Preliminary results 2003/04 Slides will be available at www.kingfisher.com
Sir Francis Mackay Chairman
2003 a landmark year Kesa Electricals demerger completed Non-core disposals completed Home Improvement momentum continued Castorama acquisition objectives achieved Return on Invested Capital improved New management
Gerry Murphy Chief Executive Officer
Financial overview Continuing Operations % Change (Reported) % Change (Constant) LFL % Retail Sales 7038.2m 14.8% +11.4% 5.1% Retail profit 638.2m 22.7% 19.5% PBT* 590.7m 15.0% Adjusted EPS 17.8p 32.8% Dividend per Share 9.65p n/a ROIC** 8.7% +110 bps *Before goodwill amortisation and exceptional items ** Excluding above average revaluation gain
Growing sales and profit... Sales growth %* Retail profit growth %* 41% +10.3% 39% +12.4% +13.0% 59% +32.8% 61% UK Non-UK *Constant currency, before goodwill amortisation and exceptional items
UK - highlights 13 new stores; 7% new space Mini-warehouse a success New showroom ranges popular Strong trade growth at Screwfix Direct
France - highlights Strong new management team at Castorama Integration benefits boosted bottom line Castorama LFL sales growth ahead of market in H2 Three new format Castorama stores opened & successful Trade and consumer driven double digit growth at Brico Depot Four new Brico Depot store openings
Rest of world - highlights 18 new stores, 50% new space Profits ahead in all countries Exceptional Poland performance First profit in China Entry into Spain (Brico Stock)
Supply base - highlights CPR/SSM now in 7 countries 5 cross group purchasing teams Sourcing in China, India, S. Africa, Italy & Poland Investment in new IT and processes Cost transparency across Europe by April 2004
Duncan Tatton-Brown Chief Financial Officer
Growing sales up 11%* Group Turnover (Continuing), m 190 +10% 383 +10% 202 +29% +11% 133 (45) 7,051 6,188 6,378 2002/3 Currency Benefit 2002/3 @ 2003/4 rates UK France Rest of World Property 2003/4 *constant currency
Growing market share in UK and France B&Q Total Growth 9.8% LFL Growth 3.9% Screwfix Direct 19.6% 19.6% Group UK 10.3% 4.7% UK Market 4.0% 2.3% Castorama 2.7% 1.6% Brico Depot 25.7% 12.1% Group France French Market (*) 5.4% 9.5% 2.2% 4.7% Estimated RMI Market Growth and LFL growth (UK) Unibal (Jan Dec 2003)/ Banque de France
Growing Retail Profit - up 20%*... Retail Profit (Continuing), m +12% +26% 38 +60% +20% 23 14 43 638 520 534 2002/3 Currency Benefit 2002/3 @ 2003/4 rates UK France Rest of World 2003/4 *constant currency
Growing margins in all businesses... Retail Profit as % Sales 14.5 11.1 9.2 9.5 9.6 8.7 9.9 8.2 6.9 6.9 7.6 7.4 7.8 8.5 9.1 0.3 B&Q Screwfix Direct Castorama -1.6 Brico Depot Poland Italy China Continuing 2003/4 2002/3 2003/4* * Adjusted for Screwfix Direct infrastructure investment
Castorama Integration Benefits ahead of schedule m CPR Head Office Savings Other Total Benefits 2003/4 32 6 7 45 2003/4 Target 22 6 7 35
Underlying interest cost down Interest Charge, m Reported Interest 2002/3 12 Rights Issue Proceeds 15 Buyout funding annualised 35 Current Year Property Disposals (25) Proform a 2002/3 37 Reported 2003/4 34
Growing Profit Before Tax - up 15%... PBT pre Exceptional items and Goodwill, m % YOY growth +20% 104 (27) 7 (21) +15% 14 591 514 2002/3 Exchange Benefit Retail Profit Property Other Costs Interest 2003/4
Growing Earnings and EPS Continuing Business ( m) 2002/3 2003/4 % Change PBT 514 591 +15% Tax Charge Rate* (164) 31.8% (186) 31.5% (14)% Pre Exceptional items, Exceptional Tax and Goodwill *Including the effects of tax adjustments in respect of prior periods; excluding these the effective tax rate is 31.6% (32% 2002/3)
Growing Earnings and EPS Continuing Business ( m) 2002/3 2003/4 % Change PBT 514 591 +15% Tax Charge Rate* (164) 31.8% (186) 31.5% (14)% Minority Interest (100) - Earnings 250 405 +62% Pre Exceptional items, Exceptional Tax and Goodwill *Including the effects of tax adjustments in respect of prior periods; excluding these the effective tax rate is 31.6% (32% 2002/3)
Growing Earnings and EPS Continuing Business ( m) 2002/3 2003/4 % Change PBT 514 591 +15% Tax Charge Rate* (164) 31.8% (186) 31.5% (14)% Minority Interest (100) - Earnings 250 405 +62% EPS (pence per share) # Shares (millions) 13.4 1,857 17.8 2,277 +33% +23% Pre Exceptional items, Exceptional Tax and Goodwill *Including the effects of tax adjustments in respect of prior periods; excluding these the effective tax rate is 31.6% (32% 2002/3)
Dividend per share Dividend of 9.65p per share Before dividends declared by Kesa Dividend cover 1.84 times
Property values up 15% to 2.2bn... Full UK & European valuation Internationally accredited valuers 27% 39% International UK France 34% Property value by location as at 31 January 2004
Pension deficit unchanged Movement in Deficit Start of Year (Deficit net of deferred tax) Asset increase Increase in liabilities Current year cost, less contributions End of Year* (Deficit net of deferred tax) m (188) 85 (81) (5) (189) * Includes Kesa element of 32m
Reduction in underlying debt Group Cashflow, m Net debt at start of period (1,926) Debt demerged 423 Property Portfolio Disposals 819 Disposals and purchase of subsidiaries 93 Non-operating operating exceptionals (250) Net debt after restructuring activity (841) Net cash from operating activities 777 Gross Capex (389) Tax paid (188) Interest, dividends & other (156) Down 44m Closing net debt before translation (797) Translation impact (47) (844)
Investing for future growth... Gross Capex, Continuing 23% 2003/4 361m 18% 2004/5 500m-600m 9% 39% 13% 43% 29% Property New Stores - Retail 26% Revamps & other store investment Infrastructure
Underlying ROIC up 1.1pp 11.3% 7.5% (0.1)% 7.6% 2.6% 8.7% +2.7pp WACC +1.1pp 2002/3* 2003/4 Underlying Revaluation impact * Restated to exclude exiting businesses
Underlying ROIC pre goodwill up 1.6pp 7.6% 10.9% 8.7% 12.5% 2002/3* 2003/4 Post goodwill * Restated to exclude exiting businesses Pre goodwill
Summary Strong results driven by retail profit growth Strong Balance Sheet Capital Investment increase for future growth Focus on returns paying off
Gerry Murphy Chief Executive Officer
Group priorities growth and returns Growth and returns Asset productivity LFL & new stores Margins...supply base development Exploit unique diversity... sharing best practice Align incentives new scheme Consistent growth in real economic returns
Driving LFL at B&Q - range development Stretch core markets Enter new markets Create new markets Stretch Enter Create
Driving LFL at B&Q - services Multi-channel B&Q Direct on-line sales doubled; now profitable Special Order 3% sales in 2003/4 from 14,000 items currently to over 20,000 by end 2004 Installation services Installation revenue 55m; 27% growth Installed 34k kitchens and bathrooms
Driving LFL at B&Q - mini-warehouse conversion programme Experience to date: FROM.. Around 15% LFL Gross margin uplift 1m capital cost per store 0.4m profit hit per store in 2004 0.5% Contribution to LFL Payback 4-5 years.to 25 planned conversions in 2004
Driving LFL at Castorama France - building on strengths Strong Garden, Building, Hardware New Decor and Showroom ranges Consistent merchandising IT supported planogram rollout
Driving LFL at Castorama France re-emphasising emphasising value Entry price products introduced Launching prix jamais vus Consistent, clear price message
Driving LFL at Castorama France re-emphasising emphasising value, driving sales New price Price Reduction Volume Increase Wooden decking 5,50 (26%) +156% Satellite dishes 45 (21%) +161% Extension reel 15,09 (48%) 20 x Concrete mixer 136 (26%) 40 x
Store development B&Q 2004 11 new warehouses 9 new mini-warehouses Net space up >7% All stores have planning consent Nearly 70% of 2005 stores have planning consent
Store development - Castorama France Store renewal 2004 3 relocations 7 conversions 48m capital cost 13% of space renewed by end 2004
Store development - Brico Depot... Successful business model Strong economic returns Hard discount, trade/heavy DIY focus Faster expansion in 2004 100 stores target in France Total store numbers 66 59 55 2002 2003 2004
Store development - international growth Three proven formats Big-box UK & Ireland (warehouse), France, Poland China (core cities) Medium-box UK & Ireland (mini-warehouse), Italy, Poland China (smaller cities), Taiwan & Korea Small box France, Spain (Brico Depot/Stock) Expansion in existing markets and New markets under review
Store development international growth Poland Italy China Taiwan Turkey Spain Korea TOTAL Current store numbers 19 18 15 17 5 1-75 Plan end 04 26 22 23 20 5 5 1 102
Supply base CPR to SSM Detailed medium-term agreements with key suppliers representing 20% of spend Direct sourcing 30% increase planned in US$ shipments Opening of Indonesia office Key categories Refine cross-group processes Supporting IT Programme of product tenders planned
Leveraging supply side - 1bn potential cash savings before reinvestment Potential cumulative cash benefits 400 300 m 200 100 0 2003/4 2004/5 2005/6 2006/7 2007/8
Leveraging supply side - reinvesting supply savings to drive growth Around 75% of benefits reinvested in: Competitive pricing to drive growth Improved customer experience In-store service Store renewal Supply chain Marketing
Sharing best practice Kingfisher has many centres of excellence : Sourcing and supply chain B&Q UK Decorative ranging new Castorama France format Room solutions B&Q China Trade offer Brico Depot & Screwfix Direct
Incentive alignment - new scheme based on growth and returns All previous option & LTIP schemes discontinued Annual bonus based upon demanding targets for: Profit growth Sales growth Return on Invested Capital Group development initiatives 50% cash, 50% contingent shares normally vesting after 3 years Relative TSR multiplier for contingent shares
Outlook Some pressure on disposable income in UK higher taxes, interest rates, pension contributions Home Improvement relatively resilient home focused and value friendly relatively low ticket socio-economic trends positive Kingfisher specific international diversity value-based brands
Summary Good growth profile Strong growth in 2003 Clear growth plans for 2004 & beyond New categories, markets under review Returns focus now clear and established We are working well together
Year-end results 2003/04 Slides will be available at www.kingfisher.com
Appendix
Proforma EPS growth 2002/3 EPS 13.4 Loss of profits on disposed properties Interest benefit from property disposal proceeds Interest on rights issue proceeds Borrowing to fund buyout from Feb Minority Interest avoided Share dilution from rights issue from Feb (1.0) 1.0 (0.5) (1.3) 5.4 (3.0) 2002/3 Proforma EPS 2003/4 EPS 14.0 17.8 +27%
Headline ROIC is calculated as follows. (1) Continuing businesses, excluding goodwill and exceptionals (2) Property lease costs and depreciation & increase in Market Value (3) Effective Tax rate applied to taxable profits (4) Capitalised at market yields (1) 2002/3 2003/4 Group Operating Profit 526 624 add (2) Property adjustments 330 589 less (3) Tax -238-272 NOPLAT 618 942 Average Invested Capital 3034 2579 (4) Capitalised leases 2780 3297 Goodwill 2477 2477 Total Average Invested capital 8291 8353 ROIC 7.5% 11.3%
Underlying ROIC assumes value neutral property market growth... 2002/3 2003/4 Group Operating Profit 526 624 add (2) Property adjustments 348 367 less (3) Tax -238-272 NOPLAT 636 720 Average Invested Capital 3072 2485 (4) Capitalised leases 2780 3297 Goodwill 2477 2477 Total Average Invested capital 8329 8259 ROIC 7.6% 8.7% (1) excluding goodwill and exceptionals (2) Property lease costs & depreciation & assumes value neutral growth (3) Effective Tax rate applied to taxable profits (4) Capitalised at market yields (1)