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Transformation plan on track; business comes under competitive pressure

  • 27 Mar 17

Kingfisher reported FY16/17 results ahead of our estimates and market consensus. The lfl revenue increased by 2.3% (vs our estimate: +2.9%), once again driven by the UK business (+5.9%; our estimate: +6.0%; c.44% of group sales). B&Q clocked 3.5% organic growth (includes +2.6% sales transference from closed stores) on the back of strong demand for both seasonal and non-seasonal products (+3.1% and +3.6% yoy, respectively). Screwfix continued its solid growth momentum with 13.8% lfl, largely driven by the robust demand for plumbing and electrical products and strong digital growth (click & collect: +60%, mobile +124%). Among other international markets, Poland led the pack with lfl revenue growth of +7.5% (supportive housing market and new ranges; c.60% of segmental sales). However, France remained in negative territory (-2.7% yoy, FY15/16: -0.4%; c.38% of group sales), due to the ongoing slowdown in the home improvement market and restrained promotional activity by the company. Despite the negative scope impact of -0.6% yoy, the reported revenue advanced by 8.7% (vs our estimate: +6.2%) on the back of FX tailwinds (+7% yoy; depreciation of the British pound vs the euro and Polish zloty). The retail profit margin came in at 7.5% (+30bp yoy), benefiting from the transformation plan, cost efficiencies and higher operating leverage in the UK and Poland. The company opened 38 stores on a net basis in FY16/17 and plans to add 54 more in the subsequent year. A final dividend of 7.15p per share was announced (taking the full-year total to 10.4p; +3% yoy) and 58m shares worth £200m were bought-back during the year (plan to return another £400m in the next two years). Management has guided for a flat gross margin in FY17/18, expecting Unified & Unique Offer CPR benefits to be offset by price reinvestment and clearance. For the five-year transformation plan, the total cost guidance (£800m) remains unchanged. However, the company has revised estimates for P&L costs (£310m vs previously £220m; to be incurred over the first three years of the plan) and exceptional costs (£170m vs previously £270m; to be incurred over the first four years against earlier guidance of three years).



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