20th Sep 2007 07:01
Kingfisher PLC20 September 2007 EMBARGOED UNTIL 0700 HOURSThursday 20 September 2007 Kingfisher plc Interim results for the 26 weeks ended 4 August 2007 Group Financial Summary 2007/08 2006/07 Reported Constant Like-for-like Change Currency Change (LFL) change Retail sales (1) £4,775m £4,349m +9.8% +10.7% +4.3% Retail profit (2) £240.1m £231.5m +3.7% +4.2% Adjusted pre-tax profit (3) £189.6m £178.5m +6.2% Adjusted post-tax profit (3) £133.4m £116.9m +14.1% Adjusted basic EPS (3) 5.7p 5.1p +11.8% Interim dividend 3.85p 3.85p - Net debt £1,289.9m (£1,293.8m as at 3 February 2007) (1) Joint Venture (JV) and Associate sales are not consolidated. (2) Retail profit is stated before central costs, exceptional items,acquisition intangibles amortisation and share of joint venture and associateinterest and tax. (3) Adjusted measures are before exceptional items, financing fair valueremeasurements and acquisition intangibles amortisation. A reconciliation tostatutory amounts is set out in the Financial Review. First half highlights • Retail sales up 10.7%, +4.3% LFL.• Adjusted pre-tax profit ahead 6.2%.• Exceptional profit of £37 million, primarily on freehold property disposals.• Group tax rate 32.0% (2006/07: 34.5%).• Net debt maintained at £1.3 billion.• Interim dividend maintained. Operating highlights • International (ex-UK, now representing over half of Kingfisher's sales) delivered strong sales, up 14%, and retail profit growth of 11%.• In France, sales grew 10% and retail profit grew 11%, boosted by a strong performance from Castorama.• Elsewhere in Europe and Asia, sales grew by 25% and retail profit by 10%, boosted by a very strong performance in Poland, offsetting a weaker result in China.• In the UK, B&Q grew sales 5% and retail profit before store revamp costs by 13%. Good progress was made modernising stores and launching new products.• Forty-six net new stores opened creating 5,000 new jobs. Statutory reporting 2007/08 2006/07 Reported ChangePre-tax profit £229.4m £223.1m +2.8% Post-tax profit attributable to equity shareholders £159.6m £168.5m (5.3)% Basic EPS 6.8p 7.2p (5.6)% Gerry Murphy, Group Chief Executive, said: "Our international businesses, which now account for more than half ofKingfisher's sales, continued to deliver strong sales and profit growth. Goodprogress was made strengthening Castorama in France, expanding our youngerinternational businesses and establishing new opportunities in Europe and Asia.The outlook for our international markets remains generally positive. "In the UK, all our businesses delivered sales growth in a market which remainsrelatively weak. We expect the second half to be tough as recent interest raterises and current uncertainty in financial markets affect customer behaviour.However, B&Q's development plan is progressing well, with more stores now in amodern format and new products and services progressively being launched, allsupported by a major new advertising campaign. "Our international diversity and buying scale are key competitive advantages andwe will continue to capitalise on them to provide shareholders with sustainable,long-term growth and returns." REVIEW OF THE FIRST HALF The remainder of this release sets out Kingfisher's performance for the halfyear in three main sections: • Progress on key strategic priorities • Operational review • Financial review and unaudited interim financial statements. Progress on key strategic priorities 1) Strengthening developed businesses B&Q in the UK and Castorama in France, representing almost two thirds ofKingfisher's sales. These established businesses are focused on strengthening their leadershippositions by increasing the sales productivity of existing stores and improvingcost efficiency. The majority of current investment in these businesses is inmodernising existing stores and business infrastructure, with modest capacityexpansion. Good progress has been made with B&Q's development plan. Twenty-one large storesare now trading in the new format and the introduction of new products intostores is progressing well, and will be further supported by a major newadvertising campaign, launched yesterday. In France, Castorama introduced new decorative, kitchen and bathroom ranges andrevamped four more stores, supported by the first ever national advertisingcampaign. Over 40% of selling space now trades in the new format which continuesto outperform comparable older stores. 2) Expanding proven growth businesses Includes Brico Depot in France, Screwfix in the UK and businesses in Poland,Italy, China, Taiwan, Ireland and Turkey. In total they generate over one thirdof Kingfisher's sales. These younger businesses already enjoy strong 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. Forty-two net new stores were opened in the first half, taking the total in thiscategory to 319, with a similar number planned to open over the second half. 3) Establishing new opportunities for the future Includes Spain, Russia and Trade Depot in the UK. Three stores opened during the first half taking the total trading to 20, with afurther two stores planned for the second half. 4) Capitalising on buying scale and international diversity During the first half, Kingfisher continued to develop own-brands and extenddirect sourcing from low-cost producers. Direct sourcing shipments were up 40%year on year and the proportion of total sales from own-brand products grew to22% (from 20% last year). The 'Colours' brand, which extends to paint,wallpaper, curtains, blinds, cushions, bedding and lighting is now establishedas a major international decorative brand. Operational Review - UK For the 26 weeks ended 4 August 2007* Retail sales £m 2007/08 2006/07 Reported % LFL % Change ChangeUK 2,321.0 2,169.7 7.0% 1.9% Retail profit £m 2007/08 2006/07 Reported % ChangeUK 85.0 90.5 (6.1)% * Due to the 53rd week in UK reporting for 2006/07, the Reported Change % abovecompares 26 weeks ended 4 August 2007 with 26 weeks ended 29 July 2006 asreported in 2006/07. On this basis B&Q LFL was 2.9%. However, for betteralignment, the actual reported change in LFL sales of 2.0% compares 26 weeksended 4 August 2007 to 26 weeks ended 5 August 2006. UK includes B&Q in the UK, Screwfix and Trade Depot. UK Market According to the British Retail Consortium, sales of non-food products in the UKgrew by 5% in the first half (+2% LFL). However, home improvement salescontinued to be weak with sales of outdoor products impacted by poor weather. B&Q B&Q's total reported sales were £2.1 billion, up 4.8% (+2.0% LFL) with salesgrowth in decorative, building and kitchen products partially offset by weakoutdoor product sales. Retail profit declined £4.8 million to £77.8 million in the first half (2006/07:£82.6 million), after £15.8 million additional costs for revamping large stores.Gross margin percentage was flat reflecting clearance activity ahead of newproduct launches in H2. Underlying cost inflation was 3% with net new spacegrowth of 2%. New product ranges B&Q is on track to have updated around 60% of all its product ranges by the endof the year. Updated ranges of wall and window coverings, soft furnishings,kitchens, bathrooms and designer radiators have been introduced into stores andare performing well. Recently, a stylish new range of decorative products with awider choice of paints, including the premium brand Fired Earth, has beenlaunched, backed by a major advertising campaign. Customer service Additional staff hours continue to be deployed in the kitchen, bathroom,flooring and power tools areas of the larger new format stores. Eight hundredin-store style managers have received practical decorating skills training, toenable them to advise customers on how to style rooms and offer advice onprojects such as laying flooring and tiling. Trials of new in-store services,such as cavity wall insulation and carpet and flooring fitting, were alsolaunched during the period. The B&Q website has been revamped, with customers now able to use free roomdesign software, view more than 35,000 products online and check availability intheir local store. In addition, 6,500 products continue to be available for homedelivery. Store development B&Q is on track to have modernised over half of its store space by the year end.A further eight large store revamps, which encompass more clearly definedshop-within-shop sections, room-set displays and more space allocated tokitchens, bathrooms, flooring and tiling areas were completed in Q1. A secondphase of eight large store revamps started in June. The three large new format stores now open for more than one year have deliveredaverage sales densities of over £200 per square foot, 30% higher than olderformat large stores, as customers spend more in the expanded kitchen, bathroomand associated project areas. Of these three, Wednesbury in the West Midlandswas a revamp of an existing store and has delivered an annualised sales upliftof almost 20% with much of the new product yet to flow into store. The next 16revamps, which only have an average of 19 weeks trading data, are showingdouble-digit growth, despite having not traded through key kitchen and bathroomseasons. B&Q now has 115 large stores (21 in the latest format) and 210 medium stores (ofwhich 135 have been modernised). UK Trade Screwfix sales grew 30.3%, driven by an expanded catalogue and the roll-out ofthe new trade counters, which provide customers with immediate productavailability. An additional 30 outlets opened during the first half, taking thetotal to 68, with around 20 further openings planned for H2. To supportcontinued growth, a second distribution centre was commissioned at the end of H1and will be fully operational by the end of the year. Retail profit was broadly flat year on year, reflecting start-up costs for thesecond distribution centre, and trade counter pre-opening costs. Trade Depot,which targets the general builder and specialist trade customer, opened two newstores, taking the total trading to six. Operational Review - FRANCE For the 26 weeks ended 4 August 2007 Retail sales £m 2007/08 2006/07 Reported Constant % LFL % Change % Change ChangeFrance 1,614.4 1,497.0 7.8% 9.5% 3.5% Retail profit £m 2007/08 2006/07 Reported Constant % Change % ChangeFrance 104.7 95.5 9.6% 11.3% 2007/08 £1 =1.4774 euro (2006/07 £1 = 1.4554 euro) All percentage movements below are in constant currencies. In France, Kingfisher's total sales grew 9.5% (LFL+3.5%). Seven new stores wereopened in the year and four revamped, adding 4% new space. Banque de France datashows that growth in comparable DIY store sales* was around 4.3% in the year todate. Kingfisher's business outperformed the market by delivering comparablestores sales growth of 5.2% (on the same basis as Banque de France), despite amore price competitive market and disruption from store revamps. Retail profit of £104.7 million grew 11.3% compared to the same period lastyear. Gross margins were down 20 basis points as higher own-brand salespenetration and an improved sales mix offset some of the market pricingpressure. Net cost inflation in France continues to run at around 2%. *Banque de France data including relocated and extended stores CASTORAMA Castorama grew total reported sales by 4.9% to £882.7 million (+3.4% LFL, +6.3%on a comparable store basis), driven by good performances of new ranges such askitchens, bathrooms and decorative products, and its continued storemodernisation programme. New format stores have delivered average sales densities 19% higher than olderformat stores. Five revamps were completed during the first half and a furtherone planned for the balance of year, with 41% of total selling space now in thenew format. BRICO DEPOT Sales increased 15.6% to £731.7 million (+3.6% LFL), driven by new storeopenings and the publication of an additional catalogue. Sales were strong inbuilding and decorative categories, supported by new ranges of wood panelling,power tools and indoor paint. Seven new stores opened in the first half taking the total to 88. One furtherstore opening is expected in the second half. The new SAP information technologyplatform is now fully operational. Operational Review - REST OF EUROPE For the 26 weeks ended 4 August 2007 Retail sales £m 2007/08 2006/07 Reported Constant % LFL % Change % Change Change Rest of Europe 612.6 473.4 29.4% 29.9% 17.3% Retail profit £m 2007/08 2006/07 Reported Constant % Change % ChangeRest of Europe 61.4 52.1 17.9% 17.9% 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. Sales grew by 29.9% to £612.6 million (+17.3% LFL) with 12 more stores tradingcompared to the same period last year. Retail profits increased by 17.9% to£61.4 million, reflecting strong performances in Poland and Turkey. Developmentlosses in Russia and Spain were in line with the previous year. Across the first half five new stores were opened, including two in Poland, onein Russia and two in Turkey. Poland Sales increased 42.0% to £330.8 million (+31.1% LFL). Strong consumer spendingand a buoyant construction market which started earlier than usual in mildweather, boosted H1 trading. Retail profit increased 61.9% to £45.5 million asgood cost control, increased own-brand penetration and favourable timing ofstore openings helped to offset wage inflation. Two new Castorama stores opened, taking the total to 37, with a further twoplanned for the second half. Last year, Brico Depot was also launched in Polandto test demand for a smaller, more trade-orientated store and a second opened inSeptember. Italy Total sales grew 2.0% to £159.3 million (+1.2% LFL) in a weak consumer market.Retail profit of £14.6m (2006/07: £16.3 million) reflected improved sourcingoffset by pricing pressure in a slow market. Two stores were revamped in H1 and one relocated. In the second half, one revampand one new medium format store are planned. In Ireland (seven stores), sales grew 8.8% with one new store planned for thesecond half. In Spain (10 stores) sales grew 44.4% with a further store plannedfor the second half. In Russia (four stores), one new store opened and a furtherstore is planned to open by the year end. Koctas in Turkey (12 stores), a 50%joint venture, continued to grow sales and doubled its profit contribution. Twonew stores were opened, with four more stores planned this year. Hornbach, inwhich Kingfisher has a 21% economic interest, contributed £3.9 million to retailprofit (£6.5 million in H1 2006/07) in a difficult German market. Operational Review - ASIA For the 26 weeks ended 4 August 2007 Retail sales £m 2007/08 2006/07 Reported Constant % LFL % Change % Change ChangeAsia 227.1 209.0 8.7% 14.9% 4.1% Retail profit £m 2007/08 2006/07 Reported Constant % Change % ChangeAsia (11.0) (6.6) (66.7)% (74.6)% Asia includes China, Taiwan, and South Korea. Taiwan JV sales are notconsolidated. All percentage movements below are in constant currencies. Asia sales grew 14.9% (+4.1% LFL) to £227.1 million with retail losses of £11.0million (2006/07: £6.6 million). B&Q China Sales increased 13.9% to £220.4 million (+4.4% LFL), reflecting nine new storestrading compared to the same period last year and the development of new ranges.B&Q China's home decoration service designed and fitted out 18,000 apartmentsduring the first half, up 24% on the prior year. Retail losses were £9.5 million(2006/07: £5.1 million). Finalisation of B&Q China's 2007 supplier agreements was delayed untilclarification by the authorities in August 2007 of new regulations coveringtrading terms between retailers and suppliers. As a result of required changesto certain of its supplier arrangements, B&Q China's H1 result was reduced by £4million, with a further £9 million impact anticipated in H2. B&Q China expectsto conclude economically satisfactory supplier agreements under the newregulations during 2008. Two new stores were opened, including the first store in Hong Kong in June,consolidating B&Q's position as clear market leader in China with 59 stores. Afurther five new store openings are planned for the balance of year. B&Q Taiwan, a 50% joint venture, operating from 21 stores, delivered a smallprofit in a market that continues to be affected by weak consumer confidence.One new store is planned for the second half. Financial Review Financial summary Group sales grew 9.8% to £4.8 billion (2006/07: £4.3 billion), up 10.7% on aconstant currency basis. During the first half, an additional 46 net new storeswere added, taking the store network to 764, including joint ventures. On alike-for-like basis, Group sales were up 4.3% (2006/07: 0.5% decrease). Retail profit grew 3.7% to £240.1 million (2006/07: £231.5 million), up 4.2% ona constant currency basis. Profit growth was driven by higher sales, operatingcost efficiency improvements, and progress in international sourcing andown-brand development. This was partly offset by operating cost inflation andinvestment in developing businesses. Central costs increased 2.7% to £18.7 million (2006/07: £18.2 million). For thefull year, central costs are expected to be broadly in line with last year. Operating profit increased by 3.1% to £257.1 million (2006/07: £249.4 million).Operating profit benefited from income on exceptional items of £37.2 million(2006/07: £42.0 million). The Group recorded £42.9 million profit relating toproperty disposals, £10.7 million costs incurred on the closure of B&Q SouthKorea and £5.0 million income on the receipt of a loan previously written off asan exceptional item. Included within property disposals is £40.0 million relatedto the sale of the freehold interest in the Worksop distribution centre in theUK. Following the closure of 15 B&Q Supercentre stores in the UK in January 2006,almost half of the space has now been sublet. Net interest costs increased to £27.7 million (2006/07: £26.3 million). Theimpact of higher interest rates has been partially offset by an increase in netinterest return on the defined benefit pension scheme. The effective tax rate on profit before exceptional items, prior yearadjustments and adjustments in respect of changes in tax rate is 32.0% (2006/07:34.5%), based on current expectations for the 2007/08 full year. This reductionis driven by a change in the geographic profit mix of the Group. Profit after tax (attributable to equity shareholders) decreased 5.3% to £159.6million (2006/07: £168.5 million). Adjusted basic earnings per share were up 11.8% to 5.7p (2006/07: 5.1p). Basicearnings per share were down 5.6% to 6.8p (2006/07 7.2p). The interim dividend is proposed at 3.85p per share (2006/07: 3.85p), flat yearon year. Net debt decreased marginally to £1,289.9 million (£1,293.8 million at 3February 2007). The Group generated £389.9 million of cash from operatingactivities in the period, down £37.5 million on the prior year, mainly as aresult of higher stock levels. Gross capital expenditure increased 6.4% to£282.8 million (2006/07: £265.8 million). Disposal proceeds decreased 59.0% to£86.1 million (2006/07: £210.2 million). Receipts included £73 million on thesale of the freehold interest in the Worksop distribution centre (2006/07: £198million of proceeds realised from sale and leaseback of seven B&Q UK largeformat stores). Net capital expenditure for the period was £196.7 million (2006/07: £55.6 million). A reconciliation of statutory profit to adjusted profit is set out below: 2007/08 2006/07 Increase / (decrease) £m £m Profit before taxation 229.4 223.1 2.8% Exceptional items (37.2) (42.0)Profit before exceptional items and taxation 192.2 181.1 6.1% Financing fair value remeasurements (2.7) (2.7)Amortisation of acquisition intangibles 0.1 0.1Adjusted pre-tax profit 189.6 178.5 6.2% Income tax expense on pre-exceptional profit (57.0) (62.4)Income tax on fair value remeasurements 0.8 0.8Adjusted post-tax profit 133.4 116.9 14.1%Minority interest 1.0 1.4Adjusted post-tax profit attributable to equity shareholders 134.4 118.3 13.6% Risks The Board considers risk assessment, identification of mitigating actions andinternal controls to be fundamental to achieving Kingfisher's strategiccorporate objectives. The principal factors to be considered when assessingKingfisher's ability to achieve its objectives are: • Economic and market conditions which influence consumer spending • Cultural, regulatory and political risks in new markets • Maintaining competitive product ranges, prices and customer service • Continuing to innovate in rapidly changing markets • Attracting and retaining the best people • Sufficiency of financial resources • Protecting reputation of Kingfisher and its subsidiaries • Customer and employee in-store safety • Environmental trends and risks Operational Review - DATA BY COUNTRY as at 4 August 2007 Store numbers Selling space Employees (000s sq.m.) (FTE)B&Q 325 2,343 27,327UK Trade 74 25 2,568Total UK 399 2,368 29,895Castorama 98 972 13,377Brico Depot 88 472 6,379Total France 186 1,444 19,756Poland 37 305 7,031Italy 27 171 2,188 Ireland 7 46 521Spain 10 51 641 Russia 4 36 1,241 Turkey 12 65 1,343Total Rest of Europe 97 674 12,965China 59 560 10,133Taiwan 21 97 1,867South Korea 2 12 108Total Asia 82 669 12,108Total 764 5,155 74,724 Operational Review - SECOND QUARTER BY GEOGRAPHY - 13 weeks to 4 August 2007 Retail sales £m % %LFL Retail profit £m % 2007/08 2006/07 Change Change 2007/08 2006/07 Change (Reported) (Reported)UK 1,154.7 1,140.5 1.2% (1.5)% 49.6 68.5 (27.6)%France 849.8 796.1 6.7% 2.1% 65.0 55.3 17.5%Rest of Europe (1) 335.1 267.5 25.3% 14.0% 39.6 38.1 3.9%Asia (2) 142.0 124.9 13.7% 9.3% (2.7) 1.1 n/aTotal 2,481.6 2,329.0 6.6% 2.2% 151.5 163.0 (7.1)% (1) Rest of Europe includes Poland, Italy, Spain, Koctas JV in Turkey,Ireland, Russia and Hornbach in Germany. Sales from Koctas and Hornbach are notconsolidated. (2) 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 760 stores in 10 countries in Europe and Asia. Itsmain brands are B&Q, Castorama, Brico Depot and Screwfix. Kingfisher also has a21% interest in, and strategic alliance with, Hornbach, Germany's leading largeformat DIY retailer, with over 120 stores in Germany and eight other Europeancountries. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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