Kingfisher : Full year results presentation transcript

Kingfisher plc 2019-20 full year results presentation transcript - 17 June 2020__________________________________________________________________________________

12 months ended 31 January 2020__________________________________________________________________________________

Speakers:

Thierry Garnier (TG), CEO

Bernard Bot (BB), CFO

Slide 4: Welcome & agenda (TG)

Good morning and thank you for joining us today. I'm Thierry Garnier, the CEO of Kingfisher, and I am here with our CFO, Bernard Bot.

Unfortunately, we cannot meet in person today. However, I am very happy to finally be able to update you on our full year results and our longer-term direction for Kingfisher.

As outlined on page 4, our agenda for today will start with an update on the Covid-19 response plan and latest trading performance. Bernard will then share the full year results and the latest view of our mitigation actions and liquidity situation. I will then present our diagnostic of the situation as we found it in 2019 - and talk about Kingfisher's new strategic direction and priorities. We will then open up the meeting for Q&A.

We have a lot to cover today and it will be a slightly longer presentation than you are used to. But I think it is important that we spend time on these topics.

Slide 5: A strong and experienced management team (TG)

Since I joined Kingfisher at the end of September, I have spent my time and my energy deep in the business with my colleagues, our customers, and our suppliers. I am passionate about retail and I have learned a lot.

It was my immediate priority and I am pleased to announce that our Group Executive Team is now complete and has been hard at work through the crisis.

As you can see on page 5, we have seven new appointments since September. This is an experienced team of executives with impressive track records, with a combination of experience both inside Kingfisher and in other sectors such as hospitality, electronics retail, grocery and consumer goods. I am confident that this team has what it will take to deliver on our ambitions for Kingfisher.

Slide 6: Managing the impact of COVID-19 on the business (TG)

As we were faced with COVID-19, our priority was to take care of our people, our customers and our communities.

Page 6 is a summary of the actions we have taken to manage the impact of COVID-19 on the business. We have already published a lot of detail on our actions as we have gone through the crisis.

We have acted responsibly, above all else. All stores in our largest markets had essential status from day 1. But we decided to keep them shut at the start of confinement and reopened only when it was safe to do so. We have also been ringfencing and donating PPE to healthcare workers.

We have been agile and have reacted fast. We made changes overnight to our operating models, for example launched new click & collect and drive-through options that became leading practices in our markets.

We have made a lot of progress in e-commerce while leveraging our stores for picking and fulfilling orders. E-Commerce surged up to 4 times in April and continues to see strong growth.

We have protected the financial position of the company by taking decisive action on costs, accessing government support, and securing additional funding facilities.

In short, we are on a very sound footing. And in fact, the crisis has put extra momentum behind some of our new strategic priorities. I will come back to this.

Before I move on, let me say that I was humbled by the dedication and hard work of our teams. They have been the driving force behind our ability to manage through this crisis. I want to say a big thank you to each one of my colleagues.

Slide 7: Latest sales performance (TG)

On page 7, the chart on the left shows the Group LFL and E-commerce growth over the past 15 weeks. The sales profile in March and early April reflects our decision to close stores for several weeks. You can also see the strong e-commerce growth I referenced before. Then, once stores started to re-open - in the later part of April - we have seen very strong LFL sales. We saw a significant surge in categories such as outdoor, building materials, paint, garden and flooring & tiling. Demand in May and June continues to be strong.

This partly reflects pent-up demand post re-opening. But it is now clear that Home Improvement is proving resilient through COVID-19, due to the specific nature of this crisis: customers are spending more time at home, with fewer leisure options, travelling less and turning to DIY.

Slide 8: Actions underway - 'Focus and Fix' in 2020 (TG)

Moving to page 8. For 2020, we have decided on 8 immediate priorities to be extremely disciplined. I have already discussed the first two priorities around COVID-19 and our Group Executive team.

Third is stabilising our French business and this remains a pressing priority. We have been fixing IT and supply chain issues, strengthening the supply chain team, and in October last year appointed a new experienced CEO for France. Availability and indeed LFL sales improved significantly before COVID-19.

Fourth is the new trading approach we implemented in Q4. We have selectively re-introduced trading events and have invested in Screwfix prices, with good early results. We have plans to relaunch installations in B&Q in 2020.

Fifth is finding a better balance between local and Group. We have launched two taskforces to rebalance our

Group commercial and IT operating models. This will allow our banners to tailor their ranges to local needs, but also continue to realise Group scale benefits in branded buying, own product and technology.

Sixth, it is critical to continue to build our e-commerce capabilities. Our direction is to increasingly rely on stores to fulfil most of our e-commerce orders via click-&-collect and home delivery from stores.

Seventh is about focus. We must do fewer things, but do them better. We have stopped several non-core initiatives and IT projects. We have slowed the rate of range reviews. Implementing the planned exit from Russia is also part of refocussing our energy and resources. We hope to be in a position to share more soon.

And lastly, cost reduction is a near and long term priority under our new strategy. COVID-19 is reinforcing our focus here.

Slide 9: Impact of 'Focus and Fix' on Q4 19/20 & early 20/21 (TG)

Moving to Page 9, a few quick comments on our Q4 and February performance. Our new trading approach, better availability in France, and reintroduction of some local ranges were key to our performance. Many of these actions have been the result of the Group empowering the Banners.

In particular, I was pleased that our performance in France has been improving, with +2.5% LFL for Castorama and +4.3% LFL for Brico. Our banners did slightly better than the market in February.

We also managed to improve LFL performance in Poland despite a soft market.

So we are making progress, but there is much work to do. And of course, we are mindful of the significant uncertainty in the current environment.

Let me now handover to Bernard.

Slide 10: FY 2019/20 Results (BB)

Thank you Thierry, and good morning everyone.

Slide 11: Key point summary (BB)

Let me turn to slide 11 and an overview of our performance since the start of last year.

Overall, Kingfisher's financial performance for the year 19/20 was disappointing.

We saw a decline in Group sales of 0.8% in constant currency. Growth in Screwfix, Poland and Romania was offset by declines in B&Q, France, Russia and Iberia.

Group gross margin percentage was flat, in line with guidance.

Overhead costs were broadly flat, with higher costs from inflation, digital and store openings in Screwfix and Poland, offset by lower transformation spend.

Free cash flow was lower than prior year at £191m. Net leverage was maintained at 2 times and we ended up the year net cash positive.

Despite a disappointing first nine months, our performance in Q4 and in the first six weeks of this financial year was more encouraging.

Turning to the impact of COVID-19, as of mid-March, we started to be impacted by the pandemic. We took immediate and effective action to control our costs and protect cash, while also arranging access to significant additional liquidity facilities.

As already announced, the Board has decided that no final dividend will be proposed given the ongoing uncertainty around COVID-19.

This uncertainty also means that we are not able to quantify with confidence the impact of COVID-19 on our expectations for this financial year.

Slide 12: FY 19/20 key financials (BB)

Slide 12 is a dashboard of the key financials of the past year. Let me touch on our profits and return metrics here.

Starting with retail profit, this was £786m, down 3.9% with retail profit margin down 20 basis points to 6.8%.

Adjusted pre-tax profit was down 5.2% to £544m. Statutory pre-tax profit was £103m, after £441m of exceptional items. Statutory profit after tax was £8m.

Our Return on Capital Employed was flat at 8.6%, with the decline in profit offset by the impact on capital employed of property impairments.

Slide 13: FY 19/20: reallocation of costs (BB)

On to slide 13. The purpose of this table is to explain two reallocations of costs that we have made in our results to bring them into line with the latest status of the business and our new strategy.

Starting with the central support costs, which include the costs of central offer & sourcing and supply chain & logistics, which are normally allocated to Kingfisher's retail banners. We have updated our allocation based on the level and type of support provided. Although neutral at Group retail profit level, this has resulted in a change to reported retail profits by geography, with the principal effect of more costs being allocated to Poland and fewer to the UK.

The second reallocation relates to transformation P&L costs. As promised in our half-year results, we are no longer reporting transformation P&L costs separately, and have removed Underlying PBT as a key performance measure. To effect this change we have reallocated transformation P&L costs to retail profit and central costs, on the basis of where the costs were incurred or who the beneficiary was. With the launch of our new strategy, any further 'start-up' or incremental costs of change will not be carved out in the future.

For comparability, the prior year has also been restated and you can find the reallocation table within the appendices to this presentation.