Final Results - Part 1

RNS Number : 5030P

Kingfisher PLC

26 March 2009

 



EMBARGOED UNTIL 0700 HOURS - Thursday 26 March 2009

   Kingfisher plc reports full year sales up 11%, adjusted pre-tax profits up
   3% and announces details of a comprehensive turnaround action plan for China 

Group Financial Summary Continuing operations excluding Italy	2008/09	2007/08	% Total Change (Reported)	% Total Change (Constant currency)	% Like- for-like (LFL) change
Retail sales	£10,026m	£9,050m	+10.8%	+1.2%	(4.1)%
Retail profit	£503m	£469m	+7.2%	(4.6)%
Adjusted pre-tax profit	£368m	£357m	+3.1%
Adjusted post-tax profit	£258m	£250m	+3.2%
Adjusted basic EPS	11.0p	10.6p	+3.8%
Interim dividend	1.92p	3.85p	(50.0)%
Final dividend	3.4p	3.4p	Flat
Full year dividend	5.32p	7.25p	(26.6%)
Net debt	£1,004m	£1,559m	(35.6%)	(40.5)%

Note: Retail profit is stated before central costs, exceptional items, amortisation of acquisition intangibles and the Group's share of interest and taxation of joint ventures and associates. Adjusted measures are before exceptional items, financing fair value remeasurements, amortisation of acquisition intangibles and tax on prior year items. A reconciliation to statutory amounts is set out in the Financial Review.

Highlights - in constant currencies

• Sales in France up 3% to £3.9 billion, retail profit of £283 million

• Sales in the UK down 2.6% to £4.3 billion, retail profit of £129 million benefited from early and firm margin and cost action

• Sales in other international markets up 7% to £1.8 billion, retail profit of £91 million 

  • Poland sales grew 19% to £1 billion, retail profit up 15% to £124 million

  • B&Q China sales declined 24% to £431 million, retail loss of £52 million 

• Comprehensive China repositioning underway. Store portfolio to be rationalised from 63 to 41 and all remaining stores revamped. Product and service offer to be refreshed. An exceptional accounting charge of £107 million has been booked for the cost of the plan. The net cash cost of the plan will be around £30 million 

• Non-cash exceptional impairment charge of £160 million

  • £124 million intangible goodwill write-off of B&Q China, £40 million of which arose due to the adverse impact of exchange rate movements 

  • £36 million impairment of Hornbach carrying value

• Castorama Italy sale completed for €615 million cash, generating  an exceptional profit of £204 million (£178 million after tax)

• Reported net debt down 36% to £1.0 billion reflecting vigorous action on costs, cash and working capital as well as the sale of Castorama Italy

• Property portfolio independently valued at £3.2 billion (2007/08: reported £3.6 billion) 

  Statutory reporting

	2008/09	2007/08	Reported Change
Profit before tax - continuing operations	£90m	£366m	(75.4)%
Profit after tax   - total operations	£206m	£272m	(24.3)%
Basic EPS – continuing operations	0.2p	10.9p	(98.2)%
Basic EPS – total operations	8.9p	11.7p	(23.9)%

Statutory reporting is after net exceptional charges of £88m (2007/08: gain of £6m). £231m of the total exceptional charge relating to the accounting write down of intangible and tangible assets in China is largely offset by the £178m exceptional gain on the disposal of Castorama Italy, which is shown as a discontinued operation.

Ian Cheshire, Group Chief Executive, said:

'I am pleased with our solid performance in what has been a particularly challenging retail environment. We have grown share in all of our major markets, delivered our profits through strong margin and cost control and significantly reduced our net debt.  

'During the course of the year, we have strengthened our management team, made real progress with our seven-step 'Delivering Value' programme and completed the sale of our lower returning business in Italy at an excellent price for our shareholders. The performance in a very difficult Chinese housing market has been worse than anticipated at the start of the year, but we still believe that there is long-term potential in China and have initiated a clear and thorough set of actions to return this business to profitability.   

'Looking ahead, although we anticipate the next year to continue to be very challenging, we will remain focused on providing the best choice and value for our customers whilst managing our margins, costs and working capital tightly. We have a clear set of milestones for the coming year to ensure we continue to progress with our 'Delivering Value' programme.

'I am confident that our robust balance sheet along with our international portfolio of market leading retail brands with strong value positions will help us to continue to demonstrate resilience and deliver shareholder value.'

Delivering Value - progress in 2008/09

At the beginning of this financial year Ian Cheshire was appointed as Group Chief Executive and set out his aim of delivering a step-change in shareholder value by focusing on three key priorities - Management, Capital and Returns. Good progress was made in 2008/09 with this programme, known as 'Delivering Value' and clear milestones established for 2009/10. 

  MANAGEMENT 

'a new senior team, working with a new collective responsibility for overall Group delivery of results as well as key existing cross-Group activities'

2008/09 progress

• Previous decentralised management structure replaced by a new Retail Board with collective responsibility for overall Group success in addition to their personal accountabilities. This board comprises the Group CEO, CFO, the three geographic retail divisional heads and other key cross-Group divisional heads

• Appointed new heads of the three newly created geographic retail divisions (France - Philippe Tible, UK - Euan Sutherland and Other International - Peter Hogsted)

• Appointed new Group CFO, Kevin O'Byrne

• Share incentives in place to grant to 700 store managers across the UK and France

2009/10 milestones

• Share incentives extended to store managers outside the UK and France

CAPITAL  

 'investment will be prioritised, targeting higher hurdle rates and faster payback periods. A key target is to stabilise debt at current levels, prior to reducing it in due course'

2008/09 progress

• Gross capital expenditure reduced year on year by 31% on a constant currency basis to £390 million

• New spending limits and a more rigorous approval process introduced

• Sold the lower returning, capital intensive Castorama Italy business for €615 million, generating a post tax profit on disposal of £178 million

• The loss making UK trial format, Trade Depot, was closed in order to focus capital resources on the coordinated development of B&Q and Screwfix

• Group working capital reduced by £180 million

• Over delivered against the flat net debt target excluding the benefit of the sale proceeds of Castorama Italy and the adverse impact of exchange rate movements. Including these items, reported net debt fell 36% (41% in constant currencies) to £1.0 billion (2007/08: £1.6 billion)

2009/10 milestones

• Gross capital investment to be further reduced to around £300 million

• Targeting a further reduction in net debt (in constant currencies)

  RETURNS

 'greater focus will be placed on generating higher cash returns from the retail businesses. The new leadership team has identified seven major steps to achieve this'

1. Driving up B&Q UK's profit 

    2008/09 progress

• 16 large store revamps completed in the year, 3 new stores, 16 medium store revamps 

• New lower cost revamp model developed (under £1 million per store compared with the previous £2.5 million)

• More stringent store operating standards introduced, 91% stores now compliant

• Over 4,500 staff received training in basic home improvement projects such as laying wooden floors, gardening, wall papering and painting

• Overall costs reduced 1% in the year despite underlying cost inflation of 3% and 1% new space  

    2009/10 milestones

• 14 lower cost large store revamps, 7 medium store revamps 

• National roll out of self-service checkout 

• National roll out of 'Reserve and Collect' on diy.com 

• Add 12,000 products for next day home delivery on diy.com utilising the Screwfix existing home fulfilment network

• Reduce overall costs by 1% year on year  

2. Exploiting our UK Trade opportunity

    2008/09 progress

• Loss making UK trial format, Trade Depot, closed. Closure programme of the 9 outlets now largely complete

• B&Q launched a Trade Discount Card for the professional tradesman. 177,000 cardholders are now signed up for quarterly retrospective volume based rebates

• Opened 45 more Screwfix outlets 

• Launched 'Plumbfix', a new specialist mail order catalogue operated by Screwfix exclusively for qualified plumbers

    2009/10 milestones

• Launch 'Electricfix', a new specialist mail order catalogue operated by Screwfix exclusively for qualified electricians

• 8 new Screwfix outlets

• Relaunch B&Q in-store trade offer maximising synergies with Screwfix

  3. Expanding our total French business 

    2008/09 progress

• Opened 10 net new stores and revamped 8 stores

• Developed coordinated 3 year store opening plan

• Buying optimisation now in place covering €1.1 billion of product common to Castorama and Brico Dépôt 

• Brico Dépôt stock shrinkage rates significantly improved - €9 million benefit

    2009/10 milestones

• Open 5 net new stores, revamp 4 Castorama stores

• Deliver benefits of buying optimisation activity

• Extend buying optimisation activities to goods not for resale 

4. Rolling out in Eastern Europe

    2008/09 progress

• Opened 17 new stores, 9 in Poland, 6 in Turkey and 2 in Russia 

• Total sales grew 26% (including 100% Turkey JV) to £1.4 billion*

    2009/10 milestones

• Open 14 new stores, 6 in Poland, 5 in Turkey and 3 in Russia 

• Total sales (including 100% Turkey JV) to reach £1.7 billion*

* In constant currencies

5. Turning around B&Q China  

The Chinese market remains fundamentally attractive over the medium and longer term and is a potentially significant cash generative growth opportunity for Kingfisher. Our early expansion in this market has built a strong brand with a leading position, but the dramatic housing market slowdown has impacted performance and exposed internal operational issues that have exacerbated the impact of the market slowdown on reported losses. 

The key priority in 2008/09 was to strengthen the local team with experienced operators from across the Group, understand fully the operational issues that needed addressing and start a comprehensive plan of action to return the business to profitability as soon as possible. 

            The review concluded that B&Q's ambitious expansion in recent years had been too fast, 
            resulting in a rump of loss making and oversized stores. The business had become too
            reliant on a booming apartment design and installations market and was not developing
            other new services or product ranges. Furthermore, over reliance on local suppliers' support
            for store staffing (in store supplier representatives), store merchandising and ranging
            decisions led to stock proliferation and a weaker customer experience.
            A comprehensive turnaround plan is underway in China with most of the activity planned for
            2009 and the first half of 2010. The plan encompasses rationalising the store portfolio from
            63 to 41 and revamping the remaining stores, 17 of which will also be downsized. Supplier
            numbers, product ranges and stock levels will also be rationalised and new services and
            pick-up lines introduced in-store to drive sales and margin. The number of in-store supplier
            representatives will be significantly reduced in favour of trained B&Q staff. Own-brand
            product levels will increase and central support costs reduced.

An accounting write off of £107 million has been booked in 2008/09 primarily reflecting the asset impairments for the rationalisations and revamps. The cash cost of the store rationalisation will be broadly offset by the sale of two freehold sites. The cash cost of the store revamping is expected to be around £30 million over the next two years. The vigorous Group support and oversight introduced in 2008 on the creation of the new Retail Board will continue to ensure the plan is well executed in the shortest possible time.

    2008/09 progress 

• Local management team strengthened 

• An extensive and deep review of the operations completed 

• 3 loss making stores were rationalised and 1 store downsized

• A new store format was developed and 1 store was revamped on a trial basis. The innovative new format officially opened on 20 March 2009 in the Putuo district of Shanghai and incorporates new ranges of softer 'pick-up' lines merchandised using the '4 style houses' concept successfully adopted by Castorama France

• £33 million of excess stock cleared

    2009/10 milestones

• Rationalise the remaining loss making stores

• Downsize and revamp a further 17 oversized stores 

• Revamp around half the remaining stores into the new model 

• Expand the new 'pick-up' ranges of soft furnishings, household goods and accessories 

• Roll out new single room make-over and single product installation services

• Replace supplier reps with B&Q trained staff in most product areas

As a result of the turnaround activity, and subject to our expectations of a stabilisation of the market, Kingfisher is now targeting a return to a profitable business model during the second half of 2010 and for the business as a whole to return to profitability in 2011.  

6. Growing Group sourcing

    2008/09 progress

• Group direct sourcing now 10% of product cost of sales

• Number of product lines increased from 17,000 to 18,000 

• Appointment of Véronique Deroubaix as Group Commercial Director, formerly the Commercial Director for Castorama France, where own-brand sales penetration has almost doubled in the past five years

    2009/10 milestones

• Group direct sourcing target of 12% of product cost of sales 

7. Reducing working capital 

    2008/09 progress

• Surpassed target to reduce working capital by £100 million, delivered £180 million reduction 

• B&Q UK stock reduced by £115 million, particularly on seasonal product through more rigorous clearance routines

• Payment terms on direct sourced product extended by 16 days

    2009/10 milestones

• Reduce working capital by a further £50 million (at constant currencies), despite expected effects from legislative changes shortening French payment terms 

  Operational Review - FRANCE

Retail sales £m	2008/09	2007/08	% Change	% Change	% LFL
			(Reported)	(Constant)	Change
France	3,888	3,224	20.6%	3.1%	(1.3)%

Retail profit £m	2008/09	2007/08	% Change	% Change
			(Reported)	(Constant)
France	283	237	19.2%	1.9%

France includes Castorama and Brico Dépôt.

All trading commentary below is in constant currencies.

Kingfisher France

Banque de France data shows that comparable DIY store sales* declined by around 1.1%, and on this basis Kingfisher's businesses outperformed the market by delivering broadly flat comparable sales, despite disruption from store revamps. Across the two businesses, ten new stores were opened, two relocated and eight revamped, adding around 5% new space. In 2009/10, around 3% new space is planned.

*Banque de France data including relocated and extended stores

Total sales grew 3.1% to £3.9 billion (-1.3% LFL) with retail profit up 1.9% to £283 million reflecting the weaker sales environment. Gross margins were up 120 basis points due to higher own-brand sales penetration and sales mix benefits at Castorama, and improved stock management at Brico Dépôt. 

Castorama total reported sales grew 2.7% to £2.1 billion (+0.6% LFL, +1.7% on a comparable store basis) supported by its new ranges and store modernisation programme. Stores trading in the new format, representing 49% of total selling space, continue to outperform. 

Brico Dépôt total reported sales grew 3.5% to £1.8 billion (-3.6% LFL) reflecting growth in store numbers offset by weaker trade demand from a slowdown in housing starts (down 16%) and big project planning consents (down 17%).

  Operational Review - UK

Retail sales £m	2008/09	2007/08	% Change	% LFL
			(Reported)	Change
UK	4,279	4,395	(2.6)%	(6.5)%

Retail profit £m	2008/09	2007/08	% Change
			(Reported)
UK	129	153	(15.6)%

UK includes B&Q in the UK, Screwfix and Trade Depot. 

Kingfisher UK

Total sales declined by 2.6% to £4.3 billion (-6.5% LFL) reflecting a weakening economic environment which impacted both the trade market and consumer spending, particularly in higher ticket project areas. Retail profit was £129 million, down £24 million on the prior year, with margin and cost initiatives helping to offset the impact of lower sales.  

UK Market

The total UK home improvement market* declined by around 4% over the year as the UK economic environment worsened, impacting consumer spending. Kingfisher's UK businesses in aggregate outperformed the market.

*Market data from GfK for the leading retailers of home improvement products and services (including new space). However, this data is not exhaustive and excludes retailers such as Ikea, Topps Tiles and smaller independents.

B&Q's total reported sales were £3.8 billion, down 4.5% (-6.1% LFL). Good sales growth from revamped large stores and new ranges helped offset a weak outdoor season (down 10%) and reduced consumer expenditure, especially in higher ticket sales, including kitchen and bathroom ranges (down 8%). Sales of core DIY and room makeover products were more resilient (down 3%). 

Retail profit was £106 million, down £25 million on the prior year, with margin and cost initiatives helping to offset the impact of lower sales. Gross margins were up 60 basis points across the year, reflecting lower mark down activity and sales of higher margin products offset by increased promotional activity during the last quarter. 

Decisive management action on costs across the year to shield against slower sales resulted in an overall cost reduction of 1% compared to last year despite underlying cost inflation of 3% and around 1% from new store space.  

Renewal programme update

In the medium-term, B&Q aims to grow its share of home improvement expenditure by strengthening its appeal to both the Do-it-Yourself (DIY) and Do-it-For-Me (DFM) customer. During 2008/09, B&Q continued with its renewal programme, which includes updating product ranges, introducing more services and improving its store environments to ensure B&Q is the first and only store for a greater proportion of customers' home improvement spend. 

  Sixteen large store revamps (including two lower-cost trial revamps), which encompass more clearly defined shop-within-shop sections, room-set displays and more space allocated to kitchens, bathrooms, tiling and flooring areas were completed. The new format large stores continued to significantly outperform the older format. B&Q now has 119 large stores (56 in the modern format) and 203 medium stores (of which 168 have been modernised). Overall net space increased 1% during the year with a similar increase expected during 2009/10.

UK Trade

Screwfix total sales grew 13.0% to £492 million, driven by the continued roll out of trade counters, which provide customers with immediate product availability. An additional 45 outlets opened during the year, taking the total to 138. Trade counters now represent over 50% of total sales. 

In a tough trade market retail profit increased 7.6% to £30 million compared to last year due to strong sales growth and focus on cost management.   Operational Review - OTHER INTERNATIONAL

Retail sales £m	2008/09	2007/08	% Change	% Change	% LFL
			(Reported)	(Constant)	Change
Other International	1,859	1,431	29.9%	7.0%	(3.7)%

Retail profit £m	2008/09	2007/08	% Change	% Change
			(Reported)	(Constant)
Other International	91	79	15.1%	(6.1)%

Other International includes Poland, China, Spain, Ireland, Russia, Turkey JV and Hornbach in Germany. South Korea and Taiwan JV included in comparatives only. Following Castorama Italy disposal its results have been excluded from both years. 

Joint Venture and Associate sales are not consolidated.

All trading commentary below is in constant currencies.

Other International total sales increased 7.0% to £1.9 billion. LFL sales were down 3.7% reflecting high LFL declines in China. Retail profit was down 6.1% to £91 million, reflecting strong growth in Poland and Hornbach (21% economic interest), offset by increased losses in China. 

During the year, 26 stores opened comprising nine in Poland (three Brico Dépôts), six in Turkey, four each in China and Spain, two in Russia and one in Ireland adding around 13% net new selling space. A further 15 stores are planned for 2009/10, including six in Poland, one in Spain, five in Turkey and three in Russia.

In Eastern Europe sales in Poland were up 19.1% (up 47.2% in reported rates) to just over £1 billion (+9.8% LFL despite a tough comparative of +22.5%) and retail profits were up 15.4% to £124 million. Strong consumer spending in housing and construction, new bathroom and garden catalogues and new decorative ranges all boosted sales and profits. 

In Russia, sales almost doubled compared to the prior year to £150 million (+24.6% LFL). In Turkey, Kingfisher's 50% JV, Koçtaş continued to grow sales (+10.3% LFL) and retail profit was slightly up, despite the impact of six store openings compared to five in the prior year. Koçtaş continues to benefit from Kingfisher sourcing buying power and own-brand sales penetration.  

Hornbach, in which Kingfisher has a 21% economic interest, contributed £29 million to retail profit.  

B&Q China sales declined 23.7% to £431 million (-27.9% LFL) with losses of £52 million reflecting the sharp fall in sales and the margin impact of stock clearance activity which began towards the end of Q3. 

  Financial Review     

Financial summary

Profit and EPS including all exceptional items for the year ended 31 January 2009 is set out below.

	2008/09	2007/08	Increase / (decrease)
Profit for the year	£206m	£272m	(24.3)%
Basic EPS - total operations	8.9p	11.7p	(23.9)%

A summary of the continuing reported financial results for the year ended 31 January 2009 is set out below.

	2008/09 £m	2007/08 £m	Increase / (decrease)
Revenue	10,026	9,050	10.8%
Operating profit before exceptional items	446	424	5.2%
Operating profit	173	428	(59.6)%
Adjusted pre-tax profit	368	357	3.1%
Profit before taxation after exceptional items	90	366	(75.4)%
Adjusted basic earnings per share	11.0p	10.6p	3.8%
Basic earnings per share	0.2p	10.9p	(98.2)%
Dividends	5.325p	7.25p	(26.6)%

A reconciliation of statutory profit to adjusted profit is set out below:

	2008/09 £m	2007/08 £m	Increase / (decrease)
Profit before taxation	90	366	(75.4)%
Exceptional items	273	(4)
Profit before exceptional items and taxation	363	362	0.3%
Financing fair value remeasurements	5	(5)
Adjusted pre-tax profit	368	357	3.1%
Income tax expense on pre-exceptional profit	(95)	(116)	(18.1)%
Impact of prior year items on income tax	(16)	5
Income tax on fair value remeasurements	(2)	2
Minority interest	3	2
Adjusted post-tax profit	258	250	3.2%

  Comparatives

On 30 January 2009 the Group finalised the sale of Castorama Italy. As a result of the sale, Castorama Italy's results including a £178 million post tax profit on sale of the business are disclosed within discontinued operations. Comparatives have been restated to reflect this. 

Overview

Total reported sales on continuing businesses grew 10.8% to £10.0 billion on a reported rate basis, and 1.2% on a constant currency basis. During the year, an additional 70 net new stores, including 45 trade counters, were added, taking the store network to 807 (excluding Turkey JV). On a LFL basis, Group sales were down 4.1%. The fall in sales was driven mainly by the UK and France which fell 6.5% and 1.3% respectively on a LFL basis during the year.

Operating profit before exceptional items grew by 5.2% to £446 million and fell by 59.6% to £173 million after exceptional items. Profit for the year, including all exceptional items, fell by 24% to £206 million. 

The net interest charge for the year was £83 million, up £21 million on the prior year largely as a result of movements in exchange rates. 

Adjusted pre-tax profit increased by 3.1% to £368 million. 

Taxation

The effective rate of tax, calculated on continuing profit before exceptional items and prior year tax adjustments is 31% (2007/08: 31%). The overall rate is distorted by the £273 million exceptional charge on which only £7 million of tax relief (3%) is assumed. 

The effective tax rate is calculated as follows:

Effective tax rate calculation 2008/09	Profit £m	Tax  £m
Profit before tax and tax thereon	90	88
Add: exceptional charge and tax thereon	273	7
Add: prior year items	-	16
Total	363	111
Effective rate		31%

The effective rate of tax is sensitive to the blend of tax rates and profits in the various jurisdictions. The tax rates for this financial year and the expected rates for next year are as follows:

Jurisdiction	Statutory tax rate 2008/09	Statutory tax rate 2009/10
UK	30% - 28%	28%
France	34%	34%
Poland	19%	19%
China	25%	25%
Rest of World	0% - 34%	0% - 34%

  Taxation risk management

Kingfisher seeks to organise its tax affairs efficiently and in a way which enhances shareholder value whilst balancing the tax risk it faces. Tax risks can arise from changes in law, differences in interpretation of law, changes in tax rates and the failure to comply with the tax law and associated procedures. The Group manages and controls these risks with local management, its Group tax department and advice from reputable professional firms. Where disputes arise with tax authorities the Group addresses the areas of dispute promptly in a professional, open and constructive manner.

Exceptional items

	2008/09 £m (Charge)/gain
China restructuring	(107)
UK restructuring	(19)
Carrying value impairment of Hornbach	(36)
Impairment of goodwill	(124)
Profit on disposal of Italy	204
Profit on disposal of properties	13
	(69)
Tax on exceptionals	(19)
Net exceptional items	(88)

The Group recorded a total post tax exceptional charge of £88 million in the year including a post-tax £178 million profit on the sale of Castorama Italy which has been treated as a discontinued item.

An exceptional loss of £107 million has been recorded in 2008/09 relating to the B&Q China turnaround plan. The plan involves rationalising the store portfolio from 63 to 41 and then revamping the remaining stores, 17 of which will also be downsized. The exceptional loss comprises store asset impairments, lease exits, inventory write down and employee redundancy costs. The cash cost of the exceptional loss will be broadly offset by two freehold property disposals.  

The Group has recorded an exceptional loss of £19 million following the announcement in November 2008 that Trade Depot in the UK would be closed. The closure will be completed during the first half of 2009/10.

Accounting standards require us to perform impairment tests on goodwill each year or when there is an event which may lead to goodwill being impaired. As a result of the challenging retail environment we have reviewed the carrying value of the assets held on our balance sheet. The models used to value these assets include a number of assumptions including market growth and operating profit %. Due to the uncertainty within the market, growth assumptions for the short term have been based on prudent estimates. This has led to the recording of an impairment of £36 million in relation to our investment in Hornbach and £124 million in relation to goodwill allocated against B&Q China. Both these write downs are treated as exceptional. 

  The Group has recorded an exceptional profit of £13 million on disposal of properties (2007/08: £39 million profit).

The tax charge on exceptionals of £19 million includes the tax charge on the disposal of Italy of £26 million, less the £7 million relief assumed on other restructuring costs.

Earnings per share

As detailed below, as a result of the high level of exceptional items, we have recorded basic earnings of 0.2p per share in the year (2007/08: 10.9p). On an adjusted basis earnings per share have increased by 3.8% to 11.0p. Total earnings per share have reduced by 24% to 8.9p (2007/08: 11.7p).

	2008/09	2007/08
Basic earnings per share	0.2p	10.9p
Exceptional items	11.7p	(0.2)p
Financing fair value remeasurements (net of tax)	0.1p	(0.1)p
Impact of prior year items and exceptionals on income tax	(1.0)p	-
Adjusted earnings per share	11.0p	10.6p

Dividends

The Board has proposed a final dividend of 3.4p per share, making the total dividend for the year 5.32p per share, down 26.6% on the prior year. This is in line with the Board's announcement in March 2008. This dividend is covered 2.1 times by adjusted earnings (2007/08: 1.5 times).

The final dividend for the year ended 31 January 2009 will be paid on 19 June 2009 to shareholders on the register at close of business on 8 May 2009, subject to approval of shareholders at the Company's Annual General Meeting, to be held on 3 June 2009.  A dividend reinvestment plan (DRIP) is available to all shareholders who would prefer to invest their dividends in the shares of the Company.

The shares will go ex-dividend on 6 May 2009. For those shareholders electing to receive the DRIP the last date for receipt of electing is 29 May 2009. 

Return on Capital (ROC)

As part of our focus on increasing returns across the Group, we are adopting two new Return on Capital (ROC) measures that have simpler definitions and focus on operational metrics.

The first measure, Standard Return on Capital is primarily a Group measure. It is stated on a non-lease adjusted basis, although we also quote a lease adjusted number. The second measure, Lease Adjusted ROC excluding Goodwill is used to monitor performance at a business unit level.

  Standard Return on Capital

	2008/09	2007/08	Increase/(decrease)
Return on capital (ROC)	6.0%	5.9%	0.1pps

For Standard ROC, Return is calculated as post tax Retail Profit less central costs and excluding exceptional items, other than realised property profit. Return also includes the operating results for Castorama Italy. Return is then divided by two point average of Invested Capital (calculated as Net Assets excluding Net Debt and Pension related items including related Deferred Tax).  

In this new approach, the ROC has increased from 5.9% (restated 2007/08) to 6.0% in 2008/09 compared to the Group's weighted average cost of capital (WACC) 8.3%.  

Lease adjusted ROC is based on the same definition except it excludes property lease costs, and Invested Capital is adjusted for lease costs capitalised at the long-term property yield. Lease adjusted ROC has increased from 5.3% (restated 2007/08) to 5.7% in 2008/09.  

Lease adjusted ROC excluding goodwill and property profit

Kingfisher's underlying ROC by geographic division is set out below. Return is stated adjusted for property lease costs and before property profits. Invested capital excludes goodwill but includes capitalised leases. These numbers exclude the results of Castorama Italy:

	Retail Sales £bn	Proportion of Group sales %	Invested Capital (IC) £bn (1)	Proportion of Group IC %	Returns % (ROC) (1)
					2008/09	2007/08
UK	4.3	43%	5.6	63%	5.4%	5.1%
France	3.9	39%	1.8	20%	11.9%	11.3%
Other International	1.8	18%	1.5	17%	8.1%	7.5%

(1) Excluding goodwill of £2.5 billion. 

Cashflow 

The Group exceeded its flat net debt target for the year reporting year end net debt of £1,004 million (2007/08: £1,559 million). On a constant currency basis net debt has decreased by £0.8 billion from £1.8 billion including a £0.5 billion benefit on the sale of Castorama Italy.  

The Group generated £867 million of cash from operating activities in the year, up £354 million on the prior year. The year on year change is mainly as a result of our increased focus on working capital. In particular, despite an increase in the number of stores, we have recorded a reduction in the level of stock held of £169 million, whereas in 2007/08 an increase of £216 million was reported. A significant amount of this reduction was driven by our mature businesses.  

Net cashflows from investing activities in our continuing operations totalled £320 million in line with 2007/08 which benefited from a high level of asset disposals and the sale of B&Q Taiwan. As detailed below, gross capital expenditure decreased by 31% in 2008/09 to £390 million.

Cash will continue to be a key focus for the Group with our businesses working to reduce working capital and manage capital investment tightly.

Capital expenditure

As detailed last year the Group's Capital Investment process has changed to prioritise its capital investment into projects and businesses that offer the potential for the most attractive returns. This is supported by a rigorous capital allocation process:

• An annual strategic planning process (which leads into the budget process for the following year) based on detailed plans for all businesses for the next three years.  This process drives the key strategic capital allocation decisions and the output is reviewed by the Board, twice a year.

• A capital approval process through a capital expenditure committee, chaired by the Group Chief Executive including the Group Finance Director and Group Property Director. The committee is delegated to review all projects between £0.75 million and £15.0 million (including the capitalised value of lease commitments).

• Projects above this level are approved by the Board although all projects above £0.75 million are notified to the Board.

• Investment criteria and challenging hurdle rates for IRR (Internal Rate of Return) and payback with a target for year three returns versus initial cash investment.

• An annual post-investment review process to undertake a full review of all projects above £0.75 million which were completed in the last 4 years, together with a review of recent performance on all other existing stores. The findings of this exercise are considered by both the Retail Board and the Board and directly influence the Regional and Group Development Strategy and the assumptions for similar project proposals going forward.

Gross capital expenditure on continuing operations decreased by 31% in the year to £390 million in line with our annual capital target. £174 million was spent on property (2007/08: £220 million) and £216 million on fixtures, fittings and intangibles (2007/08: £293 million). A total of £62 million of proceeds from disposals were received during the year. This is lower than 2007/08 when we generated £117 million including £73 million on the sale and leaseback of Worksop, B&Q UK's central distribution centre.

Payments to acquire businesses in the year amounted to £7 million (2007/08: £1 million) which related to the purchase of minorities in China. 

Management of liquidity risk and financing

Kingfisher regularly reviews the level of cash and debt facilities required to fund its activities. This involves preparing a prudent cashflow forecast for the next three 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. 

At the year end, Kingfisher had undrawn committed bank facilities available to it totalling £775 million. Of this, £275 million matures in March 2010 and £500 million in August 2012. Kingfisher's policy has been to arrange committed bank facilities and then to refinance these with longer term debt in the bond and US Private Placement markets.

Kingfisher deposits surplus cash with a number of banks with strong credit ratings and with money market funds which have the strongest, AAA, credit rating. A credit limit for each bank or fund is agreed by the Board covering the full value of deposits and a proportion of the value of derivative contracts. The credit risk is reduced further by spreading the investments and derivative contracts across several counterparties. At the year end, Kingfisher had a total of £915 million of cash deposited with banks and in money market funds and the highest cash deposit with a single bank or money market fund was £89 million.

There are no significant debt maturities until 2010, when £620 million of debt is due, comprised of two bonds and a bank term loan, of which £175 million is due in March and £445 million in October.  

The maturity profile of Kingfisher's debt is illustrated at: www.kingfisher.com/investors/debtinvestors/debtmaturity

The terms of the US Private Placement note agreement and the committed bank facilities require only that the ratio of Group operating profit, excluding exceptional items, to net interest payable must be no less than 3:1. The Group is in compliance with this covenant, with the ratio at the year end being 5.3:1.

The Group has entered into interest rate derivative contracts to convert the fixed rate payable on its bond and US Private Placement notes to floating rate, except for Euro 300 million of debt which remains at fixed rate. The floating rate interest rates paid by the Group under its financing arrangements are based on LIBOR plus a margin. The margins were not changed during the year. Under the terms of the financing agreements, the margins are fixed and are not subject to change in line with credit ratings or financial ratios.

Property

The Group owns a significant property portfolio, most of which is used for trading purposes. If the Group had continued to revalue this it would have had a market value of £3.2 billion at year end (2007/08: £3.6 billion), compared to the net book value of £2.7 billion recorded in the financial statements. The value of our property portfolio has decreased due to rising yields (£0.5 billion decrease) and the sale of Castorama Italy (£0.3 billion decrease) only being partly offset by currency gains (£0.4 billion increase).

The values are based on valuations performed by external qualified valuers where the key assumption is the estimated yields. 

The valuation exercise was performed in October 2008 with approximately one third of the portfolio valued by external professional valuers. 

Pensions

At the year end, the Group had a deficit of £74 million in relation to defined benefit pension arrangements of which £40 million is in relation to its UK Scheme. In 2007/08 the Group had a surplus of £77 million. The decrease was predominantly due to a fall in the fair value of the pension scheme assets, reflecting market movements.

The approach used to prepare the pension valuation is in line with current market practice and international accounting standards, and has been applied consistently. This uses a number of assumptions which are likely to fluctuate in the future and so may have a significant effect on the accounting valuation of the scheme's assets and liabilities.

A key assumption in valuing the pension obligation is the discount rate.  Accounting standards require this to be set based on market yields on high quality bonds at the balance sheet date.  Due to the current volatility of the bond market, there can be significant variances in the yield rate from day to day.  During January 2009 there was a 0.7% difference between the highest annual yield % and the lowest annual yield % on the index on which we base our discount rate assumptions. 

To aid understanding of the impact that changes to the assumptions could have on the pension obligation we have included sensitivity analysis as part of the pension disclosure in note 9 of this announcement.  Further details of all the key assumptions are also contained within the note.  

  Operational Review - DATA BY COUNTRY as at 31 January 2009

	Store numbers	Selling space (000s sq.m.)	Employees (FTE)
B&Q	322	2,401	23,425
UK Trade	138	12	2,706
Total UK	460	2,413	26,131
Castorama	99	992	11,826
Brico Dépôt	98	536	6,165
Total France	197	1,528	17,991
Poland	51	383	8,674
China	63	599	10,032
Ireland	9	56	505
Spain Russia Turkey JV	15 7 21	88 63 109	784 1,584 2,025
Total Other International	166	1,298	23,604
Total	823	5,239	67,726

Operational Review - FULL YEAR BY GEOGRAPHY - year ended 31 January 2009

	Retail Sales (1) 2008/09 £m	% Total   Change (Reported)	% Total   Change (Constant currency)	% LFL   Change	Retail Profit  (2) 2008/09       £m	% Total   Change (Reported)	% Total   Change (Constant currency)
France (3)	3,888	20.6%	3.1%	(1.3)%	283	19.2%	1.9%
UK (4)	4,279	(2.6)%	(2.6)%	(6.5)%	129	(15.6)%	(15.6)%
Other International (5)	1,859	29.9%	7.0%	(3.7)%	91	15.1%	(6.1)%
Total Group	10,026	10.8%	1.2%	(4.1)%	503	7.2%	(4.6)%

2008/09 £1 = 1.2367 euro 2007/08 £1 = 1.4472 euro

(1)    Joint venture (JV) and Associate sales are not consolidated.

(2)  Retail profit is defined as continuing operating profit before central costs, exceptional items, amortisation of acquisition intangibles and the Group's share of interest and taxation of joint ventures and associates.

(3)  Castorama and Brico Dépôt.

(4)  B&Q, Screwfix and Trade Depot.

(5)  Poland, China, Spain, Ireland, Russia, Turkey JV and Hornbach. South Korea and Taiwan JV included in comparatives only. Following the Castorama Italy disposal its results have been excluded from both years.

  Forward-looking statements

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, 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.

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.com or by application to: 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 third largest in the world, with over 820 stores in eight countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. Kingfisher also has a 21% interest in, and strategic alliance with Hornbach, Germany's leading large format DIY retailer, with over 120 stores in nine European countries.

 

END

 

 

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