Kingfisher : Half Year Results Q&A Transcript

Kingfisher plc 2021-2022 half year results Q&A edited transcript - 21 September 2021

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Six months ended 31 July 2021

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Speakers:

Thierry Garnier (TG), CEO, Kingfisher plc Bernard Bot (BB), CFO, Kingfisher plc

Maj Nazir (MN), Group Investor Relations Director, Kingfisher plc Warwick Okines, Exane BNP Paribas

Adam Cochrane, Deutsche Bank Richard Chamberlain, RBC Simon Irwin, Credit Suisse Pam Liu, Morgan Stanley Charles Allen, Bloomberg

Anne Critchlow, Société Générale Paul Rossington, HSBC

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

WARWICK OKINES: Good morning. Thank you very much for the presentation. I've got two questions, please. Firstly, can you give some more detail on future cost efficiencies that are available in France, perhaps how much more supply chain space is there to take out and headquarter efficiencies.

Secondly, you said that in the first half you mitigated cost inflation effectively. What sort of inflation are you seeing at the moment? Could you give us some examples of some mitigation? Thank you.

TG: Thank you Warwick. To start with logistics in France, we started two years ago with two different networks, one totally for Casto, the other Brico, and with a lot of external spaces, additional spaces. We have a very clear programme - first of all, better forecasting managing our logistics efficiency. We have already reduced our square metres by 13%. We consider there are clearly further jobs to do in the coming 12 months. As I said, we consider in the coming 12 months, this should be fixed and done.

We consider as well part of the business that we call cross-docking.Cross-docking is when you have a flow of merchandise directly from supplier to your DC, but that those palletes are redirected

directly to store with no stocking in the DC. That's a very efficient way of working and we can combine Casto and Brico together on these fields.

Clearly, we are confident and on logistics, by good practices, combining sometimes the network of the banners, we have the efficiency to notice in the coming 12 months.

On inflation, when you're a retailer inflation is probably part of your life. We are organised for it. First of all, remind you, we consider ourselves as a mass market retailer, even though a discount retailer in some fields, therefore price index is our number one priority. I'm happy to say that today, all across our group, especially B&Q and Screwfix, but really all across our different markets, we have a very good price index versus peers. We are looking at that, more or less, on a weekly basis.

We have as well eight sourcing offices across the world. Very early on, we can feel the trends, talking to suppliers. We have decided early, end of 2020 and early 2021 to adjust our forecast to plan for growth for 2021. Very early this year, we decided to buy additional containers. Therefore, even though we have slightly lower availability of product than a normal year, we have a better availability in July than we had in January [2021].

1. Maybe Warwick, if I can add some of the other initiatives that we have in France, as you can imagine, we've got a company-wide programme, but France is very much part of that. Supply chain is one of the elements that we're touching, but there are many more. Just to mention a few.

We're trialling SCOs [self-checkout terminals] in France, also in some other entities. That will be a good initiative in terms of productivity. With an improved supply chain also comes better logistics and better stock health. We've seen quite a good movement in terms of the overall stock provisions, but also in some areas like shrinkage.

GNFR [goods for not resale] is always a constant [focus]. For example, we did a point-of-sale tender in France, which had some very good results and overall, there [are other programmes] such as IT and telecoms. Again, we re-tendered, bringing through benefits. It's always difficult to pinpoint any one point, but there's quite a raft of initiatives that we're working on that will bring benefits.

MN: Let's go to Adam, please.

ADAM COCHRANE: Three questions, if I may. Firstly, you talked about younger customers. Can you just give us some examples of what you're doing to engage with these younger customers who might be looking at DIY more than they were? From your in-store data, you talked about surveys with younger customers. Is your credit card data showing the same thing, that younger customers are continuing to buy more product?

Secondly, you didn't really talk much about market share. It was a great performance. Were there market share gains across the different territories?

Then thirdly, given what you know now, do you see there's any fundamental reason for a difference in EBIT margin between France and the UK? Thanks.

TG: Thank you Adam. Maybe I start with the first two questions and leave for Bernard the third one. Yes, we are working on how to engage more proactively with this younger generation. I think it's a lot around learning new skills. They are really keen to learn new skills. Online with more diverse social medias, we are now proactively bringing new skills to them. That's a key priority as well for the coming months and years.

We have a lot of data, and a high online participation. We have loyalty cards. We can use some credit card data. We are, as well, running regular surveys. These showed that we have a high retention so far from the customers we acquired in 2020. Again, we do not dream to keep 100% of them, but we are pretty happy with the retention.

On market share, two comments, first on the UK. There is no formal, I would say, market share standard for the UK. But we look at [data from the] BRC [British Retail Consortium], GfK [Growth from Knowledge], we have Barclaycard data, and obviously we have the reports of our competitors.

When you look at B&Q and Screwfix, they are clearly outperforming the market and winning in the past few months, and we are happy with that. I would say, it's true for our DIY customers and the trade.

France, we are looking at Banque de France data like probably many of you. Again, for H1, we are very happy with the competitive position. Even if you look at the month of August, I think we are outperforming the market in August on a one-year and two-year basis. We are very happy with the improvements of market share.

1. Yes. I know France, I mean, the trick as you see, is really getting your operating leverage right and you see with increased sales, things go a lot better. We had a ROP [retail operating profit] margin of 5.3%, up 220 basis points. That's [increased sales] what we're going to focus on. I think it's been our mantra since the beginning.

The key is to increase sales to get that productivity on your base. We'll continue on that trend. Sometimes investing in gross margin where it's needed, having the cost initiatives I just mentioned, but first and foremost, having that operating leverage that we need in the French business. There's more headroom to go, but we're not guiding on any specific number.

MN: Thanks very much. Let go to Richard.

RICHARD CHAMBERLAIN: Thank you. Morning guys. Can I ask a couple on Poland just to sort of switch tack a little bit? What are your thoughts around the long-term store footprint for Casto in Poland and I guess Screwfix plans as well? And then also on Poland, what sort of underlying opex inflation are you guys seeing at the moment, excluding the impact of new space? Thank you.

TG: Thank you, Richard. I start with the store footprint and Bernard you can comment on the cost topic. We are number one in the market, and a recent survey on brand awareness, NPS [customer net promoter score], and our sales density all show that we keep our very strong position. I said in a previous call that we were probably a bit shy for a few years on our expansion plans [in Poland].

Last year, we opened three stores. Now the plan is to open seven this year. We feel we will be able to open more next year. In Poland I would not really qualify the stores as big boxes. The average size is around 7,000-8,000 square metres. We feel it's the right size. We believe that we still have probably two or three years of additional expansion on this kind of store, 7,000-8,000 square metres.

Therefore, we have opportunities in more what we call 'medium box' stores, around 4,000 square metres. We started to open medium boxes in Poland this year, and that's a plan for the coming year because you have a lot of smaller cities. The market is not saturated.

Then, as with the other parts of the Group, we want to be able to operate compact stores. More around 1,000 square metres. That's more for an urban environment. We feel ready in Poland with a great profit, great return on capital. We really have opportunities ahead of us.

On trade, first of all, with Polish stores about 25% of the sales are already trade, which is very good. But we really believe there are further opportunities on trade starting with our big boxes. Now we can deal with the trade inside the big box in Poland.

I must say that across the Group, we consider trade as an opportunity. We know that our American peers are performing better than us. We can learn, and we feel at TradePoint in the UK, but across the group, there are opportunities for us on trade.

1. Yes. On inflation, you're right, Poland is a higher inflation [market] than the UK and France, but it also has been and continues to be that [way]. Obviously, that is reflected then in the wider market, in terms of the price positioning there.

MN: Let's go to Simon.

SIMON IRWIN: Hi. Three for you. Can you just talk a little bit about what you've seen from Screwfix in France so far in the, whatever it is, five months it's been open? Can you just talk a little bit about the cost and accounting of the 9,000 people who you've issued those shares to, as to how that flows through the opex during the first half. And just how far out do you feel confident around demand: trade surveys and things. I mean, are we talking kind of confidence through until year-end, or beyond that into the spring?

TG: Thank you, Simon. I start with Screwfix. We have started in April [2021] our pureplay online proposition, really starting to understand the market. And today, I can report that, let's say, every week we see growth. [There are] several key areas of work, but we keep increasing our ranges. So, we are every month increasing the number of products. We are increasing our search. At the beginning, we did not really push Google search or this kind of advertising. So, we are now increasing gradually our advertising and improving our IT operations. So, we see growth in the number of customers, in values. One of the key things we're happy to see is that these [customers] are French people. It's not only British people living in France. That could be a critical point. So that's really tradespeople in France that are buying with us. So overall, really good progress. Clearly there is a lot ahead of us, so that's according to plan.

Maybe a few words on demand. We start with Screwfix. We are running weekly surveys, and we are asking the same question more or less every week to trade. Are you busy? Are you busy in two months? How do you see five months from now? And we see today, trade people being very busy in our surveys. At least for the coming couple of months in the trade in the UK, we feel we're pretty confident. Another indication is, if you want to install a kitchen today, you may have to wait a few weeks because it's difficult to find fitters. So that shows the tension in the market. So, on this field, we are confident.

Then on DIY, you saw the quarter to date at +16.1% to now. Again, it's very strong. I will not say anything in the short-term. You saw our guidance for the second half. It's very strong guidance in our view. Then it's more on the medium term. We believe in the trend I mentioned [in the presentation], more working from home. I think everybody in this room is probably convinced that we'll have more working from home. We are happy to have retained a good part of the new customers we acquired last year. We see the housing markets are active and we, as well, are working on our side on green renovations. That's another area for the medium term where we believe it's supportive for us. So again, in the medium term, we feel that there are supportive trends. Maybe Bernard to the share plan.

1. You don't want to answer the accounting question?

TG: I leave it you.