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Kingfisher - UK strong, but France remains weak

Charlie Huggins | 23 March 2016 | A A A
Kingfisher - UK strong, but France remains weak

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Kingfisher Ordinary 15,5/7p

Sell: 347.20 | Buy: 347.30 | Change -2.70 (-0.77%)
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Kingfisher has released full year results which show total sales (excluding B&Q China disposal) up 3.8% at constant exchange rates (CER) to £10,331m, including like-for-like (LFL) growth of +2.3%. Retail profit rose by 7.4% to £746m. On an actual currency basis sales fell by 2.6% and trading profit rose by 0.7%. Adjusted basic earnings per share (EPS) rose by 3.3% to 22.0p, while the full year dividend was increased by 1% to 10.1p.

The group are pleased with early progress on the "ONE Kingfisher" strategy. The first wave of unifying 'core essential' ranges has been completed, and the group are on track to close c.15% of B&Q surplus space by the end of FY 2016/17 (65 stores) in over-spaced catchments.

The shares rose by 0.5-1% in early morning trading.

Divisional review (constant currency):

UK and Ireland: sales were up 5.6% (+4.4% LFL) to £4,853m benefiting from a stronger UK economy and a more buoyant housing construction market. Retail profit grew by 18.0% to £326m. Screwfix again was the standout performer growing total sales by 26.3% (+15.3% LFL). B&Q total sales increased by 1.1%, with LFL sales up 1.9%.

France: sales increased by +1.2% (-0.4% LFL) to £3,786m in a broadly flat market, impacted by ongoing weak consumer confidence and subdued housing and construction activity. Retail profit fell 1.6% to £311m.

Other International: sales increased by 4.8% (+2.5% LFL) to £1,692m driven by LFL growth in Poland and Russia. Retail profit increased by 6.4% to £109m.


The group point to a positive UK economic backdrop, but remain cautious on the outlook for France in the near term. On 25 January 2016 Kingfisher set out its five year transformation plan, centred on the ONE Kingfisher approach. The key financial targets are:

  • Deliver £500m of sustainable annual profit uplift by end of year 5, with a total expected cash cost of £800m.
  • Improve returns on capital employed.
  • Return c.£600m of capital to shareholders over the next three years via share buybacks, in addition to the annual ordinary dividend.

Our view:

What Kingfisher does internationally is rather similar. Yet only 22% of goods are bought by the group, the rest are bought by the individual chains. Even more surprising, 98% of the products sold across the group are only found in one format, in one country.

Clearly, the group could improve its buying clout, if it bought as much as possible on a group-wide basis, to go into stores across Europe. At this stage, Kingfisher sees scope to shed around half of its product range and to unify c.90% of core essentials.

Returns at B&Q have lagged those at the company's French operations for some time, and the UK chain is seeking to shed or shrink weaker stores. Last year, Kingfisher made UK margins of 6.7% versus 8.2% in France, despite UK profit rising and French earnings declining.

Hopefully, Ms Laury's ONE Kingfisher plan will raise group returns. So far this century, Kingfisher has rarely managed to make a double digit return on invested capital.

Kingfisher trades on a prospective PE of circa 15.5x according to Bloomberg, versus a historic average of just under 14x. The forecast dividend yield of 3.0% (variable and not guaranteed) is unexceptional, but at least the balance sheet is a lot stronger now; back in the last decade, Kingfisher had net debts of a billion pounds or more.

Ms Laury is not the first Kingfisher CEO to try and make the individual businesses play nicely together. There could be a lot to go for. But so far, progress is in the stuff behind the scenes, like IT Systems and range planning, and not yet visible in store. By the end of 2016 it should be much clearer whether the ONE Kingfisher plan is going to deliver as planned.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.