16th Dec 2008 07:00
16 December 2008
Statement of Results for the Six Months ended 31 October 2008
Summary
1 Constant exchange rate of £1 = Euro 1.2624
2 Retail profit represents total operating profit before the share of joint venture and associates' interest and taxation, valuation gains and losses on options to acquire minority interests and amortisation and impairment of acquisition related intangible assets.
Jean-Noel Labroue, Chief Executive, commented:
"The economic climate across Europe has created very tough trading conditions for all our businesses, particularly in the UK and Spain. However, Darty in France and our established businesses in Holland, Belgium and the Czech Republic have demonstrated good resilience and our start up operations in Italy and Turkey continued to make further progress.
"I am satisfied that our strict focus on cash management, stock and capital expenditure, along with margin management and cost control, has allowed us to maintain a strong balance sheet.
"This will remain a priority for the Group and will help us manage the business through what will be a very difficult peak trading period as we do not expect consumer confidence to improve for the rest of the financial year."
David Newlands, Chairman, commented:
"In extremely challenging conditions I am pleased that the Group has again demonstrated the fundamental strength of its cash generative business model. This strength, together with our current positive cash position, our significant unleveraged freehold property portfolio and other operational and financial levers available, gives us confidence that the Group is well positioned for current conditions.
"Nevertheless, given the recessionary environment, the Directors have reduced the interim dividend to 1.75 pence (2007: 3.50 pence). The Board intends to resume its progressive dividend policy when economic recovery resumes as it surely will in due course."
ENDS
Enquiries
Press:
Kesa Electricals plc
Annabel Donaldson +44 (0) 20 7269 1400
Finsbury
Ryan O'Keeffe +44 (0) 20 7251 3801
Euro RSCG
Benjamin Perret +33 (0) 1 58 47 95 39
Analysts:
Kesa Electricals plc
Simon Ward +44 (0) 20 7269 1400
There will be a presentation today to analysts and institutions at 09.30am at The Auditorium, Ground floor, Merrill Lynch, 2 King Edwards Street, London, EC1A 1HQ.
This announcement is available on the Kesa Electricals website: www.kesaelectricals.com. A live webcast of the presentation to analysts and institutions will also be available on the site at 09.30am, and recorded for access later in the day.
Kesa Electricals will issue its next trading update on 20 January 2009 for the period 1 November 2008 - 8 January 2009.
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, Kesa Electricals 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.
KESA Electricals is a specialist electrical retailer. It employs more than 27,000 people and trades in 12 countries and has an annual turnover of approximately £4.5 billion. KESA Electricals is a member of the FTSE 250. Its ordinary shares are listed with the UK Listing Authority and trade on the market for listed securities on the London Stock Exchange under the symbol KESA.L. It is also listed on the Premier Marche of the Paris Stock Exchange. For further information, please visit the company's website, as above.
GROUP OVERVIEW
Results as reported in sterling
|
Revenue for 6 months ended 31 October 2008 £m |
Revenue for 6 months ended 31 October 2007 £m |
Change % |
Retail profit for 6 months ended 31 October 2008 £m |
Retail profit for 6 months ended 31 October 2007 £m |
Change % |
||
|
Darty |
1,010.5 |
876.2 |
15.3 |
40.1 |
43.4 |
(7.6) |
|
|
Comet |
723.3 |
785.4 |
(7.9) |
(8.1) |
10.6 |
- |
|
|
Other* |
447.0 |
300.6 |
48.7 |
(12.0) |
(2.9) |
- |
|
|
Central |
- |
- |
- |
(7.0) |
(6.0) |
(16.7) |
|
|
Total |
2,180.8 |
1,962.2 |
11.1 |
13.0 |
45.1 |
(71.2) |
Results as reported in local currency
|
Revenue for 6 months ended 31 October 2008 m |
Revenue for 6 months ended 31 October 2007 m |
Change % |
Retail profit for 6 months ended 31 October 2008 m |
Retail profit for 6 months ended 31 October 2007 m |
Change % |
||
|
Darty |
€1,275.4 |
€1,284.3 |
(0.7) |
€50.6 |
€63.8 |
(20.7) |
|
|
Comet |
£723.3 |
£785.4 |
(7.9) |
£(8.1) |
£10.6 |
- |
|
|
Other* |
€564.4 |
€440.0 |
28.3 |
€(15.1) |
€(4.3) |
- |
*Includes BCC, Vanden Borre, Datart, Darty Italy, Darty Switzerland, Darty Turkey and Menaje del Hogar
Financial Summary
Group revenue was £2,180.8 million, up 11.1 per cent on last year (0.4 per cent in constant currency) and down 5.5 per cent on a like for like basis.
Group retail profit was £13.0 million, down from £45.1 million last year, primarily due to the losses at Comet of £8.1 million (2007 profit: £10.6 million) and Menaje del Hogar of £8.7 million.
Reported operating loss of £101.7 million was after exceptional non cash charges relating to Menaje del Hogar goodwill and intangible assets write off of £114.4 million.
The net interest charge was £2.1 million (2007: £5.0 million) being net interest income of £0.3 million less pension funding interest costs of £2.4 million. Loss before tax and after interest was £103.8 million compared to a profit of £40.5 million last year.
The effective tax rate on profit from continuing operations before exceptional items, including the share of joint venture and associates' tax and excluding the effects of prior year tax adjustments, was 33.0 per cent (2007: 30.0 per cent). This represents the best estimate of the full year effective tax rate.
Cash generated from operations was £122.3 million, compared to £167.6 million last year.
Net capital expenditure and investments was £74.9 million for the period (2007: £162.1 million).
Closing net cash was £5.2 million compared to net debt of £315.3 million on 31 October 2007, reflecting the acquisition of Menaje del Hogar in September 2007 and the sale of BUT in March 2008.
Basic and diluted losses per share from continuing operations were 19.4 pence (earnings of 5.5 pence in 2007) and adjusted earnings per share were 2.2 pence (5.4 pence in 2007).
The Board has declared an interim dividend of 1.75 pence. The ex dividend date will be 4 March 2009, the record date 6 March 2009 and the payment date will be 3 April 2009.
Financing
During the period, the Group signed a five year €500 million revolving credit facility expiring in 2013, replacing the existing €650 million facility which was due to expire in 2010.
As at 31 October 2008, €200 million of this facility was drawn down. The facility contains a fixed charge and a leverage covenant which were both met at the half year.
Exceptional items
In light of market conditions in Spain, the Directors have re-assessed the carrying value of Menaje del Hogar's goodwill and other assets. Based on the most recent plans and forecasts, an exceptional pre-tax charge of £114.4 million was recorded in the first half of the year. The goodwill and other intangible assets have been fully impaired. These accounting charges do not change the cash flows of the Group.
Outlook
The economic climate across Europe is very weak and we do not expect to see any improvement for the remainder of this financial year.
Our second half includes the key peak trading period over Christmas and New Year which is essential to our full year performance. We will remain focussed on cash generation by closely managing stock levels, capital expenditure, margin and costs to take the Group through the current difficult trading environment and maintain a strong balance sheet.
The Group will continue its store opening programmes for the new businesses in Italy and Turkey to achieve critical mass.
DARTY
|
Results for 6 months ended 31 October 2008 £m |
Results for 6 months ended 31 October 2007 £m |
Change |
Results for 6 months ended 31 October 2008 €m |
Results for 6 months ended 31 October 2007 €m |
Change |
||
|
Revenue |
1,010.5 |
876.2 |
15.3% |
1,275.4 |
1,284.3 |
(0.7)% |
|
|
Retail profit |
40.1 |
43.4 |
(7.6)% |
50.6 |
63.8 |
(20.7)% |
|
|
No of stores |
220 |
213 |
+7 |
||||
|
Sales space (000s sq m) |
290 |
282 |
2.8% |
In trading conditions that toughened during the period, Darty delivered a solid performance with market share gains. Total revenue fell by 0.7 per cent in local currency compared to the same period last year, down 3.8 per cent on a like for like basis.
Gross margin remained stable and retail profit was €59.8 million (2007: €74.3 million) before Darty Box losses of €9.2 million (€10.5 million last year).
As at 31 October, total net subscribers to Darty Box had reached over 176,000 and Darty remains on target to reach the 240,000 subscribers by the end of the financial year. In early November, Darty launched a new Box utilising the fibre optic network of its commercial partner Numericable. Compared to ADSL, it offers customers very high speed web surfing, high definition TV and simultaneous access to all multimedia services. Subscribers to the new Box will receive free home delivery and installation.
The store modernisation programme progressed on schedule. In the first half, Darty completed six new store openings, two refurbishments / extensions and rolled out the new kitchen range to a further five stores. For the second half, one new store will open and five relocations will be completed. Four more stores will be fitted with the new Kitchen range, bringing the total to 12.
The Darty web site was revamped during the summer and continued to deliver strong growth, generating a year on year sales uplift of 34 per cent.
COMET
|
Results for 6 months ended 31 October 2008 £m |
Results for 6 months ended 31 October 2007 £m |
Change |
|
|
Revenue |
723.3 |
785.4 |
(7.9)% |
|
Retail profit |
(8.1) |
10.6 |
- |
|
No of stores |
252 |
250 |
+2 |
|
Sales space (000s sq m) |
274 |
264 |
3.8% |
In a particularly tough economic climate, Comet delivered total revenue of £723.3 million, down 7.9 per cent on the same period last year and down 11.6 per cent on a like for like basis.
The very aggressive market conditions impacted gross margin, down 100 basis points, and as anticipated Comet made a loss over the period. This was limited to £8.1 million due to strong actions on costs which reduced year on year as a result of variable cost reductions, streamlining store and head office staffing levels and rationalising the logistics structure with the closure of two home delivery platforms and the relocation of the regional distribution centre in Harlow. All these cost actions will benefit the second half.
Comet also continued to deliver positive operating cashflow after capital expenditure and this remains a key priority for the business.
Investment in Comet's in-store and after-sales service proposition was maintained with extended customer service offers and additional staff training courses undertaken.
The continued success of the stores with trading mezzanine floors, particularly in optimising overall rent efficiencies, led to Comet further investing in this format. Eight stores were converted and one new store opened in the first half, bringing the current total to 32, and one refurbishment was completed. In the second half of the year four stores will be converted to the mezzanine format.
OTHER BUSINESSES*
|
Results for 6 months ended 31 October 2008 £m |
Results for 6 months ended 31 October 2007 £m |
Change |
Results for 6 months ended 31 October 2008 €m |
Results for 6 months ended 31 October 2007 €m |
Change |
||
|
Revenue |
447.0 |
300.6 |
48.7 |
564.4 |
440.0 |
28.3% |
|
|
Retail profit |
(12.0) |
(2.9) |
- |
(15.1) |
(4.3) |
- |
|
|
No of stores |
239 |
221 |
+18 |
||||
|
Sales space (000s sq m) |
293 |
264 |
11.0% |
*BCC, Vanden Borre, Datart, Darty Italy, Darty Switzerland, Darty Turkey and Menaje del Hogar
Total revenue for BCC, Vanden Borre, Datart, Darty Italy, Darty Switzerland Darty Turkey and Menaje del Hogar grew by 28.3 per cent in local currency, up 1.4 per cent on a like for like basis. Our established businesses BCC, Vanden Borre and Datart are demonstrating the success of the business model by gaining market share and delivering good profitability in difficult trading conditions.
Retail profit for these three businesses was €8.8 million (€10.1 million last year). Start up losses for Darty Italy, Darty Switzerland and Darty Turkey reduced to €12.9 million from €13.7 million in 2007. In the worst trading conditions in Europe, Menaje del Hogar made a loss of €11.0 million.
From its differentiated position, Darty Italy delivered positive like for like sales, improved its gross margin and reduced the start-up losses. There are now 14 stores in operation, including one new store recently opened in the centre of Milan.
The Darty stores in Switzerland also delivered positive like for like sales growth and gross margin improvement.
In Turkey we have nine Darty stores open including two outside Istanbul in Izmir and Izmit. Trading continued to be very encouraging and a further four stores are planned for the second half of the year including an opening in Ankara.
These three start-up operations will further reduce the losses as the businesses scale up their operations.
The acquisition of Menaje del Hogar has provided the Group with a platform to build a differentiated business in the significant Spanish market. The current market conditions are extremely weak, much worse than anticipated, and we do not foresee any improvement in the short-term.
However, we remain confident that the Kesa business model can be successfully implemented in Spain and we have a new experienced management team in place to execute our action plan. This includes store portfolio rationalisation, improving merchandising, ranging, sourcing, productivity and back office processes and testing new store formats.
Key Events
On 5 September Kesa signed a new committed €500 million facility, replacing the Group's existing €650 million facility which was due to expire in July 2010.
On 6 October Kesa announced that Jean-Noel Labroue had decided to retire. He will leave after a handover period to Thierry Falque-Pierrotin who is joining the Group on 5 January 2009 as Chief Executive Officer.
Principal Risks
The risks to achieving the objectives for the remainder of the financial year remain those more fully set out in the Corporate Governance report on pages 21 and 22 of the 2007/08 Annual report.
The business, financial condition or results of operations of the Group could be adversely affected by any of the risks set out in the 2007/08 Annual Report. The Group's systems of control and protection are designed to help manage and control risks to an appropriate level rather than to eliminate them.
A summary of these risks is as follows;-
Economic and financial conditions
Product life cycles
Entry into new markets
Systems failure
Foreign exchange exposure
Pension risks - particularly in relation to the UK defined benefit scheme
Leased properties
Legislative, reputational and regulatory risks
The economic environment influences the level of consumer expenditure on electrical goods in a number of ways. The state of the housing market affects spending on white goods in particular, and the 'feel good' factor has a significant influence on discretionary spending on higher value electrical products. Many other economic factors influence customers' spending decisions, including macro economic uncertainty, unemployment, personal taxation, interest rates and levels of personal debt.
The Group's business is seasonal, with a high percentage of its annual sales and operating profit generated during the Christmas gift and New Year periods.
These risk factors influence the liquidity of the business. As set out in the Outlook section, the economic climate across Europe is very weak and we do not expect these conditions to improve this financial year. The Board has reviewed the Group's latest financial forecasts, and also reasonable adverse variations in trading, and is satisfied that the Group will continue to operate as a going concern.
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.
Directors Responsibility Statement
The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a true and fair review of the information required by DTR 4.2.7 and DTR 4.2.8.
The narrative of this half year report includes a fair review of the business and of any required related party disclosures.
The Directors of Kesa Electricals Group are listed in the Kesa Electricals Group Annual Report for 2007/08. A list of current directors is maintained on the Kesa Electricals Group website: www.kesaelectricals.com.
By order of the Board
Jean-Noel Labroue
16 December 2008
Chief Executive
Simon Herrick
16 December 2008
Finance Director
Independent review report to Kesa Electricals plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the interim report for the six months ended 31 October 2008, which comprises the Group income statement, Group statement of recognised income and expense, Group balance sheet, Group cash flow statement and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, 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.
Scope of review
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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the interim report for the six months ended 31 October 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered AccountantsLondon
16 December 2008
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