21st Mar 2006 07:03
Kingfisher PLC21 March 2006 Tuesday 21 March 2006 Kingfisher plc Preliminary results for the 52 weeks ended 28 January 2006 Group Financial Summary 2005/06 2004/05 Change Constant LFL sales CurrencyRetail sales £8,010m £7,650m +4.7% +3.9% -2.2% Adjusted pre-tax profit (1) £445.7m £661.4m -32.6% Adjusted post-tax profit (1) £285.1m £454.4m -37.3% Adjusted basic EPS (1) 12.3p 19.7p -37.6% Pre-tax profit £231.8m £647.7m -64.2% Post-tax profit £139.0m £446.5m -68.9% Basic EPS 6.0p 19.3p -68.9% Full year dividend 10.65p 10.65p - Net debt £1,355.2m (£841m as at 29 January 2005) (1) Adjusted measures are before exceptional items, financing fair valueremeasurements and amortisation of acquisition intangibles. A reconciliation tostatutory amounts is set out in the Financial Review. Summary • Tough trading conditions impact B&Q sales and profits o New management team launched action programme o Initiatives delivering first results • In France, Kingfisher outperformed the market with sales up 6% • In Rest of Europe and Asia, sales up 28% with 47 new stores in eight countries • Net exceptional costs of £215.4 million, principally B&Q restructuring programme • Market values of properties up 12% (£325 million). Property market value of £3.0 billion. Gerry Murphy, Group Chief Executive, said: "Strong performances in continental Europe and Asia were more than offset by asharp downturn in home-related spending in the UK, presenting B&Q with itstoughest trading environment for many years. "The UK home improvement market continues to weaken into 2006. With theimportant spring and summer season still to come, it is too early to forecastthe full year, although a continuation of the recent stronger mortgage andhousing trends could provide some support later in the year. "B&Q's new management has acted to support trading and accelerate development ofstores, ranges and services for the future. I am convinced that theseinitiatives will make B&Q more attractive to its customers and more valuable forshareholders. "Kingfisher made good progress against its longer-term objectives ofstrengthening its established businesses, expanding its developing operations,entering new markets and harnessing the Group's buying power." 2005/06 OPERATING SUMMARY(all percentage increases are in constant currencies) UK Consumer spending in the year was increasingly impacted by high levels ofhousehold debt and rising taxes, as well as higher utility and fuel bills.Concerns about the outlook for the housing market further impacted the homeimprovement sector, as seen in the 3.7% decline in the household goods market(ONS) and an estimated decline in the Repair Maintenance and Improvement marketof nearly 4% in the year, the weakest market for over 10 years. Against this background B&Q's total reported sales fell 3.7% to £3.9 billion.Retail profit of £208.5 million, down 52.0%, was impacted by the lower sales,stock clearance, more aggressive price discounting and cost inflation. As the year progressed it became apparent that the UK home improvement sectorwas facing a sharp cyclical down-turn in demand whilst continuing to openadditional retail space planned some years earlier. Ian Cheshire, ChiefExecutive of B&Q since June 2005, and his new management team launched an actionprogramme to: • Reinforce price competitiveness o Price reductions on nearly 800 top selling products o Store-wide promotional events o Over 60s (Diamond Club) discount card extended • Reduce costs o Streamlined support offices, with 400 fewer roles o Stock levels managed down, £90 million below last year's level • Enhance customer service o Improved stock availability of the top 100 products o Dedicated Service Squads introduced in 100 stores • Develop new product ranges o New ranges including kitchens, tiles, flooring and air-conditioning o Streamlined the process for new product introduction o Over 3,000 new products to be introduced in 2006/07 • Manage and develop store capacity o Closed 17 less productive stores; plans to downsize 17 oversized stores o 21 mini-Warehouse conversions, eight new mini-Warehouses opened o Two new Warehouse stores trialling new merchandising and ranges o Management transferred from Asia and France for Warehouse renewal The action programme gathered momentum during the second half as the initiativeswith more immediate impact, such as price promotions and 'Service Squads',helped improve relative sales performance. Other initiatives, such as improvedstock availability, price reductions and Warehouse store development, areexpected to deliver increasing benefits through 2006/07. A new UK Trade division was established to target the growing UK professionalmarket for trade and building materials. This division includes Screwfix Directwhich performed strongly following last year's capacity expansion with sales up18.7% to £271.3 million and profits more than doubled at £15.7 million. ScrewfixDirect's Trade Counter trial, set up to complement its online and cataloguebusiness, has been successful with seven branches operating by the end of thefinancial year, and 15 more planned in 2006/07. The year also saw the opening ofthe first two Trade Depot branches with encouraging early results. In France, according to Banque de France, DIY comparable store sales growth was0.8%, its slowest rate for over 12 years. Total Kingfisher sales in France grew6.3% (up 2.7% LFL) with retail profit up 8.1%. Castorama continued itssuccessful revitalisation programme, improving its price perception ranking to3rd, introducing over 6,000 new products, and increasing the total of new formatstores to 24. Brico Depot traded well against strong comparatives. In theyear, eight new stores opened and sales passed the £1 billion mark for the firsttime. In the Rest of Europe and Asia, 47 new stores were opened in eight countries.Kingfisher's sales grew by 27.6% (up 3.9% LFL). A strong underlying tradingperformance in Italy, Poland and China was offset by pre-opening costs inRussia, trading losses from the acquired OBI stores in China and a lowerassociate contribution from Hornbach. The OBI stores are now trading under the B&Q China banner and will be fullyconverted by mid 2006/07. Expansion continued into new developing markets withsignificant growth potential. The first B&Q Home store in South Korea wasopened, and the first Castorama Russia store opened shortly after the year end.This takes the number of countries in which Kingfisher operates to 11. Harnessing buying power and international diversity During the year, Kingfisher's Strategic Supplier Management (SSM) programmedelivered gross incremental benefits of £120 million. Group own-brandpenetration was 22% with the strongest growth in China, which increased to 3.4%from 0.8%. Direct sourcing increased by 5% to $575 million across the Group,boosted by a 44% uplift in Kingfisher's businesses outside the UK. Kingfisher's international diversity continued to be a source of strength,particularly in store format and range development. FUTURE DIRECTION Kingfisher aims to provide attractive returns for shareholders and develop newlonger-term growth opportunities. This will be delivered by: • Strengthening leadership positions in the UK and France B&Q will continue to focus on cost control, developing new product ranges,improving existing store environments, enhancing customer service, andreinforcing price competitiveness. New store openings will be limited andfocused mainly on the mini-Warehouse format. In France, the 'twin-track' strategy of developing the complementary Castoramaand Brico Depot formats will continue. Castorama is now three years into itsrevitalisation programme and will continue to improve its ranges, maintain itsprice competitiveness and improve its stores, with a third of its estateexpected to be in the new format by the end of the year. Brico Depot storeopenings will accelerate in 2006/07. Brico Depot is now targeting 120 stores inFrance, up from its previous target of 100. • Expanding in Europe and Asia Kingfisher's businesses in Poland, Italy, Ireland, China and Taiwan have alreadyachieved critical mass and are contributing strongly to overall growth andeconomic returns. Overall store numbers are expected to double in these marketsover the next five years. • Establishing in attractive new markets Kingfisher will enter new markets where future growth and economics lookattractive. The Koctas joint venture in Turkey is contributing to profits andgrowing strongly. Brico Depot in Spain is growing strongly and is expected tobecome profitable by 2007/08. Stores have recently been opened in growingmarkets including South Korea, Russia and UK Trade. • Harnessing buying power and international diversity Kingfisher will continue to harness the power of its buying scale and also itsgeographic diversity to offer customers better value and fresh ideas. 2005/06 OPERATING REVIEW UK For the 52 weeks ended 28 January 2006 Retail Sales £m % Total % LFL Retail Profit £m (2) % Total 2005/6 2004/5 Change Change 2005/6 2004/5 Change UK(1) 4,172.0 4,277.2 (2.5)% (6.3)% 219.4 442.1 (50.4)% (1) UK includes B&Q in the UK, Screwfix Direct and Trade Depot. It excludes B&Q in Ireland, which is reported within 'Rest of Europe'. (2) Retail Profit is defined in Note 1b of the Notes to the Financial Information. UK Market - In 2005 consumer demand was seriously impacted by higher taxes andliving costs, as well as concerns about indebtedness, interest rates and thedirection of house prices. A 15% decline in housing transactions and 8% fewerplanning applications for home alterations* compounded the weakness in demandfor bigger ticket projects such as kitchens and bathrooms. *(for the ninemonths to September 2005). B&Q estimates that the Repair, Maintenance and Improvement market declinednearly 4% in the year, the weakest market for over 10 years. B&Q's market sharewas 14.8% (2004/05: 14.7%) and B&Q continued to be ranked as the number one DIYretailer by Verdict in its 2006 Customer Service Index. B&Q Trading - B&Q's total sales fell 3.7% to £3.9 billion (down 7.8% LFL). Customerfootfall was lower and sales in all major categories were weak, with sales ofkitchens, bathrooms and bedrooms the worst affected. Retail profit fell 52.0% to£208.5 million reflecting the lower sales and lower margins as a result of stockclearance, more aggressive discounting and price competition in the weak market.Furthermore, underlying LFL cost inflation was 4% with store rents rising by6% and business rates by 15%. Management Action - In the second quarter of 2005/06, it became apparent thatthe UK home improvement market was in a sharp cyclical down-turn with littleprospect of an early bounce-back. New management acted to improvecompetitiveness and reduce costs so that B&Q is better suited to operate in thecurrent market, and well placed to benefit from a market upturn when this comes.Immediate priorities were to develop new product ranges, reinforce pricecompetitiveness, enhance customer service and improve store environments whilstreducing operating and fixed costs. Product range development - UK consumers continue to regard product choice asthe key driver in deciding which DIY store to visit. B&Q has the widest range ofall DIY stores with its largest Warehouse stores stocking around 32,000products. Half of all the smaller, older stores have now been converted tomini-Warehouse format with an increase of up to 30% in product choice. B&Q alsoplans to broaden its ranges in its Warehouse stores. For example from a standingstart, B&Q became the UK's number one retailer of fixed air conditioningfollowing the introduction of an exclusive DIY range sourced from the Far East.During the second half of the year, the process for reviewing and updatingexisting product ranges was overhauled with the aim of reducing the time from'concept to shelf'. New products introduced in the year performed well,including updated ranges of tiles, wooden floors, bathrooms, kitchens andplants, with more new products planned for 2006/07. Price competitiveness - B&Q continued its long-term 'Every Day Low Pricing'strategy on everyday products reducing prices across many ranges including paintand light-bulbs. A new 'Real Deal' marketing campaign was launched, with moreprominent communication of great value. B&Q also extended the Diamond Card, itsover 60s discount card, to every store in the UK. In addition, B&Q trialled two '10% off' weekends and two 'Big Project' weekendsto stimulate demand. These drove footfall and market share in higher ticketprojects and reduced stocks to below last year's levels. During 2006/07 newstore tills will be introduced with improved systems functionality allowingpromotions to be specifically targeted at major projects. Service improvements - 'Service Squads' were introduced in over 100 of B&Q'sbiggest stores in the year and this roll-out will continue in 2006/07. ServiceSquads are shop floor staff, linked with two way radio communications, whosesole responsibility is customer assistance. Stores were also cleared of excess'point of sale' material which improved navigation. Staff servicing the Showroomcategories have undergone specialist training to help customers plan and designtheir kitchen and bathroom projects and more specialist consultants have beenscheduled to work in-store during busy periods. Store development - Following 10 years of expanding the Warehouse store networkB&Q has almost twice the selling space of its nearest direct competitor. Recognising that finding and obtaining planning permission for economicallyattractive sites for new Warehouse stores was becoming increasingly difficult, B&Q developed a smaller format mini-Warehouse. This has been very successful;popular with customers, easier to develop and with good financial returns.Building on the existing Warehouse estate and the new mini-Warehouse format, B&Qhas re-focused its store development on the mini-Warehouse format and onupdating the larger Warehouse stores to showcase finished home improvementprojects alongside component tools and materials. It will close older, smallerstores not suitable for conversion due to their proximity to other B&Q storesand limit new store openings to markets where B&Q is not currently represented. During the year, six Warehouse and eight mini-Warehouse stores opened and 21stores were converted to the mini-Warehouse format. In total 25 stores closed,17 as part of the space rationalisation programme, with a further three plannedin 2006/07. B&Q now has 114 Warehouses, 88 mini-Warehouses and 120 unconvertedsmaller stores. Format trials continue in four Warehouse stores aimed atdeveloping a modernisation blueprint for the Warehouse estate. These trials areexpected to complete during 2006. At the end of 2006/07 B&Q expects to have 114 Warehouses, 117 mini-Warehousesand 91 unconverted smaller stores. In total, nine new stores will open, sixexisting Warehouses will be revamped and 23 older smaller stores will beconverted. As part of the plans to downsize 17 Warehouses, three are expectedto be complete by the end of the year. Cost reduction - Initiatives to reduce costs have been focused on centralfunctions and productivity improvements. Over £30 million was saved in the yearin stores and supply chain by flexing costs in response to lower sales. B&Q'scentral office was streamlined with the loss of 400 roles which will result inannualised savings of £16 million in 2006/07. UK TRADE Screwfix Direct - Following the previous year's expansion of fulfilment capacitysales grew 18.7% to £271.3 million and retail profit was £15.7 million (2004/05:£7.6 million). Sales benefited from range development and a bigger catalogue. Afurther six trial Screwfix Direct Trade Counters were opened in the year and areproving very popular with customers. Fifteen more are planned to open in 2006/07. Trade Depot opened two trial branches towards the end of the year, focused onserving general builders and specialist trade customers. Trade Depot offers asimilar range of products to Brico Depot in France, including doors and windows,heating and plumbing and kitchens and bathrooms. The early response fromcustomers is encouraging and three further branches are planned for 2006/07. 2005/06 OPERATING REVIEW FRANCE For the 52 weeks ended 28 January 2006 Retail sales £m 2005/6 2004/5 % Change % Change % LFL (Reported) (Constant) ChangeFrance 2,724.9 2,546.7 7.0% 6.3% 2.7% Retail profit £m 2005/6 2004/5 % Change % Change (Reported) (Constant)France 230.0 211.4 8.8% 8.1% 2005/06 £1 =1.4649 euro 2004/05 £1 = 1.4739 euro In France, according to Banque de France, DIY comparable store sales growth was0.8%, its slowest rate for over 12 years. Kingfisher's market share grew withLFL sales up 2.7%, benefiting from the twin-track development of the full rangeCastorama home improvement format and the discount Brico Depot format. CASTORAMA Castorama sales of £1.6 billion (-0.2% LFL) and retail profit of £132.2 millionwere in line with the previous year after a strong second half offset the impactof range change, store revitalisation and a weaker market in the first half.Cost productivity savings and Group supply benefits funded price reduction andstore refurbishment. In the third year of a major revitalisation programme,Castorama made further improvements in product ranges, store environment andcost productivity and is now ranked by consumers as the home improvement storeof first choice, according to INFORCO. Price competitiveness - Castorama continued to reduce prices on everydayproducts and reinforced its value credentials with a billboard and cataloguemarketing campaign. Its price perception ranking continued to improve, nowindependently ranked third by consumers, an improvement from ninth in 2003(INFORCO). Range development - Over 6,000 new, more contemporary decorative, shower andkitchen products were introduced as part of a full re-launch of these rangeswith supporting catalogues. This caused some trading disruption in the firsthalf as stores were cleared of previous ranges and new ranges introduced. Theresponse from customers in the second half was positive, with kitchen andbathroom sales being the strongest performing categories. During the second half Castorama LFL sales growth of 3.0% exceeded the Banque deFrance comparable store sales growth of 2.1%. Castorama plans more rangeimprovements in 2006/07, including new ranges of kitchens, tiles and windowdecor. Store development - Following 30 months of store development activity, Castoramanow has a quarter of all its stores in the new modern format and these continueto outperform. Two new stores were opened, six were revamped and threerelocated. A further seven relocations, two new openings and six transfers toBrico Depot are planned for 2006/07. Cost productivity - A strong focus on cost productivity has enabled Castorama tolower its prices and invest in stores whilst increasing profits over the lastthree years. Castorama continued to take full advantage of the Group's sourcingprogrammes to reduce the cost of products with direct imports as a proportion oftotal purchases up to 8%. BRICO DEPOT Brico Depot continued to deliver growth against strong comparatives and annualsales exceeded £1 billion for the first time. Sales increased 17.1% to £1.1 billion (+7.3% LFL). Sales were strong in allcategories, boosted by the addition of new products to existing ranges, and thedistribution of a second annual catalogue. Retail profit increased 23.2% to£97.8 million. Margins benefited from improving scale efficiencies and SSMbuying synergies. Eight new stores opened, including one transfer from Castorama. The Brico Depotstore opening programme is expected to accelerate next year, with around sevenstore openings and six transfers from Castorama. Brico Depot is now targetingover 120 stores in France, up from its previous target of 100. To support continued growth, Brico Depot invested in new distribution facilitiesand systems. 2005/06 OPERATING REVIEW REST OF EUROPE For the 52 weeks ended 28 January 2006 Retail sales £m 2005/6 2004/5 % Change % Change % LFL (Reported) (Constant) ChangeRest of Europe(1) (2) 795.2 613.9 29.5% 21.1% 2.7% Retail profit £m 2005/6 2004/5 % Change % Change (Reported) (Constant)Rest of Europe(1) 86.6 84.8 2.1% (4.7)% (1) Rest of Europe includes Castorama Poland, Castorama Italy, Brico Depot Spain, Koctas in Turkey, B&Q Ireland, Castorama Russia and Hornbach in Germany (2) Joint venture and associate sales are not consolidated. Rest of Europe sales were up 21.1% (+2.7% LFL) to £795.2 million. Retail profitfell by 4.7% to £86.6 million, largely due to a reduced associate contributionfrom Hornbach and start-up costs in Russia. Seventeen new stores were opened in the year across five countries. Shortlyafter the year end Kingfisher's first Castorama store in Russia opened. Castorama Poland Sales increased 15% to £417.0 million (+1.7% LFL). In the first quarter LFLsales declined against a very strong comparative as customers purchased ahead ofan increase in VAT rates in 2004. LFL sales returned to growth in the subsequentthree quarters as the comparatives eased, and were particularly strong in thefourth quarter, boosted by customers purchasing ahead of a 31 December deadlinefor claiming tax relief on construction and renovation projects. Underlyingtrading conditions remained difficult with weak consumer spending and aprice-competitive market. Retail profit increased 1.0% to £52.5 million as goodcost control, Group sourcing and lower pre-opening costs more than offset slowersales growth. Castorama Poland, the number one ranked DIY retailer (ASM research),consolidated its market-leading position with five new store openings. Six newstores are planned for 2006/07, including a smaller store in the Brico Depotformat. Castorama Italy Castorama Italy performed well in a difficult market with sales up 15.6% to£266.9 million supported by new seasonal and promotional catalogues with greateremphasis on quality and price. According to Istat, total non-food retail salesgrowth was 1.6% compared to Castorama Italy's like-for-like growth of 5.8%. Retail profit increased 38.0% to £28.7 million, as SSM benefits andvolume-related cost efficiencies more than offset lower pricing. Castorama Italy opened four new stores taking the total to 26. A further threenew stores and one relocation are planned for 2006/07. Other Europe B&Q Ireland opened three mini-Warehouse stores, taking the total to seven.Brico Depot in Spain opened three new stores taking the total to seven and fivenew stores are planned in 2006/07. Brico Depot in Spain is expected tobreak-even in 2007/08. Castorama in Russia opened its first store in February.The 8,500 square metre store offers 35,000 home improvement products targeted atconsumers and trade specialists. A further three new stores are planned in thenext year. Koctas in Turkey, a 50% joint venture, continued to improveprofitability benefiting from strong LFLs, the Kingfisher SSM programme and goodcost control. Two new stores opened, making Koctas the number one homeimprovement retailer in Turkey, and four stores are planned in 2006. Hornbach,the leading German DIY warehouse retailer, in which Kingfisher has a 21%interest, contributed £11.8 million to profit (2004/05: £19.1 million). 2005/06 OPERATING REVIEW ASIA For the 52 weeks ended 28 January 2006 Retail sales £m 2005/6 2004/5 % Change % Change % LFL (Reported) (Constant) ChangeAsia(1) (2) 318.0 211.7 50.2% 47.1% 7.4% Retail profit £m 2005/6 2004/5 % Change % Change (Reported) (Constant)Asia(1) (3.0) 1.9 n/a n/a (1) Asia includes B&Q China, B&Q Taiwan, and B&Q Home in South Korea. (2) Joint venture sales are not consolidated. Asia sales increased 47.1% to £318.0 million (+7.4% LFL). Retail losses of £3.0million reflect continued progress in China and Taiwan offset by higher start-upcosts in South Korea and trading losses from the acquired OBI China stores. B&Q China B&Q China consolidated its position as market leader, completing the purchase ofOBI's majority equity interest in its Chinese operations on 30 June. Thisacquisition accelerated B&Q China's growth with sales up 44.7% to £312.8 million(+7.4% LFL). B&Q is now twice the size of the nearest competitor and the thirdlargest western retailer in China. Sales growth was boosted by B&Q's homedecoration service which designed and fitted out 15,000 apartments in 2005. The underlying B&Q business performed well with retail profit up 65.7% to £5.6million, but total retail profit in China of £0.2 million was below last yeardue to the impact of trading losses from the acquired OBI stores. Store numbers increased by 27 to 48, including 13 ex-OBI stores. Ten new storesare planned in 2006/07. The programme to integrate the OBI stores isprogressing well with stores re-branded B&Q. The transition to B&Q's systems,merchandising and product offer is well advanced and the first fully revampedconversions to the B&Q format are now trading. All stores are expected to beconverted by summer 2006. Other Asia B&Q Home in South Korea opened its first store in June 2005. The 7,400 squaremetre store offers 35,000 products and a full 'Home Project Service' based onthe experience of B&Q China. One new store is planned in 2006/07. B&Q Taiwan, a 50% joint venture, increased retail profits by 32.1% to £7.4million, driven by good sales growth and benefits of the Kingfisher SSMprogramme. Sales of Group own-brand power tools and air-conditioning unitsexceeded expectations, and extended ranges will be introduced this year. Twonew stores opened, and one new store is planned for 2006/07. FINANCIAL REVIEW Financial summary A summary of the reported financial results for the year ended 28 January 2006are set out below. 2006 2005 Increase / £m £m (decrease) Revenue 8,010.1 7,649.6 4.7% Operating profit 269.5 676.4 (60.2)% Adjusted profit before tax 445.7 661.4 (32.6)% Profit before tax 231.8 647.7 (64.2)% Basic earnings per share 6.0p 19.3p (68.9)% Adjusted earnings per share 12.3p 19.7p (37.6)% Dividends 10.65p 10.65p - Underlying Return on Invested Capital (ROIC) 7.3% 9.5% -2.2 pps A reconciliation of statutory profit to adjusted profit is set out below: 2006 2005 Increase / (decrease) Profit before tax 231.8 647.7 (64.2)% Exceptional items 215.4 13.7 Financing fair value remeasurements (1.6) - Amortisation of acquisition intangibles 0.1 - Adjusted profit before tax 445.7 661.4 (32.6%) Income tax expense (92.8) (201.2) Adjustments to income tax expense (68.3) (5.3) Adjusted profit after tax 284.6 454.9 (37.4%) Minority interest 0.5 (0.5) Adjusted profit after tax attributable to equity shareholders 285.1 454.4 (37.3%) Total reported sales grew 4.7% to £8.0 billion, up 3.9% on a constant currencybasis. During the year, an additional 46 net new stores were added, taking thestore network to 645. On an LFL basis, Group sales were down 2.2%. Adjusted profit before tax declined 32.6% reflecting the tough tradingconditions in the UK that resulted in a significantly lower contribution from B&Q. Exceptional items The Group incurred a £205.3 million restructuring charge in B&Q UK relating tothe planned closure of 20 stores, the downsizing of a further 17 stores and thecosts of streamlining B&Q's corporate offices, of which £66 million is non-cash.A further charge of £19 million was incurred following B&Q's decision toterminate a contract with its current supplier of consumer credit services and£10 million arose integrating the OBI China business acquired in the year with B&Q in China. These were partially offset by £18.9 million profit on thedisposal of properties and investments, mostly in the UK. Earnings per share Basic earnings per share declined by 68.9% to 6.0p. Adjusted earnings per sharedeclined 37.6% from 19.7p to 12.3p per share as calculated below. 2006 2005Basic earnings per share 6.0p 19.3pExceptional items (net of tax) 7.6p 0.4pFinancing fair value remeasurements (net of tax) (0.1)p -Reversal of prior year exceptional tax charge (1.2)p - Adjusted earnings per share 12.3p 19.7p Dividends The Board has proposed a final dividend of 6.8p per share, making the totaldividend for the year 10.65p per share, unchanged on the prior year. Thisdividend is covered 1.2 times by adjusted earnings (2005: 1.9 times). The final dividend for the year ended 28 January 2006 will be paid on 2 June2006 to shareholders on the register at close of business on 7 April 2006,subject to approval of shareholders at the Company's Annual General Meeting, tobe held on 24 May 2006. A dividend reinvestment plan (DRIP) is available to allshareholders who would prefer to invest their dividends in the shares of theCompany. Return on invested capital (ROIC) ROIC is defined as net operating profit less adjusted taxes (adjusted operatingprofit excluding property lease and depreciation costs less tax at the Group'seffective tax rate, plus property revaluation increases in the year) divided byaverage invested capital (average net assets less financing related balances andpension provisions, plus property operating lease costs capitalised at thelong-term property yield). Following the transition to IFRS, the Group elected not to revalue propertiesfrom 1 February 2004. However, property appreciation is an integral part of aROIC measure and therefore Kingfisher continues to include revaluation gains andthe current market value of our properties in ROIC calculations. ROIC declined from 10.4% to 9.0%, compared to the Group's weighted average costof capital of 7.9%, down 0.5% percentage points on last year due to a fall ingilt rates. Underlying ROIC declined from 9.5% to 7.3%. Underlying ROIC assumes propertiesappreciate in value at a steady rate over the long-term. When calculating theunderlying ROIC, short-term variations in property values more or less than thelong-term mean are excluded. Cashflow A total of £304.1 million (2005: £531.5 million) of net cash was generated fromoperating activities. Excluding post employment benefit provision movements,£36.9 million (2005: £144.3 million outflow) was generated from working capitalmovements. The level of stock rose by a net £33.3 million, reflecting growth inthe number of stores offset in part by stock reduction initiatives at B&Q in theUK. Post employment pension provisions fell £135.2 million reflecting theadditional pension contributions made to the UK scheme. Net capital expenditurewas £395.4 million (2005: £392.4 million). The resulting year end net debt was £1,355.2 million (2005: £841.1 million). Capital Expenditure Kingfisher continues to prioritise its capital investment into projects andbusinesses that offer the potential for the most attractive returns. This issupported by a rigorous capital allocation process: - An annual strategic planning process (which leads into the budget processfor the following year) based on detailed plans for all businesses for the nextfive years. This process drives the key strategic capital allocation decisionsand the output is reviewed by the Board twice a year. - A capital approval process through a capital expenditure committeechaired by the Group Finance Director delegated to review all projects between£0.75 million and £7.5 million (including the capitalised value of leasecommitments). - Projects above this level are approved by the Executive Committeeor the Board although all projects above £0.75 million are notified to theBoard. - An annual post investment review process to review the performanceof all projects above £0.75 million which were completed in the prior year. Thefindings of this exercise are considered by both the Executive Committee and theBoard and directly influence the assumptions for similar project proposals goingforward. Gross capital expenditure (excluding business acquisitions) for the Group was£507.0 million (2005: £413.3 million). £188.0 million was spent on property(2005: £156.0 million) and £319.0 million on fixtures, fittings and intangibles(2005: £257.0 million). A total of £111.6 million (2005: £20.9 million) ofproceeds from disposals were received during the year, £97.4 million of whichcame from property disposals. Payments to acquire businesses in the year amounted to £167.5 million. £143.5million related to the purchase of the OBI China business at the end of thefirst half. A further £24.0 million was spent buying out two minority interestsin China and some small acquisitions in France. There were no businessdisposals during the year. Financing The net interest charge for the year was £37.7 million, up £9.0 million from theprior year reflecting higher average net debt. However, the interest chargebenefited from non-recurring interest receipts totalling £7.6 million, relatingto tax refunds and property disposals in prior years. During the year, the Group issued a €550 million Medium Term Note under its€2,500 million MTN Programme. The bond carries a coupon of 4.125% and matures inNovember 2012. The proceeds were primarily used to repay bank loans. In March 2005, the Group refinanced its £540 million committed bank facilitymaturing in February 2007. This was replaced with a £500 million committed bankrevolving credit facility, provided by a number of banks, maturing in August2010. In July 2005, the Group obtained a further £300 million committed bankfacility, which provided short-term funding, but this was subsequently repaidand cancelled with the proceeds of the €550 million bond issue in November 2005.In January 2006, the Group borrowed £50 million under a committed term borrowingfacility which matures in February 2009. Since the year end, the Group hasobtained another £300 million short-term committed bank facility maturing in2008. All of the bank facilities are available to be drawn to support thegeneral corporate purposes of the Group including working capital requirements. At the year end 23% of the Group's long-term borrowings were at a fixed rate ofinterest (2005: 35%). Taxation The effective overall tax rate on profit has increased from 31.0% in the prioryear to 40.0% primarily due to exceptional costs not qualifying for tax relief.The effective tax rate on profit before exceptional items and excluding prioryear tax adjustments is 34.4% (2005: 32.8%) reflecting the higher proportion ofprofits in higher tax jurisdictions and higher overseas start up losses. Property The Group owns a significant property portfolio, most of which is used fortrading purposes and which had a market value of £3.0 billion at year endcompared to a net book value of £2.4 billion recorded in the financialstatements. The unrecognised property revaluation gain for the year onproperties held at the year end was £325 million. Pensions Following transition to IFRS, the consolidated balance sheet now reflects postemployment benefit liabilities, mainly comprising defined benefit pensionarrangements. The provision has reduced from £325.7 million at the start of theyear to £239.6 million at the year end. An additional £130 million was paidinto the UK scheme during the year compared with the prior year. A fall incorporate bond rates over the year from 5.3% to 4.7% increased UK pensionliabilities by £170 million. Accounting changes - Adoption of International Financial Reporting Standards Kingfisher has adopted International Financial Reporting Standards in thecurrent year, and as a result, has restated the comparative financialinformation for the year ended 29 January 2005. Since the publication of ourfirst half year interim results, two amendments in accounting policies have beenrequired. Foreign exchange movements on intercompany loans will no longer bereported in the income statement following the clarification of IAS 21 "Theeffect of Changes in Foreign Exchange Rates". The accounting policy on thetreatment of operating lease rentals has also changed following clarificationfrom IFRIC (International Financial Reporting Interpretations Committee) on therequirement to account for rental contracts which contain fixed rental upliftson a straight line basis. Further information is provided in Note 1a. The Group has taken the option to defer the implementation of the standards IAS32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' until the current financial year ended28 January 2006 without restating comparative amounts. DATA BY COUNTRY as at 28 January 2006 Store numbers Selling space Employees (000s sq.m.) (FTE) B&Q 322 2,269 26,429UK Trade (1) 2 9 1,508Total UK 324 2,278 27,937Castorama 102 983 12,061Brico Depot 73 381 4,964Total France 175 1,364 17,025Castorama Poland 30 257 5,352Castorama Italy 26 160 1,979Other 21 112 1,968Total Rest of Europe 77 529 9,299B&Q China (including OBI) 48 515 9,573B&Q Taiwan 20 98 1,879Other 1 7 199Total Asia 69 620 11,651Total 645 4,791 65,912 (1) Store numbers do not include the seven trial Screwfix Trade Counters. FULL YEAR -52 weeks to 28 January 2006 Retail Sales £m % Total % LFL Retail Profit £m % Total 2005/06 2004/05 Change Change 2005/06 2004/05 Change (Reported) (Reported)B&Q 3,899.7 4,048.6 (3.7)% (7.8)%UK Trade 272.3 228.6 19.1% 18.7%Total UK 4,172.0 4,277.2 (2.5)% (6.3)% 219.4 442.1 (50.4)% Castorama 1,582.9 1,571.1 0.8% (0.2)%Brico Depot 1,142.0 975.6 17.1% 7.3%Total France 2,724.9 2,546.7 7.0% 2.7% 230.0 211.4 8.8% Castorama Poland 417.0 321.9 29.5% 1.7%Castorama Italy 266.9 229.5 16.3% 5.8%Other Europe(1) 111.3 62.6 77.8% (2.7)%Rest of Europe (1) 795.2 614.0 29.5% 2.7% 86.6 84.8 2.1%(3) B&Q China 312.8 211.7 47.8% 7.4%Other Asia(2) (3) 5.2 - - -Asia 318.0 211.7 50.2% 7.4% (3.0) 1.9 n/aTotal 8,010.1 7,649.6 4.7% (2.2)% 533.0 740.2 (28.0)% (1) Other Europe includes Brico Depot Spain, Koctas in Turkey, B&Q Ireland,Castorama Russia and Hornbach in Germany. (2) Other Asia includes B&Q Home in South Korea. (3) Joint venture and associate sales are not consolidated. Enquiries: Ian Harding, Group Communications Director 020 7644 1029 Nigel Cope, Head of Communications 020 7644 1030 Heather Ward, Head of Investor Relations 020 7644 1032 Further copies of this announcement can be downloaded from www.kingfisher.comor are available from The Company Secretary, Kingfisher plc, 3 Sheldon Square,London, W2 6PX. Company Profile Kingfisher plc is Europe's leading home improvement retail group and the thirdlargest in the world, with nearly 650 stores in 11 countries in Europe and Asia.Its main retail brands are B&Q, Castorama, Brico Depot and Screwfix Direct.Kingfisher also has a 21% interest in, and strategic alliance with, Hornbach,Germany's leading DIY Warehouse retailer, with 123 stores across Europe. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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