Interim Results - Part 1 amendment

RNS Number : 1320Z

Kingfisher PLC

15 September 2015

 



The following amendment has been made to the Interim Results announcement released on 15 September 2015 at 07:00 under RNS No 0265Z.
 
Corrects the record date, from the close of business on 10 October 2015 to the close of business on 9 October 2015, by when shareholders are required to be on the register to qualify for the interim ordinary dividend for FY 2015/16.
 
All other details remain unchanged.
 
The full amended text is shown below.

Interim results for the half year ended 1 August 2015

 Sales up 3.5% and retail profit up 5.0%, in constant currencies

Adjusted pre-tax profit of £384m, down 2.3%

Solid early progress on the journey to 'ONE' Kingfisher

Financial overview and highlights for the 26 weeks ended 1 August 2015: % Total Change % Total Change % LFL* Change 2015/16 2014/15 Reported Constant currency Constant currency Adjusted sales* £5,382m £5,605m (4.0)% +3.5% +2.0% Retail profit* £410m £419m (2.2)% +5.0% Adjusted* pre-tax profit £384m £393m (2.3)% Adjusted basic EPS 12.3p 12.3p Flat Interim dividend 3.18p 3.15p +1.0% Net cash* £435m £496m n/a *Throughout this release '*' indicates first instance of a term defined in the Glossary (section 5). ·    Total adjusted sales in constant currencies up 3.5% (France +1.1%; UK & Ireland +4.6%; Other International +5.7%) ·    Retail profit in constant currencies up 5.0% (France (5.7)%; UK & Ireland +16.8%; Other International +3.0%) ·    Adjusted pre-tax profit of £384m driven by strong UK profit growth, offset by £29m adverse foreign exchange movements on the translation of non-sterling profits ·    £160m returned to date via a share buyback since year end (44.7m shares), part of the previously announced £200m due to be returned during FY 2015/16

Solid early progress with our first 'sharp' decisions as we progress towards  'ONE' Kingfisher: CUSTOMER & OFFER: Good early progress in unifying our offer ·    First wave of unifying our 'core essential' ranges to land in stores next year RETAIL OPERATIONS: Space - rationalisation on track; announcing Screwfix UK expansion ·    On track to close c.15% B&Q surplus space by end of FY 2016/17 (c.60 stores) in over-spaced catchments; exit of leases secured on 26 of the stores ·    Announced closure of 2 stores in France and 1 in Russia ·    Announcing potential for a further 200 Screwfix UK outlets from 412 today; Screwfix Germany trial on track INFRASTRUCTURE & PROCESSES: Programme to unify Goods Not For Resale (GNFR*) underway ·    First wave of unified spend (£350m) on track to land next year Unified IT platform, key enabler of 'ONE' Kingfisher on track ·    Ireland pilot started on time and working well ·    Announcing acceleration of rollout (to complete by end of FY 2018/19) PEOPLE: Finalised leadership team with appointment of Chief People Officer

Véronique Laury, Chief Executive Officer, said:

"I am pleased that we have delivered a solid first half of the year and have made good early progress with our 'ONE' Kingfisher plan. This plan will unlock our potential through organising ourselves very differently in order to create a single, unified company where customer needs come first.

"We have been working at pace on our set of first 'sharp' decisions. I am particularly excited to see the first wave of unified 'core essential' ranges landing in stores next year. This is being led by Arja Taaveniku, our Chief Offer & Supply Chain Officer, who joined the team in May. Furthermore, I am also delighted with the pilot of our unified IT system in Ireland, which we are now able to accelerate across Kingfisher given the success so far. This will be a key enabler of our 'ONE' Kingfisher journey.

"There remains a lot to be done however. Our leadership team is now complete and we are continuing to develop our detailed plans at pace as we progress on this exciting journey. We look forward to updating on further progress along the way."

Karen Witts, Chief Financial Officer, said:

"We continue to believe our plans will drive an increase in the value of our business for shareholders, whilst at the same time optimising the generation and use of cash.

"Our balance sheet remains strong, enabling us to continue investing for growth and to return so far this year, £160 million via share buyback. We are also today announcing growth in the interim dividend, ahead of earnings, reflecting our confidence in our medium term prospects. In addition, I am pleased with the progress made to exit most of the B&Q stores earmarked for closure this year, which will in time strengthen our balance sheet and maintain our financial flexibility.

"In the short term, whilst we remain encouraged by the macroeconomic backdrop in the UK, we remain cautious on the outlook for France."

Statutory reporting:

	2015/16	2014/15	% Change Reported
Statutory sales*	£5,492m	£5,768m	(4.8)%
Statutory pre-tax profit	£386m	£393m	(1.8)%
Statutory post-tax profit	£318m	£290m	+9.7%
Basic EPS	13.6p	12.3p	+10.6%

Contacts:

Investor Relations	[phone]
Media Relations	[phone]
Brunswick	[phone]

This announcement can be downloaded from www.kingfisher.com or viewed on the Kingfisher IR iPad App. We can be followed on twitter @kingfisherplc with the Interim results tag #KGFH1. Our next announcement will be the Q3 trading update for period ended 31 October 2015 on 24 November 2015.

Kingfisher American Depository Receipts are traded in the US on the OTCQX platform:

(OTCQX: KGFHY) http://www.otcmarkets.com/stock/KGFHY/quote

The remainder of this release is broken down into six main sections:

1)   'ONE' Kingfisher update

2)   Trading review by major geography

3)   FY 2015/16 Technical guidance

4)   Financial Review and, in part 2 of this announcement, the interim condensed Financial Statements

5)   Glossary

6)   Forward-looking statements

Section 1: 'ONE' Kingfisher update

Following an in depth review of Kingfisher's business and strategy earlier this year, the leadership team announced 'ONE' Kingfisher, a plan that will leverage the scale of the business by becoming a single unified company where customer needs come first. To achieve this the team concluded that the business needs to be organised very differently moving away from a set of locally managed businesses to a single unified company.

A summary of the review findings are below:  

·    Home improvement is a great market with huge potential

·    We are right to focus on Europe+*

·    We can achieve significant benefits from developing a more common, unique and effective offer

·    There is no one clear winning format or channel in our market today

·    We can achieve significant benefits from unifying activities and standardising processes

We will operate within the following clear set of guiding principles:

1.   Customer needs come first

2.   Create a unique and leading offer

3.   Same products across Europe presented to customers in the same way

4.   Limited number of formats and omnichannel* everywhere

5.   Low cost always

6.   One company culture

We believe that following these principles will drive higher sales from having a unique, differentiated offer at good prices for our customers whilst maintaining our gross margin rate and lowering our cost base. Combining this with continued strict capital discipline will deliver improved financial metrics for our shareholders. 

At the full year results a series of first 'sharp' decisions were announced relating to each of the key work streams of 'ONE' Kingfisher. The following section provides an update.

Update on first 'sharp' decisions:

We have made good early progress with the first 'sharp' decisions since the year end. As we have started to implement our plan we have refined the work streams initially outlined. 'Customer & Offer' are now combined as one and 'Formats / Channels' are now renamed as 'Retail Operations'.

1.   Customer & Offer

Everything will be based on our deep knowledge of customer needs and customers' shopping journeys. Of a total of 393,000⁽¹⁾ SKUs* sold across the company last year, only 7,000⁽¹⁾ were sold in at least two operating companies and around 193,000 SKUs related to non-ranged (delisted and ex-promotional) products which do not form part of existing retail planograms*. Driven by the knowledge that customer needs are more similar than different across geographies, ranged products (part of planograms of around 200,000 SKUs) can be more unified in all our markets across Europe+.

⁽¹⁾       Across top 5 operating companies Castorama France, Brico Dépôt France, B&Q, Screwfix UK & Poland

Unified ranges (same products everywhere presented in the same way) will cover unique, core essential and complementary categories, as defined below:

Unique: leading home improvement products and solutions where we want to be the first choice destination in customers' minds. To develop unique products, we will need to develop deeper competence in areas such as design, engineering, materials and packaging to complement existing expertise as part of the new unified offer organisation.

Core essentials: home improvement basics and consumables (e.g. batteries, paintbrushes, light bulbs). Products that our customers see as universal.

Complementary: products which will complete our home improvement offer.

First sharp decisions:

·    Develop unique garden and bathroom businesses

·    Develop core essential offer

·    Develop plan to cut existing product tail*

Update:

Core essentials:

These products represent around one third of total company buying scale. We believe that the number of SKUs and suppliers can be significantly reduced. New ways of working and supplier guidelines are already in place. We are starting with 20 categories which represent £0.6 billion of total company buying scale and will land in stores in FY 2016/17. Progress to date indicates that c.90% will be unified and c.10% will be locally adapted.

We are progressing well e.g. we currently sell 338 battery SKUs across our nine operating companies with up to 13 ranges sold in each. We anticipate moving towards a unified offer of 36 SKUs on up to four ranges across our formats.

Cut the Tail:

This relates to our plan to cut the 193,000 delisted and ex-promotional SKUs which do not form part of our existing retail planograms, and is mostly in Big Box stores.

Dedicated teams have been set up in each operating company, led by Guy Colleau (Operations Director - Big Box). Plans are in place to cut the tail over the next three years and clearance has recently started.

2.   Retail Operations

Our goal is to present the same products to customers across Europe in the same way under a simplified model. This will drive operational efficiencies whilst recognising that customer needs are evolving quickly so we need to adapt to this fast changing retail environment. Our existing channels will be managed under three formats: Big Box, Medium Box and Omnichannel, and each will be standardised across all of our markets.

First sharp decisions:

·    Space rationalisation:

o Close c.15% surplus space at B&Q

o Close our few loss making stores in Europe

·    Pilot Big Box best practice across Europe

·    Extend Screwfix trial in Germany

Update:

Space rationalisation:

As previously announced we intend to close c.15% surplus space (c.60 stores; 6 right-sizes*) at B&Q by the end of the 2016/17 as we know that we can adequately meet local customer needs from fewer stores and that some of the stores should be smaller. The closures are being prioritised by the most over-spaced catchments in order to retain customers and sales. The majority of the 30 B&Q closures planned for this year will take place in H2. Exits of 26 leases have been secured through a combination of transfers to three national retailers (three stores subject to planning change) and lease expiries. Discussions are ongoing on further stores. We have also announced the closure of 2 stores in Castorama France and 1 in Russia.

This will give rise to a total exceptional charge of around £350 million relating principally to onerous lease provisions over this year and next year, £151 million of which was booked in H1.

Screwfix:

Screwfix UK's leading omnichannel offer continues to deliver strong growth. We continue to review the scale of the UK market opportunity and now believe that there is potential for around 600 outlets versus the 412 today, providing even greater convenience for customers.

Our Screwfix Germany trial remains on track. Although it is still early days, the concept has been well received and we are seeing good signs of repeat business from a growing number of customers both in store and online. We remain on track to open another five outlets this year taking the total to nine.

3.   INFRASTRUCTURE & PROCESSES

Unifying our processes and infrastructure will not only drive operating efficiencies but will also make us a simpler and more agile organisation.

First sharp decisions:

·    Pilot unified IT platform, then accelerate

·    Unify £1.2bn goods not for resale (GNFR) process

Update:

IT platform:

The unified IT system is a key enabler of our 'ONE' Kingfisher plan, providing a step change for customers and colleagues. In July the pilot started on time in Ireland and is now live in seven stores, is working well and colleague feedback in stores has been positive.

Given the success so far we have taken the decision to accelerate the roll out to complete by the end of FY 2018/19 versus our original plan of FY 2020/21, starting with B&Q and Castorama France in 2016.

GNFR:

Following the completion of a detailed scoping exercise concluding that there are significant financial and efficiency benefits to be gained from unifying £1.2 billion of GNFR spend, the programme is now underway. We believe that around 90% can be unified and will be implemented across three waves over the next three years.

Wave 1 is progressing well, covers nine categories (including media buying, mechanical handling equipment, printing and paper) and £350m of spend, with contract tendering on track to take place in H2 this year.

4.   People

To drive through these changes we have established a new leadership team. We need to move to a wider reorganisation in order to unlock the real potential of 'ONE' Kingfisher. Across the wider company we will have more international and diverse teams with deeper competence, experience, leadership, and passion for home improvement, operating with English as the common working language.

First sharp decision:

·    Finalise new leadership team and wider reorganisation structure

Update:

The new international leadership team is now complete following the appointments of Arja Taaveniku, Chief Offer & Supply Chain Officer, who joined in May from the IKEA Group, and Emily Lawson, Chief People Officer, who will join Kingfisher in October. Emily was previously Group HR Director at Morrisons Supermarkets PLC and a Partner at McKinsey & Co where she led the human capital practice. She has significant experience of leading business transformations and in cultural change.

We have also reviewed all CEOs across the operating companies and other key roles. As a result, a number of changes in senior roles have been made, redeploying Kingfisher talent alongside new external appointments e.g. Michael Loeve joined B&Q as CEO on 1 September, an experienced Danish retailer, with 12 years' experience in senior roles across retail operations, supply chain, IT and strategy, most recently for Co-op Denmark.

Given the scale of change across the company we have also set up a 'Change Management' function to provide a framework for continuous testing and measuring of the strategic tasks. Understanding the interdependencies of the different elements of the 'ONE' Kingfisher plan is key to managing change efficiently and minimising execution risk.   

Summary

We are pleased with the solid early progress that we have made on the journey to 'ONE' Kingfisher on the first 'sharp' decisions that we announced in March 2015. We are continuing to work on the detail of our long term strategy and our KPIs and will update on further progress along the way.

Section 2: 2015/16 Trading review by major geography

All trading commentary is in constant currencies

Note: Data tables for Q1, Q2 and half year are available for download in excel format at www.kingfisher.com/index.asp?pageid=59.

FRANCE*

£m	2015/16	2014/15	% Reported Change	% Constant Currency Change	% LFL Change
Sales	1,976	2,205	(10.4%)	+1.1%	(0.3)%
Retail profit	167	200	(16.4)%	(5.7)%

Kingfisher France sales increased by 1.1% (-0.3% LFL) to £1,976 million in a broadly flat market impacted by ongoing weak consumer confidence and a declining housing and construction market.   

Across the two businesses, one net new store was opened and one was revamped, adding around 1% new space. 'Click, pay & collect' omnichannel capability has now been rolled out to 131 stores, up from 34 at year end.

Gross margins were down 60 basis points, largely reflecting more price promotional activity. Despite continued focus on cost control retail profit declined by 5.7% to £167 million.  

Castorama total sales increased slightly by 0.1% (+0.2% LFL) to £1,095 million. According to Banque de France data^*, sales for the home improvement market were up 0.3%. LFL sales of outdoor seasonal products were up 3% and sales of indoor and building products broadly flat.  

Brico Dépôt, which more specifically targets trade professionals and proficient retail customers, was impacted by the ongoing slow house building market* with new housing starts and planning consent data both down around 6%. Total sales increased by 2.4%     (-0.9% LFL) to £881 million reflecting store openings.

UK & IRELAND*

£m	2015/16	2014/15	% Reported Change	% Constant Currency Change	% LFL Change
Sales	2,527	2,419	+4.5%	+4.6%	+3.3%
Retail profit	194	166	+16.8%	+16.8%

Kingfisher UK & Ireland sales were up 4.6% (+3.3% LFL) to £2,527 million benefitting from a stronger UK economy and a more buoyant housing construction market. Retail profit grew by 16.8% to £194 million. Gross margins were flat. Tight cost control continued driven by ongoing productivity initiatives at B&Q.

B&Q total sales increased slightly by 0.2% (+0.7% LFL) to £2,033 million. Sales of outdoor seasonal products were down 2.3% while sales of indoor products, excluding showroom, were up 3.6%. Sales of showroom products were down 2.4% driven by the decision to reduce promotional activity and instead offer customers 'Every Day Great Value', which, in kitchens, is now gaining momentum.

B&Q has been working on driving productivity benefits across the business since last year. Various initiatives have been introduced including 'store friendly deliveries' (making it quicker and easier for store staff to replenish) and roller checkouts (improving customer experience as well as scanning and database accuracy). These projects were completed during the summer.  

B&Q launched 'Click, Pay & Collect' on over 14,000 products last year with the release of the new diy.com. Total transacted online sales, including home delivery, continued to make good progress.

Screwfix grew total sales by 27.9% (+16.5% LFL) to £494 million, driven by strong growth from the specialist trade desks exclusive to plumbers and electricians within Screwfix outlets, strong digital and mobile growth, new and extended ranges, alongside the continued roll out of new outlets. 17 net new outlets were opened, taking the total to 412. Screwfix remains on track to open 60 outlets in FY 2015/16.

OTHER INTERNATIONAL*

£m	2015/16	2014/15	% Reported Change	% Constant Currency Change	% LFL Change
Sales	879	981	(10.3)%	+5.7%	+3.7%
Retail profit
Other International (established)	60	64	(7.0)%	+4.8%
New country development*	(11)	(11)	(0.5)%	(13.3)%
Total	49	53	(8.5)%	+3.0%

Other International total sales increased by 5.7% (+3.7% LFL) to £879 million driven by store openings and LFL growth in Russia and Poland. Retail profit increased by 3.0% to £49 million driven by Poland.

During H1 two net new stores were opened, being net three in Turkey and one closure (subject to relocation) in Poland. Space is broadly flat compared to H1 last year.

Other International (established):

Sales in Poland were up 2.3% (+3.4% LFL) to £508 million. LFL sales of outdoor seasonal products were up 6.0% with sales of indoor and building products up 2.9%. Gross margins were down 10 basis points. Retail profit grew by 8.7% to £53 million supported by the sales growth and tight cost control.

In Russia sales grew by 21.6% (+15.3% LFL) to £175 million reflecting strong consumer spending on durable goods in Q1 in an uncertain market followed by more normalised consumer spending in Q2. Retail profit increased to £3 million driven by the sales growth, despite adverse foreign currency exchange movements on the cost base. In Turkey, Kingfisher's 50% JV, Koçtaş, sales grew by 11.6% (+7.0% LFL) to £149 million reflecting new store openings and more promotional activity. Retail profit contribution was down to £2 million, reflecting the timing of new store openings and adverse foreign currency exchange movements on the cost base. In Spain sales declined by 4.6% (-6.2% LFL) to £144 million in a more competitive market. Retail profit was £2 million (2014/15: £3 million reported retail profit).

New Country Development:

New Country Development includes operations in Romania, Portugal and Germany. Sales were £52 million with losses of £11 million (2014/15: £11 million reported retail loss), reflecting the phasing of Screwfix Germany openings as well as a more challenging environment for Brico Dépôt Romania. In Germany, we remain on track to open a further five outlets during FY 2015/16 within the Frankfurt area. Sales and brand awareness continue to build with a growing number of repeat customers both in store and online.

Section 3: FY 2015/16 Technical guidance

·    Net new stores and space growth:

	Employees (FTE) At 1 Aug 2015	Store Numbers At 1 Aug 2015	Sales area(1) (000s m2) At 1 Aug 2015	Net new stores FY 2015/16	Space % change FY 2015/16
Castorama	12,695	102	1,237	(1)(2)	+0.2%
Brico Dépôt	7,143	116	810	4	+2.9%
France	19,838	218	2,047	3	+1.3%
B&Q UK & Ireland	20,519	355	2,540	(30)(3)	(6.8)%(3)
Screwfix	5,800	412	26(4)	60	+12.0%
UK & Ireland	26,319	767	2,566	30	(6.7)%
Poland	10,589	71	603	1	+1.6%
Portugal	104	2	12	-	-
Romania	915	15	121	-	(12.9)%
Russia	3,280	21	207	-	+0.5%
Spain	1,602	28	168	1	+3.6%
Turkey JV	3,879	52	239	11	+9.1%
Screwfix Germany	68	4	1(4)	5	-
Other International	20,437	193	1,351	18	+1.5%
Total Group	66,594	1,178	5,964	51	(2.1)%

⁽¹⁾ As part of 'ONE' Kingfisher a review of sales area reporting has been undertaken to ensure consistency across our operating companies. Restatements of Kingfisher's quarterly space for the previous 3 years are available in data tables at: www.kingfisher.com/index.asp?pageid=59

⁽²⁾ Castorama France store transfer to Brico Dépôt, announced closures will not take place in FY 2015/16

⁽³⁾ Store closures expected to take place towards the end of FY 2015/16

⁽⁴⁾ Screwfix sales area relates to the front of counter area of an outlet

·    Income statement:

o Retail losses from new country development activity expected to be around £17 million

o Central costs are expected to be around £45 million

o Group interest ⁽¹⁾ charge is expected to be around £10 million

o Corporation tax rate is expected to be around 26%, subject to the blend of profit within the companies various jurisdictions

o IFRIC 21 will impact phasing of certain French levies resulting in a year on year reduction in operating costs in Q1 to Q3 of around £9 million per quarter and an increase in Q4 of around £27 million ^(2&3)

o B&Q closures - income statement impact expected to be broadly neutral assuming on average that up to a third of sales transfer

o Space restructuring UK & Ireland and Europe - exceptional charge of around £350 million over 2 years to FY 2016/17

⁽¹⁾ Interest charge excludes FFVR* (financing fair value remeasurements)  

⁽²⁾ Data tables for FY 2014/15 (Q1, Q2, H1, Q3, Q3 YTD, Q4 and the full year) are available for download in excel format at www.kingfisher.com/index.asp?pageid=59. They include a restatement schedule for these impacts

⁽³⁾ Certain French  levies were previously recognised on an accruals basis across the year. Going forward, they will be accounted in Q4 when the liability is triggered, hence impacting quarterly phasing of French retail profit

·    Cash flow:

o Investing £350-400 million in capital expenditure

o Full year dividend to be covered 2.0-2.5 times by adjusted earnings

o Capital return of £200 million to be via share buyback

o No material incremental cash outflow resulting from the B&Q closures exceptional item, as principally relates to onerous lease provision

Section 4: 2015/16 Financial Review

A summary of the reported financial results for the six months ended 1 August 2015 is set out below:

	2015/16	2014/15	% Reported Change	% Constant Currency Change
Adjusted sales	£5,382m	£5,605m	(4.0)%	+3.5%
Statutory sales(1)	£5,492m	£5,768m	(4.8)%	+2.0%
Retail profit	£410m	£419m	(2.2)%	+5.0%
Adjusted pre-tax profit	£384m	£393m	(2.3)%
Statutory pre-tax profit	£386m	£393m	(1.8)%
Exceptional items (post-tax)	£38m	£11m	n/a
Adjusted basic earnings per share	12.3p	12.3p	Flat
Basic earnings per share	13.6p	12.3p	+10.6%
Dividends - interim                  - special	3.18p -	3.15p 4.20p	+1.0% n/a
Capital Return
-     Share buyback -     Special dividend Total Capital Return	£139m - £139m	£35m £100m £135m

⁽¹⁾ Statutory results include sales for B&Q China up to the date of disposal (30^th April 2015)

Reported retail profit declined 2.2% reflecting £29 million adverse foreign exchange movement on translating foreign currency results into sterling. Excluding foreign exchange impacts, retail profit grew by 5.0%, reflecting a mixed picture across our major markets with the UK and Poland markets improving, offset by France where conditions remain more challenging. However, our ongoing focus on cash and tight capital discipline meant we were able to continue to invest in the business whilst maintaining a strong balance sheet, pay £160 million in cash dividends and return a further £139 million to shareholders via share buybacks (£160 million to date).

Total adjusted sales grew by 3.5% on a constant currency basis to £5.4 billion with LFL sales up 2.0%. On a reported rate basis, which includes the impact of exchange rates, sales declined by 4.0%. During the period, sales growth benefitted from the addition of new space with 12 net new stores, driven by Screwfix outlet openings in the UK (excluding net three stores opened in the Turkey JV).

On a constant currency basis retail profit of £410 million increased by 5.0% including £11 million of new country development costs relating to Brico Dépôt Romania and Portugal and Screwfix in Germany.

As previously announced, the results for 2015/16 have been impacted by both a new IFRS accounting requirement, IFRIC 21 'Levies', and the disposal of operations in China in 2015/16. Comparatives have also been adjusted for IFRIC 21 and the China disposal. For H1 2014/15, this increased both retail profit and adjusted pre-tax profit by £29 million.

Restatement data tables for 2014/15 have been published at: www.kingfisher.com/index.asp?pageid=59

Adjusted pre-tax profit decreased by 2.3% to £384 million, in line with retail profit, primarily reflecting adverse foreign exchange movements.

Statutory pre-tax profit, decreased by 1.8% to £386 million. A reconciliation from the adjusted basis to the statutory basis for pre-tax profit is set out below:

	2015/16 £m	2014/15 £m	Increase/ (decrease)
Adjusted pre-tax profit	384	393	(2.3)%
B&Q China operating loss	(4)	(11)
Financing fair value remeasurements (FFVR)	(3)	1
Profit before exceptional items and taxation	377	383	(1.6)%
Exceptional items before tax	9	10
Statutory pre-tax profit	386	393	(1.8)%

Exceptional items (post tax) were a credit of £38 million (2014/15: £11 million credit) as detailed below:

	2015/16 £m Gain/(charge)	2014/15 £m Gain/(charge)
UK & Ireland and Europe restructuring	(151)	(6)
Profit on disposal of B&Q China	143	-
Disposal of properties(1)	17	21
Transaction costs	-	(5)
Exceptional items before tax	9	10
Exceptional tax items	29	1
Net exceptional items	38	11

 ⁽¹⁾ Disposal of properties includes the disposal of a property company

As previously announced, B&Q will close around 15% of space (c.60 stores; 6 right-sizes) by the end of FY 2016/17. There will also be a few closures of loss making stores across Europe. During the period we announced the decision to close two Castorama France stores.

This is expected to give rise to an exceptional charge of around £350 million relating principally to onerous lease provisions. At H1 2015/16 an exceptional charge for £151 million was recorded.

Profits were recorded in the period following the disposal of a controlling 70% stake in B&Q China. The disposal to Wumei Holdings Inc completed on 30 April 2015 for a gross cash consideration of £140 million resulting in a gain of £143 million.

Earnings per share

Adjusted basic earnings per share was flat at 12.3p (2014/15: 12.3p), which excludes the impact of B&Q China operating losses, exceptional items, financing fair value remeasurements and the effect of prior year tax items. Including these items basic earnings per share increased by 10.6% to 13.6p (2014/15: 12.3p) as set out below:

	Earnings £m	2015/16 EPS pence	Earnings £m	2014/15 EPS pence
Adjusted basic earnings per share	285	12.3	291	12.3
B&Q China operating loss	(4)	(0.2)	(11)	(0.5)
Net exceptional items	38	1.6	11	0.5
Prior year tax items	1	-	(1)	(0.1)
FFVR (net of tax)	(2)	(0.1)	1	0.1
Basic earnings per share	318	13.6	291	12.3

Dividends and capital returns

The Board has declared an interim ordinary dividend of 3.18p, an increase of 1.0% (2014/15: 3.15p). As previously announced, we are comfortable with full year dividend cover in the range of 2.0 to 2.5 times, a level the Board believes is prudent and consistent with the capital needs of the business. 

The interim dividend will be paid on 13 November 2015 to shareholders on the register at close of business on 9 October 2015. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. The shares will go ex-dividend on 8 October 2015. For those shareholders electing to receive the DRIP the last date for receipt of election is 23 October 2015.

In addition to the ordinary dividend Kingfisher has implemented a multi-year capital returns programme to return surplus capital to shareholders. Of the £200 million due to be returned in FY 2015/16, £139 million has been returned during H1 (£160m to date) via share buyback with the balance expected to be returned as a share buyback over the remainder of the year.

Taxation

The effective rate of corporation tax, calculated on profit before exceptional items and prior year tax adjustments, was 26% (2014/15: 27%).

The overall rate of tax includes the impact of exceptional items and prior year tax adjustments. The impact of such items in the period results in a rate of 18% reflecting one off transactions which are not subject to tax.

Effective tax rate calculation	Profit £m	Tax £m	2015/16 %	2014/15 %
Profit before tax and exceptional items	377	(98)	26%	27%
Exceptional items	9	29
Prior year items		1
Total overall	386	(68)	18%	26%

The statutory rates for the Group's main operating companies during 2015/16 are:

·    UK 20%

·    France 38%

·    Poland 19%

The Group's effective tax rate is sensitive to the blend of tax rates and profits in the Group's various jurisdictions. The effective rate of tax is higher than the UK statutory rate because of the amount of Group profit that is earned in higher tax jurisdictions and because no future benefit is assumed for losses incurred in overseas jurisdictions.

Free cash flow*

A reconciliation of free cash flow is set out below:

	2015/16 £m		2014/15 £m
Operating profit (before exceptional items)		385	386
Other non-cash items(1)		133	142
Change in working capital		39	15
Pensions and provisions		(20)	(20)
Operating cash flow		537	523
Net interest paid		(7)	(3)
Tax paid		(65)	(65)
Gross capital expenditure		(177)	(119)
Disposal of assets(2)		20	47
Free cash flow		308	383
Ordinary dividends paid		(160)	(159)
Special dividend paid		-	(100)
Share buyback		(139)	(35)
Share purchase for employee incentive schemes		(11)	-
Disposal of B&Q China (net of disposal costs)		137	-
Disposal of Hornbach		-	198
Other(3)		2	(2)
Net cash flow		137	285
Opening net cash		329	238
Other movement including foreign exchange		(31)	(27)
Closing net cash		435	496

⁽¹⁾ Other non-cash items includes depreciation and amortisation, share-based compensation charge, share of post-tax results of JVs and associates, pension operating cost and profit/loss on non-property disposals

⁽²⁾ Disposal of assets includes the disposal of a property company in the current period

⁽³⁾ Includes dividends received from JVs and associates, issue of shares and exceptional items (excluding property disposals)

Net cash at the end of the period was £435 million (2014/15: £496 million net cash).

Free cash flow of £308 million was generated in the period, a decrease of £75 million against the prior period, due primarily to higher capital expenditure. Gross capital expenditure for the half year was £177 million (H1 2014/15: £119 million). Of this around 19% was invested in new stores and relocations, 44% on existing stores and 37% on IT, supply chain and omnichannel development. 

Of free cash flow, £299 million was returned to shareholders in the form of the ordinary dividend and share buybacks. A further £11 million was used to buy shares to cover future share awards for employee incentive schemes.

Management of balance sheet and liquidity risk and financing

The Group finished the period with £435 million of net cash on the balance sheet. However the Group's overall leverage is more significant when including capitalised lease debt that in accordance with accounting standards does not appear on the balance sheet. The ratio of the Group's lease adjusted net debt (capitalising leases at 8 times annual rent) to EBITDAR* on a moving annual total basis is 2.1 times as at 1 August 2015. At this level the Group has financial flexibility whilst retaining an efficient cost of capital.

A reconciliation of lease adjusted net debt to EBITDAR is set out below:

	2015/16 Moving annual total £m	2014/15 Year end(1) £m
EBITDA*	938	953
Property operating lease rentals	410	415
EBITDAR	1,348	1,368
Financial net cash	(435)	(329)
Pension deficit	-	-
Property operating lease rentals (8x)(2)	3,280	3,320
Lease adjusted net debt	2,845	2,991
Lease adjusted net debt to EBITDAR	2.1x	2.2x

⁽¹⁾ Restated to exclude contribution from China following its disposal in April 2015

⁽²⁾ Kingfisher believes 8x is a reasonable industry standard for estimating the economic value of its leased assets

The Group has a £225 million committed facility that expires in 2020 and was undrawn at 1 August 2015. The next significant debt maturity is in May 2016 when the Group is required to repay US Private Placement debt with a nominal value of $68 million.

The maturity profile of Kingfisher's debt is illustrated at: www.kingfisher.com/index.asp?pageid=76

Kingfisher now holds a BBB credit rating with all three rating agencies. Kingfisher aims to maintain its solid investment grade credit rating whilst investing in the business where economic returns are attractive and paying a healthy annual dividend to shareholders. After satisfying these key aims and taking into account the economic and trading outlook, any surplus capital would be returned to shareholders.

Disposals

On 22 December 2014, Kingfisher announced a binding agreement to dispose of a controlling 70% stake in its B&Q China business to Wumei Holdings Inc. Gross cash proceeds of £140 million were received in April 2015 following MOFCOM (Chinese Ministry of Commerce) approval. Kingfisher has the option from May 2017, or sooner where agreed by both parties, to sell the remaining 30% economic interest to Wumei Holdings Inc for a fixed price of the Sterling equivalent of RMB 582 million (£60 million at 1 August 2015).

During the period Kingfisher completed the sale of a property company (that owned three freehold properties) for proceeds of £18 million.

Pensions

At the period end, the Group had a net surplus of £59 million (£112 million net surplus at 31 January 2015) in relation to defined benefit pension arrangements, of which a £140 million surplus (£194 million surplus at 31 January 2015) is in relation to the UK Scheme. The adverse movement is mainly driven by the fall in market value of assets over the period, only partially offset by the favourable impact of a higher discount rate (net of inflation) applied to the scheme liabilities. This accounting valuation is sensitive to a number of assumptions and market rates which are likely to fluctuate in the future.

Property - sales area restatements

As part of 'ONE' Kingfisher we have completed a review of sales area reporting to ensure consistency across our operating companies. This has resulted in a 6% increase in sales areas across Kingfisher, details of which are below.

At 1 August 2015	Restated  sales area (000s m2)	Previous  sales area (000s m2)	Change (000s m2)
Castorama	1,237	1,118	119
Brico Dépôt	810	649	161
France	2,047	1,767	280
B&Q UK & Ireland	2,540	2,540	-
Screwfix	26	26	-
UK & Ireland	2,566	2,566	-
Poland	603	522	81
Portugal	12	12	-
Romania	121	121	-
Russia	207	207	-
Spain	168	168	-
Turkey JV	239	239	-
Screwfix Germany	1	1	-
Other International	1,351	1,270	81
Total Group	5,964	5,603	361

Restatements of Kingfisher's quarterly space for the previous 3 years are available in data tables at:

www.kingfisher.com/index.asp?pageid=59

Risks

The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving Kingfisher's strategic objectives. The principal risks have been reviewed as part of our half year procedures. The Board considers that the principal risks to achieving its objectives, are as listed below:

·    Organising Kingfisher as a more unified company with a unified customer offer rather than a collection of individual businesses fails to deliver the anticipated benefits

·    Our investments fail to deliver value to the Group, especially our investment in the IT strategy programme

·    We fail to deliver the benefits of a more unified and unique offer and standardised activities and processes

·    We fail to create a culture of innovation and innovate in our offer, format and digital channels to stimulate consumer spend and deliver the desired sales growth

·    We fail to identify and maximise potential cost reductions and efficiency savings

·    Uncertainty surrounding the resilience of the global economy and increased geo-political volatility, particularly in Russia, may impact both consumer confidence and the long-term sustainability and capabilities of our supplier base

·    We do not make the necessary investment in our people to ensure that we have the appropriate capacity, skills and experience

·    We fail to deliver our sustainability targets due to not integrating our sustainability plan into the day to day operations of the business

·    A lack of perceived price competitiveness, particularly when compared to more discount based or online competitors, would affect our ability to maintain or grow market share

·    We fail to maintain a safe environment for our customers and store colleagues which results in a major incident or fatality that is directly attributable to a failure in our Health & Safety management systems

·    Kingfisher's reputation and brand are affected by a major environmental or ethical failure, a significant corporate fraud or material non-compliance with legislative or regulatory requirements resulting in punitive or custodial procedures

Further details of the Group risks and risk management process can be found on pages 26 to 29 of the 2014/15 Annual Report and Accounts.

Section 5: Glossary (terms are listed in alphabetical order)

Adjusted measures are before exceptional items, financing fair value remeasurements, amortisation of acquisition intangibles, related tax items and tax on prior year items including the impact of rate changes on deferred tax. 2014/15 comparatives have been restated for IFRIC 21 and to exclude B&Q China's results. A reconciliation to statutory amounts is set out in the Financial Review (Section 4).

Adjusted sales excludes B&Q China sales.

Banque de France data includes relocated and extended stores.

http://webstat.banque-france.fr/en/browse.do?node=5384326  

Cut existing product tail - plan to reduce the number of delisted and ex-promotional ranges which do not form part of existing retail planograms.

EBITDA (earnings before interest, tax, depreciation and amortisation) is calculated as retail profit less central costs and before depreciation and amortisation.

EBITDAR (earnings before interest, tax, depreciation, amortisation and property operating lease rentals) is calculated as retail profit less central costs, before depreciation and amortisation and property operating lease rentals.

Europe+ consists of Europe and its bordering countries (e.g. Russia, Turkey).

France consists of Castorama France and Brico Dépôt France.

Free cash flow represents cash generated from operations less the amount spent on tax, interest and capital expenditure during the year (excluding business acquisitions and disposals). A reconciliation from operating profit (before exceptional items) is set out in the Financial Review (Section 4).

French house building market - new housing starts and planning consent data for the 6 months to July 2015 according to the Ministry of Housing.

http://www.statistiques.developpement-durable.gouv.fr/logement-construction/s/construction-logements.html

FFVR (financing fair value remeasurements) represents changes in the fair value of financing derivatives, excluding interest accruals, offset by fair value adjustments to the carrying value of borrowings and other hedged items under fair value hedge relationships.

GNFR is defined as Goods Not For Resale and covers the procurement of all goods and services a retailer needs (including e.g. media buying, mechanical handling equipment, printing & paper).

LFL stands for like-for-like sales growth representing the constant currency, year on year sales growth for stores that have been open for more than a year.

Net cash comprises borrowings and financing derivatives (excluding accrued interest), less cash and cash equivalents and short term deposits. It excludes balances classified as held for sale.

New country development consists of Germany, Portugal and Romania.

Omnichannel - allowing customers to shop with us in any way they prefer.

Other International consists of Germany, Poland, Portugal, Romania, Russia, Spain and Turkey (Koçtaş JV).

Planogram - a diagram that shows how and where specific retail products should be placed on retail shelves or displays.

Retail profit is operating profit stated before central costs, exceptional items, amortisation of acquisition intangibles and the Group's share of interest and tax of JVs and associates. 2014/15 comparatives have been restated for IFRIC 21 and to exclude B&Q China's operating loss.

Right-size refers to the space optimisation programme of B&Q's property estate (downsizing through space reduction and relocations).

Statutory sales - Group sales exclude Joint Venture (Koçtaş JV) sales.

SKU (Stock Keeping Unit) - the number of individual variants of products sold or remaining in stock. It is a distinct type of item for sale, such as a product and all attributes associated with the item type that distinguish it from others. These attributes could include, but are not limited to, manufacturer, description, material, size, colour, packaging, and warranty terms.

UK & Ireland consists of B&Q in the UK & Ireland and Screwfix.

Section 6: Forward-looking statements

You are not to construe the content of this announcement as investment, legal or tax advice and you should make you own evaluation of the Company and the market.  If you are in any doubt about the contents of this announcement or the action you should take, you should consult a person authorised under the Financial Services and Markets Act 2000 (as amended) (or if you are a person outside the UK, otherwise duly qualified in your jurisdiction).

This announcement has been prepared in relation to the financial results for the half year ended 1 August 2015. The financial information referenced in this announcement is not audited and does not contain sufficient detail to allow a full understanding of the results of the group.  Nothing in this announcement should be construed as either an offer or invitation to sell or any offering of securities or any invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the group or an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000 (as amended). 

Certain information contained in this announcement may constitute "forward-looking statements" (including within the meaning of the safe harbour provisions of the United States Private Securities Litigation Reform Act of 1995), which can be identified by the use of terms such as "may", "will", "would", "could", "should", "expect", "anticipate", "project", "estimate", "intend", "continue," "target", "plan", "goal", "aim" or "believe" (or the negatives thereof) or other variations thereon or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in tax rates, liquidity, prospects, growth and strategies.  By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements.

The Company does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in the Company's expectations.

 

END

 

 

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