Kingfisher plc

Good day ladies and gentlemen and welcome to Kingfisher PLC's half year 2025 to 2026 results presentation. At this time all participants are in a listen only mode. Following the presentation we'll conduct a question and answer session with research analysts. If you wish to ask a question we ask that you please use the raise hand function at the bottom of your zoom screen. If you've dialed in please select star 9 to raise your hand and star 6 to unmute. 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.

Hello everyone. Today I am at our Camden screw fix store in London and it's great to review the progress of our screw fix city format with the team Thank you for joining us for Kingfisher's half-year results presentation. Bhavesh and I will take you through our H1 results, our outlook for the year, and provide an update on our key strategic initiatives. Following this presentation will be our usual Q&A. I want to start with an overview of Kingfisher's attractive investment story which drives our medium term financial priorities and outlook. We have the number one or number two leading positions in our markets and those markets worth 160 billion pounds have attractive and structural growth drivers. Secondly, our Powered by Kingfisher model provides us with clear competitive advantages. We operate a diverse portfolio of banners, each with distinct formats and propositions that address a wide range of customer needs. Across these banners, we maintain a well-balanced mix of trade and retail customers. Our own exclusive brands are industry-leading and a powerful competitive advantage. Combined with our advanced technology and e-commerce proposition, we offer customers both speed and choice. As a group, our scale enables us to unlock synergies in buying and sourcing while also supporting continued investment in technology. Our strategic growth initiatives are driving market share gains, A key part of this is expanding our reach across our trade customers with compelling propositions firmly established across all banners. Our trade strategy is now very much proven and delivers results. Our online, 1P and marketplace platforms significantly increase product choice for our customers and offer fast fulfillment times. We also see exciting potential in retail media with an ambition to grow retail media income to up to 3% of group e-commerce sales. And finally, we continue to expand our store footprint, primarily through the expansion of Screwfix and growth opportunities we see in Poland. Bringing all these elements together, we are committed to our financial priorities, which are to grow sales ahead of our markets, grow adjusted profit before tax ahead of sales and to generate strong free cash flows. We have a disciplined capital allocation framework prioritizing investment in organic growth, maintaining a strong balance sheet and returning surplus cash to our shareholders. So moving to our results, you will have seen from our RNS published this morning that we have had a strong first half And there are three key messages I want to highlight. First, our strategic growth initiatives are driving market share gains, a key leading indicator of our progress beyond macroeconomic trends, while several factors have contributed to our performance in the half. I'm particularly pleased with the strong contribution from these initiatives. We delivered double-digit growth in both trade and e-commerce sales during the half, and importantly, they offer a substantial runway for future expansion. In addition, we continue to strengthen our retail fundamentals. This includes successful innovation across our big ticket categories, competitive pricing, and ensuring high product availability in store during period of peak demand. Second, we are seeing some healthy growth indicators across our business. Growth in the half was of high quality, driven by increased volumes on transaction rather than inflation. In our core categories, we have seen consistent quarter-on-quarter growth, including a 10th consecutive quarter of underlying growth in the UK, Pew2 marked our third consecutive quarter of underlying growth in big ticket sales. And we have a strong order book at the end of the half. Our banners in France and Poland are also showing improving sequential trends despite operating in more subdued markets. And third, we are raising our profit and free cash flow guidance for the full year. Our expectations for markets for the year remain consistent with what we outlined in March, whilst mindful of mixed consumer sentiment and political uncertainty. We are also accelerating our share buyback program due to the combination of our strong free cash flow generation and some one-off positive cash inflows. Back in March, I said that Kingfisher was in its best operational shape in years, and I stand by that today. While there is much more to do, our H1 results and our improved guidance demonstrates the momentum in the business and our confidence in the future. I will now hand over to Benvesh to talk you through our H1 financials and full year outlook.

Thank you, Thierry, and good morning, everyone. Let me start with an overview of our performance in the half, starting with the top line. I'm pleased with the relative outperformance of our banners in the half and our sales growing ahead of our markets. Total sales for the group were 6.8 billion pounds, with like-for-like sales up 1.9%, excluding a negative calendar impact of minus 0.6%. We delivered an adjusted profit before tax of £368 million, up 10.2% and a half, an adjusted EPS of 15.3 pence, up 16.5%, driven by gross margin accretion of 100 basis points and retail operating margin accretion of 40 basis points, alongside a 4% uplift from our share buyback program. Free cash flow generation and a half was £478 million, an increase of 13.5%. and net leverage stood at 1.3 times at the end of the half. Turning now to our sales growth, starting with a view by category. All of our categories delivered growth in H1. Core products represent around two-thirds of our portfolio, and we were pleased to see improving sequential growth trends with underlying like-for-like flat in Q1 rising to 1.2% in Q2. Key subcategories which performed well in the half include tools and hardware and indoor paint. Big Ticket delivered a third consecutive quarter of underlying growth. That growth has been driven largely by group-led innovation in our kitchen ranges and some improvement in the kitchen and bathroom market. Our order book also ended the half in a positive position. Seasonal sales benefited from record warm weather in the UK over the spring months. Clearly there was some pull forward from Q2 into Q1, as we called out in our Q1 trading update. It's worth noting that we'll be lapping this strong seasonal performance in Q1 next year. Turning now to our sales by geography. In the UK, B&Q delivered an excellent first half, significantly outperforming the market and driving growth across multiple fronts. These include trade point growth of 6.9%, fueled by our enhanced loyalty program, and an increased investment in trade sales partners to help us better serve trade customers. E-commerce growth of 23.8%. Our 1P and 3P operations work together to enhance conversion, increase customer traffic, and drive mutual growth. Benefits from the closure of home base and transference of customers to B&Q, as well as the opening of the eight stores we acquired, which our team rapidly opened in order to be ready for peak trading. And of course, seasonal product sales, which benefited from good weather in Q1. ScrewFix delivered a strong performance across both quarters. Our ScrewFix teams have executed at a high level, enhancing the customer proposition through targeted marketing and promotional campaigns, competitive pricing, robust inventory availability, and deeper engagement with trade customers via app-driven reward initiatives. In France, against a subdued consumer backdrop, we were encouraged to see improving sequential trends in our like-for-like performance. Castorama like-for-like sales declined by 1.4% of the half and were flat in Q2. Amidst the soft market backdrop, Castorama saw an improving trend in core sales across the first two quarters and strong seasonal performance. As you'll hear from Thierry, following testing last year of our trade customer proposition, Casto Pro, we've now rolled it out across our entire estate. Brico Depot's performance was in line with the market, with an improving like-for-like trend across the half. We saw an elevated level of promotional activity during Q2, which impacted Brico Depot's everyday low-price model. Brico also has a greater weighting to building and joinery products, and a lower exposure to seasonal categories, both of which are less supported by weather experienced by France in H1. We feel good about the Brico model, with its clear customer offering of discounted prices and high product availability. Turning now to our business in Poland, where we remain very excited about the medium-term growth opportunities. Casa Rama Poland is a market-leading banner, with opportunity to increase space, whilst building in both trade and e-commerce. We had a slow start to the year, with poor weather, high interest rates, and political uncertainty weighing on the economic backdrop. However, conditions improved in Q2 that have now stabilized on an underlying basis. We continue to make progress on our strategic initiatives. Trade penetration has reached 25%, and we've further grown our e-commerce penetration following the launch of our marketplace offering in January. We have a slide in the appendix to this presentation covering our other international markets. But to summarize very briefly, Scrufix France had a strong like-for-like growth of 52% at the store level, in line with our expectations. We completed the sale of Romania in May, a few months ahead of plan, and Iberia had an excellent H1, with 10.2% like-for-like growth, outperforming a growing market. as I said in March, will continue to drive opportunities on cost and gross margin, which have been an important driver of our profit and free cash flow delivery in the half. Let me give you a few examples. At a gross margin level, we've seen benefits from group buying and sourcing efficiencies, which contributed meaningfully to margin expansion in the half. In our marketplace platform, which is gross margin accretive, added 10 basis points to group margin growth. Our operational cost initiatives are also delivering tangible results. At the store level, we've achieved savings through contact center efficiencies and the rollout of more self-service checkouts. We've also driven head office efficiencies, particularly at Castorama France, where we're on track to reduce headcount by 12%. Cost discipline will continue to be a key focus for us as we create the room in our P&L to invest for future growth and profitability. Let me now turn to our profit performance in the half. Adjusted profit before tax rose by 10%, or 19% when excluding the £24 million of one-off business rates refund received by B&Q in the first half of last year. One of the main drivers of our first-half profit growth is the 100 basis points of gross margin expansion, which is driven by positive top-line growth in our margin initiatives, some of which I outlined earlier. In March, we said that we faced around £145 million of cost headwinds from higher wages, inflation, and taxes. These headwinds are playing out as expected, including the increase in UK national insurance costs in April. I'm pleased to say that in H1, our teams have done an excellent job mitigating these headwinds. The gross margin drivers, combined with our structural cost reduction program, enabled us to deliver 40 basis points of retail operating margin expansion to 6.6%, an adjusted profit before tax of £368 million. All of our banners delivered margin expansion in the half. In the UK, margins were up 10 basis points, or 80 basis points when adjusting for the B&Q business rates refund from last year. France delivered a 20 basis point margin improvement, and Poland saw margin growth of 10 basis points. As is typical for a business, profit delivery remains weighted towards the first half. That seasonal pattern has been amplified by the strong Q1 trading I mentioned earlier. We also have a more H2-weighted marketing and technology investment this year compared to last. This is to support our strategic priorities. In the second half, we also see the full impact of the UK national insurance contributions increase following its implementation in April. EPS growth in the half was up 16.5%. Our profit delivery has driven around two-thirds of our EPS growth, while share buybacks contributed one-third. In March, we announced our fourth share buyback program of £300 million, and we've already repurchased £100 million of our shares under this program. Given our strong trading performance and some material one-off cash inflows, we plan to accelerate purchases in the second half with the aim of completing the program by March 2026. Turning now to our group cash flow, starting on the left of this chart. We generated EBITDA of £744 million. The change in working capital was a net inflow of £100 million, driven primarily by an increase in payables, reflecting normal buying seasonality. We continued to focus on inventory management, reducing year-on-year same-store stock days by six and a half. Net rent paid was £261 million. We saw £40 million of inflows from tax, interest and other as we benefited from tax prepayment true-ups. CapEx spend totalled £145 million. Together, these drove free cash flow of £478.5 million, a 13.5% improvement year-on-year. Our free cash flow generation of £478 million is towards the upper end of our initial full-year guidance. This reflects not only our profit delivery in H1, but also the timing of marketing, technology, and CapEx investments, which are more second-half weighted versus the prior year. These investments are supporting our strategic priorities and will ensure that we enter 2026 with strong momentum. As mentioned earlier, we also benefited from two exceptional non-recurring cash inflows in the half, which sit outside of our free cash flow. First, debt proceeds of £33 million from the sale of our Romanian business in May. Second, proceeds of £64 million from the successful resolution of an historic tax issue in relation to EU state aid. Net cash flow in the half was £277 million, an increase of 120% driven by free cash flow growth and these one-off items. We returned £271 million to shareholders in the half through dividends and share buybacks, an increase of 8% year-on-year. Turning to our market outlook and guidance for the year. As Thierry mentioned earlier, the market outlook scenarios that we set out in March remain unchanged. In the UK and Ireland, we've seen a resilient consumer in H1, but remain mindful of potential softness in the market. given both uncertainty around the upcoming autumn budget and rising inflation. To date, the market has delivered low single-digit growth and we continue to expect market growth to be in the range of flat to low single-digit. In France, the market has remained subdued in H1. Although we saw lower interest rates, higher mortgage lending, and increased housing starts in the half, French consumer sentiment remains subdued amidst an uncertain political environment. We continue to expect a market of low to mid single-digit decline to flat for the year, an improvement on the 7% market decline we experienced last year. In Poland, political factors and high interest rate and mortgage rates weighed on consumer confidence in the first half, impacting discretionary spending. However, we're now seeing some early signs of recovery, supported by three interest rate cuts this year and continued real wage growth. We reiterate our market outlook of low single-digit decline to low single-digit growth. And, as you can see on the right-hand side of this slide, on the whole, our banners are tracking ahead of our markets for the first six months of this year. Now let me turn to our updated guidance for the year. Our full-year market scenarios remain unchanged from the guidance that we set out in March. Given this, and our strong start to the year, we're raising our full-year profit and cash outlook today. We now expect to deliver the upper end of our adjusted profit before tax range of £480 million to £540 million. On free cash flow, we've already delivered the upper end of our full-year range of 420 million to 480 million pounds in H1. This reflects the phasing of our profit delivery and the H2 weighting of CapEx investment. Given this strong performance, we are raising our full-year free cash flow guidance to 480 million to 520 million pounds. And finally, our stronger cash position and non-repeating cash inflows enables us to accelerate our current 300 million pound share buyback program. We now expect to complete this within 12 months, which is by the end of March 2026. I'll now hand back to Thierry.

Thank you, Babesh. I want to start by sharing some of our strategic actions that are supporting our current performance and also setting us up for the future. We continue to progress at pace with all our strategic pillars which we outline in our R&S. For today, I will go deeper with trade and our digital ecosystem, a group strategy that we applied in the UK first and serves as a successful blueprint that we have now rolled out across all other markets. So let me start with trade. We continue to expand our exposure to trade customers, a segment that shops more frequently, spends more, and follows more predictable purchase patterns. Through TradePoint, CastoPro, and other dedicated trade formats, we are leveraging our existing store footprint to serve this valuable customer base. Our trade strategy enables us to grow our market share and to increase store sales densities with little to no additional capex. As a result, our trade business is both revenue and margin accretive at a retail operating level. Our online e-commerce and marketplace platforms significantly expand product choice for our customers. Marketplace leverages technology built by Kingfisher and is a high margin growth driver. Retail media also represents a compelling opportunity. Our ambition is for retail media income to reach up to 3% of the group's e-commerce sales. With minimal capital employed, it is highly margin-accretive. Trade now represents 28% of group sales, reflecting the continued development of our trade proposition across banners. We are expanding dedicated trade space within our stores and improving our product range, including high-quality trade-specific OEBs, and leading branded products. We continue to rapidly develop our loyalty programs dedicated to trade as we sign up new members and offer enhanced price benefits tailored for each of our markets. Based on feedback from our customers, we have also improved our service offering, including announcements to our pro-app, our direct-to-site delivery options, our two rental services, and we have launched new trade financing solutions. And none of this is possible without having the right people. We have significantly increased the number of dedicated trade colleagues and have enhanced our training programs and data to better understand, serve and grow our trade customers. As a consequence, in the half, our trade sales grew by plus 11.9%. Looking at our banners, TradePoint at BNQ now represents 22.4% of total BNQ sales, with 6.9% growth in H1, and this is supported by a strong increase in signups for our loyalty program, and our successful trade app accounts for around 25% of its online sales. We now have 77 trade sales partners in store, a 75% increase versus this time last year, and we continue to invest in this area and are recruiting an additional up to 40 trade sales partners in H2. We continue to leverage the learnings from the UK, in France, in Iberia and Poland. As you can see, we now have dedicated loyalty schemes in every banner. In Castorama, France, we have in just a few months rolled out our trade offering across the entire state. At Brico Depot, our trade penetration is now over 12%. an increase of 260 basis points in the half. We have created a trade desk in every Brico Depot stores with 131 dedicated trade colleagues. And in Poland, our trade penetration is over 25%, a circa 10 percentage points increase in each one. And we have large Casto Pro zones already in 14 stores. I'm turning now to the broader digital ecosystem we are building and it starts with a strong first-party e-commerce proposition with our stores at the center. We have strategically decided since 2020 to leverage our assets and to rely on our stores rather than on large fulfillment centers as our primary option to prepare online orders. This enables us to offer unbeatable fulfillment times for Click and Collect as for stores to home. And in parallel, Click and Collect generates more traffic to our stores. We have developed a digital hub store model, which ensures excellent availability of product to e-commerce orders, and we keep investing in agile technology to improve our online conversion. All this in turn drives increased traffic, which supports our third-party marketplace offering. So on Marketplace, we are offering a large choice with several millions of SKU. We can confirm that this large choice in turn generates more traffic to our website, all of which fuels additional WNP sales. Our stores play an important role for Marketplace too. Our stores accept Marketplace returns and B&Q is now offering Marketplace in-store click and collect, driving increased footfall in-store. Moving to our loyalty programs, they provide us with comprehensive customer data and enable us to deliver personalized offerings and targeted promotions. The market is increasingly shifting towards mobile-first and app-based engagements. This allows us to get access to data to improve and personalize customer interaction. And this leads us to monetization. Because we have traffic and comprehensive data, we can sell retail media. So to summarize, our digital ecosystem drives a virtuous cycle of value, leveraging our store assets and powered by Kingfisher technology. This supports growth, but also value across our business. Our 1P e-commerce, which stores at the center, is profitable. And this profitability is enhanced by our marketplace, our retail media, and the monetization of our data. Moving to slide 21, which sets out some statistics around our digital ecosystem, we leverage our stores for speed and convenience, with 93% of 1P orders picked in stores and 88% delivered through click and collect. This enables click and collect in as little as 15 minutes at B&Q, one minute at Screwfix, and 20 minutes side delivery with Screwfix print. Our Group Marketplace GMV is up 62%, and B&Q Marketplace makes a retail operating profit of around £7 million in the half. 50% of Marketplace customers are new to our website, with around 15% subsequently buying a 1P product. So we continue to grow this platform and have started onboarding cross-border vendors across the group to provide even more choice for our customers. We have signed up 11% more loyalty members since July last year and are seeing significant increases in app-driven revenue and sales from AI and data-driven recommendations. We are rapidly scaling our retail media We have also created a vendor platform, CoreIQ, to monetize our data. So as you can see, we are really excited about the potential we have here as it uses our assets and will generate long-term growth and value creation. So moving to Scufix France, where we see strong like-for-like growth in stores, we are happy with the progress with 52% store-like-for-like growth in H1, and 74,000 unique customers, a 30% increase year-on-year. We believe the key to its long-term success is leveraging all the things that makes CoFix great in the UK, the best prices, unrivaled fulfillment, and a wide selection of products. We are seeing good momentum across all KPIs with stronger customer retention, growing national brand awareness, and over 17,000 signups to the trade loyalty. We can see evidence of this continuous concept improvement with our second cohort of stores growing at a faster pace in year one than the first cohort. All this is in line with our expectations and makes us confident about the future of Scofix in France. Moving now to the competitive advantage that we generate from our own exclusive brands, our own product development provides simple and innovative solutions to our customers at affordable prices. While cheaper for customers, our scale and sourcing of OEB products enables us to make higher growth margins than the branded equivalent. This affordable innovation has driven a large part of big ticket categories growth and the good order book Bhavesh and I mentioned earlier. Slide 25 provides an illustration of these new ranges. Our Ashmead new kitchen range delivers standout style at entry-level pricing, while our Pragma lowest priced kitchen range retails for less than €200 and is 15% cheaper than branded alternatives. We are all very proud of the strong work that our teams have done in this area across the group. Now to an update on our plan for France. In March 2024, we announced a strong plan to take France to the next level, simplifying the organization and significantly improving the performance and profitability of Castorama. And we have made excellent progress in our plans since this announcement, but this is against a weaker market backdrop than expected. with continued low consumer confidence and record household savings rates in a political environment that remains very uncertain. Against this backdrop, we have focused our energy on delivering against our plans, gaining market share and managing effectively our gross margin and cost. In H1 specifically, we grew our market share in France and improved our retail operating profit margin by 20 basis points to 3.5%. While we are pleased with the delivery of our plan, since the announcement in March 2024 of our medium-term target of circa 5-7%, the French home improvement market declined by over 7% in 2024 and by a further 3% in the first half of 2025. We remain confident in delivering this target of circa 5-7%, with the timing and trajectory of reaching this target dependent on the pace of the market recovery. Despite current headwinds, we remain optimistic on the outlook for the market in the medium term. Our new management teams at both banners are working at a high level, and with fast pace to make us more competitive and more efficient. I'm very proud of what is delivered by the teams. As you can see, we are growing sales entities across both banners. We are seeing an improved customer NPS, and this is supported by our trade and e-commerce initiatives. Looking forward, we are focused on strategic range reviews at Castorama and the launch of a new e-commerce platform at BricoDepot. We also continue to deliver strong productivity and operating efficiencies. At Castorama, we are on track to remove 12% of head office roles. Across France, work is ongoing to reduce a further 14% in logistics space by year-end. The restructuring and modernization of approximately one-third of Castorama's store network is well underway. We addressed 13 stores last year, which have delivered encouraging results with right-sized formats and comprehensive refits, all delivering sales densities ahead of the Castorama average. We also successfully transferred one store to Breco Depot and converted two stores to franchise model for the first time in June. By year-end, a total of 24 stores will have been addressed, including the 11 currently in progress. And we'll provide a further update on this at year-end. So to summarize, we operate in large and attractive markets with our leading banners. We have had a strong first half and we are delivering on our financial priorities. We have grown sales ahead or in line of our markets. Our performance is underpinned by our strategic growth initiatives. We are driving profitable growth and high free cash flow generation. And we are confident to raise our full year targets and to accelerate our share buyback program. Kingfisher is in its best operational shape for years. While we continue to navigate a challenging environment, characterized by consumer caution and political uncertainty, We remain focused on executing our strategy growth priorities, maintaining discipline on margin and cost, and driving shoulder returns. We look to H2 and beyond with confidence in our plans. Over to you Richard, and thank you everyone.

We will now begin the Q&A session. If you wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. If you've dialled in, please select star 9 to raise your hand and star 6 to unmute. I would like to remind all participants that this call is being recorded. We'll take our first question from Kate Culver from Investec. Please unmute your line and go ahead.

Morning, everyone. First question is on your gross margin performance in the first half, which was a very good performance. It's not often I think we see 100 basis points improvement. You did talk about sort of three main buckets driving this. I was wondering if you could give us a feel for how that 100 basis points improvement is split between the buckets of sort of sourcing mix and better sort of markdown performance. And then I think basically should we expect these gross margin drivers to continue into FY27? I suppose I'm sort of trying to understand is this a sustainable step change and is there more to go after in some of those buckets? And then my second question is on costs that you highlighted, the headwinds of marketing and tech in the second half. Should we expect these to continue into FY27 as well? And where are your marketing costs at the moment as a percentage of sales versus the historic sort of norm? Thanks very much.

Good morning, Kate. Thank you for your question, Terry speaking. So we'll let Bhavesh answer your first question on gross margin and cost.

Okay, thanks for your question. So, yeah, pleased with our gross margin performance in the half. A range of different drivers of that. Majority is our buying, so better buying and negotiation, both on our OEB and our branded. That accounted for about 60 basis points. Marketplace is margin accretive. You heard Terry talk about what we're doing with marketplace, most advanced in B&Q, but early days with our other markets. Better mix helps. So B&Q's outperformance and the fact that Romania we disposed of. So that's a contributor. Some headwinds against that, we had packaging tax in the UK. So it gives you a flavor for some of the drivers behind the margin. I guess stock losses, right? Because we had better stock turn, better trading, and therefore lower stock losses. So that gives you a bit of color on gross margin. In terms of costs, in terms of, you know, we continue with some of our structural actions. I talked about that in the prepared remarks. Regears, indirect procurement, store and head office efficiencies all continuing to contribute to managing our cost base. Very important given the $145 million in headwoods that we signaled, you know, inflation, national insurance, packaging taxes, et cetera. And, you know, in terms of second half, weighting of marketing and tech, that really is, again, linked to some of what we talked about today. It's in tech, it's further investment in our marketplace, you know, early days. We just launched in Poland in January, early days in France as well. So we continue to invest in Marketplace, scaling our data tools. We now offer cross-border vendors ability to trade on Marketplace. The personalization, hello, B&Q is now launched. We have a little cast out, so that's sort of an AI-generated chat box. But we also have higher national interest rates. We have six months in second half. We have three months in the first half. You know, ARAS is typically going around April. So you get a full six-month stop in the second half. So that gives you a bit of color in terms of some of the drivers of our costs waiting in the second half and investment in the second half.

I suppose by specifically asking more about marketing, because obviously that's one of the things that often gets cut when the market gets tougher. So I guess when the market recovers, should we expect marketing percentage of sales to go up? And then I suppose the other thing is you have called out tech specifically. You know, it's a general thing in the industry overall that tech costs are going up as a percentage of sales in retail. So, you know, is that something that we should expect to continue into next financial year or is that sort of a one step change in tech?

Yeah, maybe Kate is speaking. I start with marketing. I think the H1, H2 dynamic is probably more tactical. You know, I don't think you can go a lot from there. We had a relatively Calmer H1 because of weather and therefore for some categories we do not have to advertise more. On the other side, Scufix Peak in H2 with Big Black Friday. So we are usually investing a bit more in H2 in those categories. Maybe you have seen we have had a very good price cut campaign at VNQ just a few days ago. So there is on marketing not really much to draw from H1, H2 dynamic. I think on tech, I think for every, I would say, retailer, tech is becoming a very important component of the Capex First dynamic and P&L. We planned for a long time a bit more H2-weighted investment in tech. Business related, you know, I can give you a few examples. On marketplace, we are accelerating our cross-border vendors. That requires a specific tax engine to manage that properly. We are improving our buy box. Happy to comment further if you want. As well on data and AI, we have more plans to roll out our markdown software to more banners. And as well on our core IT, since we are relying still a lot on Oracle ATG, we are decomposing Oracle ATG to move to a more agile IT. And in our plan was a bit more H2O ATG.

Just on your marketing question, Kate, historically our marketing costs have been about 2% of sales. It's a touch higher this year, but to give you a sense of scale.

Perfect. Okay, thanks very much. Appreciate it.

Our next question comes from Richard Chamberlain with RBC. Please go ahead.

Yeah, thank you. Morning. Good morning, Richard. Morning, Siri. Morning, Bhavish. So a couple of questions for me, please. I think in the statement you talk about improved returns on promo activity through the use of AI solutions. I wonder if you can give a bit more colour on what you're doing there. And then second on the group-wide trade penetration, I think you say it's 28%. Where is it now for the UK, and is there still upside in the UK, do you think, in terms of trade penetration going forward? Thank you.

Thank you, Richard. On your first question, the fact that the Bayes algorithm is all around elasticity versus price and volume. uh and then the same algorithm that somehow run for markdown and promo and we are extending that to crisis in the coming coming months at vaq so this is basically calculating at sku level and store level elasticity pattern and therefore this algorithm will will give you daily recommendation for price per store and at the same time is able to simulate a lot around what if i do a three four two or four four three or minus 15 on days and they give you immediately the component of what does it mean for sales what are the halo effect on other products so that's very powerful tool we we are rolled out this tool in bnq and this year at casto And the plan is to roll out that across the group. On process, I should give you the precise figures, but I think we still have a lot to do on TrackPoint. I think obviously ScrewFix, we have relatively stable track penetration, and ScrewFix is basically in first place a track business. But trade point, you know, we have the plan to reach 1 billion pounds. We are improving the trade penetration, and there's more to go, but I don't know where to balance.

Yeah, so, hi, Richard.

B&Q's trade penetration is 22.4%, so that was up a little bit last year. And as Thierry said, Screwfix isn't very much trade-focused business. Their trade penetration is 74%. Got it.

Okay, great. Thank you very much.

Our next question comes from Grace Gilbert with Jefferies. Please go ahead.

Good morning, Grace.

Hi, you guys. Hi. Thanks for taking my questions. I just have two for me. In reference to the very strong H1 profit beat, can we talk a little bit more about the mechanics of what went into that, specifically around how much this was potentially more big-ticket driven? That's my first question. The second, and it kind of goes off of the first, is that the new guidance for the full year implies that Second half will probably be a bit worse than previously expected. Is there anything that you're seeing now that should make H2 look a little bit worse, or just any other color around that would be very helpful? Thank you.

Thank you, Grace. Viviane, I start by the profit bridge and the profit beat, and Mamesh will answer. Give additional comments. I think, first of all, in retail, it always starts from sales. So we are very pleased with the H1 sales dynamic because it's not coming from price. The price is broadly flat in H1. In fact, it's minus 0.1. So all the growth is coming from volume, sold, and a bit of price. fixed because we have sold more big tickets as well as small positive mixed impact. We have gained market share. We are seeing healthy dynamic on core and big tickets. Another example is the positive order book end of July with a double digit order book. And that's driven by our strategic initiative. You know our range reviews on for example on kitchen and bathroom. You have seen the trade the trade and e-commerce sales progression. So I think healthy H1 on sales, then I endeavor to manage on margin and cost for H1.

So, yeah, look, just reiterate what Thierry said, very pleased with what we've delivered in the first half. Beyond seasonal, we look at underlying core, big tech, trade, e-commerce, all moving in the right direction. I remind you we're an H1-weighted business. Our peak is in the first six months. And that was more amplified this year by the strong seasonal performance that we had that we talked about in Q1. And when we look at the second half, we've got six months of national insurance. We didn't have that in Q1. We've got six months of pay rise. We didn't have that in H1. And then the H2-weighted marketing and tech. Some of the examples I gave earlier in a case question um so that sort of explains the h1 h2 dynamic and then you're really just taking a balanced view when we set the full year guidance you know we saw a resilient consumer in h1 in the uk a bit more subdued in france and poland and uh you know as you saw in our market outlook we just stayed mindful of the consumer across our markets in h2

Thank you. Thank you. No, I appreciate that. And actually, if I could just ask one more. This is kind of going off of Kate's question around gross margin improvement. And if I heard it correctly, you're saying that 60 BIPs of that 100 BIPs improvement is around better buying on own brand and also branded items. Is that expected to continue going into the full year? I would imagine that that's something that's more structural than particularly a one-off.

I think yes, starting from raw material prices and we continue to see good price decrease on raw material prices in H2 and probably the early part of 26. We have a positive FX component in the tailwind and that's largely H so that such remain with us and the key then strategic initiative marketplace we mentioned. We have the positive contribution, for example, on clearance and losses from our new software and markdown promo software I mentioned. On the other side, growing trade is a negative because on gross margin specifically, trade gross margin has a lower gross margin while the retail profit is very good.

Great. Thank you. Thank you. Much appreciated.

You're welcome.

You're welcome.

Our next question comes from Amigala from Citi. Please go ahead.

Yeah, thank you. A couple of questions from me. The first one was on the competitive intensity across your market. Can you give us some color as to how has that shaped up in the first half, particularly in France? The second one was just on Screwfix France and the growth that you've seen across that banner. You know, is there a revision to your network expansion plan, i.e., are we going to see an acceleration in the sort of new store openings in that banner? And the last one is on the franchise option in France. You know, how is that route exploring more franchises down the line? How is that kind of coming through to an extent?

Thank you, Ami, for your question. First, competitive intensity. The first thing I would say across the board is we have seen rational behavior from competitors on prices. You know, price index should always be top of our mind. I'm very happy with price index. An example is Brico Depot in France. We have improved our price position in the past six months. I'm very, very pleased with that. And we are constantly adjusting. You know, we have, if you look at the media, we are communicating on price categories on specific categories a few days ago. Then on promo, I think UK relatively standard promo plan in H1. even probably because of the season was very strong so we were relatively at a lower level on clearance uh france a very very dynamic promo market in h1 and we were i think uh coming back very very carefully on our banners uh and bernard as well we have seen a relatively uh dynamic uh promo environment in h1 so very very rational on price but more competitive on promo in france and balance uh school fix friends yes 52 percent like for like store like for like we are very happy with that that's in line with our expectation so we at the same time we should stay calm you know it's good but we need to deliver this kind of like for like we can get set the plan um All the KPIs are good, but really I stay with what I said in March 24 and March 25. We need a bit of time to have a certain number of stores reaching year three and year four to make sure the sales entities of the store are in the right place and therefore all the plans, you know, the breakeven and the profit per store is in line with our expectations. Happy with what's going on, but I don't want to accelerate too much expansion before I'm pretty sure we have enough stores reaching what they need to do in profit and sales in year four. Franchise, we are as well very excited with franchise. I think it's a very strategic move for France. for the first time with our first two franchise stores for Casto. Don't underestimate the amount of job you need to do to start one store, you know, it's from legal, contract, how we share the margin, you know, how do you deliver product with your logistics, how you create an IT link, and all this is a massive job done by the team. So, more to come on Franchise Forecast Store and I can tell you as well that we are planning to open our first BricoDepot France store in 2026 through a franchise model. That would be a conversion from a Monsieur BricoLash store that will become a BricoDepot store in 2026.

Just on Screwfix France, I'm just saying each of these cohorts are in a sort of different state of life. Some, you know, very recently opened, others, you know, around two years open. And so, on a brand that's new to the durable metrics like repeat customers, like brand awareness, like trade penetration. That's what we're looking at measuring to ensure that the foundations are really strong to then move forward on further screw-fix expansion in France.

Thank you.

Our next question comes from Yashraj Rajani from UBS. Please go ahead and ask your question.

Good morning.

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Good morning.

Yes. Hi, good morning. So three only questions from me, please. The first one is on click and collect in B and Q, given that's a newer initiative, can you give us some color on how the unit economics are looking in that business, how that's affecting frequency and do we expect that to be a bigger margin driver in the second half than it was potentially in the first half? So that's the first question. The second question is on business rates. So can you give us any indication of what we need to keep in mind there for the second half and potentially next year as well? And the third question is on shareholder returns. So appreciate, you know, we have some one-offs in free cash flow this year, but maybe beyond that, should we expect that the $300 million buyback is something that we should expect every 12 months, or do you think there's other opportunities like potentially exploring some freehold as well? Thank you.

Thank you, Yash, for your question. Maybe I start with the first one, and Bhavesh will answer the question. First of all, using stores for our 1P operation is, since 2020, really our core strategy. We are, and you have seen the statistics, we are largely, you know, over 90% of our orders are prepared in stores, and 88% deliveries we can collect. So one, it's a very profitable strategy. ways to manage e-commerce that's why our one peer position is profitable and and secondly it's great traffic to the to the store so when the customer come for a click and collect order we know that there is a good proportion of those customers that will enter the store and buy additional products we have always tried to link our marketplace operation to the stores So from the beginning of being through marketplace returns, where alone in every stock, we can order online and marketplace products, and you can return the product on, on any stores. And recently we have started click and collect option for marketplace vendor. That we are the first one to do that in the UK and that's driving, uh, profitable and additional footfall to the store. So a bit too early to give you, detailed data because it's just a few weeks but the early data show a good traffic inflow footfall to the store for from the the people that come in to collect their marketplace product so i think on business right now i'm over to malaysia and as well on retails yeah i mean hang on your question we had some rebates last year in bmq that's not repeating and we're very clear and sort of calling that out going forward we don't see any

you know, material sort of rebates or anything coming through. You know, the broader challenge, as you've heard from other retailers, is just the impact of business rates on brick and mortar retailers relative to what you see with some of the pure play online. And that's something that we continue to lobby in that challenge alongside our retail peers for a bit more of a level playing field. On shareholder returns, We have a good track record of delivering share buybacks after we invested our business, after we pay our dividend. This year specifically, the reason we've accelerated is back to the two one-offs that I talked about with prepared remarks. Our historical track record of buying back is around 18 months. So I wouldn't read anything into this year's acceleration. Simply, we had two one-offs. We've invested at the right level in our business. We felt business access, cash in, could make sense to accelerate the buyback only this year.

Good. Super clear.

Thanks so much. Thank you. We'll take our next question from Adam Cochrane from Deutsche Bank. Please go ahead.

Good morning, Adam. Good morning, guys. A couple of questions from me. Firstly, on the free cash flow guidance being increased, but the sort of top end of the profit before tax number not being increased, can you just highlight what the incremental 40 million or so that you're generating on free cash flow above and beyond the increase in profit and where that comes from? And secondly, on the second half PBT decline, I understand the points you're making about on the cost side. But would you say that you're feeling more or less confident about the outlook in the second half PBT versus the first half from where you were before. When you see the, I think on some of the slide decks, you've got some sort of macro indicators. Are you feeling slightly cautious about what we see in France or what we might see in the UK? Just a little bit of how you're feeling about the wider consumer, given some of the surveys and things that you guys do. And then the third question is, on the big ticket, I think I'm right. It sounds like your lower price point ranges have proven to be really successful. So from a volume perspective, would you say that your big ticket growth looks even more impressive than the value numbers that you presented? Thanks.

Thank you, Adam. Let me start maybe with exactly reverse order, so 3, 2, and 5. So I think in big ticket, in short, the answer is yes, we are selling more lower price, let's say lower tier kitchen across the group. So therefore, when you look at volume, yes, it's better than the sales you are looking at. maybe let's say spend one or two minutes on our view of the customer by region, you know, and we do that methodically by country. So I think UK, it's fair to say H1, we have seen a resilient consumer, and you see that through multiple, you know, quality indicators, transaction, volume, warehouse, positive order book for BigTipset, you know, core and KBS categories. And when you look at the consumer sentiment, we are slightly, seeing a slightly improved consumer sentiment slowly rising in H1 to now, according to TFK. Now we are, like you, mindful of signs of softness in the labour market, the uncertainty of the budget ahead of us, and we are seeing as well food inflation relatively high. So it's something we are looking, we are watching, that H1, the consumer in the UK, has been resilient. So therefore, we believe the middle of the scenario as a target for the full year is very relevant for the UK. France, different story. You know, we have seen H1, a subdued consumer, mainly driven by political uncertainty and the constant discussion around reforms, what should be the right reforms. And the consequence of that is super high savings rates in France. We are about 400 or 500 basis points above historical average. So it's not as if the macro was a catastrophe or people had no money. In fact, people have money, but they save. They are not optimistic about the future. Consumer sentiment in France stayed very low and is decreasing. you know, INSEE is a good indicator, so moving from 92 in January to 88 in July, so not great. While we are seeing better macro indicators, you know, interest rates is low, the mortgage The year-on-year is up. The housing transactions are slightly up. So it's not around macro. It's all around political uncertainty. And we, so far, are relatively cautious about France in H2. We believe the consumer sentiment will remain subdued. The political environment is not improving. So we are cautious about France in H2. And therefore, the scenario, we believe, will be between the middle... part of our range and the lowest end of the range for France. Poland, H1 was a difficult H1, probably slightly worse than expected due to geopolitical factor in Q1, you know, with the discussion around the war in Ukraine. political election at the end of Q1, relatively high inflation, relatively high interest rates, and somehow consumer sentiment was low. But contrary to France, we are seeing some sign of, I would say, slow recovery. Inflation now down to 3.1% in July. The real wage growth is really supportive. We have seen three interest cuts from the Central Bank of Poland and overall an improvement in the consumer sentiment. So the macro are already supportive. So I would rather go for a slow improvement of the consumer sentiment in Poland in the coming months, and therefore we are comfortable with the middle of our scenario. So a bit a bit longer, I think it's important everyone hear that.

And then on the first question Adam on the free cash shape. So, you know, as I alluded to earlier, our peak is in H1, so our profits H1 weighted. Our free cash is even more H1 weighted, and that's just the dynamic of working capital. We're selling through our stock in the first half. We tend to buy it in the second half. We also have a little bit more capex weighted in H2. That's our screw-fix store openings, old city and regular screw-fix. We've got more tech and maintenance capex. And then just some technicalities around the timing of Chinese New Year and Easter of next year means there's more stock being ordered in the second half of this year. And again, that's just making sure we have it in and ready for peak trading when we hit the first half of the next financial year.

So if we think about a walkthrough from where your free cash flow guidance was at the upper end at the beginning of the year and where it is now, so your profit expectations haven't changed at the upper end, but your cash flow has. I understand the timing between 1H and 2H, but the absolute quantum of the 40 million, year over year. The timing of Chinese New Year, as an example, I'm assuming you would have known that at the beginning of the year. So what's changed in terms of the upper end of the free cash flow? Is it that you've got lower inventory? What's the exact driver of higher free cash flow for the full year?

Profit. We had a tax rebound. So, you know, historical sort of true ups and prepayments and tax. So those are the same. And we also took inventory days down. We took another six days down. So better management of our stock.

Okay. That's great. Thanks.

Next question comes from Ms. Strauss with BNP Power Vitexing. Please go ahead and ask your question.

Hi, good morning. Maybe just two questions. On Castorama France, you talked about the progress you've made on some of the store restructurings and the production in DC space. But maybe if you can give a bit more colour what that actually translates to in terms of pounds. And then secondly, on big ticket, as you said, we've seen three quarters of sequential growth. Is this kind of considered the new normal, or are we going to start, you know, laxing tougher comps as we go into next year?

So I think maybe on Casteau France, you have in the presentation really an update of the plan and We are really happy with the progress being on sales, on really productivity and on the structuring of the store network. Some of those actions will deliver results relatively in short term. When you speak about costs, you have short term impact, including logistics, you know, head office, continuous really work we are doing on efficiency. So that deliver relatively fast P&L impact. store network you need a bit more time you know when you do a right sizing you need to do the job in the store you need to bring the partner in the backend space and you need the maturation of the store so i think clearly the network we need much more time to crystallize the profit than on short-term cost actions. Another example, when you speak about e-commerce and pro, as well, it's a long-term, several years program, and we are very optimistic on it. On Big Ticket, I think in short, probably two-thirds of the growth is our self-help, one-third is the market. uh so when i look at h2 and 26 i think the momentum we should see the momentum from self-help or for a few more months it's a combination of range but as well the job by the team i give you an interesting data the installation where i'm 36 percent in h1 and the kitchen and bathroom installation so it's doing a good job done by the team around training, incentives, focus on selling more kitchen and bathroom installations. So we have really a strong plan on kitchen and bathroom. So two-thirds our action, one-third the market.

Thank you, that's super helpful.

You're welcome.

Our next question comes from Georgina Johannon from JP Morgan. Please go ahead and ask.

The second one, thanks for all the colour on gross margin. I just wanted to help us with modelling as we go into next year. Obviously, seasonal was so strong in the UK in Q1. If you could just give a sense in basis points of how much that supported the H1 gross margin in the UK in particular, please. And then finally, just on Poland, I think some of us are more removed from that market, if you like, than the UK and France. And I just wondered if there was anything happening that would be useful to be aware of in terms of the competitive or structural environment there. So not necessarily related to promo around the cyclical, but just whether there is any new competitors developing or competitors falling away, as the case may be. I know Action is rolling out strongly there, for example. So just anything you could share would be really helpful. Thank you.

Yes, for sure. Thank you for the question. I'll start with the first one. I think about half of BNQs are, in a way, impacted by home-based closures. And we have... tactical marketing action, you know, locally. So we did a piece of job to make sure we can reach the customer around the home-based stores and attract them to B&Q. And we make sure we have enough stock in the store to make sure as well the sales transference was optimized in H1. uh so it's it's part of the sales of bnq in h1 obviously but there are many other levers and we discuss big projects uh marketplace growth uh the pro etc so and i know this is part of that along with a good good weather in h1 uh we have bought eight stores from homebase at five in the uk three different of ireland again very happy with the the pace of the team because we converted them in the record few weeks so we were so already ready between april and early may just before week i'm very happy with the sets of those eight stores so far really really good good start and maybe on poland i will speak around gross margin and seasonal Competitive, dynamic, we are clear number one. But there is a fight with Leroy Merlin. You know, Leroy Merlin is as well competing in this market. We see, as I mentioned, rational behavior on prices, relatively dynamic promo. And I think both us and Leroy Merlin, we keep opening stores. If you look the past three years, we opened 11 stores between 23, 24 and H1, 25 stores. So significantly more stores than Leroy Merlin, but Leroy Merlin keeps opening stores on this side. I think big market, big player in Poland is Allegro. I think if you tell me the past five years, who is the number one competitor is probably Allegro. So we are really working hard on our e-commerce proposition, our marketplace in Poland since early this year. a lot going on on loyalty program data apps in poland to compete with allegro and you know like in other countries yes allegro is a fantastic marketplace but for diy and we see that in the uk we could become the reference marketplace in diy in poland And then new discounters, you mentioned Action, I think we are internally working very hard on how we react with discounters the past few years, through our lowest price, through dedicated OEB. As with Lidl, Lidl is doing a good job on some categories, so that's something we are addressing very, very carefully, and I think we have a very good plan to compete with needle and action in balance and across the globe. Now on seasonal and gross margin.

Hi Georgie, so our seasonal like for likes and a half or plus 5.1 percent these are rough rough numbers but if you assume seasonal and more normal seasonal would be sort of one to two percent like for likes When you take our gross margin of around 35%, it's a little bit lower in seasonal than other categories. You know, Terry talked about big ticket being sort of margin accretive. Relative to the other categories, then I'd roughly say around $15 million of our profit uplift was a function of the seasonal performance or margin uplift.

That's all been super helpful. Thank you so much.

As a reminder, if you would like to ask a question, please use the raise hand function at the bottom of your screen. We'll pause a moment to allow for further questions to join the queue. There are no further questions on the webinar. I'll now hand over to Thierry for closing remarks.

And thank you, everyone, for joining. And thank you for all your questions and comments. And you see myself with the team. We are at your disposal if you want to discuss further or ask more questions. And happy to meet you and talk to you very soon. Thank you, everyone.