Kingfisher : Full year results Q&A transcript

Kingfisher plc 2019-20 full year results Q&A edited transcript - 17 June 2020__________________________________________________________________________________

12 months ended 31 January 2020__________________________________________________________________________________

Speakers:

Thierry Garnier (TG), CEO

Bernard Bot (BB), CFO

Richard Chamberlain, RBC

Simon Irwin, Credit Suisse

Warwick Okines, Exane BNP Paribas

Geoff Ruddell, Morgan Stanley

Anne Critchlow, Societe Generale

Kate Calvert, Investec

Geoff Lowery, Redburn

Georgina Johanan, JP Morgan

Adam Cochrane, Citi

Simon Bowler, Numis _________________________________________________________________________________

Note:text in square brackets indicates edits made directly by Kingfisher for clarification purposes

RICHARD CHAMBERLAIN:Thank you very much. Morning guys. I've got three questions if that's alright.

The first one's on availability. I wonder if you can give a bit more colour on how that has improved, year to date. Maybe give some idea of what metrics you are looking at for in-store availability and some idea of further upside to come.

The second one is on the SAP rollout. I think you said you had paused it for Brico Depot, so I wondered when you anticipate finishing the global or the full rollout of SAP.

Then the third one is on Romania. It sounds like you've changed the longer-term projections and I wonder what the cost-saving from the consolidation of the two distribution centres in Romania will be this year. Thanks very much.

TG:Thank you Richard. Let me start with the two first questions and then Bernard will comment on the last one.

I would say there are two periods of time. Up to March, we clearly had a big improvement in our availability, especially in France. I think it was due to IT disruption and lack of managementcapability, in France, so we recruited many additional managers. We spent a lot of time and energy on that and the availability level before Covid reached back [to] about 98% for Castorama and Brico in France, and that's part of the good results of the sales in France, a clear improvement in our availability.

I think you know that our standard KPI is really our availability in stores. We usually follow the total range, or we follow the top 1,000 or top 500 best-sellers. We follow that on a weekly basis.

After Covid, we are today in a situation where we have extremely polarised demand. So, I would say our availability is well under control, but we could have, for very specific categories and for very specific markets, today some availability issues. But that's really focused on a limited number of categories.

On SAP you are right. We considered the rollout of SAP in France. It was delayed. It was late. It was facing several issues. For this reason, we have decided to pause Brico Depot for 12 months and to have all the energy of the teams [focused on] Castorama in France.

So, I am happy to see that the rollout of SAP at Castorama, now, is a question of weeks or months [away]. We will restart Brico Depot rollout in France in early 2021. It will be an SAP implementation, [and] has been fully done in Romania and Poland now. So, finally, Brico Depot will be the last banner for which we will implement SAP.

In my view, I think we have a good template. We have had our rollout issues, execution issues, but the basic template of SAP is rather good.

One word on Romania, and then I'll leave it to Bernard. Indeed, you know, following the acquisition of Praktiker, part of the job we have to do is to finalise the integration. We now have SAP in Romania in all the stores - Brico and now Praktiker - and the Praktiker [brand] became Brico.

We are as well working on our supply chain. We have two distribution centres and we have a plan, before the end of this year, to merge those two DCs in Romania.

BB:Yes Richard, just to give a little bit more colour. As you can imagine the impairment that we took, it's mainly goodwill, at certain store assets, really related to the Praktiker acquisition. I think if you look at the business, the losses were really driven by Praktiker. [Romania] also required some integration costs, as mentioned: rebranding, range implementation; some back-office implementation.

I think the good news is that all that is now behind us. It is now progressing well. It's all been rebranded Brico Depot and is selling the same products. So, we are in a good position.

Now we expect, still, the business to be somewhat loss-making this year. But trending well to a break-even position and then a profit.

RICHARD CHAMBERLAIN:Thanks guys.

SIMON IRWIN:Good morning gentlemen, thanks for the presentation. Three questions for you. The first is the store-pick model and how that's going to work if you are going to move towards more compact stores, with limited range. Those two appear to be somewhat contradictory.

The second is just around stores generally. Whenever I have been to them recently, they feel very under-invested, which I guess is because the business hasn't [previously] committed to stores. Do you recognise that, and is there a plan to start reinvesting in those stores that you want to keep?

The third is on range. Obviously, you seem to be committing to keep, effectively, the unique element of ranges. We have heard endlessly about which bits have worked, but what we haven't heard is what bits haven't worked. Can you talk us through some examples of ranges that haven't worked and what you think you can do about them?

TG:Thank you Simon. Thanks for your question. I think the first one is on store-picking and that's a topic that is very close to my heart. You know that I have been lucky to spend several years in China and that's something we learnt in China, and even in food retail, that you can go very far with a store-picking proposition in e-commerce.

That's probably what helped us so much during the crisis. From day one, we decided to accelerate the store-picking proposition because, in the end, you have all the inventories, you have the range, you can do very efficient click-and-collect and furthermore, in the medium term, you will have more trends around what I call the fast home delivery - same-day delivery, or few-hours delivery.

I am strongly convinced, what you see in the China and the United States, what we have been doing at Kingfisher in the past weeks, that you can go very far in the store-picking proposition. I can tell you that above 50 per cent of the orders today are done with click-and-collect.

I think it is not contradictory with compact stores. Even in compact stores, you have thousands of SKUs. They are a very flexible model. You can have, store by store, a slightly different route to market and organisation. And even with the compact store, the store-picking organisation can be very efficient.

I will remind you that if you look at Screwfix it is probably our most powerful format for store-picking. We are speaking about 1,000 square-metre stores and a small warehouse.

I am strongly convinced that we can go far and the fact that we are moving to a more compact store is not at all an issue.

For capex I think you are right. What I said previously is that we were a bit too much product-led and not enough retail-led, meaning we dedicated a big part of capex to range reviews.

Obviously, we need to continue to do range reviews; we need to continue to push our new products. But I think it's not balanced enough and we need to, within the capex envelope you saw the past year, to dedicate a greater proportion of our capex to store maintenance.

On ranges, as well, it's a very key topic. I have been mentioning that we need to do things together, but I don't believe we should become one banner. The different banners have different ranges and different sizes of ranges. At BricoDépôt in France, we consider that around 15−16,000 SKUs iscorrect, because it is a discounter. When you go to Castorama or B&Q, we speak about 40−50,000

SKUs. So, I strongly believe that, in the long run, to have powerful OEB is a key role in retail and it will help us to differentiate. OEB can be unique but can also be value for money. When I say "unique", it's really special design, a very innovative component of functionality. You could have a tap that saves water.

So, we have unique OEB but we have as well value for money OEB. OEBs that have fantastic value for money [are] also part of our differentiation.

On the other side, I don't believe any more that to run for unification, absolute unification of range, is the right direction. We will have a core range across our banners but we need to [give] local flexibility to B&Q or to Spain, or to France, to have local brands.

I have in mind a British paint brand that [was] decided to be implemented all across our banners [and] sells very well in the UK - but only sells in the UK. It was part of the unified range, but did not fit with local customer needs.

Unification is a tool. It cannot be the target. The target is always the customer and, probably, the key topic here is that the strategy should start with the customer. The group is a tool, our resource, to support the customer proposition. The ultimate goal of a strategy cannot be to build a group. The ultimate goal of a strategy is to bring a better customer proposition.

SIMON IRWIN: Very clear, thank you.

WARWICK OKINES: Yes, good morning. I've got three questions as well, please. My first question is on B&Q. You mention on page 31 relaunching TradePoint. It's something that's hardly been mentioned in the last five years, could you talk a little about what you see for a TradePoint, which I am guessing is still about 20 per cent of B&Q overall?

The second question is that the previous management team, a year ago, set out quite a radical role for the convenience format stores. I was just wondering if you could flesh out a little bit more how you see the convenience format, going forward?

The third question is, following on from the last one, you have been clear about how you think about ranges, in terms of unique and unified. Just in terms of the number of SKUs across the whole business, do you think that continues to need to be rationalised or do you think there is actually some scope for increasing the SKU count, as you move more local?

TG:Thank you Warwick. I believe that TradePoint is important for us. Your comment is very good. We never mentioned TradePoint recently because it was not at the centre of the Kingfisher strategy and, to come back to my previous point we start with customers. We start with different customer needs. Part of our customers are pro. They go to Screwfix, but they go to TradePoint as well. So, we want to revitalise TradePoint, inside B&Q.

And I must say in the past weeks, during Covid, we had very encouraging results for TradePoint. You are right that about 15 to 20 per cent of B&Q sales are made through TradePoint.

I think there are different categories than Screwfix. You have more heavy products. So, we can target different customer propositions. As you understand, in my view we need to push all our different banners and TradePoint is one of them.

Convenience stores and overall smaller formats [are] as well a key priority. We strongly believe that, in the long run, a big part of retail will be around smaller formats. I think in home improvement, many retailers are working on it. I still believe it's a key topic for us.

What I wish, as well, is to empower our banners to have more trials. You cannot just have one trial in the UK and wait for the result to take lessons for the whole group. So, we will do more trials. It will be done in a coordinated way, by the different countries and banners.

We might have slightly different solutions and we will learn from them. But I strongly believe that we need to find a good compact or express format in home improvement.

Maybe another comment on that. I believe as well [in] the medium [sized] box. You know we usually say we have big box and we have convenience stores. Interestingly, if you look at B&Q, a large part of B&Q is what I would call "medium boxes". That is a very efficient and successful model and a good proportion of the B&Q stores. So, you could have different styles of store, depending on the catchment areas.

On the range, I would say there are a lot of plusses and minuses in my answer. I am sorry, I will be a bit specific, maybe too complex, but when you are a discount brand, like Brico Dépôt, you need to stay on short ranges. Today, probably, we have pushed Brico Dépôt too hard. So, the ranges at Brico Dépôt should come back to a slightly lower number.

On the opposite, when you are on choice, like B&Q and Casto, as you know we wanted to become 'one'. We pushed Casto and B&Q to reduce their ranges and I think that is not the right direction. We need to allow B&Q, and even more Casto France, to increase a bit their ranges, because today the choice level we have in for example in Casto in France is not good. It is not enough.

At the same time, when I look at my inventory programme, we always need to [refresh] regularly our ranges. Because you have slow-moving items, you have SKUs with a very small level of sales. [For] those SKUs you need constantly to [refresh] part of your ranges to stay on the active SKUs.

So, I would say, overall, I would not expect a massive increase. For some of the banners, typically Castorama France and B&Q, we are a bit too low at the moment.

BB:Let me just expand a little bit on the last point. Obviously a subject close to my heart - costs and inventory. If you look at the SKUs, we've got about 200,000 active SKUs. But of those, weprobably have 20−25,000 which we don't sell. And we've got another 60,000 where we sell less thanone per cent of our sales, and [so] £75−100 million tied up in inventory where there is a lot we cando to offset, maybe, a range-expansion somewhere else.

In addition, I think if your point is to the overall inventory level, clearly it is higher than we want. The stock days have increased in the last couple of years. We have a good plan, together with Martin Lee, who is responsible for our supply chain, to not only address the shorter term disruptions which have caused some of that, but also to look at the ranging and deployment, and planning and forecasting, making use of the best tools, so that we control even better the purchase quantities and lead times. It is definitely on our list and there is an opportunity there.

WARWICK OKINES: Thank you, that's very helpful.

GEOFF RUDDELL:Yes, good morning. A few questions, please, most of them very quick.

The first couple of quick ones:

Could you just give us some guidance on capex this year? I understand it's going to be down, but just what sort of level you are currently envisaging?