29th Mar 2007 07:02
Kingfisher PLC29 March 2007 EMBARGOED UNTIL 0700 HOURSThursday 29 March 2007 Kingfisher plc Preliminary results for the year ended 3 February 2007 Group Financial Summary 2006/07 2005/06 Reported Constant Like-for-like (1) Change Currency Change (LFL) change (52 weeks) Retail sales £8,676m £8,010m +8.3% +7.4% +0.9% Retail profit (2) £503.7m £533.1m (5.5)% (5.3)% Adjusted pre-tax profit (3) £396.6m £445.7m (11.0)% Adjusted post-tax profit (3) £277.0m £285.1m (2.8)% Adjusted basic EPS (3) 11.9p 12.3p (3.3)% Full year dividend 10.65p 10.65p - Net debt £1,293.8m £1,355.2m (4.5)% (1) For UK businesses, reported results are for the 53 weeks ended 3February 2007. Outside the UK, results are reported on a calendar month basis. (2) Retail profit is stated before central costs, exceptional items,amortisation of acquisition intangibles and share of joint venture and associateinterest and tax. (3) 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. Financial highlights • Retail sales up 7.4% on a 52 week basis, +0.9% LFL.• Adjusted pre-tax profit down 11% but up 13% in the second half.• Group tax rate 32% (2005/06: 34%).• Net debt lower than last year following working capital improvements and £252 million of property disposals.• Dividend maintained for the full year.• Property market values up 9% in constant currencies to £3.2 billion.• UK pension scheme deficit down to £28 million (2005/06: deficit £211 million). Operating highlights • The UK market stabilised during the year. B&Q delivered sales and profit growth in the second half with good progress in its development programme.• In France, Kingfisher sales grew 9%, ahead of the market. Retail profit was lower reflecting accelerated development and continuing price pressure.• Elsewhere in Europe and Asia, sales grew by 30% and retail profit by 37%. Statutory reporting 2006/07 2005/06 Reported Change Pre-tax profit £450.5m £231.8m +94.3% Post-tax profit attributable to equity shareholders £336.8m £139.5m +141.4% Basic EPS 14.4p 6.0p +140.0% Gerry Murphy, Group Chief Executive, said: "The UK home improvement market stabilised during the year and B&Q deliveredsales and profit growth in the second half. B&Q's development programme isencouraging and the pace of activity is accelerating in 2007/08. I remainconvinced that these initiatives will make B&Q more attractive to its customersand more valuable for shareholders. "In France, Castorama made good progress in developing its stores and ranges andBrico Depot expanded further and strengthened its infrastructure. Elsewhere inEurope and Asia, our international expansion continued with 27 new stores innine countries, including our first stores in Russia. Outlook "Whilst trading conditions for our biggest businesses continue to bechallenging, the longer-term outlook remains positive for home improvementretailing. Kingfisher's leading market positions in the UK and France, andfast-developing positions elsewhere in Europe and Asia, provide a powerfulplatform from which to deliver sustainable long-term growth and returns forshareholders. "Ahead of the key Easter trading period, early 2007/08 trading has been strongerin our major markets, supported by better weather." REVIEW OF THE YEAR The remainder of this release sets out Kingfisher's performance for the year inthree main sections: • Progress on key strategic priorities • Operational Review • Financial Review and preliminary Financial Statements. Included for the first time are Kingfisher's invested capital and returns by strategic priority. Progress on key strategic priorities 1) Strengthening developed businesses Includes B&Q UK and Castorama France, representing almost two thirds ofKingfisher's sales. These established businesses are focused on strengthening their leadershippositions by improving sales productivity of existing store space and costefficiency. The majority of current investment in these businesses is inmodernising existing stores and business infrastructure, with modest capacityexpansion. B&Q made progress on its four operational drivers - price competitiveness,customer service, new products and store environment. A key development in theyear was the successful trial of a new large store format which will form theblueprint for revamping all of B&Q's 115 large stores. With new customer serviceinitiatives and new ranges also performing well, management remains confidentthat an eventual 25% improvement in sales productivity from existing largerstores is achievable. By the end of the year, two new stores and nine revampedstores were trading in the new format. B&Q plans to convert all the remaininglarge stores to this format over the next four years with a further 25conversions planned for 2007/08. In France, Castorama continued its revitalisation programme with two new storeopenings and a further seven stores converted to its latest format. Six storesnot suitable for revamping were closed prior to conversion to Brico Depots.Castorama now trades from 98 stores and it will continue its programme ofrevamping or relocating its remaining 65 older stores over the coming years.Ranges continue to be updated including the recent launch of a wider selectionof contemporary kitchens. 2) Expanding proven growth businesses Includes Brico Depot France, Castorama Poland and Italy, B&Q China, Taiwan andIreland and Screwfix Direct in the UK. In total they generate over one third ofKingfisher's sales. These younger businesses already enjoy leading market positions and have reacheda scale where they contribute strongly to Kingfisher's sales and profit growthand deliver good economic returns. Their main priority is to continue to expandquickly to capitalise on their market leadership. In total, these businessesgenerated cash after funding their cost of expansion in 2006/07. To support continued expansion, £182 million, 40% of Kingfisher's total capitalspend for the year, was invested in these businesses. Fifty-six net new storeswere opened in the year, taking the total in this category to nearly 270, with asimilar number planned to open in 2007/08. In France, Brico Depot added 10 new stores taking the total to 81 andimplemented a major new system upgrade to enhance the competitiveness andproductivity of the business. In the UK, Screwfix Direct opened 31 of thesuccessful new trade counter stores, taking the total to 38. Elsewhere in Europe, Castorama Poland, which is aimed at the mainstreamconsumer, continued to grow strongly. The first trial Brico Depot store wasopened in Warsaw to target the trade professional. Castorama Italy and B&QIreland also achieved strong growth. In China, B&Q completed the integration of the OBI stores acquired during 2005and returned to profitability for the year. In total, 58 stores are now trading,consolidating B&Q's position as the largest home improvement retailer in China.B&Q Taiwan, a 50% joint venture, now operates 21 stores across the country andis the clear market leader. A smaller store format has been successfullytrialled which provides further opportunities for expansion in smaller towns. 3) Establishing new opportunities for the future Includes Brico Depot Spain, Castorama Russia, Koctas Turkey and Trade Depot inthe UK. During the year, investment of £51 million (11% of Kingfisher's total capitalspend) was made in these developing businesses. Twelve stores opened in the yeartaking the total trading to 29. Koctas is now profitable after expansion costsand Brico Depot Spain is also on track to overall profitability within the next12-18 months. Trials continued into the second year at Trade Depot which openedtwo more stores to serve the UK professional market. In Russia, three storesopened during the year, marking Kingfisher's entry into this fast-developingmarket. A further 12 stores are planned to open in 2007/08 in these developmentbusinesses. 4) Capitalising on buying scale and international diversity During the year, Kingfisher continued to bring new products to market, developits own-brands and extend direct sourcing from low-cost producers. Kingfishercontinued to develop its network of overseas sourcing offices in Europe andAsia. Direct sourcing shipments totalled around US$700 million, an increase ofover 20% on the previous year. Kingfisher companies also continued to share ideas, management talent and bestpractice, as shown during the year in the development of the new B&Q largeformat store in the UK, the launch of Brico Depot in Poland and the entry ofCastorama into Russia. Operational Review - UK Retail sales £m 2006/07 2005/06 % Change % Change % LFL (Reported) (52 week basis) ChangeUK 4,261.5 4,172.0 2.1% 0.2% (1.8)% Retail profit £m 2006/07 2005/06 % Change (Reported)UK 182.6 219.4 (16.8)% UK includes B&Q in the UK, Screwfix Direct and Trade Depot. UK Market The UK home improvement market* remained challenging in 2006/07, decliningfurther during the first half, before stabilising over the summer and thenstarting to show signs of modest growth towards the end of the year. Across thefull year the market declined around 0.5%, having fallen by 4% in the previousyear. B&Q's market share was broadly stable. *Market data from GfK for the major store home improvement operators B&Q B&Q's total reported sales were £3.9 billion, down 1.7% (52 weeks) and down 2.9%LFL. Total sales showed an improving trend as the year progressed, declining4.4% in the first half but growing 1.3% in the second half (26 weeks). Retail profit was £162.9 million (2005/6: £208.5 million), reflecting the lowersales and a flat gross margin rate compared with last year. Retail profitbenefited from £6 million of one-off gains in the fourth quarter (£2 milliongovernment compensation for damage at a Northern Ireland store in 2005, and anet £4 million incentive payment on transfer of financial services business to anew provider). Total costs grew 3% (52 weeks) with underlying cost inflation of 3%, net newspace growth of 2% and the additional costs for the normalisation of staff bonusand store revamping offset by cost savings. Development programme update Progress continued with the programme launched last year to reduce B&Q's costbase and to develop the business for the future. Price competitiveness,improving customer service, introducing new product ranges and improving storeenvironment were prioritised to ensure B&Q is the first and only store for agreater proportion of customers' home improvement spend. Price competitiveness - B&Q maintained its long-term 'Every Day Low Pricing'strategy for everyday products and also introduced targeted promotions for lessfrequent purchases such as kitchens, bathrooms and associated products. New product ranges performed well, including updated ranges of kitchens,bathrooms, tiles, wooden floors and heating. The award winning 'EnergyEfficiency Made Easy at B&Q' campaign, aimed at helping customers reducehousehold carbon emissions, featured wind turbines and solar panels and therecent 'Water Efficiency Made Easy at B&Q' campaign includes underground waterstorage tanks, shower timers and water butts. Towards the end of the year newfinancial service products were launched including home, van and small businessinsurance. In 2007/08 the programme of range change will accelerate and will includepremium paints and more contemporary wall papers, curtains and blinds and theintroduction of new consumer and trade credit products. Customer service - Good progress was made on helping customers find productsmore quickly and making available more specialist trained staff to assistcustomers undertaking major projects. Service Squads (staff wholly dedicated tocustomer service, equipped with radio communications) were in operation in thetop 240 stores and independent research confirms that customers' perception ofservice levels and satisfaction is at a recent high. Trials deploying more staff in kitchen, bathroom, flooring and power tools,where customers need more assistance and advice, were encouraging with one ofthe original six pilot stores recently winning the Scottish Retail ExcellenceAward for customer service. This initiative has now been extended to 51 storeswith more planned for 2007/08. A B&Q branded 'Handyman' trial was launched in two London stores, helpingcustomers with small home improvement jobs including fitting lights and hangingdoors. Results have been encouraging and the trial will be extended to a further25 stores during the first quarter of 2007/08. Store development - An existing large store at Wednesbury in the West Midlandswas extensively revamped with more clearly defined shop-within-shop sections,room-set displays and more space allocated to kitchens, bathrooms, flooring andtiling areas. Early results from this trial, and from two new stores in the sameformat, were encouraging and a further eight revamps were completed in thefourth quarter. As previously indicated, each revamp project is expected to require £2.5 millioncapital expenditure, £0.5 million increased stock and an average net disruptionand re-launch revenue cost of £1 million per store in the year of revamping. Thenew format stores also deploy around 15% more staff hours to improve service tocustomers. Results from the original three trial stores have exceededexpectations. Sales are outperforming comparable older stores, driven primarilyby higher average transaction values as customers spend more in the expandedkitchen, bathroom and associated project areas. B&Q continues to target aneventual 25% increase in large store sales densities from the combined benefitsof extensive revamps, new product ranges and improved service levels. At the same time a further 29 medium store revamps (formerly known asmini-Warehouse revamps) were completed, including 16 less extensive projects.One Supercentre was closed. B&Q now has 115 large stores (11 in the latest format) and 209 medium stores (ofwhich 117 have been modernised). Overall net space increased 2% during the year. In 2007/08, 25 large store revamps are planned with eight currently underway.With 36 Supercentre revamps and relocations, two new medium stores and six largestore downsizes also planned, B&Q expects to have 114 large stores (36 in thelatest format) and 209 medium stores (of which 154 will have been modernised) bythe end of 2007/08. Total space growth for 2007/08 is expected to be around 2%. UK Trade Screwfix Direct total reported sales were up 25.3% (52 weeks), supported by theroll out of trade counters, catalogue expansion and new ranges of bathroomsuites and power tools. Retail profit increased over 60%, driven by strong salesgrowth and fulfilment efficiency gains. The Screwfix trade counter programme, aimed at customers needing immediateavailability, continued on track. An additional 31 outlets opened during theyear taking the total to 38, with a similar number of openings planned for 2007/08. To support continued growth, a second distribution centre is due to open inStafford during summer 2007/08. The Trade Depot trial, which targets the general builder and specialist tradecustomer, continued with two more branches opening during the year taking thetotal to four. A further two new branches are planned for 2007/08. Operational Review - FRANCE Retail sales £m 2006/07 2005/06 % Change % Change % LFL (Reported) (Constant) ChangeFrance 2,955.2 2,724.9 8.5% 9.0% 2.0% Retail profit £m 2006/07 2005/06 % Change % Change (Reported) (Constant)France 206.3 230.0 (10.3)% (9.9)% 2006/07 £1 =1.4720 euro 2005/06 £1 = 1.4649 euro All percentage movements below are in constant currencies. In France, Kingfisher's total sales grew 9.0% (LFL + 2.0%). Twelve new storeswere opened in the year and seven relocated, adding 5% new space. Banque deFrance data shows that growth in comparable DIY store sales* was around 3% forthe full year, with Kingfisher's business outperforming the market by deliveringcomparable stores sales growth of 3.4%. However, the market became more pricecompetitive as the year progressed, compressing Kingfisher's overall Frenchgross margin by around 100 basis points in the second half. This pressure isexpected to continue into 2007/08. *Banque de France data including relocated and extended stores Retail profit of £206.3 million was lower than last year with retail profit ofboth businesses declining by around 10%. This reflected gross margin compressionand £14 million of development costs for the transfer to Brico Depot of sixsmaller Castorama stores and the implementation of a major new technologyplatform at Brico Depot. With a high level of freehold stores and strong costcontrol, Kingfisher's net cost inflation in France is running at around 2%. CASTORAMA Castorama grew total reported sales by 3.6% to £1.6 billion (up 1.3% LFL), up 5%excluding the six transfers to Brico Depot during the year. Further progress wasmade improving price competitiveness, product ranges, store environment and costproductivity. More contemporary ranges of bathrooms and kitchens, indoor lighting, paint andtextiles were introduced as part of an ongoing range development programme. Theparticipation of own-brand product sales as a proportion of overall sales grewto 19% (2005/06: 16%). Castorama continued with its store modernisation programme, with two new storesopened and seven older existing stores relocated to new sites. Six stores notsuitable for revamping were closed prior to conversion to the Brico Depotformat. Thirty-six per cent of total selling space is now in the new format and thesestores continue to outperform comparable outlets. Results from store developmenthave improved as the new format has evolved, with stores relocated during theyear on track to deliver sales density uplifts of over 20% on top of a 25%increase in space. A further six revamps are planned for 2007/08, five scheduledto begin in the first quarter. Approximately half of the remaining Castoramastores will be revamped over the next four years, with the balance relocated tonew sites as these are secured and approved by planning authorities. BRICO DEPOT Sales increased 16.5% to £1.3 billion, benefiting from new stores and morewidely distributed product catalogues. LFL sales growth was +2.8% against strongcomparatives (2005/06: +7.3% LFL; 2004/05: +17.7%) reflecting the size of thebusiness, internal cannibalisation of around 3% and focus in the year on thesuccessful implementation of new systems and logistics infrastructure. Saleswere strong in building categories, supported by new ranges of insulationproducts and aluminium windows. Ten new stores opened in the year taking the total to 81, including the openingof three of the six stores transferred from Castorama. In 2007/08 storeexpansion will continue with eight new store openings planned (seven in thefirst half) including the three remaining store transfers from Castorama. A major new information technology platform to improve store replenishment andstock availability was implemented during the year. This was the biggesttransformation project in Brico Depot's history and required significantmanagement focus to ensure successful delivery. Two thirds of stores are nowoperating on the new technology platform with the remainder joining during thefirst half of 2007/08. In addition, Brico Depot opened a second centraldistribution centre in southern France during the fourth quarter. Around half ofall deliveries to stores are now centrally controlled. Operational Review - REST OF EUROPE Retail sales £m 2006/07 2005/06 % Change % Change % LFL (Reported) (Constant) ChangeRest of Europe 1,002.5 795.2 26.1% 25.0% 7.4% Retail profit £m 2006/07 2005/06 % Change % Change (Reported) (Constant)Rest of Europe 110.4 86.6 27.5% 26.6% Rest of Europe includes Poland, Italy, Spain, Koctas JV in Turkey, Ireland,Russia and Hornbach in Germany. Sales from Koctas and Hornbach are notconsolidated. All percentage movements below are in constant currencies. Kingfisher's businesses in the Rest of Europe increased sales by 25.0% (+7.4%LFL) to just over £1 billion. Retail profits increased by 26.6% to £110.4million, reflecting strong performances in Italy and Poland and a higherassociate contribution from Hornbach. Development losses in Russia and Spainwere in line with the previous year. Fifteen new stores were opened in the year across six countries, including threein Russia, three in Spain and three in Turkey. Poland Sales increased 19.2% to £507.8 million (+9.3% LFL) boosted by buoyant consumerspending and strong property and construction markets. Retail profit increased9.0% to £58.4 million as good cost control, group sourcing and increasedown-brand penetration helped to offset increasing wage inflation. New ranges,including exclusive own-brand professional tools performed well. Five new stores opened including the first Brico Depot in Warsaw in June,launched to test the demand for a more trade-orientated offer. Five new storesare planned for 2007/08, including one Brico Depot. Italy Castorama Italy grew sales 17.6% to £312.4 million (+4.6% LFL) in a generallyweak Italian retail market. Sales benefited from new ranges of lighting, shedsand fencing, together with targeted promotional activity in gardening andbuilding categories. Retail profit increased 9.8% to £31.3m, with improvedsourcing helping to offset pricing pressure in a slow market. One new store was opened taking the total to 27. A further two new stores areplanned for 2007/08. In Ireland, where B&Q has seven stores, sales grew 28.0%, reflecting new storeopenings in the second half of last year. One new store is planned for 2007/08.Brico Depot's expansion into Spain continued with 10 stores now trading and afurther four planned for 2007/08. Good underlying trading was boosted by astrong construction market. In Russia, two Castorama stores were opened, in StPetersburg and Samara, a large provincial city. A third was acquired in Moscowin December and will be relaunched under the Castorama banner in the first halfof 2007/08. A further two stores are planned to open in 2007/08. Koctas in Turkey, a 50% joint venture, continued to grow sales and retailprofit, benefiting from increased buying power and new group sourced own-brands.Three new stores opened taking the total to 10 with four planned for 2007/08.Hornbach, in which Kingfisher has a 21% interest, contributed £19.2 million toretail profit, £7.4 million higher than last year, fuelled by a stronger homeimprovement market in Germany. Operational Review - ASIA Retail sales £m 2006/07 2005/06 % Change % Change % LFL (Reported) (Constant) ChangeAsia 456.7 318.0 43.6% 42.2% 10.9% Retail profit £m 2006/07 2005/06 % Change % Change (Reported) (Constant)Asia 4.4 (2.9) n/a n/a Asia includes China, Taiwan, and South Korea. Taiwan JV sales are notconsolidated. All percentage movements below are in constant currencies. Asia sales increased 42.2% to £456.7 million (+10.9% LFL) with retail profit of£4.4m benefiting from strong profit growth in China following the completion andintegration of the acquisition of the OBI China business during 2005. B&Q China Sales increased 41.3% to £445.8 million (+11.1% LFL), reflecting new storeopenings, continuing strong consumer demand and the development of new ranges. B&Q China's home decoration service designed and fitted out 30,000 apartments in2006, double the previous year's number, representing a third of total sales.Retail profit was £8.3 million (2005/06: £0.3 million). During the first half of2006/07, B&Q China completed the conversion and integration of the OBI storesahead of schedule, returning to profit in the balance of the year with grossmargins benefiting from increased group own-brand and sourcing programmes. Store numbers increased by 10 to 58, further consolidating its position asmarket leader. A further seven new stores are planned for 2007/08, including thefirst Hong Kong store in June. Other Asia B&Q Taiwan, a 50% joint venture, delivered a creditable performance in a marketaffected by weak consumer confidence and credit restrictions. One store openedduring the year taking the total to 21. Two new stores are planned for 2007/08.B&Q Home in South Korea opened a second trial store during the year. Financial Review Financial summary A summary of the reported financial results for the year ended 3 February 2007is set out below. 2006/07 2005/06 Increase / (decrease) £m £m Revenue 8,675.9 8,010.1 8.3% Operating profit 501.3 269.5 86.0% Profit before taxation 450.5 231.8 94.3% Adjusted pre-tax profit 396.6 445.7 (11.0)% Basic earnings per share 14.4p 6.0p 140% Adjusted earnings per share 11.9p 12.3p (3.3)% Dividends 10.65p 10.65p - Underlying Return on Invested Capital (ROIC) 6.9% 7.3% (0.4)pps A reconciliation of statutory profit to adjusted profit is set out below: 2006/07 2005/06 Increase / (decrease) £m £m Profit before taxation 450.5 231.8 94.3% Exceptional items (49.5) 215.4Profit before exceptional items and taxation 401.0 447.2 (10.3)% Financing fair value remeasurements (4.7) (1.6)Amortisation of acquisition intangibles 0.3 0.1Adjusted pre-tax profit 396.6 445.7 (11.0)% Income tax expense on pre-exceptional profit (119.4) (161.6)Income tax on fair value remeasurements 1.4 0.5Minority interest (1.6) 0.5Adjusted post-tax profit 277.0 285.1 (2.8)% Reporting period The Group's financial reporting year ends on the nearest Saturday to 31 January.The current year is for the 53 weeks ended 3 February 2007 with the comparativefinancial period being the 52 weeks ended 28 January 2006. This only impacts theUK operations with all of the other operations reporting on a calendar basis asa result of local statutory requirements. The effect of the 53rd week on the results of the Group is the inclusion of anadditional £79.5 million sales and £0.2 million operating profit. So that the results are more readily comparable, all of the UK like-for-likeanalysis has been calculated comparing the 53 weeks against 53 weeks last year. Total reported sales grew 8.3% to £8.7 billion, up 7.4% on a 52 week constantcurrency basis. During the year, an additional 73 net new stores were added,taking the store network to 718. On an LFL basis, sales were up 0.9%. Operating profit grew 86.0% principally reflecting the B&Q restructuringexceptional charge last year of £205.3 million. The net interest charge for the year was £50.8 million, up £13.1 million fromthe prior year reflecting higher average net debt during the year and highereuro and sterling interest rates. The net interest charge benefited from a netinterest return on the defined benefit schemes of £6.3m (2005/06: £3.8mexpense). Adjusted pre-tax profit declined 11.0% reflecting challenging trading conditionsin the UK and France. Taxation The effective overall rate of tax on profit has decreased from 40.0% in theprior year to 24.9% primarily reflecting exceptional costs not qualifying fortax relief in the prior year. The effective rate of tax on profit beforeexceptional items and excluding prior year tax adjustments is 32.0% (2005/06:34.4%) reflecting group profit mix and use of losses in start up jurisdictions. Exceptional items The Group recorded an exceptional profit in the year of £49.5 million on thedisposal of properties and investments of which £42.7 million was recognised onthe sale and leaseback of seven large UK stores to The British Land Company. Earnings per share Basic earnings per share increased by 140% to 14.4p. Adjusted earnings per shareas calculated below declined 3.3% from 12.3p to 11.9p per share. 2006/07 2005/06Basic earnings per share 14.4p 6.0pExceptional items (net of tax) (2.4)p 6.4pFinancing fair value remeasurements (net of tax) (0.1)p (0.1)pAdjusted earnings per share 11.9p 12.3p 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 1.1 times by adjusted earnings (2005/06: 1.2 times). The final dividend for the year ended 3 February 2007 will be paid on 8 June2007 to shareholders on the register at close of business on 10 April 2007,subject to approval of shareholders at the Company's Annual General Meeting, tobe held on 31 May 2007. A dividend reinvestment plan (DRIP) is available to allshareholders who would prefer to invest their dividends in the shares of theCompany. The shares will go ex-dividend on 4 April 2007. For those shareholders electingto receive the DRIP the last date for receipt of electing is 17 May 2007.Dividend cheques and tax vouchers will be posted on 6 June 2007. Certificatesfor shareholders electing for the DRIP will be posted no later than 21 June2007. Return on invested capital (ROIC) ROIC is defined as net operating profit less adjusted taxes (adjusted operatingprofit excluding property lease and property depreciation costs less tax, plusproperty revaluation increases in the year) divided by average invested capital(average net assets less financing related balances and pension provisions plusproperty operating lease costs capitalised at the long 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 9.0% to 8.7%, compared to the Group's weighted average costof capital of 7.4%, down 0.5 percentage points on last year primarily due to afall in property yields. Underlying ROIC declined from 7.3% to 6.9%. 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. ROIC excluding goodwill Kingfisher's sales, projected space growth for 2007/08, invested capital andunderlying ROIC excluding goodwill are disclosed below by strategic priority: Retail Sales Proportion of Invested Proportion of Returns % Space growth £bn Group sales % Capital Group IC % (ROIC) (2) next year % (1) (IC) £bn (2) Strengthening developed businesses- B&Q UK 3.9 45% 5.7 66% 7% 2%- Castorama France 1.6 19% 1.1 13% 10% 1% Sub-total 5.5 64% 6.8 79% 8% 2%Expanding proven growthbusinesses 3.1 35% 1.6 19% 13% 11%Establishing newopportunities for the future 0.1 1% 0.2 2% (2)% 47%Group total 8.7 100% 8.6 100% 9% 6% 1) For the UK businesses, reported total sales figures are for the 53 weeksended 3 February 2007. Outside the UK, figures are on a calendar month basis. 2) Excluding goodwill of £2.6 billion but including smoothed propertyappreciation and leases capitalised at long- term yields. Cashflow The Group generated £559.4 million of cash from operating activities in theyear, up £255.3 million on the prior year (2005/06: cash generated £304.1million), despite paying additional post employment contributions of £82.5million (2005/06: £135.2 million) and £47.0 million on items provided against asexceptional costs in 2005/06. Included within this improvement is £124.1 milliongenerated from working capital management (2005/06: £103.3 million utilised).This was mainly driven by creditors which rose by £295.1 million (2005/06: £27.3million) whilst stock levels rose by £215.0 million (2005/06: £33.3m). Net capital expenditure was £215.8 million (2005/06: £395.4 million) which hasfallen year on year as a result of disposals within the Group's propertyportfolio. The resulting year end net debt was £1,293.8 million (2005/06: £1,355.2million). Capital expenditure Gross capital expenditure (excluding business acquisitions) for the Group was£466.9 million (2005/06: £507.0 million). £219.5 million was spent on property(2005/06: £188.0 million) and £247.4 million on fixtures, fittings andintangibles (2005/06: £319.0 million). A total of £251.1 million (2005/06:£111.6 million) of proceeds from disposals were received during the year, £251.0million of which came from property disposals. Payments to acquire businesses in the year amounted to £2.2 million (2005/06:£167.5 million) which related to the purchase of three minorities in China. Financing Kingfisher aims to smooth the maturity profile of its debt by issuing debt withdifferent maturities and by utilising committed bank revolving credit facilitiesto provide additional liquidity. In March 2006, the Group obtained a further £300 million committed bankfacility, which provided short-term funding, but this was subsequently repaidand cancelled. In May 2006, the Group issued US$466.5 million of fixed term debt through the USPrivate Placement market. The debt was issued in three tranches, with maturitiesof 7, 10 and 12 years, and the proceeds were swapped to sterling at floatinginterest rates. The proceeds were used to repay the £300 million short-termcommitted bank facility entered into in March 2006. The Group has access to a £500 million committed revolving credit facility,maturing in August 2011, provided by a number of banks. This facility isavailable to be drawn to support the general corporate purposes of the Groupincluding working capital requirements. Since the year end the Group has entered into new committed revolving creditfacilities totalling £275 million with a number of banks, and a £25 million bankcommitted term loan facility. These new facilities mature in March 2010 and areavailable to be drawn to support the general corporate purposes of the Group. Property During the year the Group disposed of properties for cash consideration of £251million including £198 million on the sale of seven B&Q UK large stores which itretained the right to lease for 20 years. Through this transaction, the Grouptook advantage of the current buoyancy in the property investment market in theUK to finance its operational business at attractive rates going forward. Theproceeds of the transaction were used to repay existing debt and to invest inKingfisher's worldwide store opening programme, including further freeholdacquisitions. The Group owns a significant property portfolio, most of which is used fortrading purposes. If the Group had continued to revalue this it would have hada market value of £3.2 billion at year end, compared to the net book value of£2.3 billion recorded in the financial statements. This represents a £170million increase against the prior year and a £249 million increase on aconstant currency basis. The values are based on valuations performed by external qualified valuers wherethe key assumption is the estimated yields. The average income yields used were5.5% in the UK, 6.75% in France and Italy, 6.8% in Poland and 7.7% in China. Pensions The Group holds a provision on its balance sheet of £54.6 million in relation todefined benefit pension arrangements which is a reduction of £185.0 million onthe provision held in 2005/06. This reduction was as a result of additionalpayments to the UK pension scheme (£118.3 million was paid compared to a normalcontribution of around £40 million per annum) and increases in the discount rateused to calculate the defined benefit obligation from 4.7% to 5.3% as a resultof increases to corporate bond rates over the year. This was partly offset bychanged mortality rates with an assumption that people will live longer. Thischange increased the obligation by approximately 4% and ensures that theseassumptions remain in line with current market best estimates. Furtherdisclosures of the assumptions used (including mortality assumptions) will beprovided in note 8. A formal actuarial valuation is scheduled as at 31 March2007 with the results expected towards the end of 2007. Operational Review - DATA BY COUNTRY as at 3 February 2007 Store numbers Selling space Employees (000s sq.m.) (FTE) B&Q 324 2,315 26,273UK Trade 42 19 2,212Total UK 366 2,334 28,485Castorama 98 959 11,943Brico Depot 81 434 5,641Total France 179 1,393 17,584Castorama Poland 35 291 6,156Castorama Italy 27 171 2,043 B&Q Ireland 7 46 494Brico Depot Spain 10 51 557 Castorama Russia 3 27 773 Koctas Turkey 10 55 1,139Total Rest of Europe 92 641 11,162B&Q China 58 553 10,675B&Q Taiwan 21 97 1,841South Korea 2 12 182Total Asia 81 662 12,697Total 718 5,030 69,928 Operational Review - FULL YEAR BY GEOGRAPHY - year ended 3 February 2007 Retail sales £m % % %LFL Retail profit £m % 2006/07 2005/06 Change Change Change 2006/07 2005/06 Change (1) (Reported) (52 week (Reported) basis, Constant currency) UK 4,261.5 4,172.0 2.1% 0.2% (1.8)% 182.6 219.4 (16.8)%France 2,955.2 2,724.9 8.5% 9.0% 2.0% 206.3 230.0 (10.3)%Rest of 1,002.5 795.2 26.1% 25.0% 7.4% 110.4 86.6 27.5%Europe (2)Asia (3) 456.7 318.0 43.6% 42.2% 10.9% 4.4 (2.9) n/aTotal 8,675.9 8,010.1 8.3% 7.4% 0.9% 503.7 533.1 (5.5)% (1) For the UK businesses, reported total sales figures are for the 53 weeksended 3 February 2007. Outside the UK, figures are on a calendar month basis. (2) Rest of Europe includes Poland, Italy, Spain, Koctas JV in Turkey,Ireland, Russia and Hornbach in Germany. Sales from Koctas and Hornbach are notconsolidated. (3) Asia includes China, Taiwan, and South Korea. Taiwan JV sales are notconsolidated. Enquiries: Ian Harding, Group Communications Director 020 7644 1029 Nigel Cope, Head of Communications 020 7644 1030 Sarah Gerrand, 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 over 700 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 large format DIY retailer, with over 120 stores in Germany andseven neighbouring countries. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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