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Kingfisher profits tumble as French woes linger

By Oliver Haill

Date: Wednesday 19 Sep 2018

LONDON (ShareCast) - (Sharecast News) - Profits at Kingfisher fell 30% in the first half of the DIY retailer's financial year as problems in France overshadowed a solid performances in the UK.
Statutory profit before tax of £281m from the six months to 31 July was down 30% on the same period last year, or down 18% to £323m if exceptional items are excluded, which was lower than City analysts were expecting.

Underlying PBT, which excludes the impact of transformation costs and exceptional items, fell 14.8% to £375m.

Underlying earnings per share were down 11.7% to 12.8p, boosted by the £90m buyback during the half, while the interim dividend was held maintained at 3.33p. Sales, down 1.1% on a like-for-like basis to £6.08bn, had already been announced.

The B&Q and Screwfix owner, which is halfway through a five-year turnaround plan led by chief executive Véronique Laury, reported retail profits in the UK EBIT up 1.2% to £218m as B&Q sales declined but Screwfix climbed, France was down 31.1% to £122m and Poland up 3.7% to £88m. Other international losses were higher than expected at £24m, fairly equally split between Russia, Screwfix Germany and Romania.

Laury said the business was well on its way to becoming a "truly customer led, digital, and efficient business" but that "transformation on this scale is tough, and there are challenges that we're working through".

"There is still much to do to improve our performance in France and to remove inefficiencies within the business as we continue to transform at pace. I am confident that we have the right plan and the opportunity for Kingfisher is significant."

French profits tumbled as sales fell 2.1% to £2.3bn and gross margin shrank 60 basis points mainly due to higher logistics costs. There was progress reported with plans to improve pricing, proposition and digital, but much work remains to be done and further action is being taken to support performance in the second half of the year.

"Looking to the full year we remain on track to deliver our strategic milestones for the third year in a row and have put actions in place to support our performance," said Laury. "The outlook for our main markets continues to be mixed."

Laury's head of product and supply chain Arja Taaveniku, who joined the group three years ago, will be leaving the business with average unique and unified products under the ONE Kingfisher plan representing 42% of sales, which is expected to rise to 50% by year end. Henri Solère, who has worked at Kingfisher for 11 years and led two of the seven category unifications so far, will take over for the next phase that "will further emphasise the development of a unique offer".

REACTION & ANALYSIS

Kingfisher shares fell to close to a seven year low below 245p in early trade on Wednesday morning and by midday were down almost 4% to 253.4p.

Analyst George Salmon at Hargreaves Lansdown said: "With headwinds blowing against the home improvement sector in both the UK and French markets, it's no surprise to see like-for-like sales fall in both countries. However, after factoring in weakness in eastern Europe and extra costs from logistical inefficiencies, Kingfisher's profits have fallen down like a set of badly assembled shelves.

"Delivering another set of disappointing numbers when expectations are already depressed isn't a good look, but it's not quite a case of DIY SOS just yet. The silver lining for investors is the underlying signs of progress in the long-running business makeover. Still though, as can be the case with renovation projects, it feels like for every job Kingfisher crosses off the to-do list, another appears."

Credit Suisse said the results were "a small miss but better quality", cutting its full year PBT forecast 2% to £750m.

"However clearly there have been execution issues and the head of product and supply chain Arja Taaveniku will be leaving the business. Apart from mix/soft demand the main reason for the 40bp 1H GM decline were logistics and stock inefficiencies, particularly in France."

After unexpected losses in the 'other international' business and comments from Laury that "we are committed to stopping the losses within the business ...more details on these initiatives will follow in March 2019", Credit Suisse assumed that some of the peripheral loss-making businesses will be exited.

Analysts at Edison said it was still "too early to judge whether Kingfisher will ultimately be successful in transforming its sprawling business into a unified whole capable of being seriously competitive in its fast-changing market", with progress looking "steady".

In terms of the shares' valuation, with a P/E of 10.1 times consensus earnings for the full year, it was "not an obvious bargain".

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Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.

 

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