Half Year Results

 Thursday 10 December 2015

Statement of Results for the six months ended 31 October 2015

Revenue and profit growth, positive contribution from our growth initiatives and a significant improvement in our cash position

Financial Summary for the six months ended 31 October 20152

Offer from Groupe Fnac S.A. ("Fnac")

Chairman Alan Parker commented:

"This was a good first half performance as the benefits of our three year 'Nouvelle Confiance' strategy delivered clear results. We have devised a new plan, 'Confiance 4.0', to secure further growth building on our market leadership position, strong brand, improved customer service offer and expansion into new catchment areas through our franchise programme.

"On 20 November Fnac launched a pre-conditional offer for Darty but until such a time as that offer completes, we remain fully committed to delivering on our plans and it remains business as usual."

Chief Executive Régis Schultz commented:

"We have made a strong start to the year with market share gains, significantly improved profit performance and a substantial reduction in our net debt.

"Our growth initiatives, the franchise operation, extended kitchen offer and Mistergooddeal.com, are progressing and delivering good results. We also continue to innovate in terms of digitalisation and have enhanced our market leading services with same and next day delivery and installation in France for large appliances and the launch of a services market place.

"Sales have held up well in the past few weeks despite events in France and Belgium and we are well prepared for the peak trading period."

1 Calculated based on stores that have been open for a full year and the first full four weeks of trading have passed. Stores where retail space has been added or where a complete format redesign has taken place which involves material capital expenditure are excluded. Sales through internet sites, excluding Mistergooddeal.com, are included.

2 Excluding results of discontinued operations except where stated otherwise.

3 Represents total operating profit before the share of joint venture and associates' interest and taxation, gain on disposal of available for sale investments, legacy UK retirement benefit scheme expenses, exceptional items and amortisation and impairment of acquisition related intangible assets.

4 Represents retail profit less finance costs excluding net interest on pension schemes.

There will be a presentation to analysts and institutions at 09:30 today at UBS, 1 Finsbury Avenue, London, EC2M 2PP. A live video and audio webcast of the event will be available via our website www.dartygroup.com, and recorded for access later in the day. Darty plc will issue an Interim Management Statement on 18 February 2016 for the third quarter trading period of 1 November 2015 to 31 January 2016.

Enquiries

Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, Darty plc does not undertake any obligation to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise.

'NOUVELLE CONFIANCE' DELIVERED AHEAD OF SCHEDULE

Three years ago, following an in-depth internal review of our business, we launched our 'Nouvelle Confiance' strategic plan, the principal components of which were to:

We completed the elimination of losses in our non-core markets in August 2014 and have since been totally focussed on our businesses in France, Belgium and the Netherlands where we are number one or two in our markets.

We have created value from our market leadership as well as efficiency savings based on our '4Ds' programme:

Drive trading by delivering on our promise to customers;

Digitalise Darty by further enhancing our multi-channel offer and leading websites;

Develop our brand by improving our product and market-leading service offerings as well as expanding our customer base; and

Deliver cost efficiency by implementing cost savings.

In summary, our actions over the three year period in France from H1 2012/13 to H1 2015/16 have achieved:

In France we have increased marketing activity with the introduction of Summer and Winter sales and have been more proactive around events such as the Football World Cup and 'Back to School'. We have improved our price perception and are now viewed as having the best prices on a service included basis against all our competitors, both stores and pure web players. With the improvements to our service proposition such as same day delivery and service intervention, according to TNS Sofres, we are now seen by customers as having the most efficient delivery and after sales service offer and we are the number one for price with service included, value for money, delivery and after sales services.

Significant work has been undertaken to improve the websites and their integration with the store network. The Darty.com website has been refreshed in terms of look and feel, product categories, navigation and the buying process. 'Click & Collect' is available within one hour in all stores and collection lockers are available in high traffic stores. Our stores are also being digitalised with free Wifi available to our customers and our salesmen are being equipped with tablets to demonstrate wider product ranges, availability and price comparison versus competitors.

During the six months to 31 October 2015 we launched a new social media initiative. In conjunction with service provider Wibilong, customers can now join online social groups dedicated to a particular product, enabling them to discuss the product before or after buying with other users.

The brand continues to be enhanced in terms of both product and service offering. Le Bouton, Darty's market leading connected service offer, now has 125,000 customers and during the first half we extended the service to include video technology. Customers can now use their smartphone cameras for a live visual link to an adviser. In addition, in October we launched in-store private appointments with an 'expert' for advice before purchasing a product or afterwards when picking up from 'Click & Collect'. This service is free to all customers.

We also continue to introduce connected products for personal healthcare and the home into our range with dedicated areas in store for 'Santé Connectée' and 'Maison Connectée'.

As a result of all our activities we are seeing improved customer satisfaction and we have received external recognition from industry bodies such as 'Prix Stratégies du Marketing Client' for Le Bouton.

The growth initiatives

The growth initiatives we previously announced, a franchise store model, development of our kitchen offer and the acquisition of Mistergooddeal.com, are progressing well and are all delivering improved performances.

The franchise network is now at 52 stores in France, with four overseas, only 18 months after we opened the first store having opened 13 during the period. Sales uplifts on conversion remain very strong and those stores trading in their second year are on average seeing over 12 per cent like-for-like sales growth. The franchise network was profitable in the first half of this year.

We now have 82 stores with our kitchen offer, including the 11 opened in the period. Following some disruption last year from our accelerated opening programme, this part of the business performed better in the first half of the year with total sales up over 30 per cent.

Mistergooddeal.com, our online channel to serve the entry price / low service part of the market, has been completely integrated into Darty's infrastructure. Revenue remains under pressure due to this integration and also due to the removal of non-profitable non-electrical product lines. However, the integration and elimination of costs has led to a breakeven performance in the first half of this year, ahead of schedule.

'CONFIANCE 4.0' - OUR NEW PLAN

Following the successful delivery of 'Nouvelle Confiance' and a good start to 2015/16, we have developed a new plan to secure continued growth.

Customer trends are evolving: they want a trusted retailer for white goods; immediate access to products and services; tailored services; and connected home appliances as the technology develops.

With this in mind, our three year plan is built around four priorities:

Cash, to reinforce financial strength and economic model,

Channels, to accelerate our multi-channel offer,

Care, to personalise our services, and

Connected, to capture connected growth opportunities.

Cash - Reinforce financial strength and economic model

We can strengthen our cash position with better payment terms, more prompt collection of supplier support payments and tighter product availability. We can optimise our cost structure with the completion of the transfer of the London head office to Paris, make a more efficient organisation in the back office, streamline the after-sales service back and front offices to reduce the number of call and repair centres and outsource extended warranties for grey goods. We will also move the 'Out of warranty' business to a profitable position through a change in the pricing structure.

Our medium term target is to reduce average net debt by €100 million and achieve a further gross cost reduction of €50 million.

Channels - Accelerate our multi-channel offer

We will improve our customers' digital experience via our website and mobile content and in-store offer to stimulate online traffic, conversion and average basket spend. We will improve our store network by expanding the successful franchise operation to a total of 120 stores by 2018/19, relocating selected stores to retail parks, adding kitchen corners to a total of 120 stores by 2018/19 and launching a kitchen franchise business in Belgium.

Care - Personalise our services

To offer an even better customer experience of our services we will improve fulfilment options with better in-store collection, customised delivery options and a wider choice of warranty options. We have a database of eight million customers to help us personalise our customers' shopping experience with tailored recommendations, automated bundles and 'one click' solutions. We will expand our in-store help and repair service via in-store counters and workshops and increase loyalty by upgrading the credit offer from the Darty visa connected credit card.

Connected - Capture connected growth opportunities

The increase in, and customer demand for, 'connected' technology provides us with the opportunity to extend our product and service offer and we will introduce new categories in home and wearable connected devices. We will also broaden our market place offer into new product categories and extend ranges in existing categories.

Market place is also being trialled for home services. In partnership with Hellocasa, 'Darty Petits Travaux' is offering customers the ability to book online for services such as plumbing, electrics, gardening and professional cleaning for a fixed price.

GROUP OVERVIEW

Results

*excluding Mistergooddeal.com

Financial review

Restatement

Two accounting treatments are possible for the business tax, CVAE (Cotisation sur la Valeur Ajoutée des Entreprises), either as an operating expense or as income tax. At 30 April 2015, in line with the treatment adopted by French retail listed peers the decision was taken to reclassify the tax from an operational expense in the retail profit of the France reported segment, to income tax. CVAE in the period was €5.2 million (2015: €5.3 million).

In addition, at 30 April 2015, having reviewed possible treatments under IAS 19 Revised, retirement benefit scheme expenses relating to the legacy UK pension scheme were reclassified from finance costs to operating profit in line with common practice. €0.8 million of these costs have been reclassified as an operating cost in this half (2015: €0.7 million) outside of retail profit, as they relate to Comet, a discontinued business.

Separately in this half, an adjustment has been made relating to IFRIC 21 (Levies). This clarifies that the triggering event for the recognition of a liability for levies (i.e. miscellaneous taxes, duties and other levies not within the scope of IAS 12) is determined by reference to the terms of the relevant legislation, regardless of the period used as the basis of calculating the levy. Consequently, a liability for payment of a levy cannot be recognised progressively in the interim financial statements if there is no present obligation at the interim reporting date. This interpretation has resulted in a €7.1 million benefit to total operating profit (2015: €7.2 million), with an equal reduction to the total operating profit for the six months to 30 April in each year and hence no impact on the total operating profit for the 12 months to 30 April.

Restatement of the Group income statement for the six months ended 31 October 2014 is included as Appendix A to this announcement.

Revised accounting estimate

At 30 April 2015, there was a €7.9m exceptional gain arising on the revised IAS2 estimation of distribution costs in the carrying value of inventory to take account of non-storage warehouse and logistic costs. As a result of this change of estimate, from 1 May 2015 onwards there is an increase in cost of sales and a reduction in distribution costs. In the six months to 31 October 2015, this has resulted in a €29.1 million increase to cost of sales (equivalent to around 180 basis points reduction in reported margins) and a €31.0 million reduction in distribution costs compared to the previous IAS2 inventory valuation basis.

Revenue and retail profit

Group revenue at €1,664.5 million was up 1.2 per cent including Mistergooddeal.com and the franchise stores. On a like-for-like basis Group revenue was up 1.1 per cent, with a stronger second quarter of 2.5 per cent (quarterly revenue performance is provided as Appendix B to this statement). We saw strong sales in white goods in the first quarter benefitting from hot weather related purchases of refrigeration and air conditioning products. As expected vision sales were weak at the start of the period against a successful World Cup campaign last year but then improved, aided by the Rugby World Cup. Growth in communication remained strong and a weak multimedia market improved during a successful 'Back to School' period.

Our web-generated sales continued to grow. They were up over 12 per cent to nearly 16 per cent of product sales, excluding Mistergooddeal.com, driven by continued strong growth in 'Click & Collect' sales.

Gross margin was impacted by ongoing product category margin pressure in promotional market conditions but this was offset by an improvement in margin from the mix of product sales, especially in the first quarter when there were better sales of higher margin white goods. Total gross margin, excluding the IAS2 adjustment, was down 10 basis points. This included a positive impact of 30 basis points from Mistergooddeal.com which was more than offset by a 50 basis points dilutive impact from the franchise business.

Group retail profit increased 36 per cent to €36.1 million compared to €26.4 million for the same period last year, with an improvement at Darty including €8 million of net property gains, achievement of breakeven at Mistergooddeal.com, an improvement at Vanden Borre of €0.6 million, an increase in losses at BCC of €4.9 million due to warehouse system issues and flat central costs.

Exceptional items

Exceptional items of €12.6 million (2015: €4.1 million) were incurred in relation to reorganisation costs in France, rectifying systems issues in the Netherlands, fees relating to the proposed offer and transfer of some head office functions from London to Paris. The cash outflow from exceptional items, including those booked last year, was €7.2 million and is expected to be around €18 million for the full year.

Operating profit

Operating profit increased four per cent to €22.0 million (2015: €21.1 million).

Net finance costs

Net finance costs were €11.8 million (2015: €12.2 million) excluding IAS 19 pension interest of €1.0 million (2015: €1.9 million). The reduction in net finance costs reflects significant improvements made in working capital management and a resultant reduction in net indebtedness. Net finance costs for the full year are expected to be around €23 million excluding IAS 19 interest.

Adjusted profit before tax

Adjusted profit before tax was up 71 per cent to €24.3 million (2015: €14.2 million).

Taxation

The expected full year 2015/16 effective tax rate is around 40 per cent including CVAE. Excluding CVAE the rate is expected to be around 24 per cent. The half year tax charge is based on the 24 per cent rate on adjusted profit, plus the actual half year CVAE charge of €5.2m and net of tax credits arising on exceptional items and interest on pensions for the Continuing Group. The full year rate of 40 per cent is based on currently enacted legislation and is higher than previously guided due to increased losses in BCC, on which tax credits are not recognised.

Profit for the period

The profit for the period from continuing operations increased to €1.9 million (2015: €0.8 million). Profit for the period from discontinued operations was €3.3 million (2015 loss: €1.0 million). Total profit for the period was €5.2 million (2015 loss: €0.2 million).

Earnings per share

Adjusted earnings per share, excluding the IAS 19 net interest on pension schemes, was 2.5 cents (2015: 1.1 cents). Continuing basic and diluted earnings per share was 0.4 cents (2015: continuing earnings per share 0.2 cents).

Cash flow

Cash generated from operations was an inflow of €49.0 million (2015 outflow: €43.1 million), largely reflecting a €99.5 million improvement in working capital from actions to extend payment terms and drive more prompt collection of supplier contributions. Net capital expenditure was €7.3 million (2015: €25.2 million) reflecting property proceeds of €13.6 million (2015: €nil). Gross capital expenditure is expected to be around €45 million for the full year less property disposal of around €20 million. Interest paid was €10.6 million (2015: €10.6 million). Tax paid was €2.7 million (2015: €14.2 million). The final dividend payment remained unchanged at 2.625 cents per share, but the payment date was beyond the end of the period, unlike last year, which resulted in a €14.0 million cash outflow. Cash inflow was €30.3 million (2015 outflow: €99.5 million).

Net debt

Closing net debt was down €92.3 million at €194.9 million compared to €287.2 million at 31 October 2014 and down €28.9 million compared to €223.8 million on 30 April 2015. As at 31 October 2015 none of the Group's €225 million revolving credit facility was drawn down (31 October 2014: €100 million), the Group has outstanding a €250 million High Yield Bond. Average net debt is expected to reduce by at least €50 million for the full year compared to the prior year.

Retirement benefit obligations

The IAS 19 net pension liability decreased from €103.4 million at the year end to €68.8 million (31 October 2014: €101.7 million), split €9.1 million (31 October 2014: €48.9 million) in the UK and €59.7 million (31 October 2014: €52.8 million) in France. The fall in the UK net liability since October 2014 is mainly due to actuarial gains largely from better asset returns. In addition, the liability benefited from the £10 million per annum (€13.5 million) company deficit recovery contributions made. Both the assets and the liability movements are also exaggerated by currency swings though the net currency impact is a small net increase in the liability.

Dividends

The Board has declared an unchanged interim dividend of 0.875 cents per share. The ex-dividend date will be 3 March 2016, the record date will be 4 March 2016 and the payment date will be 30 March 2016.

BUSINESS REVIEW

France

Total revenue was up 1.4 per cent and the Darty brand again outperformed the market for the period with like-for-like sales increasing by 2.9 per cent. Darty held a successful Summer sale and saw strong hot weather related sales of refrigeration and air conditioning products. Vision sales were weak at the start of the period against last year's Football World Cup comparative but did improve thereafter supported by the Rugby World Cup. Communication sales remained strong and the weak multimedia market improved during a successful 'Back to School' campaign.

Darty's web-generated sales continued to grow, up over 10 per cent to over 16 per cent of total product sales and to over 17 per cent including Mistergooddeal.com. The 'Click & Collect' option again proved highly popular, accounting for 29 per cent of Darty's web sales compared to 16 percent last year.

Gross margin saw some benefit especially in the first quarter from a favourable product mix with a greater weighting on higher margin white goods. Overall gross margin for France was down 10 basis points including 40 basis points benefit from Mistergooddeal.com and 60 basis points dilutive impact from the franchise business.

Retail profit was up 51 per cent to €41.3 million compared to €27.3 million in the prior year. This included €8 million of net property gains, a breakeven performance from Mistergooddeal.com (2015 retail loss: €4.8 million), an improvement for the kitchens operation and a profitable franchise business.

During the period four stores were relocated, two extended, one refurbished and we added new kitchen ranges to a further 11 stores, bringing the total number of stores with a kitchen offer to 82.

For additional detail of the initiatives implemented in France, please refer to the strategy section on pages 3 to 5 of this announcement.

Belgium and the Netherlands

At Vanden Borre in Belgium and BCC in the Netherlands, overall revenue was up 0.6 per cent and down 5.1 per cent on a like-for-like basis. Positive sales at Vanden Borre were more than offset by the sales disruption at BCC resulting from the implementation of a new warehouse IT system which impacted stock availability. Web-generated sales continued to grow strongly, up over 21 per cent to 14 per cent of total product sales with enhanced delivery options, including next day delivery for large goods and evening delivery for smaller items, driving very good growth at Vanden Borre.

Overall for the period gross margin was flat with an improvement at BCC offsetting a decline at Vanden Borre in competitive market conditions. Total costs increased six per cent reflecting the acquisition by BCC of 18 stores in February 2015. The retail loss for the period was €0.5 million compared to a profit of €3.8 million in the prior year. Vanden Borre increased profit by €0.6 million while BCC increased losses by €4.9 million.

During the period, at Vanden Borre we opened one new store and refurbished three stores and at BCC we refurbished two stores.

POST BALANCE SHEET EVENTS

On 20 November 2015 the Boards of Darty and Fnac announced agreement on the terms of a pre-conditional offer to be made by Fnac for Darty including:

NON- GAAP FINANCIAL MEASURES

The Group has prepared its consolidated financial statements under International Financial Reporting Standards for the 6 months ended 31 October 2015. The basis of preparation is outlined in Note 1 to the Financial Information on page 26. The Group has identified certain measures that it believes provide additional useful information on the underlying performance of the Group. These measures are applied consistently but as they are not defined under GAAP they may not be directly comparable with other companies' adjusted measures. The non-GAAP measures, and their definitions, are outlined in Note 1 to the Financial Information on page 27.

PRINCIPAL RISKS AND GOING CONCERN

The risks to achieving the objectives for the remainder of the financial year remain those more fully set out on pages 21 and 22 of the 2014/15 Annual report and as updated as Appendix C to this statement.

The Group meets its day-to-day working capital requirements through its bank facilities. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed consolidated interim financial statements.

FORWARD LOOKING STATEMENTS

Certain statements in this half-yearly report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Company and Group undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors of Darty plc are listed in the Darty plc Annual Report for 2014/15 and is maintained on the Darty plc website: www.Dartygroup.com.

APPENDIX A - RESTATEMENT OF FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2014

Group income statement

APPENDIX B - QUARTERLY REVENUE PERFORMANCE

Total revenue change

Like-for-like*

*excluding Mistergooddeal.com

APPENDIX C - PRINCIPAL RISKS 

The taking of risk is an inherent part of doing business and the skill in business is to manage risk effectively. The Board and senior management have invested time to identify and assess the key risks facing the business and actively manages those risks. Risk management is performed from both a top-down and a bottom-up perspective, ensuring that strategic and operational risks are appropriately addressed.

The principal risks and uncertainties to delivering our strategy are set out below together with an illustration of what actions are being taken to mitigate the effect of these risks on the business and its customers.

INDEPENDENT REVIEW REPORT TO DARTY PLC

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Darty plc's condensed consolidated interim financial statements (the "interim financial statements") in the Statement of results of Darty plc for the six month period ended 31 October 2015. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

As disclosed in note 1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The interim financial statements included in the Statements of Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Statement of Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Statement of Results in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the interim financial statements in the Statement of Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Statement of Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

9 December 2015

London

DARTY PLC