, who
retain responsibility for activities such as trading,
range implementation, local pricing and customer
needs.
------------------------------------------------------------------------
2. Driving our digital capability
Implementation of a unified IT system is a key
enabler of our ONE Kingfisher plan. It will also
provide a significant opportunity, with a seamless
and stronger digital offer for our customers, to
substantially increase sales and digital penetration.
* Complete unified IT platform roll out in B&Q and
start Castorama France roll out
Roll out completed in all B&Q stores in Q1 ahead
of plan, with back office and supply chain well
underway. The first Castorama pilot store is on
track for launch in Q3.
* Build Digital 'Brilliant Basics' platform for B&Q
This involves investing in our core e-commerce
platforms, enabled by the new unified IT platform,
and leveraging our Screwfix best-in-class capability.
Upweighted digital marketing, improved site search
and new checkout are all being developed for both
diy.com and castorama.fr. We are also developing
a new company wide mobile platform.
---------------------------------------------------------------------
3. Optimising our operational efficiency
The main driver will come from unifying c.90% of
the GBP1.2bn annual spend on GNFR. This programme
is a combination of cost savings, and also an opportunity
to work in a simpler and more effective way across
the business.
* Deliver benefits from unified Wave 1 of GNFR
programme
Wave 1 (GBP350m of the total GNFR programme including
media buying, printing & paper) is now well advanced.
Wave 2 (next GBP400m) is also progressing well.
In H1, alongside helping us to work in a simpler
more effective way, we have achieved cost savings
on categories reviewed so far, delivering a GBP12m
benefit and earlier than plan. We are therefore
raising our FY 2016/17 target benefit from up to
GBP20m to up to GBP25m.
* Complete closure of c.15% surplus space at B&Q (65
stores)
Closure now 80% complete following the closure
in H1 of a further 22 stores, taking the total
to 52. Sales transference to date continues to
support the business case for the closures.
In Q1 B&Q outsourced remaining lease exits to a
third party via a lease liability transaction.
Of the 10 exits secured year to date, six were
undertaken by this third party. Of the 65 stores,
we have now secured exits on a total of 50.
-----------------------------------------------------------------------
Summary
Good progress has been made so far against our first year
strategic milestones and we are on track to achieve them and the
associated benefits. Total expected transformation costs for this
year are lower than originally guided, reflecting lower initial
reorganisation costs and phasing on spend. We are not however
changing our five year total transformation cost guidance of
GBP800m. It is early days and given the nature of the plan, phasing
differences are to be expected.
We are very aware of the challenges ahead and we are planning
accordingly. The level of transformation activity will
significantly increase next year as we step up the unification of
ranges across the company. This activity will involve more
clearance of old ranges, more remerchandising of new ranges in
stores and more pressure on the logistics networks.
We continue to monitor our progress against our financial and
strategic milestones, and we will update as we progress.
Section 2: Trading review by division
Note: all commentary below is in constant currencies
UK & IRELAND
GBPm 2016/17 2015/16 % Reported Change % Constant % LFL
Currency Change
Change
--------------- -------- -------- ------------------ ----------- --------
Sales 2,609 2,527 +3.3% +3.1% +6.7%
--------------- -------- -------- ------------------ ----------- --------
Retail profit 211 194 +8.8% +8.8%
--------------- -------- -------- ------------------ -----------
Kingfisher UK & Ireland sales were up 3.1% (+6.7% LFL) to
GBP2,609 million benefiting from a broadly supportive backdrop and
continued strong Screwfix performance. Retail profit grew by 8.8%
to GBP211 million. Gross margins were down 100 basis points
reflecting mix effects from strong growth in Screwfix, clearance
related to the B&Q store closures and higher digital sales.
Focus on cost control continued.
Following the outcome of the EU referendum result in the UK
there has been no clear evidence of an impact on demand so far on
our businesses.
B&Q total sales declined by 1.9% reflecting store closures
and sales transference (+4.6% LFL) to GBP1,997 million. LFL sales
benefited by c.2% from sales transference associated with the store
closures. LFL sales of outdoor seasonal products were up 1.6% while
sales of indoor products, including showroom, were up 5.9%.
B&Q's click & collect is now available on over 18,000
products. Total online sales*, including home delivery, continued
to make good progress with sales growing by 39%.
Screwfix grew total sales by 24.0% (+14.7% LFL) to GBP612
million, driven by strong growth from the specialist trade desks
exclusive to plumbers and electricians, strong digital growth (e.g.
mobile +117%; click & collect +59%); and the continued roll out
of new outlets. 20 net new outlets were opened, taking the total to
477.
FRANCE
GBPm 2016/17 2015/16 % Reported Change % Constant % LFL
Currency Change
Change
--------------- -------- -------- ------------------ ----------- --------
Sales 2,175 1,976 +10.1% +0.3% (1.6)%
--------------- -------- -------- ------------------ ----------- --------
Retail profit 187 167 +11.5% +1.6%
--------------- -------- -------- ------------------ -----------
Kingfisher France sales increased slightly by +0.3% (-1.6% LFL)
to GBP2,175 million. According to Banque de France data*, sales for
the home improvement market were up 0.2%. New private housing
starts and planning permits* were up 2.5% and 1.4% respectively in
the six months to the end of July. Widespread industrial action and
exceptionally wet weather created a more challenging environment in
Q2 after a more encouraging Q1.
Across the two businesses, one net new store was opened and four
were revamped, adding around 1% new space.
Retail profit grew by 1.6% to GBP187 million (1) , despite the
weaker sales, reflecting higher gross margins (+70 basis points)
benefitting from less promotional activity, and continued focus on
cost control.
Castorama total sales declined by 1.1% (-2.1% LFL) to GBP1,188
million. LFL sales of outdoor seasonal products were down 6.2% and
sales of indoor and building products were down 1.3%.
Brico Dépôt total sales increased by 2.1% (-0.9% LFL) to GBP987
million reflecting store openings.
(1) See Section 3 (FY 2016/17 Technical Guidance) for
explanation of cost phasing from TASCOM* legislation change
OTHER INTERNATIONAL
GBPm 2016/17 2015/16 % Reported Change % Constant % LFL
Currency Change
Change
----------------------------------- -------- -------- ------------------ ----------- --------
Sales 965 879 +9.7% +7.5% +5.9%
----------------------------------- -------- -------- ------------------ ----------- --------
Retail profit
----------------------------------- -------- -------- ------------------ -----------
Other International (established) 77 60 +27.6% +24.2%
----------------------------------- -------- -------- ------------------ -----------
New Country Development* (11) (11) n/a n/a
----------------------------------- -------- -------- ------------------ -----------
Total 66 49 +35.9% +34.2%
----------------------------------- -------- -------- ------------------ -----------
Other International total sales increased by 7.5% (+5.9% LFL) to
GBP965 million and retail profit increased by 34.2% to GBP66
million, both driven by Poland.
During H1 three net new stores were opened, after opening one in
Poland and three in Screwfix Germany, adding 2% more space compared
to H1 last year.
Other International (established):
Sales in Poland were up 11.4% (+8.9% LFL) to GBP587 million
benefiting from a supportive market and new ranges. LFL sales of
outdoor seasonal products were up 10.6% with sales of indoor and
building products up 8.5%. Gross margins were up 140 basis points
reflecting strong trading. Retail profit grew by 32.7% to GBP73
million reflecting the sales growth and higher gross margins.
In Russia sales declined slightly by 0.6% (+1.2% LFL) to GBP157
million against strong comparatives (2015/16: +15.3% LFL). The
business delivered a breakeven result (2015/16: GBP3 million
reported retail profit) reflecting a challenging environment and
adverse foreign currency exchange movements on the cost base. In
Spain sales increased by 3.2% (+0.8% LFL) to GBP163 million,
delivering a GBP3 million retail profit (2015/16: GBP2 million
reported retail profit). In Turkey, Kingfisher's 50% JV, Koçta ,
contributed retail profit of GBP1 million (2015/16: GBP2 million
reported retail profit).
New Country Development:
New Country Development includes operations in Romania, Portugal
and Germany. Sales were GBP58 million with losses of GBP11 million
(2015/16: GBP11 million reported retail loss) including reduced
losses in Romania. Three new outlets in Screwfix Germany were
opened.
Section 3: FY 2016/17 Technical guidance
Employee, new stores and space growth:
Employees Store Sales area (1)
(FTE) Numbers at 31 Jul 2016 (000s m(2) ) Net new stores Space
at 31 Jul 2016 at 31 Jul 2016 FY 2016/17 % change
FY 2016/17
B&Q UK & Ireland 19,208 308 2,305 (35) (7.5)%
Screwfix 6,507 477 29 60 +10.6%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
UK & Ireland 25,715 785 2,334 25 (7.3)%
Castorama 12,625 102 1,253 - +1.1%
Brico
Dépôt 7,375 119 829 1 +0.9%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
France 20,000 221 2,082 1 +1.0%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Poland 11,302 74 627 2 +2.9%
Portugal 134 2 12 1 n/a
Romania 851 15 114 - -
Russia 3,199 20 198 - +1.3%(2)
Spain 1,694 29 182 - -
Screwfix Germany 127 12 1 9 n/a
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Other International 17,307 152 1,134 12 +2.6%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Total 63,022 1,158 5,550 38 (2.3)%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
(1) Screwfix sales area relates to the front of counter area of
an outlet
(2) Includes one closure and one opening
Income statement:
-- Underlying profit expected to include up to c.GBP25m operational efficiency benefits
-- Transformation P&L costs of GBP220m over next five years
to be mostly incurred in first three years (FY 2016/17 expected to
be c.GBP60m, previously c.GBP70m, due to phasing of spend)
-- Transformation exceptional costs of GBP270m over next five
years to be mostly incurred in first three years (FY 2016/17
transformation exceptional costs expected to be up to GBP10m,
previously c.GBP50m, reflecting lower initial reorganisation
costs)
-- Retail losses from new country development activity expected
to be c.GBP20m driven by Screwfix Europe*
-- Group interest charge expected to be c.GBP10m (excluding FFVR* and exceptionals)
-- Effective tax rate expected to be around 26%, subject to the
blend of profit within the companies' various jurisdictions
-- B&Q closures - income statement impact expected to be
broadly neutral assuming on average that around a third of sales
transfer
-- As a result of a change in legislation during the year
relating to TASCOM, operating costs increased by GBP9m during H1
which will be offset by a corresponding reduction in H2, hence not
impacting the full year. Comparatives are not restated.
Cash flow:
-- Investing up to c.GBP450m total capex for FY 2016/17
(includes BAU and transformation); c.GBP500m for FY 2017/18 and FY
2018/19
-- Capital return of c.GBP600m by the end of FY 2018/19 expected
to be via share buyback (GBP160m of shares (47m shares) repurchased
year to date)
Section 4: HY 2016/17 Financial review
A summary of the reported financial results for the half year
ended 31 July 2016 is set out below:
2016/17 2015/16 % Reported Change % Constant Currency Change
------------------------------------- ---------- ---------- ------------------ ---------------------------
Adjusted sales GBP5,749m GBP5,382m +6.8% +2.7%
Statutory sales (1) GBP5,749m GBP5,492m +4.7% +0.8%
Retail profit GBP464m GBP410m +13.1% +8.7%
Underlying pre-tax profit GBP436m GBP384m +13.5%
Transformation P&L costs GBP18m - n/a
Adjusted pre-tax profit GBP418m GBP384m +8.9%
Statutory pre-tax profit (1) GBP427m GBP386m +10.6%
Exceptional items (post-tax) GBP9m GBP38m n/a
Underlying basic earnings per share 14.2p 12.3p +15.4%
Adjusted basic earnings per share 13.6p 12.3p +10.6%
Basic earnings per share (1) 14.1p 13.6p +3.7%
Dividends - Ordinary 3.25p 3.18p +2.2%
Effective tax rate 26% 26%
Net cash GBP898m GBP435m
Capital Return
GBP126m GBP139m
* Share buyback
------------------------------------- ---------- ---------- ------------------ ---------------------------
(1) Statutory results include B&Q China up to the date of
disposal of controlling 70% stake (30 April 2015)
Reported retail profit grew by 13.1% including GBP17 million of
favourable foreign exchange movement on translating foreign
currency results into sterling. In constant currencies retail
profit grew by 8.7%, reflecting good performance in the UK and
Poland. Our ongoing focus on cash and tight capital discipline
meant we were able to continue to invest in the business and the
transformation whilst maintaining a strong balance sheet, pay
GBP157 million in cash dividends and return a further GBP126
million to shareholders via share buybacks (GBP160 million to
date).
Total adjusted sales grew by 2.7%, on a constant currency basis,
to GBP5.7 billion, with LFL sales up 3.3%. On a reported rate
basis, which includes the impact of exchange rates, adjusted sales
increased by 6.8%. During H1, sales growth benefited from two net
new stores, driven by 20 Screwfix outlet openings in the UK, offset
by the impact from the previously announced B&Q store closures
(65 planned over two years; the first 30 closed in FY 2015/16 and
22 in H1 2016/17).
On a constant currency basis retail profit of GBP464 million
increased by 8.7% including GBP11 million of new country
development losses relating to Romania, Portugal and Screwfix
Europe.
In FY 2015/16 Kingfisher adjusted for IFRIC 21 'Levies' changes
relating to quarterly phasing of operating levies in France to
reflect a new IFRS accounting requirement. Since then, a change in
legislation during the year relating to one of these levies
(TASCOM) has led to the reversal of this accounting treatment in
the period increasing operating costs by GBP9 million in the period
offset by a corresponding reduction in H2. There is no full year
impact. Comparatives are not restated.
As previously announced, Kingfisher disposed of a controlling
70% stake in B&Q China on 30 April 2015. On 23 March 2016
Kingfisher exercised its option to dispose of the remaining 30%
economic interest, with the agreement of Wumei Holdings Inc.
("Wumei"). Following regulatory approval, Kingfisher received net
proceeds of GBP63 million in July 2016, completing the
transaction.
Underlying pre-tax profit, which excludes the impact of
transformation P&L costs and exceptional items and FFVR,
increased by 13.5%, to GBP436 million, in line with reported retail
profit.
Adjusted pre-tax profit, which excludes the impact of
exceptional items and FFVR, increased by 8.9% to GBP418 million,
reflecting GBP18 million of transformation P&L costs.
Statutory pre-tax profit, which includes the impact of
transformation costs, exceptional items and FFVR, increased by
10.6% to GBP427 million. A reconciliation from the underlying basis
to the statutory basis for pre-tax profit is set out below:
2016/17 2015/16
GBPm GBPm Increase
------------------------------------------------------------------------------------- -------- -------- -----------
Retail profit 464 410 +13.1%
Central costs (22) (19) n/a
Share of interest and tax of joint ventures & associates (2) (2) n/a
Finance costs before exceptional items & financing fair value remeasurements (FFVR) (4) (5) n/a
------------------------------------------------------------------------------------- -------- -------- -----------
Underlying pre-tax profit 436 384 +13.5%
Transformation P&L costs (18) - n/a
Adjusted pre-tax profit 418 384 +8.9%
B&Q China operating loss - (4)(1)
FFVR (2) (3)
------------------------------------------------------------------------------------- -------- -------- -----------
Profit before exceptional items and tax 416 377 +10.3%
Exceptional items before tax 11 9
------------------------------------------------------------------------------------- -------- -------- -----------
Statutory pre-tax profit 427 386 +10.6%
------------------------------------------------------------------------------------- -------- -------- -----------
(1) Up to the date of disposal (30 April 2015)
Transformation P&L costs of GBP18 million principally relate
to the unified and unique offer range implementation and the
digital strategic initiative.
Exceptional items (post tax) were a gain of GBP9 million
(2015/16: GBP38 million gain) as detailed below:
2016/17 2015/16
GBPm GBPm
Gain/(charge) Gain/(charge)
--------------------------------------- --------------- ---------------
Transformation exceptional costs (1) -
UK & Ireland and Europe restructuring 9 (151)
Profit on disposal of B&Q China 3 143
Property and other disposals(1) - 17
Exceptional items before tax 11 9
Exceptional tax items (2) 29
Net exceptional items 9 38
--------------------------------------- --------------- ---------------
(1) Disposal of properties includes the disposal of a property
company which held 3 non-operational properties
As previously announced, B&Q will complete the closure of
around 15% of space by the end of FY 2016/17. There will also be a
small number of closures of loss making stores across Europe. In
addition to the 30 B&Q stores closed in FY 2015/16 a further 22
stores were closed in H1. In Q1 B&Q outsourced the remaining
lease exits to a third party via a lease liability transaction. The
total store rationalisation programme was expected to give rise to
an exceptional charge of around GBP350 million, relating
principally to onerous lease provisions. An exceptional charge of
GBP305 million was reported in FY 2015/16. An overall exceptional
gain of GBP9 million was recorded in H1 (FY 2015/16: GBP38 million)
reflecting the decision to keep one store open that was originally
planned for closure. This was partly offset by the forced closure
of one other store.
The disposal of the remaining 30% stake in B&Q China for a
net consideration of GBP63 million resulted in a gain of GBP3
million.
Underlying basic earnings per share grew by 15.4% to 14.2p,
which excludes the impact of transformation costs, exceptional
items, FFVR and the effect of prior year tax items. Adjusted basic
earnings per share grew by 10.6% to 13.6p (2015/16: 12.3p), which
excludes the impact of exceptional items, FFVR and prior year tax
items. Basic earnings per share increased by 3.7% to 14.1p
(2015/16: 13.6p) as set out below:
2016/17 2015/16
Earnings EPS Earnings EPS
GBPm pence GBPm pence
--------------------------------------- ----------- -------- ----------- --------
Underlying basic earnings per share 323 14.2 285 12.3
Transformation P&L costs (net of tax) (13) (0.6) - -
--------------------------------------- ----------- -------- ----------- --------
Adjusted basic earnings per share 310 13.6 285 12.3
B&Q China operating loss - - (4) (0.2)
Net exceptional items 9 0.4 38 1.6
Prior year tax items 4 0.2 1 -
FFVR (net of tax) (2) (0.1) (2) (0.1)
Basic earnings per share 321 14.1 318 13.6
--------------------------------------- ----------- -------- ----------- --------
Dividends and capital returns
The Board has declared an interim dividend of 3.25p, an increase
of 2.2% (2015/16: 3.18p). We continue to be comfortable with medium
term dividend cover in the range of 2.0 to 2.5 times based on
adjusted basic earnings per share, a level the Board believes is
prudent and consistent with the capital needs of the business.
The interim dividend will be paid on 11 November 2016 to
shareholders on the register at close of business on 7 October
2016. A dividend reinvestment plan (DRIP) is available to
shareholders who would prefer to invest their dividends in the
shares of the Company. The shares will go ex-dividend on 6 October
2016. For those shareholders electing to receive the DRIP the last
date for receipt of election is 21 October 2016.
On 25 January 2016 Kingfisher announced its intention to return
around a further GBP600 million of surplus capital to shareholders
over this year and the next two years. This is expected to be via
share buyback. During H1 2016/17 GBP126 million (37 million shares)
was returned to shareholders via share buyback and since year end,
GBP160 million of shares (47 million shares) have been
repurchased.
Taxation
The adjusted effective rate of tax, calculated on profit before
exceptional items, prior year tax adjustments and the impact of
rate changes was 26% (2015/16: 26%). This effective rate of tax is
consistent with FY 2015/16.
The overall rate of tax includes the impact of exceptional items
and prior year adjustments. The impact of such items reduced the
rate from 26% to 25%.
Effective tax rate calculation Profit Tax 2016/17 2015/16
GBPm GBPm % %
-------------------------------- ------- ------ -------- --------
Profit before tax and
exceptional items 416 (108) 26% 26%
Exceptional items 11 (2)
Prior year items 4
-------------------------------- ------- ------ -------- --------
Total - overall 427 (106) 25% 18%
-------------------------------- ------- ------ -------- --------
The statutory rates for the Group's main operating companies
during FY 2016/17 are:
-- UK: 20%
-- France: 34%
-- Poland: 19%
The Group's effective tax rate is sensitive to the blend of tax
rates and profits in the Group's various jurisdictions. The
effective rate of tax is higher than the UK statutory rate because
of the amount of Group profit that is earned in higher tax
jurisdictions.
Free cash flow*
A reconciliation of free cash flow is set out below:
2016/17 2015/16
GBPm GBPm
Operating profit (before exceptional
items) 422 385
Other non-cash items(1) 140 133
Change in working capital 200 39
Pensions and provisions (21) (20)
----------------------------------------- ------ --------
Operating cash flow 741 537
Net interest paid (4) (7)
Tax paid (63) (65)
Gross capital expenditure (141) (177)
Free cash flow 533 288
Ordinary dividends paid (157) (160)
Share buyback (126) (139)
Share purchase for employee incentive
schemes - (11)
Disposal of B&Q China (net of disposal
costs) 63 137
Disposal of assets(2) and other(3) (37) 22
Net cash flow 276 137
Opening net cash 546 329
Other movement including foreign
exchange 76 (31)
----------------------------------------- ------ --------
Closing net cash 898 435
----------------------------------------- ------ --------
(1) Other non-cash items include depreciation and amortisation,
share-based compensation charge, share of post-tax results of JVs
and associates, pension operating cost and profit/loss on
non-property disposals
(2) Disposal of assets includes the disposal of an overseas
property company in FY 2015/16
(3) Includes exceptional items (excluding property disposals),
principally relating to B&Q closures, dividends received from
JVs and associates and issue of shares
Net cash at the end of the period was GBP898 million (H1
2015/16: GBP435 million net cash; FY 2015/16: GBP546 million net
cash).
Free cash flow of GBP533 million was generated in the period, an
increase of GBP245 million against the prior period, due primarily
to favourable timing in working capital.
Gross capital expenditure for H1 was GBP141 million (2015/16:
GBP177 million). Of this around 14% was invested in new stores and
relocations, 30% on refreshing and maintaining existing stores, 34%
on IT, supply chain and digital development and 4% on the
transformation.
Of free cash flow, GBP283 million was returned to shareholders
in the form of the ordinary dividend and share buybacks.
Management of balance sheet and liquidity risk and financing
The Group finished the period with GBP898 million of net cash on
the balance sheet. However the Group's overall leverage is more
significant when including capitalised lease debt that in
accordance with accounting standards does not appear on the balance
sheet. The ratio of the Group's lease adjusted net debt
(capitalising leases at 8 times annual rent) to EBITDAR* on a
moving annual total basis is 1.7 times as at 31 July 2016. At this
level the Group has financial flexibility whilst retaining an
efficient cost of capital.
A reconciliation of lease adjusted net debt to EBITDAR is set
out below:
2016/17
Moving annual 2015/16(1)
total Year end
GBPm GBPm
EBITDA* 975 941
Property operating lease
rentals 398 402
-------------------------- --------------- -----------
EBITDAR 1,373 1,343
-------------------------- --------------- -----------
Net cash (898) (546)
Property operating lease
rentals (8x)(2) 3,184 3,216
-------------------------- --------------- -----------
Lease adjusted net debt 2,286 2,670
-------------------------- --------------- -----------
Lease adjusted net debt
to EBITDAR 1.7 2.0
-------------------------- --------------- -----------
(1) Excludes contribution from China following disposal of
controlling 70% stake in April 2015
(2) Kingfisher believes 8x is a reasonable industry standard for
estimating the economic value of its leased assets
Kingfisher holds a BBB credit rating with all three rating
agencies. Kingfisher aims to maintain its solid investment grade
credit rating whilst investing in the business where economic
returns are attractive and paying a healthy annual dividend to
shareholders. After satisfying these key aims and taking into
account the economic and trading outlook, any surplus capital would
be returned to shareholders.
Kingfisher regularly reviews the level of cash and debt
facilities required to fund its activities. This involves preparing
a prudent cash flow forecast for the medium term, determining the
level of debt facilities required to fund the business, planning
for repayments of debt at its maturity and identifying an
appropriate amount of headroom to provide a reserve against
unexpected outflows.
The Group has a GBP225 million committed facility that expires
in 2021 and was undrawn at 31 July 2016. The next significant debt
maturity is in May 2018 when the Group is required to repay US
Private Placement debt with a notional value of $179 million.
The maturity profile of Kingfisher's debt is illustrated at:
www.kingfisher.com/index.asp?pageid=74
Disposals
On 22 December 2014, Kingfisher announced a binding agreement
for Wumei to acquire a controlling 70% stake in its B&Q China
business. Gross cash proceeds of GBP140 million were received in
April 2015 following MOFCOM (Chinese Ministry of Commerce)
approval. Kingfisher, with the agreement of Wumei, exercised its
option to dispose of the remaining 30% economic interest on 23
March 2016. Following regulatory approval, Kingfisher received
GBP63 million of net proceeds in July 2016, completing the
transaction.
Pensions
At the period end, the Group had a net surplus of GBP78 million
(GBP159 million net surplus at 31 January 2016) in relation to
defined benefit pension arrangements, of which a GBP178 million
surplus (GBP246 million surplus at 31 January 2016) was in relation
to the UK scheme. The adverse movement reflects a significantly
lower discount rate being applied to the UK scheme liabilities
(GBP3.0 billion at 31 July 2016), largely offset by the growth in
UK asset values over the period due to the interest rate hedging in
place. This accounting valuation is sensitive to a number of
assumptions and market rates which are likely to fluctuate in the
future.
Risks
The principal risks and uncertainties have been reviewed as part
of our half year procedures. We have considered the impact of the
EU referendum result as part of this review. The EU referendum
result has created uncertainty for the economic outlook in the UK.
Although there has been no clear evidence of an impact neither on
demand so far on our businesses nor our principal risks, we have
established a working group to monitor developments and the
potential future impact of Brexit.
We therefore consider the principal risks to be unchanged from
those reported in the Annual Report and are listed below.
-- Organising Kingfisher as a more unified company with a
unified customer offer rather than a collection of individual
businesses fails to deliver the anticipated benefits
-- We fail to deliver the benefits of a more unified and unique
offer and standardised activities and processes
-- A lack of perceived price competitiveness, particularly when
compared to more discount based or online competitors, would affect
our ability to maintain or grow market share
-- We fail to deliver our sustainability targets due to not
integrating our sustainability plan into the day-to-day operations
of the business
-- We fail to create a culture of innovation in our offer,
format and digital channels to stimulate consumer spend and deliver
desired sales growth
-- Our investments fail to deliver value to the Company
-- Our Unified IT platform programme fails to deliver the
requirements in line with the plan needed to enable and support the
delivery of the Company strategy
-- We fail to identify and maximise potential cost reductions and efficiency savings
-- We do not make the necessary investment in our people to
ensure that we have the appropriate capacity, skills and
experience
-- Uncertainty surrounding the resilience of the global economy
and increased geopolitical volatility may impact both consumer
confidence and the long-term sustainability and capabilities of our
supplier base
-- We fail to maintain a safe environment for our customers and
store colleagues which results in a major incident or fatality that
is directly attributable to a failure in our health and safety
management systems
-- Kingfisher's reputation and brand are affected by a major
environmental or ethical failure, a significant corporate fraud or
material non-compliance with legislative or regulatory requirements
resulting in punitive or custodial procedures
Further details of the Group risks and risk management process
can be found on pages 31 to 35 of the 2015/16 Annual Report and
Accounts.
Section 5: Glossary (terms are listed in alphabetical order)
Adjusted measures are before exceptional items, FFVR,
amortisation of acquisition intangibles, related tax items and tax
on prior year items including the impact of rate changes on
deferred tax. Half year 2015/16 comparatives exclude B&Q
China's results.
Adjusted pre-tax profit is used to report the performance of the
business at a Group level including both the benefits of our
transformation programme and the associated costs. This is stated
before exceptional items and FFVR.
Adjusted sales represents statutory sales excluding B&Q
China sales.
Banque de France data includes relocated and extended
stores.
http://webstat.banque-france.fr/en/browse.do?node=5384326
BAU (business as usual) refers to activity without the
transformation. When referring to our performance, we would expect
this to be broadly in line with the macroeconomic backdrop in our
respective markets.
EBITDA (earnings before interest, tax, depreciation and
amortisation) is calculated as retail profit less central and
transformation P&L costs and before depreciation and
amortisation.
EBITDAR (earnings before interest, tax, depreciation,
amortisation and property operating lease rentals) is calculated as
retail profit less central and transformation P&L costs, before
depreciation and amortisation and property operating lease
rentals.
France consists of Castorama France and Brico Dépôt France.
Free cash flow represents cash generated from operations
(excluding exceptional items) less the amount spent on interest,
tax and capital expenditure during the year (excluding business
acquisitions and disposals and asset disposals). A reconciliation
from operating profit (before exceptional items) is set out in the
Financial Review (Section 4).
FFVR (financing fair value remeasurements) represents fair value
fluctuations from financial instruments.
GNFR (Goods Not For Resale) covers the procurement of all goods
and services a retailer consumes (including media buying,
mechanical handling equipment, printing & paper).
LFL stands for like-for-like sales growth representing the
constant currency, year on year sales growth for stores that have
been open for more than a year.
Net cash comprises cash and cash equivalents and short term
deposits, less borrowings and financing derivatives (excluding
accrued interest). It excludes balances classified as held for
sale.
New Country Development consists of Screwfix Europe, Portugal
and Romania.
New private housing starts and planning permits for the 6 months
to 31 July 2016 according to the Ministry of Housing.
http://www.statistiques.developpement-durable.gouv.fr/logement-construction/s/construction-logements.html
Online sales are sales derived from online transactions,
including click & collect. This includes sales transacted on
any device, however not sales through a call centre.
Other International consists of Poland, Portugal, Romania,
Russia, Screwfix Europe, Spain and Turkey (Koçta JV).
Retail profit is our operating profit measure used to report the
performance of the underlying retail businesses including the
sustainable benefits of our transformation programme. This is
stated before central costs, transformation costs, exceptional
items and the Group's share of interest and tax of JVs and
associates. Half year 2015/16 comparatives exclude B&Q China's
operating loss.
Screwfix Europe - Screwfix outside of UK in continental
Europe.
Statutory sales - Group sales exclude Joint Venture (Koçta JV)
sales.
SKU (Stock Keeping Unit) - the number of individual variants of
products sold or remaining in stock. It is a distinct type of item
for sale, such as a product and all attributes associated with the
item type that distinguish it from others. These attributes could
include, but are not limited to, manufacturer, description,
material, size, colour, packaging and warranty terms.
TASCOM (taxe sur les surfaces commerciales) is a French levy
charged based on store turnover per square metre.
Transformation costs represent the additional costs of the ONE
Kingfisher transformation programme launched in 2016/17. They
comprise 'transformation exceptional costs', 'transformation
P&L costs' (i.e. non-exceptional items) and 'transformation
capex' (capital expenditure).
Underlying pre-tax profit is used to report the performance of
the underlying business at a Group level, including the sustainable
benefits of our transformation programme. This is stated before the
short-term costs associated with our transformation programme,
exceptional items and FFVR.
UK & Ireland consists of B&Q in the UK & Ireland and
Screwfix UK.
Section 6: Forward-looking statements
You are not to construe the content of this announcement as
investment, legal or tax advice and you should make you own
evaluation of the Company and the market. If you are in any doubt
about the contents of this announcement or the action you should
take, you should consult a person authorised under the Financial
Services and Markets Act 2000 (as amended) (or if you are a person
outside the UK, otherwise duly qualified in your jurisdiction).
This announcement has been prepared in relation to the financial
results for the half year ended 31 July 2016. The financial
information referenced in this announcement is not audited and does
not contain sufficient detail to allow a full understanding of the
results of the group. Nothing in this announcement should be
construed as either an offer or invitation to sell or any offering
of securities or any invitation or inducement to any person to
underwrite, subscribe for or otherwise acquire securities in any
company within the group or an invitation or inducement to engage
in investment activity under section 21 of the Financial Services
and Markets Act 2000 (as amended).
Certain information contained in this announcement may
constitute "forward-looking statements" (including within the
meaning of the safe harbour provisions of the United States Private
Securities Litigation Reform Act of 1995), which can be identified
by the use of terms such as "may", "will", "would", "could",
"should", "expect", "anticipate", "project", "estimate", "intend",
"continue," "target", "plan", "goal", "aim" or "believe" (or the
negatives thereof) or other variations thereon or comparable
terminology. These forward-looking statements include all matters
that are not historical facts and include statements regarding the
Company's intentions, beliefs or current expectations concerning,
among other things, the Company's results of operations, financial
condition, changes in tax rates, liquidity, prospects, growth and
strategies. By their nature, forward-looking statements involve
risks, assumptions and uncertainties that could cause actual events
or results or actual performance of the Company to differ
materially from those reflected or contemplated in such
forward-looking statements. No representation or warranty is made
as to the achievement or reasonableness of and no reliance should
be placed on such forward-looking statements.
The Company does not undertake any obligation to update or
revise any forward-looking statement to reflect any change in
circumstances or in the Company's expectations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DKLFFQKFFBBV
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