Kingfisher plc (LON:KGF) has announced its half year results for the six months ended 31 July 2023 (unaudited).
Highlights
· Group H1 sales slightly ahead of expectations. Total sales -1.0% and LFL -2.2%, with Q2 LFL -1.2% accelerating from Q1 (LFL -3.3%)
· Sales by region:
– Positive UK & Ireland performance (LFL +1.7%) with strong market share gains at Screwfix
– France (LFL -3.8%) saw resilient performance at Castorama; weaker at Brico Dépôt
– Poland (LFL -10.9%) impacted by strong comparatives and weaker than expected Q2
· Sales by category:
– Resilient core and ‘big-ticket’ category sales LFL -1.0% (78% of sales), with volumes showing an improving trend through H1
– Seasonal sales LFL -5.9% (22% of sales), with sequential improvement in Q2 driven by better UK weather conditions in May and June
· Continuing to invest in our strategic priorities, including e-commerce and marketplace, data and retail media, developing our trade proposition, and Screwfix
· H1 adjusted PBT down 28.8% to £336m, with UK & Ireland and France slightly ahead of expectations (the latter due to good cost control), more than offset by lower than expected Poland performance. Statutory PBT down 33.1% to £317m
· FY adjusted PBT guidance: Q3 LFL to date -2.4%. Reflecting H1 results and the trading environment in our markets, updating our full year adjusted PBT guidance to c.£590m (previously c.£634m)
· Continue to expect >£500m free cash flow for the year, underpinning attractive shareholder returns with over £260m returned in H1. Announcing today a new £300m share buyback programme
Thierry Garnier, Chief Executive Officer, said:
“Our LFL sales in H1 were slightly ahead of expectations, against a backdrop of unseasonal weather and ongoing macroeconomic challenges in our markets. We saw good growth in our UK banners, with Screwfix gaining significant market share. At the same time, we faced strong comparatives and a weaker trading environment in Poland, while consumer confidence in France is at a 10-year low. Overall, demand for our core and ‘big-ticket’ categories was healthy, and we were pleased to see an improving volume trend in these categories through the half.
“We continue to make strong progress against our strategic priorities. E-commerce sales were up 7% in H1, supported by the continued success of our online marketplaces. B&Q’s marketplace sales reached 33% of its e-commerce business in July. We leveraged our data science capabilities to develop AI-powered solutions such as our markdown tool, which in early pilots at B&Q delivered a very encouraging margin improvement on clearance products. We also advanced our retail media plans through new partnerships to accelerate advertising income. And we continued to invest in dedicated ranges, tailored services and expert colleagues to better serve trade customers across all our banners, including launching ‘Pro’ zones in 27 stores in France and Poland.
“Further, with nine Screwfix stores now open in France including four new stores in H1, customer momentum is building. We are now planning for up to 20 store openings this year. These early results in France have encouraged us to take the next step in our international expansion journey, and we are today announcing the launch of Screwfix in Q3 as a pure-play online retailer in up to 20 European countries.
“Trading in the UK & Ireland continues to have positive momentum. However, to better reflect our performance in H1 and the trading environment in our markets, we have updated our profit guidance for this year and are proactively managing our operating costs accordingly. We remain very positive on the medium-to-long term outlook for home improvement growth in our markets, and confident in our ability to grow market share and deliver on our medium-term financial objectives. Underscoring this confidence, we are today announcing a new £300m share buyback programme, starting in early October.”
H1 23/24 results summary
· Sales -1.0% in constant currency, reflecting resilience across both retail and trade channels, particularly in the UK & Ireland*
· LFL sales -2.2%
– Year-on-year (YoY) growth in the UK & Ireland; weak consumer sentiment in Poland and France*; strong prior year comparatives in Other International* (Poland, Iberia* and Romania)
· Q2 23/24 LFL sales -1.2%, improving from Q1 23/24 (LFL -3.3%)
– UK & Ireland: strong performance at B&Q across May and June (LFL +7.0%), with July impacted by unseasonal weather; acceleration in LFL from Q1 at Screwfix supported by robust demand from trade customers
– France: resilient performance at Castorama, particularly in core and ‘big-ticket’ categories*; weaker performance at Brico Dépôt following unsuccessful reallocation of marketing to digital
– Poland: macroeconomic backdrop continues to be challenging; weaker consumer sentiment reflected in lower than expected sales and profit in Q2
· Total e-commerce sales* +7.1%, driven by growth in the UK & Ireland and France
– E-commerce sales penetration* of 16.8% (H1 22/23 and H1 19/20: 15.6% and 7.3%, respectively)
– Continued strong growth of B&Q marketplace gross sales*, reaching 33% of B&Q’s e-commerce sales in July 2023
· Gross margin % -40 basis points to 36.3% (H1 22/23: 36.7%) reflecting higher customer participation in promotional activity in France and Poland, higher clearance costs and stock provisions, and sales mix in Poland
· Retail profit -23.0% in constant currency to £433m (H1 22/23: £555m), largely reflecting lower gross profits in Poland and France, and higher operating costs* in the UK & Ireland and Poland largely due to higher pay rates and energy costs
· Statutory pre-tax profit -33.1% to £317m (H1 22/23: £474m), reflecting lower operating profit, including the impact of impairments reflecting revised future projections
· Adjusted pre-tax profit -28.8% to £336m (H1 22/23: £472m), reflecting lower retail profit and higher central costs* and share of JV interest and tax, partially offset by lower net finance costs
· Free cash flow of £346m, up £242m (H1 22/23: £104m), reflecting lower EBITDA* more than offset by the unwind of working capital outflows from the prior year
· Net increase in cash of £51m (H1 22/23: net decrease in cash £329m), reflecting higher free cash flow, partially offset by £264m returned to shareholders via ordinary dividends and share buybacks
· Net debt down to £2,181m (31 January 2023: £2,274m), including £2,398m of lease liabilities under IFRS 16, largely reflecting the net increase in cash. Net debt to last twelve months’ EBITDA of 1.6x (31 January 2023: 1.6x)
· Interim dividend per share declared of 3.80p (FY 22/23 interim dividend: 3.80p)
FY 23/24 outlook
· Current trading in Q3:
– Q3 23/24 LFL sales (to date)(2) -2.4%
– Against Q2 sales trends, continued positive momentum in the UK & Ireland, slight slowdown in France, small improvement in Poland
– Core and ‘big-ticket’ category volume trends continuing to improve
· Expectations for H2:
– Maintain disciplined trading and competitive price indices
– Easing YoY inflation on COGS, staff and energy costs
– Actively managing operating costs to align to trading conditions
· Based on our H1 performance and the trading environment in our markets, we are updating our FY 23/24 adjusted PBT guidance to c.£590m(3) (previous guidance: comfortable with consensus of sell-side analyst estimates for FY 23/24 adjusted PBT of £634m, as of 24 April 2023)
· Remain on track to reduce our net inventory this year
· Continue to expect >£500m free cash flow for the full year, supported by the unwind of working capital outflows from the prior year
· Announcing a new £300m share buyback programme today, following the completion of £600m of buybacks over the last two years
Continuing to deliver against our strategic priorities
1) Grow by building on our different banners:
– B&Q’s trade-focused banner, TradePoint, opened 18 new trade counters in H1, extending its presence within the B&Q store network to 207 (67% of stores)
– Screwfix opened 12 stores in the UK & Ireland in H1; on track for up to 60 new stores in these countries in FY 23/24
– Four Screwfix stores opened in France (nine in total), with positive customer feedback and momentum. Now planning for up to 20 store openings in FY 23/24 (previous guidance: up to 25) with focus on growing brand awareness and sales
– Preparing for launch in Q3 of Screwfix as a pure-play online retailer in continental Europe, serving up to 20 European countries
– One new Castorama store opened in Poland; slightly slowing down expansion in H2 and now planning for a total of five new stores in FY 23/24 (previous guidance: seven stores). Remain comfortable with target of up to 80 new medium-box and compact stores over next five years
2) Accelerate e-commerce through speed and choice:
– Total e-commerce sales of £1.2bn in H1, a 7.1% increase YoY, with sales penetration of 16.8% (H1 22/23: 15.6%). Ambition to reach 25% sales penetration
– 92% of all e-commerce orders picked in store (H1 22/23: 91%)
– Growing adoption of our last-mile delivery options, including increased use of Screwfix Sprint resulting from a targeted national advertising campaign
– Continued rapid growth of e-commerce marketplace proposition at B&Q and Iberia (reaching 33% marketplace participation* at B&Q in July 2023); marketplaces in France and Poland to launch in 2024
– Signed strategic partnership with Octopia, giving Kingfisher access to thousands of additional marketplace merchants globally
3) Build a data-led customer experience:
– Continued to invest in development of in-house data and artificial intelligence (AI) capabilities
– Implemented AI-powered product recommendation and personalisation engines at B&Q and Screwfix, with early pilots generating up to 10% of e-commerce sales
– Deployed AI-driven tools to optimise markdowns and clearance; early pilots at B&Q delivering very encouraging gross margin improvement on clearance products
– Developed end-to-end supply chain visibility tool to support lower inventory levels and faster replenishment cycles. Live in France, Iberia and Romania, and already showing early success of reducing inventory levels without impacting product availability
– Accelerating advertising income, initially in France. Signed new partnerships with CitrusAd for technology and Unlimitail, the new retail media joint venture between Carrefour and Publicis, for sales support
4) Differentiate and win through own exclusive brands (OEB):
– OEB products continuing to drive affordability, product innovation and reduced environmental impact, and carrying a higher gross margin % on average than branded products
– Total OEB sales* of £3.1bn in H1; 46% of Group sales (H1 22/23: 46%). LFL sales -3.3%
– Resilient OEB sales trends in EPHC (electricals, plumbing, heating & cooling), tools & hardware and building & joinery categories
– Strong results from OEB ranges launched following key range reviews last year
5) Develop our trade business:
– TradePoint LFL sales -1.8%, against robust prior year comparatives, representing 20% sales penetration of B&Q (H1 22/23: 21%). Medium-term target of >£1bn of TradePoint sales
– Growing TradePoint focus on business-to-business (B2B) with sales up by over 30% YoY, catering to trade federations, professional housebuilders and small and medium-sized enterprises
– Making good progress across all other banners, including testing dedicated trade zones in 27 stores in France and Poland, the introduction of new trade-focused services (e.g., finance deals), and the continued curation of pro-specific product ranges. Encouraging early results on sales and trade customer penetration
6) Roll out compact store formats:
– High street compact store tests (B&Q Local in the UK, Casto in France and Castorama Express in Poland) continue to deliver encouraging learnings and results
– Small retail park concepts being adapted and iterated to find optimum blueprint
– Continuing to test Screwfix’s ultra-compact ‘Collect’ and ‘XSR’ store format tests in the UK
– Brico Dépôt France successfully opened its first compact store, an innovative 1,000 sqm format
7) Lead the industry in Responsible Business and energy efficiency:
– Continuing to take swift action to help colleagues manage higher costs of living
– New target established for more than 20,000 colleagues to complete an apprenticeship, traineeship or external qualification by 2030
– Momentum in actions to reduce emissions from our operations (e.g., the deployment of electric vehicles across our delivery fleets, and the installation of air source heat pumps at Screwfix)
– Reported scope 3 emissions reduction (i.e., from our supply chain and customer use of products) of 34.1% since FY 17/18 (FY 22/23: 19.7%); on track to meet 1.5°C-aligned target of 40% by 2025
– Leveraging OEB capabilities to build products that reduce impact on the environment. Kingfisher’s Sustainable Home Products represented 47% of Group sales last year (FY 21/22: 44%)
8) Human, agile and lean:
– Conducted Group-wide colleague engagement survey in June; participation up 4% YoY to 87%
– Employee Net Promoter Score (eNPS) of 57, up three points YoY, setting Kingfisher within the top 5% of worldwide retailers
– Progress made in transitioning to a more agile and modular technology operating model; moving from physical data centres to the cloud through a new strategic partnership with Google
– Continuing to deliver on multi-year cost reduction programmes to partly offset costs of inflation, expansion and space changes, and our investment requirements over the medium term
– Decrease in net inventory of 2% YoY (in constant currency) driven by a reduction in seasonal and ‘buffer’ stock, lower purchasing, and strategic reduction initiatives; partially offset by product cost inflation. Inventory in units (volume) down 11% YoY
– Actions underway to further optimise supply chain, inventory management and sourcing footprint
– Established procurement joint venture in France with Mr. Bricolage Group, focused on common national and international suppliers
Information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain. This announcement is being released on behalf of Kingfisher by Chloe Barry, Company Secretary.
Footnotes
(1) Net debt includes £2,398m of lease liabilities under IFRS 16 in H1 23/24 (H1 22/23: £2,318m).
(2) ‘Q3 23/24 LFL sales (to date)’ represents the period from 30 July 2023 to 9 September 2023 compared against the equivalent period in the prior year (i.e., 31 July 2022 to 10 September 2022). The figures are provisional and exclude certain non-cash accounting adjustments relating to revenue recognition.
(3) Guidance assumes current exchange rates.
