14th Sep 2006 07:02
Kingfisher PLC14 September 2006 EMBARGOED UNTIL 0700 HOURS Thursday 14 September 2006 Kingfisher plc Interim results for the 26 weeks ended 29 July 2006 Group Financial Highlights 2006/07 2005/06 Change Constant Currency (restated) Retail sales £4,349.1m £4,079.4m 6.6% 6.0% Retail profit (1) £231.5m £288.0m (19.6)% (20.0)% LFL sales (0.5)% (3.4)% Adjusted pre-tax profit (2) £178.5m £252.5m (29.3)% Adjusted post-tax profit (2) £116.9m £166.2m (29.7)% Adjusted basic EPS (2) 5.1p 7.1p (28.2)% Pre-tax profit £223.1m £255.2m (12.6)% Post-tax profit (3) £168.5m £168.5m - Basic EPS 7.2p 7.2p - Interim dividend 3.85p 3.85p - Net debt £1,153.7m (£1,355.2m as at 28 January 2006) First Half Highlights • Group sales up 6%, up 8% in the second quarter;• Retail profit down 20% in the first half, flat in the second quarter;• Property disposal of £210 million, exceptional profit of £42 million;• Net debt £1.2 billion;• Interim dividend maintained. Operating Highlights • UK home improvement market continues to be tough;• Encouraging signs of progress on development initiatives at B&Q;• Sales outside the UK up 16%, underlying retail profit(4) up 9%. (1) Retail profit is stated before central costs, exceptional items, acquisitionintangibles amortisation and share of joint venture and associate interest andtax. (2) Adjusted measures are before exceptional items, financing fair valueremeasurements and amortisation of acquisition intangibles. A reconciliation isprovided in the Group Financial Review. (3) Profit for the period attributable to equity shareholders. (4) Underlying retail profit is stated before the costs from SAP implementationat Brico Depot, the transfer of Castorama France stores to Brico Depot and OBIlosses in China. Gerry Murphy, Group Chief Executive, said: "The continuing weakness of the UK home improvement market has again impacted B&Q's overall sales and margin performance. However, management's action programmeis now showing encouraging signs of progress. "Outside the UK, Kingfisher's sales were strongly ahead, reflecting goodlike-for-like sales and continuing expansion with 19 new stores opened in sevencountries in Europe and Asia, including our first two stores in Russia.Kingfisher now operates 339 stores outside the UK, delivering half of totalsales. "Although there are signs of stabilisation in the UK, we expect our majormarkets here and in France to remain challenging for the balance of the year.Overall, we expect Kingfisher to make progress in the second half, with B&Q UKreturning to profit growth." FIRST HALF PROGRESS During the period, progress was made on Kingfisher's strategic priorities: • Building on strong leadership positions in the UK and France; There were early and encouraging signs of progress from key strategicinitiatives at B&Q, including the development of a new Warehouse store formatfor implementation in all 114 larger stores and improvement of in-store serviceand product ranges. In France, Kingfisher delivered good sales growth in a morecompetitive market despite the impact of transferring three Castorama stores toBrico Depot. • Expanding proven growth businesses; In Poland, Italy and China, 6% new retail space was added during the first half.In Poland and Italy, retail profits grew by 26% and the conversion of the OBIstores in China was completed ahead of schedule. In the UK, Screwfix DirectTrade Counters have performed well and the network will double to 37 branches inthe second half. In total, these businesses, along with Taiwan, represent 14% ofKingfisher's invested capital. In aggregate, they are expected to be cashgenerative in the current financial year, after expansion capital expenditure. • Investing in development opportunities in new markets; The first two Castorama Russia stores opened and have been well received. InTurkey, Kingfisher's Koctas joint venture is now the market leader. In Spain,Brico Depot now has seven stores, with three more planned for the second half. • Capitalising on buying scale and international diversity; Sourcing initiatives have offset raw material and energy cost pressures. Outsidethe UK, the development of Kingfisher's own-brands progressed, with overallsales increasing 19%, representing a 2% increase in their share of total sales.Kingfisher companies continued to share ideas, talent and best practice in thedevelopment of the new B&Q Warehouse format in the UK, the first Brico Depotstore in Poland and the first Castorama stores in Russia. UK For the 26 weeks ended 29 July 2006 Retail Sales £m % Total % LFL Retail Profit £m % Total Change Change Change 2006/7 2005/6 2006/7 2005/6 UK(1) 2,169.7 2,224.9 (2.5)% (4.0)% 90.5 149.2 (39.3)% (1) UK includes B&Q in the UK, Screwfix Direct and Trade Depot. UK Market. According to the British Retail Consortium, sales of non-foodproducts in the UK grew by 4.4% in the first half (+1.4% LFL). However, DIYsales continued to be weak, although the second quarter did show somestabilisation against weaker comparatives. Sales to the Trade sector faredbetter. B&Q B&Q's total sales fell 4.4% to £2,005.2 million (-5.5% LFL), although salesshowed an improving trend as the period progressed with LFL sales down 8.8% inthe first quarter and down 2.3% in the second quarter. B&Q estimates that itsmarket share was broadly stable despite the impact in the first quarter of afire at a major distribution centre. The best sales performers in the first half were kitchens, kitchen appliancesand tiles, benefiting from new ranges, better merchandising and targetedpromotions. Sales of outdoor seasonal products were weaker, particularly in theSouth East which was affected by water restrictions. Retail profit declined 42.7% to £82.6 million in the first half, reflectinglower sales. Gross margin percentage declined 150 basis points as B&Q has yet toannualise against the significant price roll-backs on everyday home improvementproducts and the additional promotions launched in the second half of last year.Compared with a weaker first quarter, improving sales trends, strong costcontrol and reduced margin impact from stock clearance, limited the retailprofit decline in the second quarter to 11.4%. Underlying cost inflation continued at 4% with net new space increasing costs bya further 2%. B&Q delivered cost savings in head office and in stores which keptoverall cost growth to 1% in the first half. For the full year costs areexpected to increase by 5%, including in the second half the additional costs ofan extra week (2006/07 financial reporting is for 53 weeks versus 52 weeks in2005/6) and the expected normalisation of staff bonus this year. Development plan update In June 2005, a new management team launched a comprehensive action plan tosupport trading during the sharp downturn in demand, and to develop B&Q for thefuture. Four key areas - price competitiveness, customer service, new productsand store development - were prioritised to ensure B&Q is the store of firstchoice for customers for a greater proportion of their home improvement needs. Price competitiveness - B&Q maintained its long-term 'Every Day Low Pricing'strategy for everyday products. On non-everyday products, such as major kitchenand bathroom projects, B&Q has introduced rolling, targeted promotions.Independent customer surveys have confirmed progress in B&Q's price perception. Customer service - Availability of the top 100 products on-shelf now stands atjust under 98%, an improvement on the same period last year. In-store ServiceSquads (store staff wholly dedicated to customer service using radiocommunications to speed up service levels) were in operation in over 230 storesby the end of the first half and independent research confirms that customers'perception of service levels is improving. Building on the impact of these Service Squads, an enhanced service model isbeing trialled in six stores, with more staff deployed in areas where customersneed more assistance and advice. Results in these stores are encouraging and thetrial will be extended in the second half to another 28 stores. New products - In the first half, 28 major range reviews were launched,including key decorative and trade categories. A similar number are planned forthe second half with new ranges progressively rolled out to more stores. Store environment - Following a series of trials in newly built Warehousestores, an existing Warehouse at Wednesbury in the West Midlands was extensivelyrevamped to B&Q's latest format which includes more clearly definedshop-within-shop sections, room-set displays, new customer service points aroundthe store and more space allocated to kitchens, bathrooms and flooring. Afurther two newly built stores were opened in this format and these three nowrank in B&Q's top 10 turnover stores. Early results from the new format stores are encouraging with double-digitincreases in average basket sizes relative to comparable stores, driven byhigher sales of core categories, such as kitchens, bathrooms, flooring, tilingand lighting. A further eight Warehouses will be revamped into the latest formatin the second half. The capital cost of revamping each Warehouse store isexpected to be around £2.5 million, with estimated revenue pre-opening costs of£1 million. B&Q is targeting an eventual 25% increase in Warehouse store sales densitiesfrom the combined benefits of store revamps, new product ranges and improvedservice. Full mini-Warehouse revamps continued to out-perform with double-digit upliftsand a further 13 were completed, including seven less extensive, lower costprojects. Following the closure of 15 Supercentres in January 2006, a further Supercentrewas closed during the first half. In total this amounts to a reduction of justover 59,000 square metres of space (3% of total space) of which nearly a thirdhas now been sublet. B&Q now has 116 Warehouse stores (a net increase of two stores), 102mini-Warehouses and 105 of the original Supercentres, with an overall netincrease of 1.8% in total retail space in the first half. Thirteen more Supercentres will be converted into the mini-Warehouse format inthe second half. No new store openings are planned during the second half. UK TRADE Screwfix Direct - Sales increased 24.7% (+19.3% LFL) to £159.9 million with boththe number of active customers and the average order value increasing, boostedby an expanded catalogue. Retail profit increased by 75.8% to £10.9 million witha new semi-automated distribution centre reducing average fulfilment costs. Twelve new Screwfix Direct Trade Counters were opened in the period, taking thetotal to 19. Aimed at customers needing immediate availability, the TradeCounters have proved popular and the number of branches is planned to almostdouble by the end of the year. Openings are expected to continue at a similarpace for a number of years. To support continued growth, a second distributioncentre will be commissioned next year. Trade Depot - Focused on serving general builders and specialist tradecustomers, another trial 'Trade Depot' branch was opened taking the total tothree. One more opening is planned for the second half. FRANCE For the 26 weeks ended 29 July 2006 Retail sales £m 2006/7 2005/6 % Change % Change % LFL (Reported) (Constant) Change France 1,497.0 1,381.7 8.3% 7.8% 1.4% Retail profit £m 2006/7 2005/6 % Change % Change (Reported) (Constant) France 95.5 102.0 (6.4)% (6.7)% 2006/07 £1 =1.4554 euro 2005/06 £1 = 1.4622 euro All percentage increases are in constant currencies. In France, total sales grew 7.8% (+1.4% LFL) to £1,497.0 million with averagebasket value ahead of last year. Banque de France data shows that growth incomparable DIY store sales was around 2% in the year to date. Kingfisher'sbusiness delivered comparable stores sales growth of 2.7% (on the same basis asBanque de France) despite a more price competitive market, disruption from storetransfers and a major systems upgrade. Retail profit was £95.5 million, after charging approximately £8 million ofdevelopment costs for the transfer of three Castorama stores to the Brico Depotformat and the introduction of a major new IT system at Brico Depot. Excludingthese charges and additional pre-opening costs at Brico Depot, retail profit inFrance would have been ahead 5%. Gross margins were flat compared to last yearwith own brand sales and Group sourcing benefits offsetting price competition. Castorama - Sales increased by 4.0% (+2.0% LFL, +4.0% on a comparable storebasis) to £854.3 million. Castorama continued to revitalise stores and developranges during the first half. New ranges of kitchens, bathrooms, flooring and air conditioning performed well,partly offset by a weaker performance in garden products, affected byunfavourable weather. Following the success of last year's catalogue launches, and to support theroll-out of new ranges, Castorama increased the distribution of its new kitchenand bathroom catalogue in May. A new Decorative catalogue will be launched inSeptember. Two new stores were opened in Toulouse and Rennes, five stores were relocatedand three stores not suitable for revamping were closed prior to conversion tothe Brico Depot format. Castorama plans to relocate a further two stores in thesecond half and, as previously announced, transfer a further three to BricoDepot. At the half year Castorama operated 101 stores of which 31 are in thelatest format, with the new store format stores continuing to outperform. Overthe next five years Castorama expects to open up to 15 new stores in newlocations. Brico Depot - sales increased by 13.5% to £642.7 million (+0.6% LFL) againststrong comparatives (+8.3% LFL in H1 05/06). Seven new stores were opened takingthe total to 80. Work continued on the implementation of a new SAP information technologyplatform to ensure better availability and stock control and to improve customerservice during the next phase of Brico Depot's growth. This major project, whichaffects all areas of Brico Depot's business, is proceeding to plan, butrepresents a major commitment of energy and resource during 2006. Brico Depot'sfirst central distribution centre opened in north-west France last year, with asecond due to open in southern France by the year end. In July, two of the three stores transferred from Castorama re-opened as BricoDepots with the third planned early in the second half. Two further new storesare planned for the balance of the year. During 2006/07, Brico Depot expects tohave opened 16% new space. REST OF EUROPE For the 26 weeks ended 29 July 2006 Retail sales £m 2006/7 2005/6 % Change % Change % LFL (Reported) (Constant) ChangeRest of Europe(1) (2) 473.4 361.5 31.0% 27.7% 9.2% Retail profit £m 2006/7 2005/6 % Change % Change (Reported) (Constant)Rest of Europe(1) 52.1 38.3 36.0% 32.6% (1) Rest of Europe includes Castorama Poland, Castorama Italy, Brico Depotin Spain, Koctas in Turkey, B&Q in Ireland, Castorama Russia and Hornbach inGermany. (2) Joint venture sales are not consolidated. All percentage increases are in constant currencies. Rest of Europe sales increased 27.7% (+9.2% LFL) to £473.4 million, and profitsincreased by 32.6% to £52.1 million, despite higher development costs in Spainand Russia of £4.8 million (H1 2005/06: £3.2 million). Eight new stores wereopened across four countries including the first two Russian stores. Operatingmargins benefited from Kingfisher's direct sourcing and own-brand initiatives. Poland Total sales grew 22.1% (+13.1% LFL) to £230.7 million with LFL transactions andaverage basket values ahead of last year. Four new Castorama stores were openedtaking the total to 34. A further new Castorama store is planned to open in thesecond half. Poland's first Brico Depot store was opened in Warsaw in June totest the demand for a smaller, more trade-orientated store. Italy Total sales increased 21.5% (+5.0% LFL) to £158.5 million with both LFLtransactions and average basket values ahead of last year. However, growthslowed in the second quarter in a weaker Italian retail market. Castorama Italyopened one new Warehouse store and relocated one other taking the total to 27.There are no further openings planned for the remainder of the year. In Ireland, sales from the seven B&Q stores grew 40.7%, reflecting new storeopenings in the second half of last year. No further store openings are plannedthis year. Brico Depot's expansion into Spain continued with seven stores nowopen and a further three due to open by the end of the year. In Russia,Castorama now has two stores open, in St Petersburg and Samara, a largeprovincial city. Early signs are encouraging and a further store is planned toopen by the year end. Koctas in Turkey, a 50% joint venture, opened two newstores, taking the total to nine, with one more store planned this year.Hornbach, in which Kingfisher has a 21% economic interest, contributed £6.5million to retail profit (£4.8 million in H1 2005/06). ASIA For the 26 weeks ended 29 July 2006 Retail sales £m 2006/7 2005/6 % Change % Change % LFL (Reported) (Constant) ChangeAsia(1) (2) 209.0 111.3 87.8% 74.0% 11.0% Retail profit £m 2006/7 2005/6 % Change % Change (Reported) (Constant)Asia(1) (6.6) (1.5) 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. All percentage increases are in constant currencies. Asia sales grew 74.0% (+11.0% LFL) to £209.0 million. Retail losses increased to£6.6 million from £1.5 million, largely due to the costs of converting the OBIstores acquired in June last year. This process is now complete and, combinedwith the usual seasonal pattern of trading, B&Q China is expected to return toprofitability in the second half. China B&Q China sales were £204.6 million, up 71.4% (+10.9% LFL) reflecting new storeopenings, continuing strong consumer demand and the development of new ranges.Retail losses of £5.1 million included £3.2 million from the OBI stores. B&QChina completed the conversion of the OBI stores ahead of schedule and opened afurther three new stores, consolidating its position as clear market leader with51 stores. A further eight new store openings are planned for the balance ofyear. In South Korea, where the first B&Q Home store opened last year, developmentlosses were £2.6 million (H1 2005/06 losses of £2.9 million). A further store isdue to open later in the year. B&Q Taiwan, a 50% joint venture, performed wellin a difficult market, limiting retail profit impact to £0.7 million. One storewas opened in the period taking the total to 21. No further new openings areplanned for the second half. GROUP FINANCIAL REVIEW Total reported sales grew 6.6% to £4.3 billion (2005/06: £4.1 billion), up 6.0%on a constant currency basis. During the first half, an additional 39 net newstores were added, taking the store network to 684. On a like-for-like (LFL)basis, Group sales were down by 0.5% (2005/06: - 3.4%). Retail profit fell 19.6% to £231.5 million (2005/06: £288.0 million), down by20.0% on a constant currency basis. The profit decline was driven by lowerLFL's, operating cost inflation and investment in developing businesses. Central costs increased 13.8% to £18.2 million (2005/06: £16.0 million)reflecting cost phasing in the previous year. Costs for the full year areexpected to grow in line with general inflation. Operating profit fell by 7.3% to £249.4 million (2005/06: £269.1 million).Operating profit benefited from income on exceptional items of £42.0 million(2005/06: £1.9 million) relating primarily to property disposals. The majorityof the profit on disposal of properties arose in connection with the sale andleaseback of seven UK warehouse stores to The British Land Company in July. Net interest costs increased by 89.2% to £26.3 million (2005/06: £13.9 million).Last year, net interest costs were reduced by one-off interest receipts of£5.5 million from refunds on property acquisitions not completed and taxrefunds. On an underlying basis, net interest costs increased by 35.6% primarilydue to higher average net debt. The effective tax rate on profit before exceptional items and prior year taxadjustments is 34.5% (2005/06: 34.1%) based on current expectations for the 2006/07 full year, with the increase primarily due to a lower proportion of UKgenerated profits and an increase in losses from developing businesses. Profit after tax (attributable to equity shareholders) was unchanged at £168.5million. Adjusted basic earnings per share were down 28.2% to 5.1p (2005/06: 7.1p)reflecting the decline in retail profit, and higher central costs and financingcharges. Reconciliation of statutory profit to adjusted profit 2006 2005 £m £m Profit before tax 223.1 255.2Exceptional items (42.0) (1.9)Financing fair value remeasurements (2.7) (0.8)Amortisation of acquisition intangibles 0.1 -Adjusted profit before tax 178.5 252.5Income tax expense (56.0) (86.5)Adjustments to income tax expense (5.6) 0.2Adjusted profit after tax 116.9 166.2Minority interest 1.4 (0.2)Adjusted profit after tax attributable to equity shareholders 118.3 166.0 The interim dividend is proposed at 3.85p per share, unchanged on last year. Net debt decreased 14.9% to £1,153.7 million (£1,355.2 million at 28 January2006). Lower operating cash flows were more than offset by improvements inworking capital and lower tax payments during the period. Gross capitalexpenditure on new stores, revamps and supporting infrastructure was £265.8million (2005/06: £256.5 million), with disposal proceeds of £210.2 million(2005/06: £17.2 million) principally due to the £198 million of proceedsrealised from sale and leaseback of seven B&Q UK warehouse stores. 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 by application to: 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 680 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 over 120 stores in Germany andseven neighbouring countries. DATA BY COUNTRY as at 29 July 2006 Store numbers Selling space Employees (000s sq.m.) (FTE) B&Q 323 2,310 26,555UK Trade 22 14 1,706Total UK 345 2,324 28,261Castorama 101 982 13,417Brico Depot 80 422 5,250Total France 181 1,404 18,667Castorama Poland 34 282 5,915Castorama Italy 27 171 2,156Other 24 133 2,570Total Rest of Europe 85 586 10,641B&Q China 51 490 9,868B&Q Taiwan 21 97 1,857Other 1 7 174Total Asia 73 594 11,899Total 684 4,908 69,468 SECOND QUARTER -13 weeks to 29 July 2006 Retail Sales £m % Total % LFL Retail Profit £m % Total 2006/07 2005/06 Change Change 2006/07 2005/06 Change (Reported) (Reported) UK 1,140.5 1,135.6 0.4% (1.3%) 68.6 75.5 (9.1%)France 796.1 730.1 9.0% 1.2% 55.3 61.8 (10.5%)Rest of Europe (1)(3) 267.5 206.0 29.9% 8.4% 38.1 25.8 47.7%Asia (2)(3) 124.9 67.2 85.9% 10.4% 1.1 (0.4) n/aTotal 2,329.0 2,138.9 8.9% 1.0% 163.1 162.7 0.2% (1) Rest of Europe includes Castorama Poland, Castorama Italy, Brico Depotin Spain, Koctas in Turkey, B&Q in Ireland, Castorama Russia and Hornbach inGermany (2) Asia includes B&Q China, B&Q Taiwan and B&Q Home in South Korea. (3) Joint venture sales are not consolidated. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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