Kingfisher : Full Year Results - Part 1 PDF

Final results for year ended 31 January 2020

Financial summary

% Total Change

% Total

2019/20

2018/19(1)Reported

Change Constant currency*

Sales* Gross profit

£11,513m £4,255m

£11,685m £4,318m

• (1.5)% (0.8)%

• (1.4)% (0.8)%Gross margin %* 37.0% 37.0%

-

-Statutory pre-tax profit £103m £300m (65.7)%

Statutory post-tax profit £8m £193m (95.9)%

Statutory basic EPS 0.4p 9.1p (95.6)%Interim dividend Final dividend

3.33p 3.33p - 7.49p

- n/a

Adjusted metrics

Retail profit*(2)£786m £824m

(4.6)%Retail profit margin %* 6.8% 7.1% (30)bps

(3.9)% (20)bps

Adjusted pre-tax profit* £544m £574m (5.2)%Adjusted effective tax rate*

26% 27%Adjusted post-tax profit* £400m £421m (5.0)%

Adjusted basic EPS* 19.1p 19.8p (3.5)%ROCE*

8.6% 8.6%Free cash flow* £191m £372m

- (48.7)%Net cash (excluding IFRS 16 lease liabilities) Net debt*(3)

£37m £84m

£2,526m

£2,542m

n/a n/a

FY 19/20 Group results(4)

• •Salesdown 0.8% in constant currency

• •LFL salesdown 1.5% with growth at Screwfix, Poland and Romania offset by weaker sales at B&Q, France*, Russia and Iberia*−Improved LFL sales trend in all retail banners in Q4 19/20; LFL up 1.7%

• •Group gross margin %after clearance flat, in line with guidance−Benefits from Group buying and sourcing largely offset by incremental clearance and logistics & stock inefficiencies in France

• •Underlying PBT(adjusted PBT before transformation costs) no longer reported; transformation costs reallocated to retail profit and central costs*

• •Adjusted PBTdown 5.2%, in line with sales performance

• •Statutory PBTdown 65.7% after £441 million of exceptional items*, largely reflecting store and Russia impairments

• •Net debt to EBITDA* of 2.0x as at year-end; at lower end of 2.0-2.5x medium term target range

• •As previously announced, no FY 19/20 final dividend proposed given COVID-related uncertainty

FY 20/21 commentary

• •Q1 20/21 Group LFL sales down 24.8%−Trading up to 14 March continued the positive trends seen in Q4 19/20−Balance of quarter saw significant impact from COVID-related disruption

• •Q2 20/21 Group LFL sales up 21.8% (to 13 June 2020)

  • −Strong e-commerce* growth (up to fourfold growth since mid-March),

  • −Phased reopening of stores in the UK and France from mid-April, and

  • −Improving relative sales trend (Group LFL sales moved from -74.0% in first week of April to more than +25% since second week of May)

• •Financial impact being managed through significant cost and cash flow measures

• •No specific guidance provided for FY 20/21 given the uncertainty around COVID-19

Strategy update

• •Group executive team complete including eight new appointments

• •Initial focus on: improving operations in France, implementing new trading approaches, recalibrating balance between Group and local activities, enabling efficient store picking for click & collect and home delivery, and pausing or stopping some initiatives to focus our resources

• •Encouraged by Q4 19/20 and early FY 20/21 LFL sales performance

• •New 'Powered by Kingfisher' strategic plan:distinct retail banners addressing diverse customer needs, 'powered' by the Group

• •Key strategic priorities:

  • 1) 'Focus and fix' in 2020, as set out in first two bullets above, including managing the impact of COVID-19 on the business

  • 2) Move to a balanced, simpler local-group operating model with an agile culture

  • 3) Grow e-commerce sales

  • 4) Build a mobile-first, service orientated customer experience

  • 5) Differentiate and grow through own exclusive brands (OEB)

  • 6) Test new store concepts and adapt our store footprint

  • 7) Source and buy better, reduce our costs and our inventory

  • 8) Lead the industry in Responsible Business practices

Managing the impact of COVID-19

• •Committed to supporting communities and governments, ensuring the health and safety of our colleagues, serving customers as a retailer of essential goods, and protecting our business for the long term

• •Over £2.5 million of PPE donated to frontline health workers

• •Took the decision initially to close in-store trading in UK and France while establishing stringent safety and social distancing protocols for colleagues and customers

• •Quickly adapted our operating model to help meet customers' essential needs safely, initially through contactless click & collect and home delivery, and then through phased store reopenings

• •Access to over £3 billion of cash resources as at 12 June 2020, including c.£2 billion of cash at bank, providing significant liquidity headroom

Thierry Garnier, Chief Executive Officer, said:

"Throughout the COVID-19 crisis, our priorities have been clear - to provide support to the communities in which we operate, to look after our colleagues as a responsible employer, to serve our customers as a retailer of essential goods, and to protect our business for the long term.

"At Kingfisher, we are both proud of, and inspired by, the way in which our teams responded to the immense challenges of the last few months. When the various lockdowns began, we rapidly transformed our operations to meet a sharp increase in e-commerce, while adapting our retail space and processes to ensure a safe reopening of stores. In doing so, the social distancing and other health & safety protocols we established have contributed to setting the standard in non-food retailing. We have donated over £2.5 million of PPE to frontline health workers, in line with our commitment to responsible business practices. We have also taken significant actions on costs and cash management that give us a strong financial footing through the crisis and beyond.

"On joining the business in late September 2019 my priorities were to build the executive team, stabilise our operational performance and prepare a new plan. We have a strong new team in place. We ended FY 19/20 in better shape, after a disappointing first nine months, by returning the Group to positive like-for-like sales growth in Q4 as well as for the start of FY 20/21.

"While the coronavirus crisis has obviously shifted our immediate priorities, we have continued to plan for the longer term and implement our new strategic plan. It would be a mistake not to. Kingfisher is well positioned within a home improvement market that is resilient and has attractive long term growth prospects. We have strong market positions and distinctly positioned retail banners that address diverse customer needs. These are major strengths in a world that is so volatile and uncertain.

"Our clear intent is to become a more digital and service orientated company, using our strong store assets as a platform. We will continue to develop our own exclusive brands as a differentiator, cater for diverse local customer needs, and each retail banner will have its own positioning and plan. We will 'power' these banners as a Group. This is our new strategic direction, 'Powered by Kingfisher'.

"The coronavirus crisis has provided us with the most unexpected test of these plans, while really pushing our capabilities as a business. The results have reinforced our strategic direction, demonstrated how our operations and teams can be agile, and pushed us to be bolder. Together, we look to the future with confidence and are committed to returning Kingfisher to growth."

The remainder of this release is broken down into seven main sections:

• 1) Group update (including new'Powered by Kingfisher'strategic plan)

• 2) Managing the impact of COVID-19

• 3) Adoption of IFRS 16 and reallocation of costs

• 4) Trading review by division

• 5) FY 19/20 financial review and, in part 2 of this announcement, the condensed financial statements

• 6) Glossary

• 7) Forward-looking statements

Footnotes

(1)FY 18/19 comparatives have been restated for IFRS 16 'Leases'. Refer to note 13 of the full year condensed financial statements (in part 2 of this announcement) for detailed restatement tables and associated commentary

(2)FY 18/19 retail profit restated to reflect the reallocation of transformation P&L costs to country retail profits. There is no impact on operating profit. Refer to Section 3 of this announcement

• (3)Net debt includes £2.6 billion lease liabilities under IFRS 16 in FY 19/20 (FY 18/19: £2.6 billion)

• (4)Q4 19/20 sales, FY 19/20 sales and net debt figures as previously announced on 23 March 2020

* Throughout this release '*' indicates the first instance of a term defined and explained in the Glossary (Section 6). Not all the figures and ratios used are readily available from the unaudited final results included in part 2 of this announcement. Management believe that these non-GAAP measures (also known as alternative performance measures), including adjusted profit measures, constant currency and like-for-like sales growth, are useful and necessary to better understand the Group's results. Where required, a reconciliation to statutory amounts is set out in the Financial Review (Section 5).

Contacts

Tel:	Email:
Investor Relations	[phone]	[e-mail]
Media Relations	[phone]	[e-mail]
Teneo	[phone]	[e-mail]
Final results announcement

The announcement can be downloaded fromwww.kingfisher.com.We can be followed on Twitter @kingfisherplc with the full year results tag #KGFFY.

Results presentation

We will host an online results presentation and Q&A today, at 09.15 (UK time), for analysts and investors. A live audio webcast of the presentation and Q&A will be available via the Investors section of our website atwww.kingfisher.com,and subsequently available on demand. To join via telephone please use the password already sent to you, or [e-mail] presentation slides will be available on our website at 09.15 (UK time).

Financial calendar

Annual General Meeting	24 July 2020
Half year results	22 September 2020±
Q3 results	19 November 2020±

±These dates are provisional and may be subject to change

American Depository Receipts

Kingfisher American Depository Receipts are traded in the US on the OTCQX platform: (OTCQX: KGFHY)http://www.otcmarkets.com/stock/KGFHY/quote.

Section 1: Group update(including new'Powered by Kingfisher'strategic plan)

Overview

Our markets are growing and changing

The home improvement market is attractive with consumers remaining passionate about improving their homes. Long-term market drivers are healthy due to population growth, urbanisation and an ageing housing stock, and we expect our core markets to grow. There are also clear shifts within the market which provide us with opportunities, some of which are rapid such as online growth, and some of which are gradual such as smaller format stores, discounters and the growth of DIFM ('do it for me'). Kingfisher's strategy must address these, including the acceleration of online shopping (but with stores at the centre) and a shift to smaller format stores. Customers also expect a seamless and convenient shopping experience, high quality products, excellent value for money, and expertise and services to help them realise their projects.

We have leading and distinct retail banners

Our retail banners occupy number one or two positions in our key home improvement markets of the UK, France and Poland, with over 90% brand awareness. Each banner is distinctly positioned and together they address diverse customer needs, and have distinct operating models. Some are focused on trade (Screwfix, TradePoint at B&Q), others address more general DIY needs (B&Q, Castorama France, Castorama Poland, Brico Dépôt Romania,Koçtaş), while Brico Dépôt France and Brico Dépôt Iberia are positioned as discounters. This differentiation is a major strength, especially in a world that is volatile and uncertain.

We have operational strength and flexibility

Kingfisher has many strengths today, underpinned by experienced and skilled colleagues, a strong focus on responsible business practices and the financial scale of the combined Kingfisher Group. Kingfisher is a multiformat retailer with over 1,350 stores. Approximately 40% of our total store estate by space is freehold which provides operational and financial flexibility. In addition, our leased stores have relatively short lease lengths providing flexibility as we test new concepts and reshape our footprint to reflect the increasing customer need for convenience and immediacy.

Four years of established Group capabilities

Over the last four years Kingfisher has leveraged its collective buying and sourcing scale (c.£7 billion of COGS) to drive buying efficiencies and cost price reduction. Our price positioning has improved at Castorama France and B&Q. In addition, own exclusive brands (OEB) have been developed to differentiate us from our competitors and drive sales and gross margin growth, which has been evident in several categories. We have established a common SAP platform to support operational efficiency. The business has also achieved over £100 million of savings from Goods Not for Resale (GNFR*) and operating efficiency initiatives, and established a shared services centre in Poland.

We have become overly complex and lost customer focus and sales

However, our operating model had become overly complex. The Kingfisher Group took on too many responsibilities, the business became overly product-led instead of retail-led, and we tried to do too much with multiple large-scale initiatives running in parallel. Altogether, this resulted in a lack of agility in meeting customer needs (some of which are shared, some of which are very different across our retail banners) and caused disruption to sales. Much of the financial benefit from leveraging Kingfisher's collective scale has been offset by additional costs, clearance, and logistics and stock inefficiencies. While some of our banners have delivered growth over the last four years (notably Screwfix and Poland), in other markets such as France, our performance has been disappointing. Group sales and retail profit need to improve.

'Powered by Kingfisher' - Committed to returning the business to growth

Under our new strategic plan, 'Powered by Kingfisher', we will utilise our core strengths and commercial assets, and 'power' our distinct retail banners in order to address the significant growth opportunities that exist within the home improvement market, returning the business to growth. To serve customers effectively today, we also need to be digital and service orientated, while leveraging our strong store assets.

Our priorities under the new strategic plan: 'Powered by Kingfisher'

Our key strategic priorities under 'Powered by Kingfisher' are as follows:

• 1) 'Focus and fix' in 2020 (including managing the impact of COVID-19 on the business)

• 2) Move to a balanced, simpler local-group operating model with an agile culture

• 3) Grow e-commerce sales

• 4) Build a mobile-first, service orientated customer experience

• 5) Differentiate and grow through own exclusive brands (OEB)

• 6) Test new store concepts and adapt our store footprint

• 7) Source and buy better, reduce our costs and our inventory

• 8) Lead the industry in Responsible Business practices

Following the appointment of Thierry Garnier as CEO in late September 2019 the business identified a number ofimmediate priorities('Focus and fix' in 2020) for the Group, starting with building the new Group Executive team. These priorities are detailed below and underpin the implementation of our new strategic plan.

Ourmedium term prioritiesunder the new plan are also detailed below (numbers 2 to 8), centred around empowering our distinct retail banners and simplifying Kingfisher's operating model, embracing digital and own exclusive brands, and returning the business to growth. In 2020, the outbreak of COVID-19 rapidly became the most critical issue facing our business. Managing the impact on our business is therefore our top priority. As a result of this, we are continuing to keep the timing of investments under review in some of the medium term priorities detailed in numbers 2 to 8 below, based on the needs of the business.

1.'Focus and fix' in 2020

Managing the impact of COVID-19:We are committed to supporting communities and governments in managing the COVID-19 pandemic. Equally, we are focused on making sure that we can continue to serve our customers' essential needs safely and as effectively as possible, while fulfilling our obligations as a responsible employer to protect the safety of colleagues. From the start of the outbreak, we have taken measures to protect our colleagues and customers, to limit the impact on profitability and to preserve financial flexibility (see Section 2 below).

Build the new Group Executive team:Since the appointment of Thierry Garnier as CEO in late September 2019, we have rebuilt the Group Executive team including seven additional appointments. We now have an experienced team with a strong mix of functional expertise as well as experience from Kingfisher, other home improvement companies and the broader retail and service industries.

Kingfisher's Group Executive team

Thierry Garnier±	Chief Executive Officer
Functional
Bernard Bot±	Chief Financial Officer
Martin Lee±	Chief Supply Chain Officer
Kate Seljeflot±	Chief People Officer
Henri Solère	Chief Offer and Sourcing Officer
Jean-Jacques Van Oosten±	Chief Customer and Digital Officer
John Wartig±	Chief Transformation and Development Officer
Operating companies
Graham Bell	CEO B&Q UK and Ireland
Sebastien Krysiak	CEO Poland
John Mewett	CEO Screwfix
Alain Rabec±	CEO France
Adela Smeu±	CEO Romania

±Recent appointments to the Group Executive