Kingfisher plc (LON:KGF) has provided its Q3 20/21 sales, together with an update on how it continues to manage the impact of COVID-19 on its business.
Key points
· Continuing to make good progress against ‘Powered by Kingfisher’ strategic priorities
· Q3 20/21 total Group sales of £3.5 billion, up 17.6% in constant currency; Group LFL(1) sales up 17.4%
o Strong performance across all retail banners and categories, with growth in overall footfall and average transaction value
o Q3 Group e-commerce sales up 153%; now 17% of total Group sales (Q3 19/20: 8%)
o Click & collect sales up 216%, accounting for 77% of Group e-commerce sales (Q3 19/20: 61%)
· Q4 20/21 Group LFL sales(2) (to 14 November 2020) up 12.6%, largely reflecting the impact of more recent temporary lockdown measures
· All Kingfisher stores are currently open; remain committed to meeting the essential needs of customers safely and ensuring colleague safety and wellness
· Repaid £23 million previously received under UK Government Job Retention Scheme
· Disposal of Castorama Russia completed for consideration of c.£73 million(3)
Unaudited Q3 20/21 sales (three months ended 31 October 2020)
| Sales 2020/21 £m | % Total Change Reported | % Total Change Constant currency | % LFL Change Constant currency | |
| UK & Ireland | 1,576 | +21.5% | +21.5% | +19.9% |
| – B&Q | 1,016 | +23.9% | +23.9% | +24.0% |
| – Screwfix | 560 | +17.4% | +17.4% | +12.8% |
| France | 1,227 | +17.9% | +16.6% | +19.2% |
| – Castorama | 648 | +19.9% | +18.6% | +23.2% |
| – Brico Dépôt | 579 | +15.8% | +14.5% | +15.1% |
| Other International (ex-Russia) | 583 | +10.0% | +11.4% | +9.5% |
| – Poland | 414 | +8.3% | +10.2% | +7.5% |
| – Iberia(4) | 96 | +19.1% | +18.1% | +18.1% |
| – Romania(5) | 73 | +9.6% | +10.6% | +10.6% |
| Total Group (ex-Russia) | 3,386 | +18.1% | +17.9% | +17.7% |
| – Russia(6) | 77 | (12.3)% | +5.6% | +6.3% |
| Total Group | 3,463 | +17.2% | +17.6% | +17.4% |
Thierry Garnier, Chief Executive Officer, said:
“We achieved strong sales growth in Q3 across all retail banners and categories, with higher footfall and average transaction value. Our growth was supported by strong market demand, as consumers spent more time in their homes and focused on improving them.
“At the same time, we have made good progress against our ‘Powered by Kingfisher’ strategic priorities – the early benefits of which are enabling us to meet the current strong demand, both in-store and online, and grow our share in key markets. I am thankful for the way in which our teams continue to respond to the immense challenges of doing business in today’s environment.
“During the period we also furthered our commitment to supporting our communities. We continued to create jobs in our stores; we continued to make donations to charity partners and health authorities; and earlier this month we repaid £23 million received in the first half of the year under the UK government’s furlough programme. While there remains considerable uncertainty around COVID-19, we are confident in our ability to operate safely, to serve our customers, to look after our colleagues, and to protect our business.
“Overall, we believe that the renewed focus on homes is supportive for our markets. Furthermore, we are confident that the strategic and operational actions we have taken so far are helping us to build a strong foundation for long-term growth.”
Trading since 1 August 2020
Q3 trading highlights (in constant currencies)
UK & IRELAND
Total sales +21.5% (LFL +19.9%).
· B&Q sales +23.9%. LFL +24.0% reflecting strong demand in all categories, in particular outdoor. LFL sales of weather-related categories were up 45.2%. LFL sales of non-weather-related categories, including showroom, were up 18.5%. The new kitchen range continues to perform well, and installation services will be reintroduced into all UK stores by January 2021.
· Screwfix sales +17.4%. LFL +12.8% reflecting stronger demand from trade customers. The business continued to strengthen its overall customer proposition, including ongoing investments in price. During Q3, 17 new outlets were successfully opened in the UK and four in the Republic of Ireland.
FRANCE
Total sales +16.6% (LFL +19.2%). LFL sales for the home improvement market (as measured by Banque de France data(9)) were up 17.7% in Q3. Our LFL sales performance in France has outperformed the market in each of the last five months, driven by ongoing operational improvements, the addition of new local ranges, and the strong performance of our own exclusive brands (‘OEB’) ranges.
· Castorama sales +18.6%. LFL +23.2% reflecting strong demand in all categories, in particular outdoor, and the success of trading events in the period. Additional Sunday store openings contributed c.+2% to LFL sales. LFL sales of weather-related categories were up 43.7%. LFL sales of non-weather-related categories, including showroom, were up 19.3%. Three stores were closed during Q3 as part of the previously announced store closure programme, two of which will be converted to Brico Dépôt stores next year.
· Brico Dépôt sales +14.5%. LFL +15.1% reflecting strong demand in all categories (in particular outdoor and building & joinery), more trading events, and the upweighting of special promotions (‘arrivages‘) as the business continues to strengthen its discounter credentials.
OTHER INTERNATIONAL
· Poland sales +10.2%. LFL +7.5% reflecting good demand in all categories, with particular strength in outdoor and surfaces & décor. LFL sales of weather-related categories were up 13.0%. LFL sales of non-weather-related categories, including showroom, were up 6.9%. Two new stores were opened during Q3.
· Iberia sales +18.1%. LFL +18.1% reflecting the continued strong demand seen in Spain following the phased reopening of stores from late May 2020.
· Romania sales +10.6%. LFL +10.6% reflecting good demand across most categories, in particular outdoor.
As previously announced, Kingfisher completed the sale of Castorama Russia to Maxidom, a leading home improvement company in Russia, on 30 September 2020. Of the total consideration of RUB c.7.4 billion (c.£73 million(3)), 80% was received at the closing of the transaction. The remaining 20% is to be received in equal instalments over the next two years.
Operational status
All our c.1,370 stores are currently open for in-store purchasing and click & collect, under strict social distancing and safety protocols. For reference, the current lockdown restrictions and operational status in each of our markets is noted in the ‘Supplementary information‘ section below, as of 17 November 2020.
Recent weekly trading trends (to 14 November)
Q4 20/21 Group LFL sales (to 14 November 2020) are up 12.6%, largely reflecting the impact of more recent temporary lockdown measures. To update on recent trading trends, the table below shows weekly sales data by market for the last six weeks.
In the first three weeks of October, trading was strong with all banners growing LFL sales. In the final week of October, France saw exceptional demand in the days leading up to a national lockdown which commenced on 30 October. In Poland, LFL sales were adversely impacted by the timing of a national public holiday.
Sales growth in the first week of November was largely driven by exceptional demand in the UK, particularly at B&Q, ahead of the commencement of the national lockdown in England on 5 November. In France, sales growth was impacted by the pull forward of demand seen in the previous week. Poland and Iberia sales were also impacted by lower footfall related to concerns over COVID-19. In the second week of November we saw robust demand across the UK, France, Poland and Romania, although Iberia sales continued to be impacted by lower footfall.
Managing the impact of COVID-19
Throughout the COVID-19 crisis, Kingfisher has been committed to implementing swift and effective measures to support our clear priorities – to serve our customers as a retailer of essential goods, to look after our colleagues as a responsible employer, to provide support to the communities in which we operate, and to protect our business for the long term.
The following section provides an update on how we are managing the impact of COVID-19 on our business.
Risk management
Kingfisher’s central and retail business crisis committees continue to meet on an ongoing basis to monitor and manage risks and impacts of COVID-19. These committees continue to monitor closely the impact on all areas of our business, as well as ensuring publicly available advice is followed and that appropriate safeguards are quickly implemented.
Social distancing and safety measures
All our Kingfisher stores operate under strict social distancing and safety measures to protect customers and colleagues. Similar measures are also in place at our distribution and fulfilment centres, and our corporate offices. In addition, we have also provided support for safe home working where relevant, including risk assessments and the provision of office equipment.
In most cases, the measures applied have gone beyond government recommendations in each market, which has been met with strong approval by both customers and colleagues. Taking into consideration the recent announcement of further temporary restrictions across our markets relating to COVID-19, we continue to both monitor and improve the effectiveness of these measures on a day-to-day basis.
Supporting our colleagues
Over the last 12 months, Kingfisher has hired approximately 3,500 colleagues(11) into its stores in the UK, France, and Poland.
Kingfisher is committed to ensuring the safety of colleagues in our stores, our distribution and fulfilment centres and in our offices, while also providing proactive support for wellness and mental health during this period of unprecedented challenges. We have invested significant time and resources in Group-wide colleague engagement activities and initiatives, as well as ensuring that the tireless efforts of our colleagues during the pandemic are rewarded through frontline staff bonuses.
We have made dedicated training and support available for all line managers on leading through a crisis, leading remotely, and supporting their teams’ mental health and wellbeing. Following our annual colleague engagement survey conducted over the summer, we implemented several actions related directly to the provision of advice and psychological support for colleagues, as well as general support on wellbeing.
As part of our commitment to build a responsible and inclusive business, in September we launched Kingfisher’s ‘1+1 Sharing In Our Future’ plan, which gives all Kingfisher colleagues the opportunity to become shareholders. To date we have seen a good take-up, with participation from colleagues across all our business areas.
Supporting our communities and governments
Throughout the crisis we have been active in supporting our communities and governments, while focusing on making sure that we can safely serve our customers’ essential needs as effectively as possible. To date, total committed donations to our communities, charity partners and health authorities amount to over £3 million.
Earlier this month we repaid the £23 million received in the first half of the year under the UK Government’s Job Retention Scheme. Since 1 July, no claims have been made under furlough programmes in the UK (including the Job Retention Bonus) and France. Colleagues who are unable to work due to being high-risk, vulnerable, or self-isolating, continue to have their salaries paid by the Group.
Supply chain and availability
We continue to be faced with polarised demand within our categories and, in particular, strong demand levels within the paint, decorating materials, outdoor, building materials and kitchen ranges, where vendors are challenged in keeping up with high demand levels. These challenges are being driven by a combination of capacity constraints and extended lead-times from their raw material suppliers. In addition, the pandemic continues to place a considerable strain, industry-wide, on the international logistics infrastructure. We expect these challenges to continue for at least the next six months.
We continue to work closely with key vendors to speed up production and accelerate our supply chain within these specific categories. Nevertheless, in-store availability is currently below last year, reflecting the high and volatile levels of demand we have been experiencing. We will continue to work hard on improving product availability through the remainder of this year.
Brexit preparation
We are continuing with our planning to meet the requirements of either a new trading relationship with the EU or, if no trade agreement is reached, the UK abiding by World Trade Organisation (WTO) rules. We have taken several measures to mitigate delays at the border as far as possible and to ensure readiness for exporting to the Republic of Ireland, such as securing access to simplified customs procedures and adapting our OEB packaging to be suitable for UK and EU markets.
We are continuing with our vendor engagement programme to ensure their readiness to operate under a hard border with the UK, providing support where needed.
On tariffs, in the event that no Free Trade Agreement is reached with the EU, and the UK’s new Global Tariff (UKGT) is applied, we expect that EU and non-EU imports would attract an average tariff of c.2% on our products. This would be slightly lower than the current average duty rate for all direct imports into the UK, although this excludes any potential indirect exposures (for example from UK-based vendors).
Cash and liquidity update
Overall, the Group has significant liquidity headroom with its current cash balance. As at 17 November 2020, the Group had access to over £3.5 billion in total liquidity, including cash and cash equivalents of c.£2.2 billion and eligibility to access over £1.3 billion of funding under the CCFF and RCFs.
As announced on 12 May 2020, Kingfisher arranged a €600 million (c.£542 million) term facility with three French banks in support of its operations in France. The loan is guaranteed at 80% by the French State (‘Prêt garanti par l’État‘, or ‘PGE’). As required under the terms of the loan, the full amount was drawn down on 18 May 2020. Subject to circumstances and certain conditions being met, the Group is considering a repayment of the loan in Q4 20/21.
Kingfisher remains eligible to access funding under the Bank of England’s Covid Corporate Financing Facility (CCFF). In October, HM Treasury updated their drawing limits for issuers whose long-term credit rating has fallen to BBB-/Baa3/BBB (low) or equivalent after 1 March 2020. As Kingfisher’s Fitch and Standard and Poor’s ratings are both BBB-, Kingfisher’s drawing limit is therefore capped at a maximum of £300 million.
The Group also has access to undrawn Revolving Credit Facilities (RCFs) of £250 million (due to expire in May 2021), £225 million (due to expire in March 2022) and £550 million (most of which is due to expire in August 2023), totalling £1,025 million.
Outlook
While the strength of our Q3 performance was reassuring, uncertainty over COVID-19 and the impact of temporary lockdown restrictions in most of our markets continue to limit our near-term visibility.
Overall, Kingfisher believe that the renewed focus on homes is supportive for our markets. Furthermore, we are confident that the strategic and operational actions we have taken so far are helping us to build a strong foundation for long-term growth.
In relation to costs, we anticipate that FY 20/21 adjusted profit before tax will include c.£175 million of temporary cost savings (including government support measures and other non-recurring cost savings), net of any one-off COVID-related costs.
