Kingfisher finances its operations using a number of funding instruments, including US Private Placement debt, bank borrowings and leases.
As at 31 July 2016, Kingfisher had £898 million of net cash on the consolidated balance sheet. However, the Group is levered when capitalised lease debt (that, in accordance with accounting standards, does not appear on the balance sheet) is included. The ratio of the Group’s lease adjusted net debt (capitalising leases at 8 times annual rent) to adjusted EBITDAR is 1.7 times as at the year end. At this level Kingfisher has financial flexibility whilst retaining an efficient cost of capital.
A reconciliation of lease adjusted net debt to EBITDAR is set out below:
||2016/17 Half Year
|2015/16 Year End
|Property operating lease rentals
|Financial (net cash)
|Property operating lease rentals (8x)(1)
|Lease adjusted net debt
|Lease adjusted net debt to EBITDAR
(1) Kingfisher believes 8x is a reasonable industry standard for estimating the economic value of its leased assets
Kingfisher aims to retain its solid investment grade credit rating whilst re-investing in the business and the transformation, 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 is returned to shareholders.
Taking all these factors into account, on 25 January 2016 Kingfisher announced its intention to return around a further £600 million of capital to shareholders over the next 3 years.
As at 20 September 2016, around £160 million of the above programme had been returned via a share buyback. The timing and mechanism for the balance of the capital return programme will be kept under review to ensure we maximise value creation for our shareholders. Updates will be given with our interim and full year results, with the next update due March 2017.
Kingfisher regularly reviews the level of cash and debt facilities required to fund its activities. This involves preparing a prudent cash flow forecast for the next five years, determining the level of debt facilities required to fund the business, planning for repayments of debt at its maturity and identifying an appropriate amount of headroom to provide a reserve against unexpected outflows.
For any questions or queries please contact:
Interim Group Treasurer
Group Investor Relations Director