Final Results - Part 1
Kingfisher PLC
27 March 2008
EMBARGOED UNTIL 0700 HOURS
Thursday 27 March 2008
Kingfisher plc
Preliminary results for the year ended 2 February 2008
Group Financial Summary
2007/08 2006/07 Reported Constant Like-for-like
Currency Change (LFL) change
Change (52 weeks)
Retail sales (1) £9,364m £8,676m +7.9% +8.0% +2.6%
Retail profit (2) £498m £504m (1.2)% (2.7)%
Adjusted pre-tax profit (3) £386m £397m (2.8)%
Adjusted post-tax profit (3) £265m £277m (4.3)%
Adjusted basic EPS (3) 11.3p 11.9p (5.0)%
Full year dividend 7.25p 10.65p (31.9)%
Net debt £1,559m £1,294m
(1) For the UK businesses, reported results are for the 52 weeks ended 2
February 2008 (2006/07: 53 weeks ended 3 February 2007). Outside the UK,
results are reported on a calendar month basis. Joint venture (JV) and
Associate sales are not consolidated.
(2) Retail profit is stated before central costs, exceptional items,
acquisition intangibles amortisation and share of joint venture and associate
interest and tax.
(3) Adjusted measures are before exceptional items, financing fair value
remeasurements and acquisition intangibles amortisation. A reconciliation to
statutory amounts is set out in the Financial Review.
Financial highlights
• Group retail sales up 8.0%, +2.6% like-for-like.
• Adjusted pre-tax profit down 2.8%.
• Final dividend to be reduced by 50% to 3.4p with a similar reduction
expected for the forthcoming interim dividend.
• Property portfolio valued at £3.6 billion.
Operating highlights
• International (ex-UK, representing over half of Kingfisher's sales)
delivered strong sales, up 11%, and retail profit growth up 5%.
o Good performance in France (sales up 7.2%, retail profit up 13.2%).
o Strong performance in Poland (sales up 31.1%, retail profit up 41.8%).
o B&Q China to be restructured resulting in an exceptional charge of
£22 million in 2007/08, with a further exceptional charge of around
£11 million expected in 2008/09.
• In the UK, sales grew 5%, underlying retail profit was flat before the
impact of B&Q's biggest ever year of range and store renewal.
Statutory reporting
2007/08 2006/07 Reported
Change
Pre-tax profit £395m £450m (12.2)%
Post-tax profit attributable to equity shareholders £274m £337m (18.7)%
Basic EPS 11.7p 14.4p (18.8)%
Peter Jackson, Chairman, said:
'The last year has been challenging for international retailers with increased
global economic uncertainty impacting consumer confidence, particularly here in
the UK.
'Despite this there were many examples of good progress across the Group. In our
largest single business, B&Q, we made a major step forward in improving B&Q's
offer to customers, introducing more new products and modernising more store
space than ever before, whilst capitalising well on more buoyant conditions in
many of our international markets.
'At the end of the financial year the Board appointed Ian Cheshire as the new
Group Chief Executive to drive through the changes necessary to improve returns
and maximise our value for shareholders. It is early days but he is already
making good progress, setting new targets and a clear direction for the Group.
'The Board is confident that Ian and his team will bring about a major
improvement in the performance of the Group, but to do that it will need to
continue investing. Ian is already applying a great deal of rigour to ensure
that cash is spent wisely. Against this internal background and the external
economic environment, the Board has decided to reduce the final dividend by
fifty percent and would expect to apply a similar cut to the forthcoming interim
dividend. This would have the effect of rebasing the dividend to a level more
prudently covered by current earnings from which it could grow consistent with
the performance and capital needs of the Group.'
Ian Cheshire, Group Chief Executive, said:
'I am delighted to be leading Kingfisher at this important time in our
development. We have a great opportunity to unlock the full potential of our
strong assets. By changing how the Group as a whole is managed, tightening our
use of capital and driving out higher cash returns from our businesses we intend
to deliver a step-change in value for our shareholders.
'No business can fully shield itself from economic cycles and given the current
state of the financial markets, most commentators are expecting the short-term
outlook to worsen before it improves. Against this background, our priorities
remain on improving cash margin and controlling costs. I remain confident that
Kingfisher has a bright future with a strong position in an attractive retail
sector and with geographic diversification in developed and developing markets.'
REVIEW OF THE YEAR
The remainder of this release has three main sections:
• Future Direction
• Operational Review
• Financial Review and preliminary Financial Statements.
Future Direction
Home improvement is an attractive segment of retail, benefiting from natural
long- term demand characteristics fuelled by demand for more new housing and
more frequent home renewal. The market also benefits from many products being
common across international markets, giving rise to global sourcing and
economies of scale.
Within this market Kingfisher is alone in having such a large and geographically
diversified business. However, delivering more shareholder value from this
strong strategic position will require changes in three key areas.
Management
Historically, Kingfisher has followed a decentralised management approach, with
our retail businesses largely operating independently but participating in
Group-wide programmes for local advantage. This approach has successfully
resulted in the businesses being well adapted to local customers, but it has yet
to deliver the Group's full potential.
Going forward, the retail businesses will retain responsibility for best serving
their local customers but a new senior team, working within a new management
structure, will have collective responsibility for overall Group delivery of
results as well as key existing cross-Group activities; global sourcing,
own-brand development, common purchasing, IT, property and global talent
management.
Accordingly, three new geographic divisions have now been established; UK,
France and Other International. Three new management roles have been created
with overall responsibility for all businesses in each geographic division and
good progress has been made identifying these executives. Philippe Tible, CEO of
Castorama France, has been appointed to lead the French division and an
announcement about the UK will be made shortly.
These three roles will make up the core of the new Retail Board with cross-Group
powers and incentives. Internal management information has been simplified and
more rigorous internal reporting - business performance monitoring and challenge
processes - are being introduced. The Group Chief Executive will regularly
attend Board meetings of the UK, French and Polish businesses.
Capital
Capital invested to support Kingfisher's domestic and international development
has been significant to date, building strong retail and sourcing operations
across the world and there continue to be new investment opportunities which
offer good returns. However, debt has expanded in recent years and, with the
global economic cycle now tightening, stabilising debt at current levels, prior
to reducing it in due course is now a priority. Accordingly, we have set a
target of constant currency flat net debt for the current year.
Consistent with this, existing capital deployed across the Group will be
reviewed and new capital investment will continue, albeit at a slower rate.
Annual capital investment will be around £400 million, reprioritised to the
highest and fastest-returning projects. Higher hurdle rates have already been
introduced with immediate effect, driving quicker achievement of attractive
returns.
The Board believes there are significant capital investment opportunities over
the coming years that will drive shareholder value. Given this investment
opportunity, combined with the Board's view of capital and performance, the
Board has therefore decided to reduce the final dividend by fifty percent to
3.4p, making a total dividend for the year of 7.25p. Had the Board adopted this
fifty per cent reduction at the interim dividend stage, it would have declared
an interim dividend of 1.93p making a total dividend for the year of 5.33p
covered 2.1 times by adjusted earnings. The Board believes that such a level of
dividend would be appropriate for current business needs and is a level from
which it could grow consistent with the performance and capital needs of the
company.
Cash Returns
Having invested significantly in the worldwide retail and sourcing operations,
greater focus will now be placed on generating higher cash returns from the
retail businesses. Operational improvements will be achieved through a greater
customer focus and drive for operating cost efficiencies.
Over the next three months the new management team will draw up new three year
operating plans with clear, stretching, but achievable, sales growth, margin
improvement and cost reduction targets. Greater emphasis will also be placed on
optimising working capital. Accordingly, we will align management incentives to
the delivery of these plans, which will drive a step change in shareholder
value.
Operational Review - UK
Retail sales £m 2007/08 2006/07 % Change % Change % LFL
(Reported) Change
52 weeks 53 weeks 52 vs 53 weeks 52 vs 52 weeks
UK 4,395 4,262 3.1% 5.1% 0.4%
Retail profit £m 2007/08 2006/07 % Change
(Reported)
UK 153 183 (16.3)%
UK includes B&Q in the UK, Screwfix and Trade Depot.
UK Market
The UK home improvement market* grew over the first half of the year, before
weakening over the second half, as concerns over higher personal debt, less debt
availability and falling house prices began to weigh on the consumer. For the
full year, the market grew by around 3%, following falls of 0.5% last year and
4% in 2005/06.
Kingfisher's businesses outperformed the market by delivering sales growth of
5.1%, despite disruption from B&Q's biggest year of change in its history.
*Market data from GfK for the leading retailers of home improvement products and
services
B&Q's total reported sales were £3.9 billion, up 2.7% (52 weeks). For the first
time in three years, despite operating in a challenging market and with
difficult summer weather patterns, LFLs were up, by 0.6%. Total sales grew 4.8%
over the first half but only 0.5% in the second half (26 weeks), reflecting a
tougher retail environment. However, good sales growth from revamped large
stores and new ranges helped offset disruption from the ongoing renewal
activity.
Retail profit was £131 million (2006/07: £163 million), after £29 million net
revenue costs of the renewal programme (£14 million revamping larger stores and
£15 million range review clearance activity). Underlying retail profit was
broadly maintained. The underlying gross margin rate, before range review
clearance activity, was slightly up compared to last year, reflecting less
promotional activity and a favourable sales mix towards new, higher margin
products.
Total costs grew 4% (52 weeks) with underlying cost inflation of 2%, net new
space growth of 2% and the additional costs of store revamping offset by cost
savings.
Renewal programme update
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
2007/08, B&Q underwent the biggest year of change in its history, which included
updating product ranges, improving its store environments and introducing more
services, to ensure B&Q is the first and only store for a greater proportion of
customers' home improvement spend.
New product ranges
B&Q updated 60% of its overall product ranges during the year, supported by a
major new advertising campaign. Updated ranges of wall and window coverings,
lighting, soft furnishings and kitchens sold particularly well as have bedroom,
plumbing and flooring ranges which have been updated more recently. A better
underlying performance is expected from these changes in 2008/09.
Customer service
Customer service requirements are typically the highest when shopping for room
make-over decorative items and major home improvement projects. Good advice,
on-line and in-store, coupled with fast and efficient delivery and installation
are key to good customer service.
During the first half of the year, 800 in-store decorative advisers received
practical decorating skills training, to enable them to advise customers on how
to style rooms. This initiative has been well received and will be extended to
laying flooring, tiling and the basics of plastering and fitting kitchens and
bathrooms.
Following a major overhaul of B&Q's installation and home delivery services, the
time from order to delivery and installation of kitchens and bathrooms has been
reduced by five weeks on average.
Also, the B&Q website (www.diy.com) has been revamped, with customers now able
to use new free room design and bathroom planner software, view more than 35,000
products on-line and check availability in their local store. In addition, 6,500
products continue to be available for home delivery.
Store development
Having revamped around 5.5 million square feet of store space across the year, B
&Q now has over half its store space in a modern format. Twenty seven large
store revamps, which encompass more clearly defined shop-within-shop sections,
room-set displays and more space allocated to kitchens, bathrooms, flooring and
tiling areas were completed. This programme remains on track for completion by
2011.
The 11 large new format stores which have been open for more than one year have
delivered targeted average sales densities of over £200 per square foot, 25%
higher than comparable sized, older format stores.
The higher sales productivity results from customers spending more in the
expanded kitchen, bathroom and associated project areas. In aggregate, the
revamps, which on average have only 24 weeks trading data, have delivered sales
uplifts of 13% higher than a 'control group'. However, measurement of this
relative uplift excludes the benefits of updated product ranges, which are now
substantially available in all stores, including the 'control group' stores.
B&Q now has 117 large stores (38 in the latest format) and 206 medium stores (of
which 151 have been modernised). Overall net space increased 2% during the year.
UK Trade
Screwfix total sales grew 28.0% (52 weeks), driven by the continued roll-out of
the trade counters, which provide customers with immediate product availability
and a bigger catalogue. An additional 55 outlets opened during the year, taking
the total to 93. Trade counters now represent almost 40% of total sales. To
support this continued growth, a second distribution centre was successfully
commissioned during the year in Stafford.
Retail profit increased 6.4%, driven by the strong sales growth and fulfilment
efficiency gains, offset by start-up costs for the second distribution centre
and an accelerated trade counter opening programme. Excluding the impact from
these initiatives, retail profit would have been up around 14%.
Trade Depot, which targets the general builder and specialist trade customer,
opened two more branches during the year taking the total trading to six.
Underlying trading remains encouraging.
As part of the new management structure, an integrated review of the optimal UK
trade strategy across our various brands will be conducted.
Operational Review - FRANCE
Retail sales £m 2007/08 2006/07 % Change % Change % LFL
(Reported) (Constant) Change
France 3,224 2,955 9.1% 7.2% 2.6%
Retail profit £m 2007/08 2006/07 % Change % Change
(Reported) (Constant)
France 237 206 15.2% 13.2%
France includes Castorama and Brico Depot.
All percentage movements below are in constant currencies.
In France, Kingfisher's total sales grew 7.2% (LFL +2.6%). Eight new stores were
opened in the year and six were revamped, adding around 4% new space. Banque de
France data shows that growth in comparable DIY store sales* was 3.0% for the
full year. Kingfisher's businesses outperformed the market by delivering
comparable stores sales growth of 3.7% (on the same basis as Banque de France),
despite disruption from store revamps.
*Banque de France data including relocated and extended stores
Retail profit grew 13.2% to £237 million with both businesses delivering good
profit growth. Gross margins were up 90 basis points due to higher own-brand
sales penetration, a 25% increase in direct sourcing and an improved sales mix
across both businesses. With a high level of freehold stores and strong cost
control, Kingfisher's net cost inflation in France continues to run at around
2%. This is expected to increase to around 3% for 2008/09.
Castorama total reported sales grew 4.1% to £1.7 billion (+3.7% LFL, +5.6% on a
comparable store basis), driven by good performances of new paint, decorative
and bathroom ranges. The sales participation of exclusive own-brand products
continued to grow with sales of the decorative 'Colours' ranges almost doubling
compared to the prior year.
Castorama continued its store modernisation programme, with six stores revamped
during the year. Forty-two per cent of total selling space is now in the new
format and these stores continue to outperform, with average sales densities 19%
higher than older format stores.
Brico Depot total reported sales increased 11.1% to £1.5 billion. LFL sales
growth was +1.4% after around 2% of internal cannibalisation resulting from the
decision to open new stores in catchments where existing stores are trading at
full capacity. Sales were strong in building and decorative categories,
supported by favourable weather and new ranges of power tools and indoor paint.
Eight new stores opened in the year taking the total to 89, including the
opening of three stores transferred from Castorama at the end of last year.
The new SAP information technology platform was implemented to support Brico
Depot's future growth. Since completion of the project stock availability and
stock quality have improved.
Operational Review - REST OF EUROPE
Retail sales £m 2007/08 2006/07 % Change % Change % LFL
(Reported) (Constant) Change
Rest of Europe 1,273 1,002 27.0% 22.8% 12.2%
Retail profit £m 2007/08 2006/07 % Change % Change
(Reported) (Constant)
Rest of Europe 122 110 10.1% 5.9%
Rest of Europe includes Poland, Italy, Spain, Ireland, Russia, Turkey JV and
Hornbach in Germany.
Joint Venture and Associate sales are not consolidated.
All percentage movements below are in constant currencies.
Rest of Europe sales increased 22.8% to £1,273 million (+12.2% LFL) with 12 more
stores (excluding Turkey JV) trading compared to the prior year. Retail profit
increased 5.9% to £122 million, reflecting strong growth in Poland offset by
weaker performances from Castorama Italy and Hornbach (21% economic interest) in
a difficult German market.
Seventeen new stores were opened in the year across six countries, including
seven in Poland, five in Turkey and two in Russia.
Sales for Castorama and Brico Depot in Poland increased 31.1% to £703 million
(+22.5% LFL), boosted by buoyant consumer spending, strong property and
construction markets and favourable weather. Retail profit increased 41.8% to
£87 million as good cost control, a year on year doubling in direct sourcing and
increased own-brand penetration, helped to offset increasing wage inflation. New
ranges, including exclusive own-brand professional tools and decorative
products, performed well.
Seven new stores opened including the second Brico Depot, launched to meet the
demand for a more trade-orientated offer.
Operating in a generally weak retail market, Castorama Italy sales declined 1.2%
to £314 million (-2.4% LFL). Sales benefited from relocated and revamped stores,
together with successful targeted promotional activity in bathroom accessory and
flooring categories. Retail profit of £29 million was down slightly on the prior
year (2006/07: £31 million), with higher pre-opening and revamp costs. Increased
own-brand penetration and good cost control helped to offset the slow market.
One new store was opened taking the total to 28. Two stores were revamped and
one was relocated.
In Ireland, where B&Q has eight stores, sales grew 6.8%, reflecting one new
store opening in the second half of the year. Brico Depot's expansion into Spain
continued with 11 stores now trading with underlying trading encouraging. In
Russia, two new Castorama stores were opened taking the total to five. Sales
more than doubled compared to the prior year (+25.6% LFL).
Koctas in Turkey, a 50% joint venture, continued to grow sales and retail profit
strongly, benefiting from Kingfisher sourcing buying power and own-brand
penetration. Five new stores opened taking the total to 15. Hornbach, in which
Kingfisher has a 21% economic interest, contributed £13 million to retail
profit; £6 million lower than last year, due to a difficult German market.
Operational Review - ASIA
Retail sales £m 2007/08 2006/07 % Change % Change % LFL
(Reported) (Constant) Change
Asia 472 457 3.4% 7.0% (0.1)%
Retail profit £m 2007/08 2006/07 % Change % Change
(Reported) (Constant)
Asia (14) 5 n/a n/a
Asia includes China, Taiwan and South Korea. Taiwan JV sales are not
consolidated.
All percentage movements below are in constant currencies.
Asia sales increased 7.0% to £472 million (-0.1% LFL) with retail losses of £14
million (2006/07: £5 million profit).
B&Q China sales increased 7.9% to £465 million reflecting new store openings and
the development of new ranges. Sales were flat on a LFL basis, impacted by a
slowdown of new apartment sales in the major Chinese markets, and new
regulations covering trading terms between retailers and suppliers.
Following the regulation change, finalisation of B&Q China's 2007 supplier
agreements was delayed until clarification with the authorities in August 2007.
As a result of the required changes to some of its supplier arrangements, B&Q
China's result for the year was impacted by £11 million, contributing to a
retail loss of £12 million (2006/07: £8 million profit).
The Chinese market remains fundamentally attractive with B&Q's operations in the
major cities continuing to show attractive returns. B&Q has expanded rapidly
over the last three years, adding 42 stores, tripling its store base. However,
after several years of dramatic growth the business now needs a period of
consolidation. Following a Group-led review, B&Q China will be restructured
giving rise to an operating exceptional cost of £22 million in 2007/08, relating
to the accelerated write-down of assets. A further exceptional charge of around
£11 million is expected to be recognised in 2008/09. Of the total £33 million
exceptional charge, the cash cost is expected to be £9 million.
Other Asia
B&Q Taiwan delivered a small profit for the year prior to it being sold to its
50% joint venture partner on 4 January 2008. The exit from the two stores in
South Korea was completed towards the end of the year. Following the disposal of
Taiwan and Korea, the B&Q Asia head office in Hong Kong will close in the first
half.
Financial Review
Financial summary
A summary of the reported financial results for the year ended 2 February 2008
is set out below.
2007/08 2006/07 Increase /
£m £m (decrease)
Revenue 9,364 8,676 7.9%
Operating profit 457 501 (8.8)%
Profit before taxation 395 450 (12.2)%
Adjusted pre-tax profit 386 397 (2.8)%
Basic earnings per share 11.7p 14.4p (18.8)%
Adjusted earnings per share 11.3p 11.9p (5.0)%
Dividends 7.25p 10.65p (31.9)%
Underlying Return on Invested Capital (ROIC) 7.0% 6.9% 0.1pps
A reconciliation of statutory profit to adjusted profit is set out below:
2007/08 2006/07 Increase /
£m £m (decrease)
Profit before taxation 395 450 (12.2)%
Exceptional items (4) (49) (91.8)%
Profit before exceptional items and taxation 391 401 (2.5)%
Financing fair value remeasurements (5) (4) 25.0%
Adjusted pre-tax profit 386 397 (2.8)%
Income tax expense on pre-exceptional profit (125) (120) 4.2%
Income tax on fair value remeasurements 2 1
Minority interest 2 (1)
Adjusted post-tax profit 265 277 (4.3)%
Reporting period
The Group's financial reporting year ends on the nearest Saturday to 31 January.
The current year is for the 52 weeks ended 2 February 2008 with the comparative
financial period being the 53 weeks ended 3 February 2007. This only impacts the
UK operations with all of the other operations reporting on a calendar basis as
a result of local statutory requirements.
The effect of the 53rd week on the results of the Group's comparative period was
an increase of £79 million revenue. It has no significant impact on operating
profit. So that the results are more readily comparable, all of the UK
like-for-like analysis has been calculated comparing the 52 weeks against 52
weeks last year.
Total reported sales grew 7.9% to £9.4 billion on a reported rate basis, and
8.0% on a 52 week constant currency basis. During the year, an additional 80
net new stores were added, taking the store network to 765 (excluding Turkey
JV). On a LFL basis, Group sales were up 2.6%.
Operating profit before exceptional items grew by 0.2% to £453 million and fell
by 8.8% to £457 million after exceptional items.
The net interest charge for the year was £62 million, up £11 million on the
prior year as a result of higher annualised interest rates and movements in
exchange rates. This was partially offset by an increase in net interest return
on the defined benefit pension scheme.
Adjusted pre-tax profit fell 2.8% reflecting challenging trading conditions in
the UK and China only being partially offset by positive performances in France
and Poland.
Taxation
The effective rate of tax on profit has increased from 25% in the prior year to
31% reflecting an increased level of tax on exceptional items net of a release
of provisions in respect of prior years. The effective rate of tax on profit
before exceptional items and excluding prior year tax adjustments and the impact
of rate changes is 32.0% (2006/07: 32.0%).
The Group effective tax rate is calculated as follows:
Effective tax rate calculation 2007/08 Profit Tax Effective rate
£m £m
Profit before tax and tax thereon 395 (123) 31%
Less exceptional profit and tax thereon (4) 14
Less prior year adjustment - exceptional (16)
Less prior year adjustment - non-exceptional 9
Less adjustment attributable to rate changes (9)
Total 391 (125) 32%
The Group effective rate of tax is affected by the varying tax rates in the
different jurisdictions in which it operates, the mix of taxable profits in
those jurisdictions, the rules impacting on deductibility of certain costs and
the non-recognition of tax losses in start-up jurisdictions. Whilst the
headline tax rates in some of the jurisdictions in which we operate are
reducing, there is also an increased focus on tax as a means of raising revenue
for the local economies and therefore the tax cost of multinationals is tending
to increase over time. We will continue to plan our tax affairs efficiently.
The statutory tax rates in the jurisdictions in which the Group operates for
this financial year and expected rates in the next financial year are as
follows:
Jurisdiction Statutory tax rate 2007/08 Statutory tax rate 2008/09
UK 30% 30% - 28%
France 34.43% 34.43%
Poland 19% 19%
Rest of Europe 12.5% - 37.25% 12.5% - 35%
Asia 17.5% - 33% 17.5% - 25%
Exceptional items
The Group recorded a £4 million pre-tax exceptional income in the year. Net
profits on property disposals of £39 million and £5 million income on previously
written off loans have been offset by exceptional costs in Asia of £40 million.
Costs of £13 million have been expensed on the closure of B&Q Korea and the Asia
head office, which will close during the first half of 2008/09. The Group also
sold its B&Q Taiwan 50% stake for £50 million recording a gross profit before
goodwill of £27 million and net loss on disposal of £5 million. The £32 million
goodwill was allocated to B&Q Taiwan on the acquisition of Castorama's minority
interest in 2002/03. A further £22 million charge has been recorded as a result
of restructuring the B&Q China business.
In total the B&Q China restructuring is anticipated to cost approximately £33
million of which £9 million will be a cash cost.
Earnings per share
2007/08 2006/07
Basic earnings per share 11.7p 14.4p
Exceptional items (net of tax) (0.3)p (2.4)p
Financing fair value remeasurements (net of tax) (0.1)p (0.1)p
Adjusted earnings per share 11.3p 11.9p
Dividends
The Board has proposed a final dividend of 3.4p per share, making the total
dividend for the year 7.25p per share, down 31.9% on the prior year. This
dividend is covered 1.6 times by adjusted earnings (2006/07: 1.1 times).
The final dividend for the year ended 2 February 2008 will be paid on 13 June
2008 to shareholders on the register at close of business on 18 April 2008,
subject to approval of shareholders at the Company's Annual General Meeting, to
be held on 5 June 2008. 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 16 April 2008. For those shareholders electing
to receive the DRIP the last date for receipt of electing is 22 May 2008.
Dividend cheques and tax vouchers will be posted on 11 June 2008. Certificates
for shareholders electing for the DRIP will be posted no later than 26 June
2008.
Return on Capital Employed (ROCE)
ROCE reduced to 7.5% in the year (2006/07: 7.9%). ROCE is defined as adjusted
operating profit (pre exceptional operating profit excluding share of interest
and tax of joint ventures and associates) divided by average capital employed.
Return on invested capital (ROIC)
ROIC is defined as net operating profit less adjusted taxes (adjusted operating
profit excluding property lease and property depreciation costs less tax, plus
property revaluation increases in the year) divided by average invested capital
(average net assets less financing related balances and pension provisions plus
property operating lease costs capitalised at the long-term property yield).
Following the transition to IFRS, the Group elected not to revalue properties
from 1 February 2004. However, property appreciation is an integral part of a
ROIC measure and therefore Kingfisher continues to include revaluation gains and
the current market value of our properties in ROIC calculations.
ROIC declined from 8.7% to 6.5% in the year primarily due to a reduction in
property revaluation gains on owned properties on a like for like basis. In
2006/07 these gains increased ROIC by 2.6%.
Underlying ROIC increased from 6.9% to 7.0%. Underlying ROIC assumes properties
appreciate in value at a steady rate over the long-term. When calculating the
underlying ROIC, short-term variations in property values more or less than the
long-term mean are excluded.
ROIC excluding goodwill
Kingfisher's sales, invested capital and underlying ROIC excluding goodwill are
disclosed below by geography:
Retail Sales Proportion of Invested Capital Proportion of Returns %
£bn Group sales % (IC) Group IC % (ROIC) (2)
(1) £bn (2)
UK 4.4 47% 6.1 65% 7%
France 3.2 34% 1.7 18% 12%
Other International 1.8 19% 1.6 17% 10%
Group total 9.4 100% 9.4 100% 9%
1) For the UK businesses, reported total sales figures are for the 52 weeks
ended 2 February 2008. Outside the UK, figures are on a calendar month basis.
2) Excluding goodwill of £2.5 billion but including smoothed property
appreciation and leases capitalised at long- term yields.
Cashflow
The Group generated £465 million of cash from operating activities in the year,
down £94 million on the prior year. The year on year change is mainly as a
result of a cash outflow recorded in working capital of £36 million, whereas in
2006/07 a cash inflow of £124 million was recorded. Inventory at £1,873 million
was £342 million greater than last year reflecting an increased number of
stores, extra inventory from the revamp programmes at B&Q UK and Castorama
France, the effect of exchange rates (£118 million) and buying ahead as a result
of the timing of Easter.
Net capital expenditure was £411 million (2006/07: £216 million) which has risen
year on year as a result of a rise in the level of acquisitions within the
Group's portfolio and a reduction of disposals.
The Group received £50 million net consideration on the sale of B&Q Taiwan.
The resulting year end net debt was £1,559 million (2006/07: £1,294 million).
Capital expenditure
Following the appointment of a new Group Chief Executive the capital allocation
and approval process has been tightened with the aim of prioritising a lower
rate of annual capital investment towards the highest and fastest returning
projects:
- The management team will draw up new three year operating plans which
lead into the budget process for the following year. This process drives the key
strategic capital allocation decisions and the output is reviewed by the Board,
twice a year.
- The capital expenditure committee will now be chaired by the Group
Chief Executive and will include the Group Property Director as well as the
Group Finance Director. It will 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 hurdle rates have been revised with more
challenging hurdle rates for IRR (Internal Rate of Return) and payback and the
introduction of a new target for year three returns versus initial cash
investment.
- An annual post-investment review process will continue to review the
performance of all projects above £0.75 million which were completed in the
prior year. The findings of this exercise will be considered by both the new
Retail Board and the main Board and directly influence the assumptions for
similar project proposals going forward.
Gross capital expenditure (excluding business acquisitions) for the Group was
£528 million (2006/07: £467 million). £227 million was spent on property (2006/
07: £220 million) and £301 million on fixtures, fittings and intangibles (2006/
07: £247 million). A total of £117 million (2006/07: £251 million) of proceeds
from disposals were received during the year, £115 million of which came from
property disposals.
Payments to acquire businesses in the year amounted to £1 million (2006/07: £2
million) which related to the purchase of minorities in China.
Financing
At the year end, the Group had undrawn committed bank facilities available of
£675 million. The Group has no significant debt maturities until 2010. The
maturity profile of Kingfisher Plc's debt and financing arrangement is
illustrated at:
www.kingfisher.com/investors/debtinvestors/debtmaturity
Kingfisher aims to smooth the maturity profile of its debt by issuing debt with
different maturities and by utilising committed bank revolving credit facilities
to provide additional liquidity.
In March 2007, the Group obtained new committed revolving credit facilities
totalling £275 million with a number of banks and a £25 million committed term
bank loan facility. These facilities mature in March 2010 and are available to
be drawn to support the general corporate purposes of the Group. In July 2007,
the Group extended the maturity of its £500 million syndicated bank revolving
credit facility by one year, such that it now matures in August 2012.
The terms of the US Private Placement note agreement and the committed bank
facilities require that the ratio of operating profit to net interest payable
must be no less than 3:1. The Group comfortably complied with this covenant.
The interest rates paid by the Group under these financing arrangements are
based on LIBOR plus a margin. The margins are fixed and are not subject to
change in line with credit ratings.
Property
The values are based on valuations performed by external qualified valuers where
the key assumption is the estimated yields. The average income yields used were
6.3% in the UK (2006/07: 5.5%), 6.5% in France and Italy (2006/07: 6.7%), 6.9%
in Poland (2006/07: 6.8%) and 7.7% in China (2006/07: 7.7%).
During the year the Group disposed of properties for cash consideration of £115
million including £73 million on the sale of its national distribution centre in
Worksop, which it retained the right to lease for 24 years. This is consistent
with the Group's policy of recycling property when economically attractive. The
proceeds of the transaction were used to repay existing debt and to invest in
Kingfisher's worldwide store opening programme, including further freehold
acquisitions.
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 £3.6 billion at year end, compared to the net book value of
£2.7 billion recorded in the financial statements. This represents a £386
million increase against the prior year and a £76 million increase on a constant
currency basis.
Pensions
The Group holds a net pension surplus of £77 million in relation to defined
benefit pension arrangements of which £110 million is in relation to its UK
Scheme. In 2006/07 the Group held a deficit of £55 million. This increase was
as a result of additional payments to the UK pension scheme (£101 million was
paid compared to a normal contribution of around £45 million per annum) and
increases in the discount rate used to calculate the defined benefit obligation
from 5.3% to 6.2% as a result of increases to corporate bond rates over the
year. This was partly offset by an increase in the inflation rate assumption
from 2.9% to 3.3% and changed mortality rates with an assumption that people
will live longer. The mortality change increased the obligation by approximately
£34 million and ensures that these assumptions remain in line with current
market best estimates.
The approach used to prepare the pension valuation is in line with current
market practise 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 valuation of the scheme's
assets and liabilities.
Further disclosures of the assumptions used (including mortality assumptions)
and sensitivities are provided in note 8.
Operational Review - DATA BY COUNTRY as at 2 February 2008
Store numbers Selling space Employees
(000s sq.m.) (FTE)
B&Q 323 2,368 26,427
UK Trade 99 27 2,603
Total UK 422 2,395 29,030
Castorama 98 972 12,022
Brico Depot 89 476 6,001
Total France 187 1,448 18,023
Castorama Poland 42 334 7,520
Castorama Italy 28 175 2,114
B&Q Ireland 8 51 590
Brico Depot Spain 11 60 684
Castorama Russia 5 44 1,282
Koctas Turkey 15 78 1,637
Total Rest of Europe 109 742 13,827
B&Q China 62 585 10,358
Total Asia 62 585 10,358
Total 780 5,170 71,238
Operational Review - FULL YEAR BY GEOGRAPHY - year ended 2 February 2008
Retail sales £m (1) % % % LFL Retail profit £m (2) %
2007/08 2006/07 Change Change Change 2007/08 2006/07 Change
(Reported) (Constant (Reported)
currency)
UK (3) 4,395 4,262 3.1% 5.1% 0.4% 153 183 (16.3)%
52 weeks 53 weeks 52 vs 53 weeks 52 vs 52
weeks
France (4) 3,224 2,955 9.1% 7.2% 2.6% 237 206 15.2%
Rest of Europe 1,273 1,002 27.0% 22.8% 12.2% 122 110 10.1%
(5)
Asia (6) 472 457 3.4% 7.0% (0.1)% (14) 5 n/a
International 4,969 4,414 12.5% 10.8% 4.6% 345 321 7.4%
Total 9,364 8,676 7.9% 8.0% 2.6% 498 504 (1.2)%
2007/08 £1 = 1.4472 euro 2006/07 £1 = 1.4720 euro
(1) For the UK businesses, reported total sales figures are for the 52 weeks
ended 2 February 2008 (2006/07: 53 weeks ended 3 February 2007). Outside
the UK, figures are on a calendar month basis. Joint venture (JV) and
Associate sales are not consolidated.
(2) Retail profit is stated before central costs, exceptional items,
acquisition intangibles amortisation and share of joint venture and associate
interest and tax.
(3) B&Q, Screwfix and Trade Depot.
(4) Castorama and Brico Depot.
(5) Rest of Europe includes Poland, Italy, Spain, Ireland, Russia, Turkey JV
and Hornbach in Germany.
(6) Asia includes China, South Korea and Taiwan JV.
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 are available at www.kingfisher.com, or
from: 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 780 stores in nine countries in Europe and Asia. Its
main retail brands are B&Q, Castorama, Brico Depot and Screwfix. Kingfisher also
has a 21% interest in, and strategic alliance with, Hornbach, Germany's leading
DIY Warehouse retailer, with over 120 stores in Germany and eight other European
countries.
This information is provided by RNS
The company news service from the London Stock Exchange