Preliminary results for the year ended 30 January 2010
25 March 2010
Kingfisher plc reports adjusted pre-tax profits of £547 million, up almost 50%, financial net debt down 75% to £250m and the resumption of dividend growth
|Group Financial Summary||2009/10||2008/09||% Total Change (Reported)||% Total Change (Constant currency)||% Like-for-Like change|
|Adjusted pre–tax profit||£547m||£368m||+48.6%|
|Adjusted basic EPS||16.4p||11.0p||+49.1%|
|Full year dividend||5.5p||5.325p||+3.3%|
|Financial net debt||£250m||£1,004m||(75.1)%||(75.2)%|
Note: Continuing operations only. Joint Venture (JV) and Associate sales are not consolidated. Retail profit is stated before central costs, interest, exceptional items, amortisation of acquisition intangibles and the Group’s share of interest and tax of JVs and associates. Adjusted measures are before exceptional items, financing fair value remeasurements, amortisation of acquisition intangibles, related tax items and tax on prior year items. A reconciliation to statutory amounts is set out in the Financial Review.
Operational highlights (in constant currencies)
- Self-help initiatives drove robust growth in profit and cash generation. Good progress with the seven step ‘Delivering Value’ plan, return on capital up 250 basis points
- Retail profit up 29.4% with growth achieved in each of the three main operating divisions:
- French profits up 3.7% to £322 million supported by margin and cost initiatives
- UK & Ireland profits up 64.5% to £217 million. B&Q retail profit margin improved to 4.9% from 2.8% benefiting from sales growth and margin and cost initiatives. TradePoint trial a success, national roll out underway
- Other International profits up 77.8% to £125 million. Strong growth in Poland and Turkey continued and trading in Russia, Spain and Germany was resilient. China repositioning plan on track with losses almost halved in the year
- Financial net debt reduced by 75% (at reported rates). Free cash flow of £761 million of which around £550 million was used to repay outstanding bonds and loans early
- Final dividend up 5%, the first dividend growth for five years
- Property portfolio independently valued at £3.0 billion (2008/09: £3.2 billion)
|Profit before taxation||£566m||£90m||+528.9%|
|Profit for the year||£385m||£206m||+86.9%|
|Basic EPS – total operations||16.5p||8.9p||+85.4%|
Note: Statutory reporting is continuing operations only and after net post-tax exceptional gain/(charge) (2009/10: £10m; 2008/09: £(88)m)
Ian Cheshire, Group Chief Executive, said:
“In the first full year for the new Group Executive team, I am pleased to report a strong improvement in performance. Profitability, cash generation and return on capital all grew in the UK & Ireland, France, Poland, Turkey and Spain. Encouragingly, losses were significantly reduced in China as our turnaround plan progresses.
“In generally weak consumer markets our self–help initiatives underpinned our robust performance, driving a higher gross margin, more cost efficiency and lower working capital.
“We have also been busy laying the foundations for our future growth by broadening our product range into new categories, opening new stores and coordinating our buying activities to enable more common sourcing. We also made good progress with our corporate responsibility agenda and sales of ‘eco products’ topped £1 billion for the first time. Our rigorous approach to generating cash returns and tightly managing our capital means we are now able to increase capital investment to support future growth.
“Looking ahead, we remain cautious on the outlook for consumer demand across Europe. However, we are confident that our experienced management team, successful international strategy and buying scale mean we will be able to drive continued growth through our own actions. Recognising our improved profitability, cash generation and future growth prospects I am delighted that the final dividend payment will be increased, the first dividend growth for our shareholders in five years.”
Delivering Value – progress in 2009/10
Our aim has been and remains to deliver more value for Kingfisher shareholders by focusing on three key priorities – Management, Capital and Returns.
The new Group Executive, comprising the Group CEO, Group FD and the three divisional CEOs, have collective responsibility for overall Group performance. This team is working well and Kingfisher is now being managed in a more integrated, unified way. Beneath this team the senior management has been further strengthened by a number of key appointments. The share-based incentive scheme, based on overall Kingfisher performance, has been extended to this broader group and to store managers in the UK, France and Poland.
Excellent progress was made with reducing working capital, particularly in the UK and France. Over the course of the year net working capital was reduced by over £300 million with the biggest cash generation coming from the £234 million reduction in the Group’s stock (15 less days). Capital expenditure budgets were streamlined at the start of the year and reprioritised to target higher and faster payback investments. In addition, a one-off tax refund of €169 million* was recovered from the French authorities. As a result of this rigorous approach to capital the year end financial net debt (excluding capitalised leases) fell to £250 million, down 75% over the year.
Reflecting the improved cash generation, financial strength and confidence in the longer term growth prospects for the Group the gross capital investment budget for 2010/11 has been increased to around £400 million. This investment will again be prioritised towards activities with the fastest paybacks and strongest growth potential.
* On 7 September 2009, following a favourable court ruling in France, the Group received a refund of the €138 million exceptional tax liability paid by Kingfisher in 2003/04 relating to the Kesa Electricals demerger plus a further €31 million repayment supplement. The French tax authorities have commenced an appeal against this ruling.
The seven step programme to improve cash returns, known as ‘Delivering Value’, is progressing well. The initiatives are supporting the trading performance in the shorter term and also better positioning the Group for further growth over the longer term. Overall return on capital increased from 5.8% to 8.3% during the year. Delivery of the 2009/10 milestones and a summary of the 2010/11 milestones are set out below:
1. Driving up B&Q UK & Ireland’s profit
Self-help measures to rebuild B&Q’s retail margin to 7% are delivering results. Retail margin up from 2.8% to 4.9% during the year.
- 9 large and 8 medium store revamps
- 105 ‘showroom only’ revamps
- Around 1% new space added
- Product and Service
- ‘Reserve and Collect’ rolled out nationally and 12,000 products for next day home delivery now on diy.com
- Self-service checkout rolled out nationally
- New monthly store team bonus introduced
- 4,000 staff graduated from the “Showroom Academy”, 11,500 staff achieved retail NVQs or City & Guilds qualifications
- Margin and Costs
- Margin benefit of 50bps from closing one distribution centre and reducing shrinkage
- 120 double-decker distribution trailers introduced to save costs and reduce carbon emissions
- ‘Top stocks’* removed, overall stock reduction of £90 million
- Costs held flat, down 3% before higher staff bonuses
*Stocks held at the top of in-store shelving
- 15 large and 15 medium store revamps
- Around 100 ‘showroom only’ revamps (kitchen, bathroom and bedroom areas)
- No new space to be added
- Product and Service
- To broaden B&Q’s customer offer several new or expanded product categories will be trialled in store to determine their suitability for a nationwide introduction in 2011/12 (e.g. eco and storage ranges)
- Extend retail NVQ or City & Guild qualification training programme to a further 9,500 staff
- Margin and Costs
- Direct sourcing to rise by 20%
2. Exploiting our UK Trade opportunity
Screwfix offer extended. B&Q in-store ‘TradePoint’ successfully trialled.
- Opened 9 new Screwfix outlets
- Launched ‘Electricfix’, a new specialist mail order catalogue operated by Screwfix exclusively for qualified electricians (14,000 electricians signed up)
- Trialled trade counter proposition for Plumbfix (for qualified plumbers) and Electricfix through 7 existing Screwfix outlets
- B&Q in-store trade offer (‘TradePoint’) successfully trialled in 9 large stores, maximising synergies with Screwfix
- National roll out of TradePoint format to 118 B&Q large stores
- Open 10 further Screwfix outlets
- Add specialist trade counters exclusive to Plumbers and Electricians within 100 existing Screwfix sites
3. Expanding our total French business
2% new space added. Buying optimisation and cost efficiencies supporting profitability.
- Opened 4 net new stores, 1 relocation and 5 revamps, adding 2% new space
- Buying optimisation programme initiated, supporting margins
- Stock shrinkage rates reduced, gross margin benefit of 10bps
- Delivered targeted operating cost savings of €65m
- Open 3 net new stores, 1 relocation and 8 revamps, adding around 2.5% new space
- Extend buying optimisation programme
- Direct sourcing to rise by around 30%
- Development of a joint-sourced value brand common to both businesses (‘Premier Prix’)
- Up weighted new product launches and new advertising campaigns for both businesses
4. Rolling out in Eastern Europe
20% space added during the year. Sales and profit growth continued.
- Opened 15 new stores, 5 in Poland, 5 in Turkey and 5 in Russia
- Total sales grew 10.9% (including 100% Turkey JV) to £1.6 billion*
- Open a further 15 new stores, 6 in Poland, 5 in Turkey and 4 in Russia, adding around 15% new space
- Open new central distribution centre in Poland in H2 (to enable more direct sourcing)
- Trial smaller ‘city store’ format in Moscow (H2)
* in constant currencies at 2008/09 year end exchange rates
5. Turning around B&Q China
Repositioning plan on track. Prior year losses almost halved, free cash flow positive in the year.
- Store portfolio rationalised from 63 to 43, 2 stores downsized, more underway
- New store format trialled in Shanghai and extended to a further 11 stores
- In store supplier-funded representatives replaced with B&Q trained staff in most product areas in new format stores
- New single room make-over and single product installation service launched
- Central cost reduction initiatives progressing well, one regional office closed
- Working capital reduction in line with target, helping B&Q China generate a positive free cash flow in the year
- Complete the store rationalisation plan (2 further stores) and remaining downsizes
- Continue the new format trial
- Continue the work started in 2009 on re-engineering ranges from the current supplier led model to a more product led, traditional retail ranging model. This milestone will take around 2 years to complete, but is key to creating a sustainably profitable and scalable business
- Return to a profitable business model during H2, on track for a return to overall profitability in 2011/12
6. Growing Group sourcing
Direct sourcing through the Kingfisher Sourcing Office (KSO) network continued to grow.
- Shipped volumes of direct sourced product through Kingfisher’s global sourcing network increased by 14% to around USD 800 million
- Work started on aligning buying processes within B&Q UK and Castorama France to enable more commonality of ranging in the future (e.g. 26% of 2010/11 outdoor leisure range will be common to both businesses)
- Increase volume of direct sourced shipments by 26% to USD 1 billion
- Commence alignment of range review calendars for major product categories to facilitate more cross-Group common sourcing
7. Reducing working capital
Excellent progress, net working capital reduced by over £300 million.
- Delivered £315 million reduction despite the negative effects of legislative changes shortening French payment terms (known as LME)
- Reducing moving annual average stock days by 15
- Average payment terms on direct sourced product extended by 25 days
- ‘Like for like’ working capital to remain constant. Overall balance may increase due to further negative effects of the French LME and investment required for new stores
- Further extend average payment terms on direct sourced product by another 5 days
This press release contains certain statements that are forward-looking and are therefore subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied because they relate to future events. These forward–looking statements include, but are not limited to, statements relating to the Company’s expectations around its three key priorities of Management, Capital and Returns and the associated seven steps to Delivering Value objectives.
Forward-looking statements can be identified by the use of relevant terminology including the words: “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “goal”, “target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each case, their negative or other variations or comparable terminology and include all matters that are not historical facts. They appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, changes in tax rates, liquidity, prospects, growth, strategies and the businesses we operate.
Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to, global economic business conditions, monetary and interest rate policies, foreign currency exchange rates, equity and property prices, the impact of competition, inflation and deflation, changes to regulations, taxes and legislation, changes to consumer saving and spending habits; and our success in managing these factors.
Consequently, our actual future financial condition, performance and results could differ materially from the plans, goals and expectations set out in our forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
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.com or by application to: The Company Secretary, Kingfisher plc, 3 Sheldon Square, London, W2 6PX.
Kingfisher plc is Europe’s leading home improvement retail group and the third largest in the world, with over 830 stores in eight countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. Kingfisher also has a 50% joint venture business in Turkey with Koç Group, and a 21% interest in, and strategic alliance with Hornbach, Germany’s leading large format DIY retailer.