TIDMKGF
RNS Number : 2151R
Kingfisher PLC
20 September 2017
Half year results and ONE Kingfisher update for the 6 months
ended 31 July 2017
(Year 2 of our 5 year transformation)
Financial highlights % Total % Total % LFL*
Change Change Change
-------------------------------------------- --------- ---------- ----------
2017/18 2016/17 Reported Constant Constant
currency currency
-------------------- ---------- ---------- --------- ---------- ----------
Sales* GBP6,008m GBP5,749m +4.5% (1.3)% (1.3)%
Retail profit* GBP467m GBP464m +0.5% (4.6)%
Underlying pre-tax
profit* GBP440m GBP436m +0.9%
Adjusted* pre-tax
profit GBP394m GBP418m (5.7)%
Underlying basic
EPS* 14.5p 14.2p +2.1%
Adjusted basic
EPS 13.0p 13.6p (4.4)%
Half year dividend 3.33p 3.25p +2.5%
Net cash* GBP650m GBP898m n/a
-------------------- ---------- ---------- --------- ---------- ----------
----------------------------------------------------------------------------------
5 year transformation continues at pace
-- Significant step up in level of transformation activity in H1, as planned
-- H1 group results reflect
o c.2% LFL impact from business disruption, albeit with an
overall improving trend, and continued weaker sales in France,
offset by
o continued solid growth at Screwfix and Poland, and self-help
initiatives, including GBP10m Goods Not for Resale* (GNFR)
benefits
-- Acting on root causes of business disruption, continue to adapt our approach e.g.
o re-phasing rollout of unified IT platform prioritising larger
OpCos to start H2 17/18 instead of FY 18/19 and enabling earlier
launch of stronger digital offer
o smoothing roll out of unified cost of goods sold for next 2
years whilst maintaining 90% target for FY 20/21
-- Plans in place to support overall FY 17/18 performance
o remain comfortable with FY consensus underlying EPS
expectations (1) , though remain cautious on H2 backdrop
Transformation is being delivered, confident in benefits it will
generate
-- For the second year in a row, on track to deliver strategic milestones
o Unified & unique offer: positive early customer reaction
to new ranges, now at 16% unified cost of goods sold, cost price
reduction (CPR) and cost of change in line with expectations
o Digital: unified IT platform now in all Castorama France
stores with back office underway
o Operational efficiency: encouraging delivery of GNFR benefits,
FY 17/18 guidance now c.GBP25m (up from c.GBP20m previously)
Delivering shareholder returns
-- Returned GBP359m of cash to shareholders year to date
o GBP159m via ordinary dividend
o GBP200m via share buyback (completed GBP400m of the c.GBP600m,
next tranche of up to GBP60m to commence shortly)
Statutory reporting 2017/18 2016/17 % Change
---------------------- ------------- -------- ---------
Statutory pre-tax
profit GBP402m GBP427m (5.9)%
Statutory post-tax
profit GBP295m GBP321m (8.1)%
Basic EPS 13.3p 14.1p (5.7)%
------------------------------------------------------------
*Throughout this release '*' indicates first instance of a term
defined and explained in the Glossary (section 5). Not all of the
figures and ratios used are readily available from the unaudited
half year results included in part 2 of this announcement These
non-GAAP measures, including constant currency and like-for-like
sales growth, underlying and adjusted profit measures, management
believes are both useful and necessary to better understand the
Group's results. Where required, a reconciliation to statutory
amounts is set out in the Financial Review (Section 4).
Véronique Laury, Chief Executive Officer, said:
"As planned, this first half has seen a significant increase in
the level of transformation activity. Changes are now visible in
our stores with new product ranges being well received by
customers. We are also changing our ways of working alongside the
continued rollout of our unified IT platform. The pace is quick and
impactful and is reflected in our performance. We continue to have
a flexible approach as our transformation progresses, adapting as
necessary, and this will support the significant amount of change
planned for the second half and beyond.
"Looking across our markets, we have seen solid growth at
Screwfix and Poland, offset by continued weaker sales in France and
some business disruption, principally reflecting product
availability and clearance. We are aware of and are acting on the
causes of this disruption, which we are confident will ease. For
the full year, we have self-help plans in place to support our
overall performance and remain comfortable with full year profit
expectations, though we remain cautious on the second half backdrop
in the UK and France.
"We are on track to deliver our full year strategic milestones
for the second year in a row. We understand the reality of our
customers' lives and are creating a unified and unique offer based
on their needs. We are buying as ONE and are starting to see the
customer and financial benefits coming through. This is all
underpinned by our IT rollout which remains on track, and
efficiency benefits which continue to deliver.
"We remain confident in our ability to deliver our five year
plan and in the benefits it will generate, supported by our great
team of hard-working and enthusiastic colleagues."
(1) Analyst consensus of underlying earnings per share* of 26p
for FY 2017/18, see http://www.kingfisher.com/index.asp?pageid=79
at FX Euro GBP rate of 1.13
Contacts
Tel: Email:
Investor Relations +44 (0) 20 7644 1082 investorenquiries@kingfisher.com
Media Relations +44 (0) 20 7644 1030 corpcomms@kingfisher.com
Teneo Blue Rubicon +44 (0) 20 7260 2700 Kfteam@teneobluerubicon.com
This announcement can be downloaded from www.kingfisher.com. We
can be followed on Twitter @kingfisherplc with the half year
results tag #KGFHY. At 07.30 (UK time) on 20 September, a webcast
covering the half year results will be available at
www.kingfisher.com. At 10.00 (UK time), Kingfisher will host a
Q&A conference call for analysts and investors only. To join
the call please use the password already sent to you or email
investorenquiries@kingfisher.com.
Our next announcement will be the Q3 trading update for the
period ended 31 October 2017 on 21 November 2017.
Kingfisher American Depository Receipts are traded in the US on
the OTCQX platform: (OTCQX: KGFHY)
http://www.otcmarkets.com/stock/KGFHY/quote
The remainder of this release is broken down into six main
sections:
1) ONE Kingfisher update
2) Trading review by division
3) FY 2017/18 Technical guidance
4) HY 2017/18 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, which started in FY 16/17, is
starting to 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 the end of FY
20/21, over and above business as usual (BAU)*. 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.
The following update covers:
-- Progress against these three strategic pillars and our FY 17/18 strategic milestones
-- Adapting our transformation approach as we progress
Progress against our three key strategic pillars
1. Unified, unique and leading offer
We are 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).
FY 17/18 strategic milestone:
* Achieve 20% unified cost of goods sold (COGS)
We have now achieved 16% unified COGS* and are
on track to deliver the full year target of 20%
with an exit rate of c.30%. By year end we will
have significantly reduced the number of global
suppliers and SKUs, relating to the 20% unified
COGS target, by around 80%, but are still offering
customers similar breadth of choice. In H1 we landed
our first unique ranges (outdoor & bathroom).
Sales of categories that have been unified were
impacted by last year's B&Q store closures. Despite
this, unified and unique sales, excluding clearance,
were broadly flat compared to last year. Including
clearance, they were only slightly down on last
year. The new bathroom ranges which have been widely
implemented (except the UK where they are launching
now), are outperforming old ranges with improving
sales trends. We have also received positive feedback
from both colleagues and customers about these
ranges.
Cost of change (including clearance) and CPR remain
in-line with expectations and we remain confident
in our target to deliver GBP350m annual profit
uplift by FY 20/21, which broadly equates to a
5% reduction in cost of goods sold. Group gross
margins were flat in H1 but were up 0.3% before
clearance of old ranges.
--------------------------------------------------------------
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.
This is expected to generate GBP50m annual profit
uplift by FY 20/21.
FY 17/18 strategic milestone:
* Deliver Year 2 of 3 year unified IT platform roll out
alongside Brilliant Basics
This involves investing in our core e-commerce
platforms, enabled by the new unified IT infrastructure,
and leveraging our Screwfix best-in-class capability
covering e.g. upweighted digital marketing, improved
site search and new checkout.
The unified IT rollout remains on track to be completed
by the end of FY 18/19. During H1 we implemented
all Castorama France stores with back office and
supply chain to be completed in Q1 2018, meaning
that by the end of FY 17/18 over 50% of Group sales
will be operating on the new platform. We will
also start implementation at Brico Dépôt
France in H2.
Our Brilliant Basics initiatives continue to progress
well. We have now built a new group mobile platform,
which will be launching soon at B&Q, and we are
on track to re-launch the new castorama.fr website
in H2 with mobile to follow shortly after. One
hour click & collect is now available in all B&Q
stores. Total group online sales* are now at 5%,
up from 4% last year.
-------------------------------------------------------------------
3. Optimising our operational efficiency
The main driver will come from unifying as ONE
the c.GBP1bn annual spend on GNFR. This programme
is a combination of cost savings, and an opportunity
to work in a simpler and more effective way across
the business, and is expected to generate GBP100m
annual profit uplift by FY20/21.
FY 17/18 strategic milestone:
* Deliver a further GBP20m benefits from unified GNFR
programme
Having achieved GBP30m of cost savings in FY 16/17,
in H1 17/18 we delivered a further GBP10m benefit.
This included categories such as media buying,
moving to a global supplier for the first time;
standardising the way we operate (e.g. security,
mechanical handling equipment); and several local
retenders consolidating the number of suppliers.
We have now raised our FY 17/18 target benefit
to c.GBP25m (from up to c.GBP20m previously).
-----------------------------------------------------------------------
Adapting our transformation approach as we progress
Aware of the challenges this year given the significant increase
in the level of transformation activity, we continue to adapt our
approach as our transformation progresses.
During H1 we experienced some business disruption principally
reflecting product availability issues and the clearance of old
ranges. We estimate a c.2% LFL impact from business disruption
during H1. Availability of this year's unified and unique ranges
has improved during H1 and is now approaching normal levels.
The root causes of this disruption relate to the combined impact
of:
-- Clearing of old ranges and remerchandising of new ranges as
we physically impact 25% of our company wide store space this year
(with a lot more change to come in H2)
-- Systems and data - the roll out of our unified IT platform
remains on track, however the implementation process applies stress
to some of the business functions
-- New processes - transitioning to new ways of working takes
time e.g. our new Offer and Supply Chain organisation has only been
in place for around a year, working as ONE team with unified global
functions with new processes and accountabilities for the first
time
We are acting on these root causes of business disruption and we
are adapting our approach as we progress. Given the increased level
of change, we have appointed Steve Willett as Chief Transformation
Officer, and we are prioritising the multiple transformation
workstreams with a new phased approach e.g.
-- to prioritise the larger operating companies first and to
enable their earlier launch of a stronger digital offer, the roll
out of our unified IT platform is being re-phased, to commence
their implementation in H2 17/18 instead of FY 18/19
-- having reviewed the phasing of our initial unified COGS roll
out plans for the next two years, and whilst maintaining our 90%
target for FY 20/21, we have decided to smooth the profile for FY
18/19 and FY 19/20, moving from 55% to 40% and from 80% to 65%
respectively
Summary & outlook
We are on track to achieve our FY 17/18 strategic milestones and
our FY 20/21 targets remain unchanged. However, we have experienced
some business disruption reflecting the significant increase in
transformation activity. We understand and are acting on the root
causes, continuing to have a flexible approach, adapting as
necessary as our transformation progresses.
We always recognised that this year would be challenging and we
already have self-help plans in place to support our overall FY
17/18 performance. We therefore remain comfortable with consensus
full year expectations (1) though remain cautious on the backdrop
for the second half in the UK and France, as previously guided.
Section 2: Trading review by division
Note: all commentary below is in constant currencies
UK & IRELAND
GBPm 2017/18 2016/17 % Reported Change % Constant % LFL
Currency Change
Change
--------------- -------- -------- ------------------ ----------- --------
Sales 2,602 2,609 (0.3)% (0.4)% +1.1%
--------------- -------- -------- ------------------ ----------- --------
Retail profit 215 211 +1.7% +1.7%
--------------- -------- -------- ------------------ -----------
Kingfisher UK & Ireland sales were down 0.4% (+1.1% LFL) to
GBP2,602 million reflecting the impact of B&Q store closures
last year and transformation business disruption, offset by the
continued strong Screwfix performance and modest price inflation.
Retail profit grew by 1.7% to GBP215 million. Gross margins were
flat and focus on cost control continued.
B&Q total sales declined by 6.3% to GBP1,875 million
reflecting annualisation of the completed store closure programme.
LFL sales declined by 2.3% after a c.1% benefit from sales
transference associated with the store closures. LFL sales of
seasonal products were down 1.0% while sales of non-seasonal
products, including showroom, were down 2.8%.
B&Q's click & collect is now available on over 34,000
products. Total online sales, including home delivery, continued to
make good progress with sales growing by 17% and now representing
4% of total sales.
Screwfix grew total sales by 18.7% (+11.7% LFL) to GBP727
million, driven by strong growth from the specialist trade desks
exclusive to plumbers and electricians, strong digital growth (e.g.
mobile +109%; click & collect +47%); and the continued roll out
of new outlets. 16 net new outlets were opened in H1, taking the
total to 533.
FRANCE
GBPm 2017/18 2016/17 % Reported Change % Constant % LFL
Currency Change
Change
--------------- -------- -------- ------------------ ----------- --------
Sales 2,273 2,175 +4.5% (4.1)% (4.6)%
--------------- -------- -------- ------------------ ----------- --------
Retail profit 174 187 (6.9)% (14.6)%
--------------- -------- -------- ------------------ -----------
Kingfisher France sales decreased by 4.1% (-4.6% LFL) to
GBP2,273 million reflecting continuing weaker performance versus
the market and the impact of transformation business disruption.
According to Banque de France data*, sales for the home improvement
market were down 0.2%.
Castorama total sales declined by 3.1% (-3.5% LFL) to GBP1,255
million. LFL sales of outdoor seasonal products were down 2.3% and
sales of non-seasonal, including showroom, were down 4.2%. Brico
Dépôt total sales declined by 5.4% (-5.9% LFL) to GBP1,018 million.
Across the two businesses, one net new store was opened and one
store was revamped, adding 0.6% new space.
By the end of next year, our ONE Kingfisher plan will renew our
customer proposition as over half of France's offer will be unified
and unique. In H1 this year, we have already seen good early
customer feedback to our first unique bathroom furniture ranges,
with sales up nearly 30%. Some of the CPR benefits are being
reinvested in price, supporting our goal of making home improvement
more affordable for customers. Lower prices are starting to
resonate with customers and customer price perception has improved
compared to last year. In addition, we remain on track to complete
the roll out of the unified IT platform in Castorama France in
early 2018. It is now in all stores with back office underway,
enabling us to build a stronger digital offer, starting with a new
website in H2 followed shortly after by the new mobile
platform.
Retail profit decreased by 14.6% to GBP174 million, reflecting
the weaker sales, slightly lower gross margins (-30 basis points)
partly offset by continued focus on cost control.
OTHER INTERNATIONAL
GBPm 2017/18 2016/17 % Reported Change % Constant % LFL
Currency Change
Change
----------------------------------- -------- -------- ------------------ ----------- --------
Sales 1,133 965 +17.4% +2.7% +0.3%
----------------------------------- -------- -------- ------------------ ----------- --------
Retail profit
----------------------------------- -------- -------- ------------------ -----------
Other International (established) 88 77 +15.7% +3.7%
----------------------------------- -------- -------- ------------------ -----------
New Country Development* (10) (11) n/a n/a
----------------------------------- -------- -------- ------------------ -----------
Total 78 66 +17.4% +4.7%
----------------------------------- -------- -------- ------------------ -----------
Other International total sales increased by 2.7% (+0.3% LFL) to
GBP1,133 million and retail profit increased by 4.7% to GBP78
million, driven by Poland. During H1 one store was closed in Poland
due to a relocation.
Other International (established):
Sales in Poland were up 5.7% (+3.8% LFL) to GBP694 million
reflecting a continued good performance in a supportive market. LFL
sales of seasonal products were down 1.5% with sales of
non-seasonal, including showroom, up 4.9%. Gross margins were
slightly down (-20 basis points). Retail profit grew by 2.9% to
GBP84 million.
In Russia sales declined by 4.6% (-9.1% LFL) to GBP196 million.
The business delivered a loss of GBP3 million (2016/17: breakeven
reported retail profit) reflecting weaker sales in a challenging
environment. In Spain sales decreased by 4.9% (-3.2% LFL) to GBP169
million, delivering a GBP4 million retail profit (2016/17: GBP3
million reported retail profit). Turkey, Kingfisher's 50% JV, Koçta
, contributed retail profit of GBP3 million (2016/17: GBP1 million
reported retail profit).
New Country Development:
New Country Development includes operations in Romania, Portugal
and Germany. Sales were GBP74 million with losses of GBP10 million
(2016/17: GBP11 million reported retail loss). In August 2017, we
entered into a binding acquisition agreement, subject to regulatory
approval, to significantly strengthen our position in Romania.
Section 3: FY 2017/18 Technical guidance
Employee, new stores and space growth:
Employees Store Sales area (1)
(FTE) Numbers at 31 Jul 2017 (000s m(2) ) Net new stores Space
at 31 Jul 2017 at 31 Jul 2017 FY 2017/18 % change
FY 2017/18
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
B&Q UK & Ireland 18,101 296 2,222 1 +0.1%
Screwfix 7,299 533 32 60 +8.7%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
UK & Ireland 25,400 829 2,254 61 +0.2%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Castorama 12,669 102 1,255 - +0.6%(2)
Brico
Dépôt 7,454 120 837 2 +1.4%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
France 20,123 222 2,092 2 +0.9%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Poland 11,041 74 631 1 +2.3%
Portugal 161 3 20 - -
Romania 964 15 114 - -
Russia 3,232 21 211 (1) (3.9)%
Spain 1,524 28 175 - -
Screwfix Germany 181 19 1 - -
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Other International 17,103 160 1,152 - +0.6%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
Total 62,626 1,211 5,498 63 +0.5%
-------------------- ----------------- ------------------------- ----------------- ---------------- -------------
(1) Screwfix sales area relates to the front of counter area of
an outlet
(2) Includes one closure and one opening
Income statement:
-- Broadly flat gross margin assuming Unified & Unique Offer
CPR benefits are offset by some price reinvestment and
clearance
-- Underlying profit expected to include a further c.GBP25m
operational efficiency benefits (previously c.GBP20m)
-- Total 5 year transformation costs GBP800m
o Transformation P&L costs of c.GBP310m over 5 years to FY
2020/21, to be mostly incurred over first 3 years. FY 2017/18
expected to be c.GBP130m (previously GBP150m)
o Transformation exceptional costs of c.GBP170m over 5 years to
FY 2020/21, to be incurred over first 4 years. FY 2017/18
transformation exceptional costs expected to be c.GBP30m
-- c.1% B&Q LFL sales transference benefit from B&Q store closures
-- Retail losses from new country development activity expected
to be c.GBP15m driven by Screwfix Europe*
-- Group interest charge expected to be less than GBP5m (excluding FFVR* and exceptionals)
-- Effective tax rate expected to be around 27%, subject to the
blend of profit within the companies' various jurisdictions
Cash flow:
-- Total capex including transformation of up to GBP375m for FY
2017/18 (previously up to GBP450m)
-- Capital return of c.GBP600m by the end of FY 2018/19 expected
to be via share buyback (GBP400m completed to date)
Section 4: HY 2017/18 Financial review
A summary of the reported financial results for the half year
ended 31 July 2017 is set out below:
2017/18 2016/17 % Reported Change % Constant Currency Change
------------------------------------- ---------- ---------- ------------------ ---------------------------
Sales GBP6,008m GBP5,749m +4.5% (1.3)%
Retail profit GBP467m GBP464m +0.5% (4.6)%
Underlying pre-tax profit GBP440m GBP436m +0.9%
Transformation P&L costs (1) GBP46m GBP18m n/a
Adjusted pre-tax profit GBP394m GBP418m (5.7)%
Statutory pre-tax profit GBP402m GBP427m (5.9)%
Exceptional items (post-tax) (1) GBP7m GBP9m n/a
Underlying basic earnings per share 14.5p 14.2p +2.1%
Adjusted basic earnings per share 13.0p 13.6p (4.4)%
Basic earnings per share 13.3p 14.1p (5.7)%
Dividends - half year ordinary 3.33p 3.25p +2.5%
Effective tax rate 27% 26%
Net cash GBP650m GBP898m
Capital return - share buyback GBP149m GBP126m
------------------------------------- ---------- ---------- ------------------ ---------------------------
(1) Kingfisher separately reports exceptional items and
transformation costs in order to calculate adjusted and underlying
results, as it believes these measures provide additional useful
information on underlying performance and trends
Total sales declined by 1.3%, on a constant currency basis, to
GBP6.0 billion, with LFL sales down 1.3%. On a reported rate basis,
which includes the impact of exchange rates, sales increased by
4.5%. During H1, sales growth benefited from 17 net new stores,
driven by 16 Screwfix outlet openings in the UK, offset by the
annualisation impact from the completed B&Q store closure
programme.
Reported retail profit increased by 0.5% including GBP25 million
of favourable foreign exchange movement on translating foreign
currency results into sterling. In constant currencies, retail
profit declined by 4.6%, with strong growth at Screwfix and good
growth in Poland offset by ONE Kingfisher business disruption and
continued weakness in France.
Underlying pre-tax profit, which excludes the impact of
transformation P&L costs and exceptional items and FFVR,
increased by 0.9%, to GBP440 million.
Adjusted pre-tax profit, which excludes the impact of
exceptional items and FFVR, decreased by 5.7% to GBP394 million,
reflecting GBP46 million of transformation P&L costs.
Statutory pre-tax profit, which includes the impact of
transformation costs, exceptional items and FFVR, decreased by 5.9%
to GBP402 million. A reconciliation from the underlying basis to
the statutory basis for pre-tax profit is set out below:
2017/18 2016/17
GBPm GBPm Change
------------------------------------------------------------------------------------- -------- -------- ---------
Retail profit 467 464 +0.5%
Central costs (25) (22) n/a
Share of interest and tax of joint ventures & associates (3) (2) n/a
Finance costs before exceptional items & financing fair value remeasurements (FFVR) 1 (4) n/a
------------------------------------------------------------------------------------- -------- -------- ---------
Underlying pre-tax profit 440 436 +0.9%
Transformation P&L costs (46) (18) n/a
Adjusted pre-tax profit 394 418 (5.7)%
FFVR - (2)
------------------------------------------------------------------------------------- -------- -------- ---------
Profit before exceptional items and tax 394 416 (5.3)%
Exceptional items before tax 8 11 n/a
------------------------------------------------------------------------------------- -------- -------- ---------
Statutory pre-tax profit 402 427 (5.9)%
------------------------------------------------------------------------------------- -------- -------- ---------
Transformation P&L costs of GBP46 million principally relate
to the unified and unique offer range implementation and the
digital strategic pillar.
Exceptional items (post tax) were a net gain of GBP7 million
(2016/17: GBP9 million gain) as detailed below:
2017/18 2016/17
GBPm GBPm
--------------------------------------- -------- --------
Transformation exceptional costs (5) (1)
UK & Ireland and Europe restructuring 13 9
Profit on disposal of B&Q China - 3
Exceptional items before tax 8 11
Exceptional tax items (1) (2)
Net exceptional items 7 9
--------------------------------------- -------- --------
Transformation exceptional costs of GBP5 million have been
recorded in the period driven by changes associated with the new
Offer and Supply Chain organisation, and other restructuring and
efficiency costs in the UK relating to the Group's five year
transformation programme.
UK & Ireland and Europe restructuring - as previously
announced, the total store rationalisation programme was originally
expected to give rise to an exceptional charge of around GBP350
million, relating principally to onerous lease provisions. This was
to cover the closure of 65 B&Q stores, which is now complete,
and the closure of around 10 European loss-making stores, which
remains ongoing. In Q1 2016/17, B&Q entered into a lease
liability transaction with a third party to dispose of any
remaining leases, the success of which is expected to result in a
lower total net exceptional charge of around GBP300 million, having
so far recognised GBP277 million.
Underlying basic earnings per share grew by 2.1% to 14.5p, which
excludes the impact of transformation costs, exceptional items,
FFVR and the effect of prior year tax items. Adjusted basic
earnings per share decreased by 4.4% to 13.0p (2016/17: 13.6p),
which excludes the impact of exceptional items, FFVR and prior year
tax items. Basic earnings per share decreased by 5.7% to 13.3p
(2016/17: 14.1p) as set out below:
2017/18 2016/17
Earnings EPS Earnings EPS
GBPm pence GBPm Pence
--------------------------------------- ----------- -------- ----------- --------
Underlying basic earnings per share 322 14.5 323 14.2
Transformation P&L costs (net of tax) (34) (1.5) (13) (0.6)
--------------------------------------- ----------- -------- ----------- --------
Adjusted basic earnings per share 288 13.0 310 13.6
Net exceptional items 7 0.3 9 0.4
Prior year tax items - - 4 0.2
FFVR (net of tax) - - (2) (0.1)
Basic earnings per share 295 13.3 321 14.1
--------------------------------------- ----------- -------- ----------- --------
Dividends and capital returns
The Board has declared an interim dividend of 3.33p, an increase
of 2.5% (2016/17: 3.25p). 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 10 November 2017 to
shareholders on the register at close of business on 6 October
2017. 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 5 October
2017. For those shareholders electing to receive the DRIP the last
date for receipt of election is 20 October 2017.
On 25 January 2016 Kingfisher announced its intention to return
around GBP600 million of surplus capital to shareholders in the
following three financial years. During FY 2016/17 GBP200 million
of shares (58 million) were repurchased via share buyback. During
H1 2017/18 GBP149 million of shares (46 million) were repurchased
via share buyback with a further GBP51 million of shares (17
million) since 31 July. Cumulatively therefore, GBP400 million of
shares (121 million) have now been repurchased.
Taxation
The adjusted effective rate of tax, calculated on the best
estimate of full year profit before exceptional items, prior year
tax adjustments and the impact of rate changes is 27% (2016/17:
26%). The overall rate of tax includes the impact of exceptional
items and prior year adjustments.
Effective tax rate calculation Profit Tax 2017/18 2016/17
GBPm GBPm % %
-------------------------------- ------- ------ -------- --------
Profit before tax and
exceptional items 394 (106) 27% 26%
Exceptional items 8 (1)
Prior year items -
-------------------------------- ------- ------ -------- --------
Total 402 (107) 27% 25%
-------------------------------- ------- ------ -------- --------
The statutory rates for the Group's main operating companies
during FY 2017/18 are:
-- UK: 19%
-- 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.
During the period, and following an assessment by the French Tax
Authority, the Group entered into a bank guarantee for EUR49
million in respect of a contingent tax liability, which we believe
is unlikely to materialise. Further details are provided in note 17
of the half year condensed financial statements (part 2 of this
announcement).
Free cash flow*
A reconciliation of free cash flow is set out below:
2017/18 2016/17
GBPm GBPm
------------------------------------------------ --------
Operating profit 401 439
Exceptional items (8) (17)
Operating profit (before exceptional
items) 393 422
Other non-cash items(1) 143 140
Change in working capital 39 200
Pensions and provisions (19) (21)
----------------------------------------- ------ --------
Operating cash flow 556 741
Net interest paid (1) (4)
Tax paid (99) (63)
Gross capital expenditure (129) (141)
Free cash flow 327 533
Ordinary dividends paid (159) (157)
Share buyback (149) (126)
Disposal of B&Q China (net of disposal
costs) - 63
Disposal of assets and other(2) (56) (37)
Net cash flow (37) 276
Opening net cash 641 546
Other movement including foreign
exchange 46 76
----------------------------------------- ------ --------
Closing net cash 650 898
----------------------------------------- ------ --------
(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) Includes exceptional cash flow items (excluding property
disposals), principally relating to B&Q closures and issue of
shares
Net cash at the end of the period was GBP650 million (H1
2016/17: GBP898 million net cash; FY 2016/17: GBP641 million net
cash). Free cash flow of GBP327 million was generated in the
period, a decrease of GBP205 million against the prior period,
largely reflecting lower working capital inflow during the
period.
Gross capital expenditure for H1 was GBP129 million (2016/17:
GBP141 million). Of this 30% was invested in refreshing and
maintaining existing stores, 11% on new stores, 28% on IT and
digital development and 26% on the transformation.
Of free cash flow, GBP308 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 GBP650 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 current 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 1.8 times as at 31 July 2017. 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:
2017/18
Moving annual 2016/17
total Year end
GBPm GBPm
EBITDA* 981 1,008
Property operating lease
rentals 400 399
-------------------------- --------------- ----------
EBITDAR 1,381 1,407
-------------------------- --------------- ----------
Net cash (650) (641)
Property operating lease
rentals (8x)(1) 3,200 3,192
-------------------------- --------------- ----------
Lease adjusted net debt 2,550 2,551
-------------------------- --------------- ----------
Lease adjusted net debt
to EBITDAR 1.8 1.8
-------------------------- --------------- ----------
(1) 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. On 25 January 2016, Kingfisher
announced its intention to return around GBP600 million of surplus
capital to shareholders during the three years to FY 2018/19, of
which GBP400 million has now been returned. Based on our cash flow
expectations for the remainder of this period, we do not expect to
return more than the original guidance of GBP600 million.
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 two committed facilities: GBP400 million that
expires in November 2018 and GBP225 million that expires in March
2022. Both were undrawn at 31 July 2017. 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
Acquisitions
On 1 August 2017, the Group signed an agreement to purchase 100%
of the shares in Praktiker Romania SRL, a Romanian home improvement
company. Subject to regulatory approval, the transaction is
expected to complete towards the end of FY 2017/18.
Pensions
At the period end, the Group had a net surplus of GBP119 million
(GBP131 million net surplus at 31 January 2017) in relation to
defined benefit pension arrangements, of which a GBP236 million
surplus (GBP239 million surplus at 31 January 2017) was in relation
to the UK scheme. 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 and
updated as part of our half year procedures and are listed
below:
-- We fail to manage the transformation of organising Kingfisher
as a more unified company with a unified customer offer rather than
a collection of individual businesses, impacting the delivery of
the anticipated benefits and disrupting the underlying business
-- We fail to deliver the benefits of a more unified and unique
offer and standardised activities and processes
-- A lack of actual or 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 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
-- Geopolitical uncertainty, the resilience of the global
economy and volatility within the UK market as a consequence of
Brexit, 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, major corporate issue or crisis,
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 38 to 46 of the 2016/17 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.
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.
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.
CPR (cost price reduction) refers to the savings made on cost of
goods sold.
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.
FFVR (financing fair value remeasurements) represents fair value
fluctuations from financial instruments.
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).
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).
New Country Development consists of Screwfix Europe, Portugal
and Romania.
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.
Screwfix Europe refers to Screwfix outside of UK in continental
Europe.
Sales refers to Group sales excluding 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.
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 earnings per share 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, related tax
items and prior year tax items.
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 your 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 2017. 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 global or regional trade conditions, 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 QKLFFDKFEBBF
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