Kingfisher plc

Good day, ladies and gentlemen, and welcome to Kingfisher PLC's half-year 2024 to 2025 results presentation. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a Q&A session with research analysts. If you wish to ask a question, we ask that you please use the raised hand function at the bottom of your screen. Instructions will also follow at the time of the Q&A. I would like to remind all participants that this call is being recorded. I will now hand over to Thierry Garnier to start the presentation.

Good morning and welcome to our 2024 half-year results presentation. Before we begin, I would like to extend my thanks to all our teams across Kingfisher for their continued hard work and focus on achieving our goals. Although we have seen challenges in our market for the last two years, they continue to work hard to provide an outstanding proposition to our customers. I'm really proud to be part of that team. To slide two and the agenda for this morning, I will begin with an overview of our key messages and financial highlights. I will then pass over to Bernard, who will cover the financial performance in more detail, together with our outlook and guidance. I will then provide an update on our strategy and the progress being made in France before we open up to Q&A. So turning to our key messages on slide three, I've said before our key objectives this year is to focus on what we can control. That means growing market share, managing our gross margin with discipline, controlling our cost and cash, and continuing to deliver at pace on our strategic objectives. I'm pleased to say that in H1, the teams did exactly that. Our overall trading in H1 was in line with our expectations. We were pleased to see continued market share gains in the UK and Poland, while our performance in France was broadly in line with the market. In what remained a soft consumer environment, particularly in France, we managed our gross margin, cost, and inventory very well. We are making solid progress against our strategic objectives. In particular, we are going to draw attention today to our progress in e-commerce and in trade. These two areas have been standard performance in the period, and we are making strong progress in extending the UK success of this proposition to France, Poland and Liberia. In March, we set out our plan to take our performance and margin in France to the next level. The plan includes the restructuring and modernization of the lowest-performing stores within the Castorama estate. We are making rapid progress here, and the steps we are taking are starting to take effect. As ever, we are paying very close attention to the short and medium-term outlook for our markets. Here we see some early signs of an improving housing market, particularly in the UK, but remain cautious on the lag between these indicators and home improvement spend, especially on big-ticket categories like kitchen and bathroom. Overall, we believe that market growth in the UK, France and Poland are all tracking within the scenarios we set out in March for 2024. So given this, and together with our H1 results, we have tightened our profit guidance, lifting the lower end of the previous range by £20 million. Finally, we are upgrading our free cash flow guidance for the year. As a result, we have decided to accelerate the pace of our current £300 million share buyback programme. We now expect to complete the programme in March next year. To slide 4, an overview of our financial highlights in H1. Total sales for the group fell by 1.4%, with a like-for-like decline of 2.4%. Our businesses in the UK and Poland showed very good resilience, while our performance in France reflected the soft consumer backdrop. Consumer activity in repairs, maintenance and existing home renovations held up well, and this supported sales in our core categories, which saw a modest decline of 1.1%. As a reminder, core categories are the backbone of our group. They represent two-thirds of our sales and exclude big ticket and seasonal products. Our gross margin increased by 40 basis points. We maintain competitive price indices in all banners and also stay disciplined in our promotional activity. Retail price inflation was flat year on year, and volumes were slightly down, given weakness in big ticket, as we expected. We also delivered strong management of operating cost and inventory. Through structural cost reductions, as well as temporary flexing of variable cost, we offset cost inflation entirely in H1. We are fully on track with our commitment to achieve £120 million of cost reduction for the full year and inventory reduced by £134 million, or 4% year-on-year, while achieving a reduction in inventory days and better stock availability. E-commerce was a standout performance as sales rose by 8.4%. Our group e-commerce penetration of 18.3% is an increase of 1.5 points year-on-year. Within this performance, we saw strong sales from our marketplaces in B&Q and Iberia with group GMV of 163 million pounds up 80% year-on-year. We're also making strong progress in driving up threat penetration across our banners. Threat point in the UK and Ireland now accounts for 22% of BNQ cells, up 2% age points. In Poland, threat penetration has already reached 15% of cells. And at Brico-Depot France, threat penetration more than doubled to 9%. Given our strong control of gross margin and cost, adjusted PBT was down 0.5% to £334 million. This includes a one-off benefit of 25 million of business rate refunds at B&Q. Free cash flow generation was strong at £421 million, supported by the phasing of our inventory purchases and cash tax refunds. And at last, we have announced today an unchanged interim dividend of 3.8 pence. Delivering attractive returns for shareholders continues to be a priority, and we have already returned £250 million to shareholders through dividends and buyback in this financial year. By March next year, we'll have returned close to £1.9 billion over four years. Overall, the business is in good financial health and very well positioned to achieve our targets in the second half and beyond. I will now hand over to Bernard to go through the financials in more detail.

Thank you, Thierry. Good morning, everyone. Starting with slide six and the key financials for the half year. Total sales in constant currency were down 1.4% to just under 6.8 billion. excluding the impact of new stores like for like sales were 2.4% lower. We maintained our gross profit at 2.5 billion with the gross margin rate up 40 basis points. This reflected our strong management of product cost and retail prices, as well as effective supplier negotiations and lower clearance costs and stock provisions. In constant currency, retail profit decreased by 2.7% to 420 million, reflecting lower profits in France and higher losses from Kostas, our joint venture in Turkey. These were partially offset by higher profits in the UK and Ireland than Poland. Profits in the UK were supported by 25 million of one-off business rate refunds at B&Q. The group's retail profit margin was 10 basis points lower at 6.2%. Operating costs in constant currency increased by 0.4%. However, excluding the business rate refunds and the results of Kostas, costs increased by 1.1%, and this largely reflected new store openings and new business, including Screwfix International and NeedHelp. After central cost and our share of joint venture interest and tax, adjusted PBT decreased by 0.5% to $334 million. We generated free cash flow of $421 million, supported by the phasing of inventory purchases over the year and lower cash taxes. And our total liquidity position remained strong at over $1.1 billion. Net debt, mainly comprised of property leases, was just under 2 billion, with net leverage of 1.4 times EBITDA, slightly lower from the year-end position of 1.6 times. Moving to slide 7 and looking at our sales performance by category. The figures you see on this slide have been corrected for leap year and calendar impacts so that we can assess underlying trends. In our core categories, which account for the majority of our group sales and volumes, we saw resilient sales driven by repair, maintenance, and renovation activity on existing homes in the half, with like-for-like sales lower by just 1.7%. Sales trend improved in Q2 with stable volumes and low levels of average selling price inflation. Like-for-like sales from big-ticket categories, which include kitchen and bathroom sales, were 7.4% lower in the half, reflecting broader market weakness, as expected. In the UK and France, Q2 big-ticket sales trends were similar to Q1, and we saw an improvement in Poland. And in our seasonal categories, which include products such as outdoor furniture, barbecues and cooling products, like-for-like sales were 3.7% lower for the half. Seasonal sales underperformed in all of our key markets in Q2, impacted by unfavorable weather for much of May and June. Despite a strong trend since the start of July, we were not able to fully recover lost sales within the quarter. For the group overall, we saw flat retail price inflation in H1, plus a negative mixed impact on the average selling price from lower big ticket sales. Overall, volume was lower year-over-year. Over the next few slides, we'll take a closer look at our performance by region. All year-over-year variances are in constant currency. starting with the UK and Ireland here on slide 8. Like-for-like sales were down just 0.2%. We saw positive performance in core categories, supported by strong e-commerce and trade customer sales. Space and acquisition contributed an additional 1.2%, mainly from store openings at Screwfix. Total sales in UK and Ireland increased by 1%. Looking by banner, like-for-like sales at B&Q decreased by 1%, with strong trade point sales and e-commerce marketplace growth more than offset by weakness in big ticket categories. Seasonal sales were also slightly lower year over year. B&Q's total e-commerce sales increased by 18%, with marketplace participation reaching 40% of B&Q's online sales in H1. TradePoint delivered like-for-like sales growth of 7.1% for the half, with its penetration of B&Q sales increasing by 2 percentage points to 22%. At ScrewFix, like-for-like sales increased by 1.2%, driven by robust demand from trade customers. Space growth and the acquisition of ScrewFix spares contributed 3.3%, for total sales growth of 4.5%. B&Q, TradePoint and ScrewFix all grew their market shares in the half. Gross margin for the UK and Ireland increased by 50 basis points, reflecting our effective management of product costs, retail prices and supplier negotiations, and a favourable sales mix within Screwfix. Operating costs increased by 1%, including the benefit of 25 million of one-off business rate refund received by B&Q. This resulted from a delay in the government's valuation of our larger stores, which led to the overpayment of business rates from 2017 to 2023. The refund was negotiated in Q1 and confirmed in Q2. Excluding these refunds, underlying operating cost increases were driven by staff costs and costs associated with new stores. These were partially offset by structural savings from our cost reduction program. Retail profit for the UK and Ireland was 6.2% higher at 325 million, with retail profit margin moving up by 40 basis points to 9.6%. Moving to slide 9 and our performance in France. Like-for-like sales were 7.2% lower in the half, with the home improvement market continuing to be impacted by a soft consumer environment. Despite this, both our banners performed in line with the market and underlying sales trends in core and big ticket categories were broadly consistent from Q1 to Q2. Looking by banner, Castorama sales trends slowed significantly in Q2 due to the impact of weather on seasonal category sales. However, Castorama's total e-commerce sales increased by 9.8% in the half, benefiting from expanded data and AI capabilities, and positive early results from the launch of its new marketplace in March. At Ricodeco, like-for-like sales were 6.8% lower. Sales trends in Q2 slowed from Q1, again due to the significant impact of weather and seasonal sales. This was partially offset by a slightly improved underlying sales trend in core and big-ticket sales. This was in part driven by the development of BRICO's trade proposition, with dedicated service desks, colleagues and a new loyalty program rolled out to all its stores in February. Gross margin for France increased by 20 basis points, reflecting effective supplier negotiations and lower stock provisions. This was partially offset by customer participation in promotional and clearance activity, together with selective price investments at BRICO depot. Costs were tightly managed, decreasing by 3%, building on the actions initiated in H2 last year around staff costs and discretionary spend. Both banners also continued to deliver structural savings from their longer-term cost reduction programs. Overall, retail profit was 32% lower at 69 million, with lower gross profit partially offset by lower operating costs. France's retail profit margin was 120 basis points lower at 3.3%. Turning to slide 10 and the performance of Castorama Poland, like-for-like sales were 0.2% lower, with sales trends supported by an improved consumer environment and strong progress in the development of Castorama's trade customer initiatives. We were pleased to see the business grow its market share in H1. Sales of core and big ticket categories were positive in Q2, with the sales trends improving against Q1. This was, however, offset by seasonal category sales, which were significantly impacted by the weather in Q2. Growth margin for Poland increased by 140 basis points, reflecting their effective management of product costs, retail prices and supplier negotiations, together with the lower stock provision movement. The growth margin movement is also somewhat magnified by the higher customer participation in promotions in H1 last year. Operating costs were 3.3% higher in H1, reflecting year-over-year increases in pay rates, higher bonus accruals, and higher costs associated with new stores. Cost increases were largely offset by a continuation of the actions taken in H2 to reduce costs, including further flexing of staff levels and discretionary spend, together with structural savings from our cost reduction program. In the prior year, we also absorbed charges related to ineffective foreign exchange hedges, which didn't recur this year. Retail profit for the year was 35.3% higher at 50 million, with a retail profit margin of 5.3%, 130 basis points higher year over year. Turning now to slide 11, the performance of the UK and Ireland, France and Poland are shown here in summary. Looking now at some of our other markets. First, in Brico Depot Iberia, where like-for-like sales were 2.3% higher. The business saw positive like-for-like sales in core and big-ticket categories, with strong support from trade customer sales. Seasonal categories saw sequential improvement in Q2, after lapping strong comparatives in Q1. retail profit increased to 6 million. At BricoDepot Romania, like-for-like sales were 1.5% higher, while the resilient overall performance sales trend slowed across all categories in Q2, driven by abnormally hot weather across the quarter and weaker consumer environment. Romania's retail loss decreased to 6 million, reflecting slightly higher gross profit and lower operating costs. Other consists of the consolidated results of Scrufix International, NeedHelp, and franchise and wholesale agreements. These businesses posted a combined retail loss of 80 million, up from 10 million. The majority of this was driven by Scrufix France as the business continued to invest in its stores, operations, and building brand awareness. In July, we sold our equity interest in NeedHelp back to its original founder and current CEO for nil proceeds. This resulted in a loss on disposal of 3 million recorded in exceptional items. NEDEP will continue to offer their services to our customers at B&Q and in France. Our Turkish joint venture, Kostas, contributed a retail loss of 6 million, 11 million lower year-over-year, in a challenging macroeconomic and trading environment that has significantly deteriorated from June. The year-over-year movement largely reflects sales challenges in addition to higher operating costs related to staff pay rates and costs of credit collection, and the negative impact of accounting under high inflation. Given the significant ongoing challenges associated with trading in Turkey, Kostas has initiated a comprehensive restructuring program, including a large reduction in headcount, store closures and right sizings. We expect the business to broadly break even at a retail profit level in H2. After folding in our share of Kostas' interest and tax, we expect the overall contribution of Kostas to our adjusted PBT to be a net loss of 25 million for the full year versus a net loss of 1 million in the prior year. The slide 12 and the movement in adjusted PBT for the group. Lower like-for-like sales at a constant gross margin rate contributed 62 million to the decline. Gross margin rate improvements of 40 basis points added 30 million. The impact of staff pay rate inflation was 46 million, and other cost inflation and cost increases were 27 million, largely driven by non-utility store costs such as cleaning and maintenance, as well as marketplace and advertising spend. Technology costs were broadly flat in H1, with increases this year weighted towards H2. We were able to fully offset these cost increases through flexing of our staffing levels and variable cost, especially in France and Poland, together with savings achieved by our strategic cost reduction program. I will provide a little bit more detail on this in the next slide. The one-off business rates refund at B&Q show us 24 million on this bridge due to a 1 million refund in H1 last year. As disclosed in H1 last year, we recognized charges in relation to the ineffective foreign exchange hedges, meaning an 8 million year-over-year benefit in this period. Our central costs were 7 million lower, reflecting one-off insurance deductible related to fire and subsidence last year. The movement in profit contribution from our new stores and new businesses was 2 million. It was mainly driven by screw fix in the UK and Ireland. And finally, the retail contribution of Kostas was 11 million lower, partially offset by a 4 million decrease in our share of interest and tax. This leads us to slide 13 and an overview of ongoing work to structurally lower our cost base and raise productivity levels. As a reminder, in March we told you that we'd taken nearly 360 million of costs out of the business in the last three years, and that we were targeting an additional 120 million this year. I'm pleased to say that we are fully on track to achieve this. One of the most significant highlights in H1 included increasing the productivity of our staff, with our FTEs reducing by 2,400 year-over-year. This was largely through natural attrition, and no exceptional costs were incurred. Other actions included reducing our marketing costs by consolidating our spend with media agencies. In property, we continued to negotiate favorable lease terms, as well as focusing on cost efficiencies in store. We completed 18 lease renegotiations across the group, excluding screw fix, realizing an average net rent reduction of 18% in the half. And our energy costs were 25% lower year over year, led by actions to reduce usage as well as lower rates. We also unlocked 4 million in logistics costs through optimizing warehouse space and transport routes across the group. In H2, we have a range of other costs and productivity initiatives in train as we continue to focus on making Kingfisher leaner and more agile. However, our cost reductions are much more weighted to H1 this year based on the prioritization and timing of our projects. to slide 14 and a summary of cash flow movements in the period. We generated EBITDA of 721 million, up by 1.3% year over year. The change in working capital resulted in a net inflow of 128 million. This was driven by an increase in trade payables of 286 million, reflecting normal buying seasonality plus a pull forward of some inventory purchases in light of the ongoing disruption in the red sheet, which should unwind in H2. Net inventory increased by 82 million over six months, reflecting the seasonality of stock levels at half-year versus year-end. Against July last year, inventory was lowered by 134 million, or 4%, largely driven by lower purchasing and strategic reduction initiatives. Our expectation is for inventory to remain lower year-over-year by 31 January, partially offset by the unwind of trade payables increase. For completeness, receivables increased by 44 million, driven in part by business rate refunds at B&Q and supplier rebates. Our non-trade payables decreased by 32 million. Net rent paid was 260 million, including 10 million of deferred lease payments from the prior year. Tax, interest, and other cash outflows were 50 million, including the benefit of approximately 30 million of tax-facing benefits and refunds. Capital expenditure for the half was 153 million, representing 2.2% of sales. This was approximately 7% lower year over year due to the timing of our project spend this year. Overall, free cash flow for the period was 421 million. We paid ordinary dividends of 159 million, and a further 92 million was returned to shareholders via our ongoing 300 million share buyback program. Overall, we saw a net increase in cash of 126 million. Turning to slide 15 and a little bit more detail on inventory management. With our net inventory 134 million lower year over year, we also saw a four-day reduction in inventory days while slightly improving our best-seller product availability. We are continuing to effectively manage the impact from the ongoing disruption in the Red Sea. As a reminder, a relatively low proportion of our purchases are sourced from Asia, and we work closely with our carriers to ensure the optimum amount of shipping capacity is secured. We have protected supply through pulling forward some product orders. And finally, our freight rates are generally locked in in advance. This means that, while we continue to expect an overall tailwind this year, higher costs, including surcharges, start to come through from H2. Longer term, we see a significant multi-year opportunity for further supply chain optimization and working capital benefits. Our AI-powered supply chain visibility tool, which provides our banner with real-time and end-to-end visibility of products from origin ports to store, is now live in all banners. And we are seeing early evidence of this improving availability and forecasting, driving reduced minimum order quantities and shorter lead times. Moving to slide 16 and our overall liquidity, financial position and returns to shareholders. Given our strong free cash flow generation in H1 and our revolving credit facility, currently 650 million and undrawn, we had over 1.1 billion in total liquidity available as of the 31st of July. This is well ahead of our minimum 800 billion requirement. Our net leverage was 1.5 times EBITDA, slightly lower than year-end and well below our maximum threshold of two times, which allows us to maintain a solid investment-grade credit rating. We have a clear capital allocation policy and a strong tech record of returning surplus capital to shareholders. We announced today that we are holding our interim dividend flat at 3.8 pence. Last September, we announced a 300 million buyback program, with half of this repurchased today. Given our cash position, we will now accelerate the pace of buybacks and expect to complete the remaining 150 million in the next six months. This brings our returns to shareholders to just under 1.9 billion since the full year 21-22, representing nearly 40% of our current market capitalization. Moving on to our outlook and guidance for the year ahead. As you know, we conduct regular and extensive consumer surveys in the UK, France and Poland, allowing us to sense-check our market outlook. In the UK and France, the percentage of consumers who believe their personal finances will get worse in the next year has decreased versus the spring. However, we see a small uptick in Poland, reflecting the uncertainties facing households. Encouragingly, we note there is a declining number of consumers delaying home improvement projects in all of our key markets. And furthermore, the forward intention to undertake a major project is increasing for consumers in the UK and Poland, while slightly down in France. Looking at trade sentiment, our survey of UK tradespeople suggests trade remains busy and that pipelines are strong. 92% of UK tradespeople working, up 2% year-over-year. Moreover, 81% have more work in the pipeline, up 7% year-over-year. 75% of tradespeople have work planned for the next six months, with 17% for more than a year. Moving to slide 19 and our view on the outlook for home improvement in our markets this year. At the start of this year, we assessed various scenarios for the growth of our total addressable home improvement markets in the UK, France and Poland in 2024. These scenarios remain valid and we continue to see differing developments by region. In the UK and Ireland, we observe a relatively resilient consumer with repairs, maintenance and existing home renovation continuing to be supportive. While we are starting to see encouraging housing market indicators, we remain mindful of the lag between housing demand and the realization of home improvement spend. Overall, we believe the UK and Ireland home improvement market in 2024 is currently tracking within the higher end of the scenarios we set out in March. In France, we saw continued subdued consumer confidence and a weak housing market in H1. The supports have viewed that the market is currently tracking at the low end of our scenarios. And finally, in Poland, inflation is down significantly compared to its peak in 2023, and consumer confidence is gradually improving. However, we remain mindful of the continued uncertainties facing households, including high energy bills and high mortgage rates. Overall, we believe the Polish home improvement market in 2024 is currently tracking within the higher end of our scenarios. Finally, to slide 20 and bringing our market outlook together with our guidance for the full year. Further technical guidance can be found in the appendices. Lack for lack sales for the third quarter to date are down 0.3%. We are seeing trading in the UK and France ahead of Q2 with the benefit of softer comparatives in the same period last year. In H2, we will continue to focus on the things we can control. That means growing our market share and effectively managing our product costs and retail prices. We are on track to achieve 120 million in structural cost reductions as we set out at the full year, although as a reminder, these are H1 weighted. We expect this to partially offset higher pay rates, including incentives, as well as technology investments, the latter of which is H2-weighted. Finally, to reflect our performance in H1 and our current view of the trading environments in our markets, we are tightening our full-year adjusted PBT guidance to 510 to 550 million versus our previous range of 490 million to 550 million. For free cash flow, we anticipate net inventory to be lower for the full year, partially offset by the unwind of our trade creditor balances. Together, with slightly lower CAPEX for the full year and lower cash taxes, we are upgrading our free cash flow guidance to 410 to 460 million from 350 to 410 million previously. With my review complete, let me now hand back to Thierry.