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.