Company Announcements

Half-Year Results - (Part 2 of 2)

Source: RNS
RNS Number : 6857M
Kingfisher PLC
18 September 2019
 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

Half year ended 31 July 2019

 

Half year ended 31 July 2018

restated (note 18)

£ millions

Notes

Before exceptional items

Exceptional items      

Total

 

Before exceptional items

Exceptional items

Total

Sales

4

5,997

-

5,997

 

6,080

-

6,080

Cost of sales

 

(3,776)

-

(3,776)

 

(3,864)

-

(3,864)

Gross profit

 

2,221

-

2,221

 

2,216

-

2,216

Selling and distribution expenses

 

(1,414)

(94)

(1,508)

 

(1,412)

 

4

(1,408)

Administrative expenses

 

(396)

-

(396)

 

(402)

(46)

(448)

Other income

 

10

1

11

 

11

-

11

Share of post-tax results of joint ventures and associates

 

 

-

-

-

 

(2)

-

(2)

Operating profit

421

(93)

328

 

411

(42)

369

Finance costs

 

(93)

-

(93)

 

(97)

-

(97)

Finance income

 

10

-

10

 

8

-

8

Net finance costs

6

(83)

-

(83)

 

(89)

                -

(89)

Profit before taxation

 

338

(93)

245

 

322

(42)

280

Income tax expense

7

(93)

19

(74)

 

(87)

13

(74)

Profit for the period

 

245

(74)

171

 

235

(29)

206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

8

 

 

 

 

 

 

 

Basic

 

 

 

8.1p

 

 

 

9.6p

Diluted

 

 

 

8.1p

 

 

 

9.6p

Adjusted basic

 

 

 

11.8p

 

 

 

11.0p

Adjusted diluted

 

 

 

11.8p

 

 

 

11.0p

Underlying basic

 

 

 

12.3p

 

 

 

12.8p

Underlying diluted

 

 

 

12.3p

 

 

 

12.7p

 

 

 

 

 

 

 

 

 

Reconciliation of non-GAAP underlying and adjusted pre-tax profit:

Underlying pre-tax profit

 

 

 

353

 

 

 

377

Transformation costs before exceptional items

4

 

 

(16)

 

 

 

(52)

Adjusted pre-tax profit

 

 

 

337

 

 

 

325

Exchange differences on lease liabilities

 

 

 

 

1

 

 

 

(3)

Exceptional items

5

 

 

(93)

 

 

 

(42)

Profit before taxation

 

 

 

245

 

 

 

280

 

The proposed interim ordinary dividend for the period ended 31 July 2019 is 3.33p per share.

 

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

 

 

 

 

Year ended 31 January 2019

restated (note 18)

£ millions

Notes

Before exceptional

items

Exceptional

items

Total

Sales

4

11,685

-

11,685

Cost of sales

 

(7,367)

-

(7,367)

Gross profit

 

4,318

-

4,318

Selling and distribution expenses

 

(2,800)

(174)

(2,974)

Administrative expenses

 

(799)

(63)

(862)

Other income

 

27

27

54

Other expenses

 

-

(57)

(57)

Share of post-tax results of joint ventures and associates

1

-

1

Operating profit

747

(267)

480

Finance costs

 

(196)

-

(196)

Finance income

 

16

-

16

Net finance costs

6

(180)

-

(180)

Profit before taxation

 

567

(267)

300

Income tax expense

7

(170)

63

(107)

Profit for the year

 

397

(204)

193

 

 

 

 

 

Earnings per share

8

 

 

 

Basic

 

 

 

9.1p

Diluted

 

 

 

9.0p

Adjusted basic

 

 

 

19.8p

Adjusted diluted

 

 

 

19.7p

Underlying basic

 

 

 

23.9p

Underlying diluted

 

 

 

23.8p

 

 

 

 

 

Reconciliation of non-GAAP underlying and adjusted pre-tax profit:

Underlying pre-tax profit

 

 

 

694

Transformation costs before exceptional items

4

 

 

(120)

Adjusted pre-tax profit

 

 

 

574

Exchange differences on lease liabilities

 

 

 

(7)

Exceptional items

5

 

 

(267)

Profit before taxation

 

 

 

300

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

£ millions

 

 

Notes

Half year ended

31 July 2019

Half year ended

31 July 2018

restated

(note 18)

Year ended

31 January 2019

restated

(note 18)

Profit for the period

 

171

206

193

Actuarial gains on post-employment benefits

11

73

86

78

Inventory cash flow hedges - fair value gains

 

47

63

85

Tax on items that will not be reclassified

 

(37)

(47)

(53)

Total items that will not be reclassified

subsequently to profit or loss

 

83

102

110

Currency translation differences

 

 

 

 

Group

 

153

34

(46)

Other cash flow hedges

 

 

 

 

Fair value gains/(losses)

 

4

-

(2)

(Gains)/losses transferred to income statement

 

(4)

-

2

Tax on items that may be reclassified

 

-

(1)

-

Total items that may be reclassified

subsequently to profit or loss

 

153

33

(46)

Other comprehensive income for the period

 

236

135

64

Total comprehensive income for the period

 

407

341

257

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

Half year ended 31 July 2019

 

£ millions

Share capital

 

Share

premium

Own shares held

 

Retained earnings

Capital

redemption

reserve

Other

reserves

(note 13)

Total equity

At 1 February 2019

332

2,228

(25)

3,192

43

379

6,149

Profit for the period

-

-

-

171

-

-

171

Other comprehensive income for the period

-

-

-

45

-

191

236

Total comprehensive income for the period

-

-

-

216

-

191

407

Inventory cash flow hedges - gains transferred to inventories

-

-

-

-

-

(24)

(24)

Share-based compensation

-

-

-

8

-

-

8

Own shares issued under share schemes

-

-

9

(9)

-

-

-

Purchase of own shares for ESOP trust

-

-

(10)

-

-

-

(10)

Dividends (note 9)

-

-

-

(157)

-

-

(157)

Tax on equity items

-

-

-

-

-

5

5

At 31 July 2019

332

2,228

(26)

3,250

43

551

6,378

 

 

 

 

 

 

 

 

 

 

Half year ended 31 July 2018 restated (note 18)

 

£ millions

Share capital

 

Share

premium

Own shares held

 

Retained earnings

Capital

redemption

reserve

Other

reserves

(note 13)

Total equity

At 1 February 2018

340

2,228

(29)

3,311

35

378

6,263

Profit for the period

-

-

-

206

-

-

206

Other comprehensive income for the period

-

-

-

54

-

81

135

Total comprehensive income for the period

-

-

-

260

-

81

341

Inventory cash flow hedges - losses transferred to inventories

-

-

-

-

-

15

15

Share-based compensation

-

-

-

10

-

-

10

New shares issued under share schemes

-

-

-

2

-

-

2

Own shares issued under share schemes

-

-

3

(3)

-

-

-

Purchase of own shares for cancellation

(5)

-

-

(90)

5

-

(90)

Dividends (note 9)

-

-

-

(160)

-

-

(160)

Tax on equity items

-

-

-

-

-

(4)

(4)

At 31 July 2018

335

2,228

(26)

3,330

40

470

6,377

 

 

 

 

 

 

 

 

 

 

Year ended 31 January 2019 restated (note 18)

 

£ millions

Share capital

 

Share

premium

Own shares held

 

Retained earnings

Capital

redemption

reserve

Other

reserves

(note 13)

Total equity

At 1 February 2018

340

2,228

(29)

3,311

35

378

6,263

Profit for the year

-

-

-

193

-

-

193

Other comprehensive income for the year

-

-

-

46

-

18

64

Total comprehensive income for the year

-

-

-

239

-

18

257

Inventory cash flow hedges - gains transferred to inventories

-

-

-

-

-

(22)

(22)

Share-based compensation

-

-

-

15

-

-

15

New shares issued under share schemes

-

-

-

2

-

-

2

Own shares issued under share schemes

-

-

4

(4)

-

-

-

Purchase of own shares for cancellation

(8)

-

-

(140)

8

-

(140)

Dividends (note 9)

-

-

-

(231)

-

-

(231)

Tax on equity items

-

-

-

-

-

5

5

At 31 January 2019

332

2,228

(25)

3,192

43

379

6,149

                       

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEET

£ millions

Notes

At 31 July 2019

At 31 July 2018

restated

(note 18)

At 31 January 2019

restated

(note 18)

Non-current assets

 

 

 

 

Goodwill

 

2,439

2,438

2,436

Other intangible assets

10

374

375

371

Property, plant and equipment

10

3,356

3,567

3,302

Right-of-use assets

 

2,030

2,221

2,017

Investment property

10

8

21

8

Investments in joint ventures and associates

 

13

12

15

Post-employment benefits

11

413

318

320

Deferred tax assets

 

13

40

13

Derivative assets

12

2

-

-

Other receivables

 

40

53

41

 

 

8,688

9,045

8,523

Current assets

 

 

 

 

Inventories

 

2,765

2,718

2,574

Trade and other receivables

 

415

472

406

Derivative assets

12

62

47

26

Current tax assets

 

3

1

1

Cash and cash equivalents

 

385

181

229

Assets held for sale

 

58

-

89

 

 

3,688

3,419

3,325

Total assets

 

12,376

12,464

11,848

Current liabilities

 

 

 

 

Trade and other payables

 

(2,554)

(2,657)

(2,415)

Borrowings

12

(47)

(2)

(1)

Lease liabilities

 

(318)

(363)

(308)

Derivative liabilities

12

(19)

(16)

(21)

Current tax liabilities

 

(148)

(145)

(118)

Provisions

 

(84)

(38)

(27)

 

 

(3,170)

(3,221)

(2,890)

Non-current liabilities

 

 

 

 

Other payables

 

(4)

(6)

(6)

Borrowings

12

(97)

(47)

(139)

Lease liabilities

 

(2,320)

(2,437)

(2,318)

Derivative liabilities

12

-

-

(2)

Deferred tax liabilities

 

(242)

(220)

(192)

Provisions

 

(39)

(34)

(37)

Post-employment benefits

11

(126)

(122)

(115)

 

 

(2,828)

(2,866)

(2,809)

Total liabilities

 

(5,998)

(6,087)

(5,699)

Net assets

 

6,378

6,377

6,149

Equity

 

 

 

 

Share capital

 

332

335

332

Share premium

 

2,228

2,228

2,228

Own shares held in ESOP trust

 

(26)

(26)

(25)

Retained earnings

 

3,250

3,330

3,192

Capital redemption reserve

 

43

40

43

Other reserves

13

551

470

379

Total equity

 

6,378

6,377

6,149

             

 

The interim financial report was approved by the Board of Directors on 17 September 2019 and signed on its behalf by:                                       

 

 

 

 

Veronique Laury, Chief Executive Officer

Andy Cosslett, Chairman

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED CASH FLOW STATEMENT

 

£ millions

Notes

Half year ended

31 July 2019

Half year ended

31 July 2018

restated

(note 18)

Year ended

31 January 2019

restated

(note 18)

Operating activities

 

 

 

 

Cash generated by operations

14

613

716

1,243

Income tax paid

 

(34)

(77)

(132)

Net cash flows from operating activities

 

579

639

1,111

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment and intangible assets

 

(163)

(164)

(332)

Disposal of property, plant and equipment, investment property, assets held for sale and intangible assets

 

125

4

45

Interest received

 

6

4

11

Interest element of lease rental receipts

 

1

2

3

Principal element of lease rental receipts

 

2

3

6

Advance payments on right-of-use assets

 

-

(1)

(4)

Dividends received from joint ventures and associates

 

2

5

5

Net cash flows used in investing activities

 

(27)

(147)

(266)

 

 

 

 

 

Financing activities

 

 

 

 

Interest paid

 

(13)

(7)

(19)

Interest element of lease rental payments

 

(82)

(87)

(174)

Principal element of lease rental payments

 

(158)

(137)

(312)

Repayment of bank loans

 

(1)

(1)

(1)

Issue of fixed term debt

 

-

44

139

Repayment of fixed term debt

 

-

(134)

(134)

Receipt on financing derivatives

 

-

37

37

New shares issued under share schemes

 

-

2

2

Purchase of own shares for ESOP trust

 

(10)

-

-

Purchase of own shares for cancellation

 

-

(90)

(140)

Ordinary dividends paid to equity shareholders of the Company

9

(157)

(160)

(231)

Net cash flows from financing activities

 

(421)

(533)

(833)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

131

(41)

12

Cash and cash equivalents at beginning of period

 

229

230

230

Exchange differences

 

25

(8)

(13)

Cash and cash equivalents at end of period

 

385

181

229

 

 

Kingfisher plc

2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.         General information

Kingfisher plc ('the Company'), its subsidiaries, joint ventures and associates (together 'the Group') supply home improvement products and services through a network of retail stores and other channels, located mainly in the United Kingdom and continental Europe.

 

The Company is incorporated in the United Kingdom and is listed on the London Stock Exchange. The address of its registered office is 3 Sheldon Square, Paddington, London W2 6PX.

 

The interim financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Audited statutory accounts for the year ended 31 January 2019 were approved by the Board of Directors on 19 March 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006. The interim financial report has been reviewed, not audited, and was approved by the Board of Directors on 17 September 2019.

 

2.         Basis of preparation

 

The interim financial report for the six months ended 31 July 2019 ('the half year') has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. It should be read in conjunction with the annual financial statements for the year ended 31 January 2019, which have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The consolidated income statement and related notes represent results for continuing operations, there being no discontinued operations in the periods presented. Where comparatives are given, '2018/19' refers to the six months ended 31 July 2018.

 

New and amended accounting standards

 

The Group adopted IFRS 16 'Leases' on 1 February 2019 on a fully retrospective basis, resulting in the restatement of comparatives for the six months ended 31 July 2018 and year ended 31 January 2019. The cumulative effect of initial application is recognised as an adjustment to opening equity on the date of transition (1 February 2018). Refer to note 18 for further details of the Group's initial application of IFRS 16.

 

The statement of comprehensive income and statement of changes in equity for the half year ended 31 July 2018 have been adjusted to reflect changes to presentation required under IFRS 9 'Financial Instruments'.

 

Other new standards, amendments and interpretations are in issue and effective for the Group's financial year ended 31 January

2020, but they do not have a material impact on the consolidated financial statements.

 

Going concern

 

The Directors of Kingfisher plc, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the half year ended 31 July 2019.

 

 

Principal rates of exchange against Sterling

 

 

Half year ended 31 July 2019

Half year ended 31 July 2018

Year ended 31 January 2019

 

Average

rate

Period end

rate

Average

rate

Period end

rate

Average

rate

Year end

rate

Euro

1.14

1.10

1.14

1.12

1.13

1.15

US Dollar

1.29

1.22

1.37

1.31

1.33

1.31

Polish Zloty

4.90

4.70

4.83

4.79

4.83

4.88

Russian Rouble

83.14

77.46

82.55

81.81

84.34

86.01

 

Risks and uncertainties

 

The principal risks and uncertainties to which the Group is exposed are set out on pages 44-51 of the Kingfisher plc Annual Report and Accounts for the year ended 31 January 2019. These have been reviewed as part of the Group's half year procedures and are listed in the Financial Review.

 

Use of non-GAAP measures

 

In the reporting of financial information, the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles ('GAAP') under which the Group reports. Kingfisher believes that retail profit, underlying pre-tax profit, adjusted pre-tax profit, adjusted effective tax rate, underlying earnings per share and adjusted earnings per share provide additional useful information on performance and trends to shareholders. These and other non-GAAP measures (also known as 'Alternative Performance Measures'), such as net debt, are used by Kingfisher for internal performance analysis and incentive compensation arrangements for employees. The terms 'retail profit', 'exceptional items', 'transformation costs', 'underlying', 'adjusted', 'adjusted effective tax rate' and 'net debt' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

 

Retail profit is defined as continuing operating profit before central costs, the Group's share of interest and tax of joint ventures and associates, transformation costs and exceptional items. It includes the sustainable benefits of the transformation plan. Central costs principally comprise the costs of the Group's head office before transformation costs.

 

The separate reporting of exceptional items, which are presented as exceptional within their relevant income statement category, helps provide an indication of the Group's ongoing business performance. The principal items which are included as exceptional items are:

·      non-trading items included in operating profit such as profits and losses on the disposal, closure, exit or impairment of subsidiaries, joint ventures, associates and investments which do not form part of the Group's ongoing trading activities;

·      profits and losses on the disposal of properties and impairment losses on non-operational assets; and

·      the costs of significant restructuring, including certain restructuring costs of the Group's five-year transformation plan launched in 2016/17, and incremental acquisition integration costs.

 

The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding exceptional items, exchange differences on lease liabilities, financing fair value remeasurements, related tax items and prior year tax items (including the impact of changes in tax rates on deferred tax). Exchange differences on lease liabilities represent the income statement impact of translating lease liabilities denominated in non-functional currencies (e.g. a dollar-denominated lease in Russia) which are not able to be designated as net investment hedges. Financing fair value remeasurements represent changes in the fair value of financing derivatives, excluding interest accruals, offset by fair value adjustments to the carrying amount of borrowings and other hedged items under fair value hedge relationships. Financing derivatives are those that relate to hedged items of a financing nature.

 

The term 'underlying' refers to the relevant adjusted measure being reported before non-exceptional transformation costs. Non-exceptional transformation costs represent the additional costs that arise only as a result of the transformation plan launched in 2016/17, which either because of their nature or the length of the period over which they are incurred are not considered as exceptional items. These costs principally relate to the unified and unique offer range implementation and the digital strategic initiative. The separate reporting of such costs (in addition to exceptional items) helps provide an indication of the Group's underlying business performance, which includes the sustainable benefits of the transformation plan.

 

The adjusted effective tax rate is calculated as continuing income tax expense excluding tax on exceptional items and adjustments in respect of prior years and the impact of changes in tax rates on deferred tax, divided by continuing profit before taxation excluding exceptional items. The exclusion of items relating to prior years, and those not in the ordinary course of business, helps provide a better indication of the Group's ongoing rate of tax.

 

Net debt comprises lease liabilities, borrowings and financing derivatives (excluding accrued interest) less cash and cash equivalents and short-term deposits.

 

 

 3.        Accounting policies

 

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 January 2019, as described in note 2 of those financial statements, except where set out below. The critical accounting estimates and judgements are set out in note 3 of the annual financial statements for the year ended 31 January 2019 and remain unchanged, with the exception of those relating to IFRS 16 'Leases' as described in note 18.

 

Taxes on income for interim periods are accrued using the best estimate of the effective tax rate that would be applicable to expected total annual earnings.

 

IFRS 16 was issued by the IASB in January 2016 and has been endorsed by the European Union. The standard supersedes IAS 17 'Leases' and is effective for periods beginning on or after 1 January 2019. The adoption of IFRS 16 has had a material impact on the Group's primary financial statements, including impacts on the operating profit, profit before taxation, total assets and total liabilities lines. Further details of the Group's initial application of IFRS 16 are included in note 18, including details on the effect of initial application on the Group's financial results and the critical accounting estimates and judgements arising from application of the standard.

 

 

4.         Segmental analysis

 

Income statement

 

Half year ended 31 July 2019

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Sales

2,655

2,158

753

431

5,997

Retail profit

277

114

88

(13)

466

Central costs

 

 

 

 

(25)

Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities

 

 

 

 

(5)

Exchange differences on lease liabilities of joint ventures and associates

 

 

 

 

1

Transformation costs before exceptional items

 

 

 

 

(16)

Exceptional items

 

 

 

 

(93)

Operating profit

 

 

 

 

328

Net finance costs

 

 

 

 

(83)

Profit before taxation

 

 

 

 

245

 

 

 

Half year ended 31 July 2018 restated (note18)

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Sales

2,635

2,267

726

452

6,080

Retail profit

282

131

90

(13)

490

Central costs

 

 

 

 

(23)

Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities

 

 

 

 

(3)

Exchange differences on lease liabilities of joint ventures and associates

 

 

 

 

(1)

Transformation costs before exceptional items

 

 

 

 

(52)

Exceptional items

 

 

 

 

(42)

Operating profit

 

 

 

 

369

Net finance costs

 

 

 

 

(89)

Profit before taxation

 

 

 

 

280

 

 

 

Year ended 31 January 2019 restated (note 18)

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Sales

5,061

4,272

1,431

921

11,685

Retail profit

530

221

185

(12)

924

Central costs

 

 

 

 

(49)

Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities

 

 

 

 

(5)

Exchange differences on lease liabilities of joint ventures and associates

 

 

 

 

(3)

Transformation costs before exceptional items

 

 

 

 

(120)

Exceptional items

 

 

 

 

(267)

Operating profit

 

 

 

 

480

Net finance costs

 

 

 

 

(180)

Profit before taxation

 

 

 

 

300

 

 

Balance sheet

 

At 31 July 2019

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Segment assets

3,083

1,858

867

677

6,485

Central liabilities

 

 

 

 

(162)

Goodwill

 

 

 

 

2,439

Net debt

 

 

 

 

(2,384)

Net assets

 

 

 

 

6,378

 

 

At 31 July 2018 restated (note 18)

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Segment assets

3,174

2,045

781

759

6,759

Central liabilities

 

 

 

 

(159)

Goodwill

 

 

 

 

2,438

Net debt

 

 

 

 

(2,661)

Net assets

 

 

 

 

6,377

 

 

At 31 January 2019 restated (note 18)

£ millions

UK & Ireland

France

Other International

 

Total

Poland

Other

Segment assets

3,062

1,865

791

697

6,415

Central liabilities

 

 

 

 

(160)

Goodwill

 

 

 

 

2,436

Net debt

 

 

 

 

(2,542)

Net assets

 

 

 

 

6,149

 

 

The operating segments disclosed above are based on the information reported internally to the Board of Directors and Group Executive, representing the geographical areas in which the Group operates. The Group only has one business segment being the supply of home improvement products and services. The majority of the sales in each geographical area are derived from in-store sales of products.

 

The 'Other International' segment consists of Poland, Iberia, Germany, Russia, Romania and the joint venture Koçtaş in Turkey. Poland has been shown separately due to its significance.    

 

Central costs principally comprise the costs of the Group's head office before transformation costs. Central liabilities comprise unallocated head office and other central items including central assets, pensions, insurance, interest and tax.

 

Transformation costs before exceptional items principally relate to the unified and unique offer range implementation and the digital strategic pillar, with £1m (2018/19: £21m) included within selling and distribution expenses and £15m (2018/19: £31m) included within administrative expenses.

 

The Group's sales, although generally not highly seasonal on a half-yearly basis, do increase over the Easter period and during the summer months leading to slightly higher sales usually being recognised in the first half of the year.

 

 

5.         Exceptional items

 

 

 

Half year ended

Year ended

£ millions

Half year ended

31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Included within selling and distribution expenses

 

 

 

UK & Ireland and continental Europe restructuring

(68)

4

(124)

Impairments of Russia and Iberia assets

(26)

-

(16)

B&Q store replenishment

-

-

(12)

Romania acquisition integration

-

-

(16)

France exceptional employee bonus

-

-

(6)

 

(94)

4

(174)

Included within administrative expenses

 

 

 

Transformation exceptional costs

-

(46)

(58)

UK guaranteed minimum pension charge

-

-

(5)

 

-

(46)

(63)

Included within other income

 

 

 

Profit on disposal of properties

1

-

27

 

1

-

27

Included within other expenses

 

 

 

Impairments of properties held for sale

-

-

(57)

 

-

-

(57)

Exceptional items before tax

(93)

(42)

(267)

Tax on exceptional items

19

13

63

Exceptional items

(74)

(29)

(204)

 

Current period exceptional items include a £68m net restructuring charge principally relating to redundancy costs following formal consultation with employee representatives regarding the Group's plans to close 11 stores in France and 19 Screwfix Germany outlets.

 

Additional impairments of £26m have been recorded in the period primarily relating to store assets in Russia following a deterioration in trading. The Group announced the decision to exit Russia and Iberia in November 2018 and recorded impairments of £16m to store and non-operational assets in the prior year.

 

A profit of £1m has been recorded in the period on the disposal of properties in the UK.

 

6.         Net finance costs

 

 

 

Half year ended

Year ended  

£ millions

Half year ended 31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Bank overdrafts and bank loans

(10)

(7)

(15)

Fixed term debt

(2)

(1)

(3)

Lease liabilities

(82)

(87)

(174)

Exchange differences on lease liabilities

-

(2)

(4)

Unwinding of discount on provisions

-

-

(2)

Capitalised interest

1

2

2

Other interest payable

-

(2)

-

Finance costs

(93)

(97)

(196)

 

 

 

 

Cash and cash equivalents and short-term deposits

6

4

9

Net interest income on defined benefit pension schemes

3

2

4

Finance lease income

1

2

3

Finance income

10

8

16

 

 

 

 

Net finance costs

(83)

(89)

(180)

         

 

 

7.         Income tax expense

 

£ millions

Half year ended
31 July 2019

Half year ended

31 July 2018

restated

(note 18)

Year ended
31 January 2019

restated

(note 18)

UK corporation tax

 

 

 

(30)

(49)

(52)

Adjustments in respect of prior years

-

-

(1)

 

(30)

(49)

(53)

Overseas tax

 

 

 

(29)

(31)

(66)

(2)

-

7

 

(31)

(31)

(59)

Deferred tax

 

 

 

(11)

6

30

(2)

-

(25)

 

(13)

6

5

 

 

 

 

Income tax expense

(74)

(74)

(107)

 

The adjusted effective tax rate on profit before exceptional items and excluding prior year tax adjustments and the impact of changes in tax rates on deferred tax is 26% (2018/19: 27%), representing the best estimate of the effective rate for the full financial year. The adjusted effective tax rate on the same basis for the year ended 31 January 2019 was 27%. Exceptional tax items for the current period amount to a credit of £19m, none of which relates to prior year items (2018/19: £13m credit, none of which related to prior year items). Exceptional tax items for the year ended 31 January 2019 amounted to a credit of £63m, none of which related to prior year items.

 

 

8.         Earnings per share

 

 

 

Half year ended

Year ended  

Pence

Half year ended

31 July 2019

 31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Basic earnings per share

8.1

9.6

9.1

Effect of dilutive share options

-

-

(0.1)

Diluted earnings per share

8.1

9.6

9.0

 

 

 

 

Basic earnings per share

8.1

9.6

9.1

Exceptional items before tax

4.4

1.9

12.6

Tax on exceptional and prior year items

(0.7)

(0.6)

(2.1)

Exchange differences on lease liabilities

-

0.1

0.3

Tax on exchange differences on lease liabilities

-

-

(0.1)

Adjusted basic earnings per share

11.8

11.0

19.8

Transformation costs before exceptional items

0.7

2.5

5.6

Tax on transformation costs before exceptional items

(0.2)

(0.7)

(1.5)

Underlying basic earnings per share

12.3

12.8

23.9

 

 

 

 

Diluted earnings per share

8.1

9.6

9.0

Exceptional items before tax

4.4

1.9

12.6

Tax on exceptional and prior year items

(0.7)

(0.6)

(2.1)

Exchange differences on lease liabilities

-

0.1

0.3

Tax on exchange differences on lease liabilities

-

-

(0.1)

Adjusted diluted earnings per share

11.8

11.0

19.7

Transformation costs before exceptional items

0.7

2.4

5.6

Tax on transformation costs before exceptional items

(0.2)

(0.7)

(1.5)

Underlying diluted earnings per share

12.3

12.7

23.8

 

The calculation of basic and diluted earnings per share is based on the profit for the period attributable to equity shareholders of the Company. A reconciliation of statutory earnings to adjusted and underlying earnings is set out below:

 

 

 

Half year ended

Year ended  

£ millions

Half year ended 31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Earnings

171

206

193

Exceptional items before tax

93

42

267

Tax on exceptional and prior year items

(15)

(13)

(44)

Exchange differences on lease liabilities

(1)

3

7

Tax on exchange differences on lease liabilities

-

(1)

(2)

Adjusted earnings

248

237

421

Transformation costs before exceptional items

16

52

120

Tax on transformation costs before exceptional items

(4)

(14)

(32)

Underlying earnings

260

275

509

 

The weighted average number of shares in issue during the period, excluding those held in the Employee Share Ownership Plan Trust ('ESOP trust'), is 2,101m (2018/19: 2,141m). The diluted weighted average number of shares in issue during the period is 2,112m (2018/19: 2,151m). For the year ended 31 January 2019, the weighted average number of shares in issue was 2,129m and the diluted weighted average number of shares in issue was 2,140m.

 

 

9.         Dividends

 

 

Half year ended

Half year ended

Year ended  

£ millions

31 July 2019

31 July 2018

31 January 2019

Dividends to equity shareholders of the Company

 

 

 

Ordinary final dividend for the year ended 31 January 2019 of 7.49p per share

157

-

-

Ordinary interim dividend for the year ended 31 January 2019 of 3.33p per share

-

-

71

Ordinary final dividend for the year ended 31 January 2018 of 7.49p per share

-

160

160

 

157

160

231

 

The proposed ordinary interim dividend for the period ended 31 July 2019 is 3.33p per share.

 

10.        Property, plant and equipment, investment property and other intangible assets

 

Additions to the cost of property, plant and equipment, investment property and other intangible assets are £144m (2018/19: £152m) and for the year ended 31 January 2019 were £334m. Disposals in net book value of property, plant and equipment, investment property, property assets held for sale and other intangible assets are £77m (2018/19: £6m) and for the year ended 31 January 2019 were £68m.

 

Capital commitments contracted but not provided for at the end of the period are £161m (2018/19: £90m) and at 31 January 2019 were £40m.

 

 

11.        Post-employment benefits

 

 

Half year ended

Half year ended

Year ended  

£ millions

31 July 2019

31 July 2018

31 January 2019

Net surplus in schemes at beginning of period

205

99

99

Current service cost

(5)

(6)

(11)

Past service cost

-

-

(2)

Administration costs

(2)

(2)

(4)

Net interest income

3

2

4

Net actuarial gains

73

86

78

Contributions paid by employer

19

19

40

Exchange differences

(6)

(2)

1

Net surplus in schemes at end of period

287

196

205

 

UK

413

318

320

Overseas

(126)

(122)

(115)

Net surplus in schemes at end of period

287

196

205

 

Present value of defined benefit obligations

(3,249)

(3,036)

(2,977)

Fair value of scheme assets

3,536

3,232

3,182

Net surplus in schemes at end of period

287

196

205

 

The assumptions used in calculating the costs and obligations of the Group's defined benefit pension schemes are set by the Directors after consultation with independent professionally qualified actuaries. The assumptions are based on the conditions at the time and changes in these assumptions can lead to significant movements in the estimated obligations, as illustrated in the sensitivity analysis provided in note 26 of the annual financial statements for the year ended 31 January 2019.

 

A key assumption in valuing the pension obligation is the discount rate. Accounting standards require this to be set based on market yields on high quality corporate bonds at the balance sheet date. The UK scheme discount rate is derived using a single equivalent discount rate approach, based on the yields available on a portfolio of high-quality Sterling corporate bonds with the same duration as that of the scheme liabilities.

 

The principal financial assumptions for the UK scheme, being the Group's principal defined benefit scheme, are set out below:

 

 

At 

At 

At 

Annual % rate

31 July 2019

31 July 2018

31 January 2019

Discount rate

2.1

2.5

2.5

Price inflation

3.4

3.3

3.3

 

 

12.        Financial instruments

 

The Group holds the following derivative financial instruments at fair value:

 

At

At

At  

 

 

£ millions

31 July 2019

31 July 2018

31 January 2019

 

 

Cross currency interest rate swaps

1

-

-

 

 

Foreign exchange contracts

63

47

26

 

 

Derivative assets

64

47

26

 

 

 

 

At

At

At  

 

 

£ millions

31 July 2019

31 July 2018

31 January 2019

 

 

Cross currency interest rate swaps

-

-

(2)

 

 

Foreign exchange contracts

(19)

(16)

(21)

 

 

Derivative liabilities

(19)

(16)

(23)

 

 

 

The fair values are calculated by discounting future cash flows arising from the instruments and adjusted for credit risk. These fair value measurements are all made using observable market rates of interest, foreign exchange and credit risk. All the derivatives held by the Group at fair value are considered to have fair values determined by level 2 inputs as defined by the fair value hierarchy of IFRS 13, 'Fair value measurement', representing significant observable inputs other than quoted prices in active markets for identical assets or liabilities. There are no non-recurring fair value measurements nor have there been any transfers of assets or liabilities between levels of the fair value hierarchy.

 

Except as detailed in the following table of borrowings, the carrying amounts of financial instruments (excluding lease liabilities) recorded at amortised cost in the financial statements are approximately equal to their fair values. Where available, market values have been used to determine the fair values of borrowings. Where market values are not available or are not reliable, fair values have been calculated by discounting cash flows at prevailing interest and foreign exchange rates. This has resulted in level 2 inputs for borrowings as defined by the IFRS 13 fair value hierarchy.

 

 

 

 

Carrying amount

 

 

 

 

At

At  

 

 

£ millions

At

31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

 

 

Bank loans

4

5

4

 

 

Fixed term debt

140

44

136

 

 

Borrowings

144

49

140

 

 

 

 

 

 

 

Fair value

 

 

 

 

At

At  

 

 

£ millions

At

31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

 

 

Bank loans

4

5

5

 

 

Fixed term debt

143

44

138

 

 

Borrowings

147

49

143

 

 

 

At 31 July 2019, the Group had undrawn revolving credit facilities of £550 million due to expire in August 2021 and £225 million due to expire in March 2022. In August 2019, the Group completed an extension of the £550 million revolving credit facility, taking the term to August 2022.

 

 

13.        Other reserves

 

 

Half year ended 31 July 2019

 

£ millions

Translation reserve

Cash flow

hedge reserve

Other

 

Total

At 1 February 2019

210

10

159

379

Inventory cash flow hedges - fair value gains

-

47

-

47

Tax on items that will not be reclassified subsequently to profit or loss

-

(9)

-

(9)

Currency translation differences

Group

153

-

-

153

Other cash flow hedges

Fair value gains

-

4

-

4

Gains transferred to income statement

-

(4)

-

(4)

Other comprehensive income for the period

153

38

-

191

Inventory cash flow hedges - gains transferred to inventories

-

(24)

-

(24)

Tax on equity items

-

5

-

5

At 31 July 2019

363

29

159

551

 

 

 

 

 

 

 

 

Half year ended 31 July 2018 restated (note 18)

 

£ millions

Translation reserve

Cash flow

hedge reserve

Other

 

Total

At 1 February 2018

256

(37)

159

378

Inventory cash flow hedges - fair value gains

-

63

-

63

Tax on items that will not be reclassified subsequently to profit or loss

-

(15)

-

(15)

Currency translation differences

 

 

 

 

Group

34

-

-

34

Tax on items that may be reclassified

(1)

-

-

(1)

Other comprehensive income for the period

33

48

-

81

Inventory cash flow hedges - losses transferred to inventories

-

15

-

15

Tax on equity items

-

(4)

-

(4)

At 31 July 2018

289

22

159

470

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 January 2019 restated (note 18)

 

Translation reserve

Cash flow hedge reserve

Other

Total

At 1 February 2018

256

(37)

159

378

Inventory cash flow hedges - fair value gains

-

85

-

85

Tax on items that will not be reclassified subsequently to profit or loss

-

(21)

-

(21)

Currency translation differences

Group

(46)

-

-

(46)

Other cash flow hedges

Fair value losses

-

(2)

-

(2)

Losses transferred to income statement

-

2

-

2

Other comprehensive income for the year

(46)

64

-

18

Inventory cash flow hedges - gains transferred to inventories

-

(22)

-

(22)

Tax on equity items

-

5

-

5

At 31 January 2019

210

10

159

379

             

 

 

14.        Cash generated by operations

 

£ millions

Half year ended
31 July 2019

Half year ended
31 July 2018

restated

(note 18)

Year ended
31 January 2019

restated

(note 18)

Operating profit

328

369

480

Share of post-tax results of joint ventures and associates

-

2

(1)

Depreciation and amortisation

270

261

535

Net impairment losses

24

-

201

(Gain)/loss on disposal of property, plant and equipment, investment property, assets held for sale and intangible assets

(2)

2

(25)

Lease losses

2

-

2

Share-based compensation charge

8

10

15

(Increase)/decrease in inventories

(111)

3

95

(Increase)/decrease in trade and other receivables

(43)

41

142

Increase/(decrease) in trade and other payables

94

12

(197)

Movement in provisions

55

27

19

Movement in post-employment benefits

(12)

(11)

(23)

Cash generated by operations

613

716

1,243

 

 

15.        Net debt

 

 

 

At 

At 

£ millions

At

31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Cash and cash equivalents

385

181

229

Bank loans

(4)

(5)

(4)

Fixed term debt

(140)

(44)

(136)

Lease liabilities

(2,638)

(2,800)

(2,626)

Financing derivatives

13

7

(5)

Net debt

(2,384)

(2,661)

(2,542)

 

 

 

At 

At 

£ millions

At

31 July 2019

31 July 2018

restated

(note 18)

31 January 2019

restated

(note 18)

Net debt at beginning of period

(2,542)

(2,678)

(2,678)

Net increase/(decrease) in cash and cash equivalents

131

(41)

12

Repayment of bank loans

1

1

1

Issue of fixed term debt

-

(44)

(139)

Repayment of fixed term debt

-

134

134

Receipt on financing derivatives

-

(37)

(37)

Net cash flow

132

13

(29)

Movement in lease liabilities

18

1

157

Exchange differences and other non-cash movements

8

3

8

Net debt at end of period

(2,384)

(2,661)

(2,542)

 

 

16.        Contingent liabilities

 

The Group has arranged for certain guarantees to be provided to third parties in the ordinary course of business. Of these guarantees, £45m (2018/19: £44m) would crystallise due to possible future events not wholly within the Group's control. At 31 January 2019, the amount was £43m.

 

The Group is subject to claims and litigation arising in the ordinary course of business and provision is made where liabilities are considered likely to arise on the basis of current information and legal advice.

 

The Group files tax returns in many jurisdictions around the world and at any one time, is subject to periodic tax audits in the ordinary course of its business. Applicable tax laws and regulations are subject to differing interpretations and the resolution of a final tax position can take several years to complete. Where it is considered that future tax liabilities are more likely than not to arise, an appropriate provision is recognised in the financial statements.

 

Included within these audits is a dispute with the French Tax Authority regarding the treatment of interest paid since the 2010 year end, where additional French tax of €49m (£45m) has been assessed and for which a bank guarantee is now in place. At the balance sheet date, interest and penalties of €52m (£47m) would be due on this assessment if not challenged successfully. Having taken external professional advice, the Group disagrees with the assessment and intends to defend its position through the courts. The Group does not consider it necessary to make provision for the amounts assessed at the current time, nor for any potential further amounts which may be assessed for subsequent years.

 

In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption section of the UK controlled foreign company rules. While the Group has complied with the requirements of UK tax law in force at the time, in April 2019 the European Commission concluded that aspects of the UK controlled foreign company regime partially constitutes state aid. Along with many other UK-based international companies, the Group may be affected by the Commission's decision.

 

In June 2019, the UK government submitted an appeal to the European Courts against the decision. The Group has calculated its maximum potential liability (including compound interest) to be £62m in the event that all appeals against the position are unsuccessful. The final impact on the Group remains uncertain but based upon advice taken, the Group considers that no provision is required at this time. The Group will continue to monitor the position as it develops.

 

Whilst the procedures that must be followed to resolve these types of tax issues make it likely that it will be some years before the eventual outcome is known, the Group does not currently expect the outcome of these contingent liabilities to have a material effect on the Group's financial position.

 

 

17.        Related party transactions

 

The Group's significant related parties are its joint venture, associate and pension schemes as disclosed in note 36 of the annual financial statements for the year ended 31 January 2019. There have been no significant changes in related parties or related party transactions in the period.

 

 

18.        Impact of the adoption of IFRS 16 'Leases'

 

Initial adoption of IFRS 16 'Leases'

 

The Group has adopted IFRS 16 from 1 February 2019 using the full retrospective method. Comparatives for the half year ended 31 July 2018 and the year ended 31 January 2019 have been restated.

 

The Group applied the practical expedient available for low-value items and short-term leases, recognising rental payments for these leases on a straight-line basis in the income statement and not recognising a right-of-use asset or lease liability. This presentation of these expenses remains consistent with the annual financial statements for the year ended 31 January 2019.

 

Following the adoption of IFRS 16, the Group's accounting policy in respect of leases is as follows:

 

Lessee accounting

 

The Group assesses whether a contract is or contains a lease at inception of the contract. Typically, lease contracts relate to properties such as stores and distribution centres, and equipment leases such as mechanical handling equipment and vehicles. For leases in which the Group is a lessee, the Group recognises a right-of-use asset and a lease liability.

 

The liability is initially measured as the present value of the lease payments not yet paid at the commencement date, discounted at an appropriate discount rate. Where the implicit rate in the lease is not readily determinable, an incremental borrowing rate is calculated and applied. The calculation methodology is based upon applying a financing spread to a risk-free rate, with the resulting rate including the effect of the credit worthiness of the operating company in which the lease is contracted, as well as the underlying term, currency and start date of the lease agreement.

 

Lease payments used in the measurement of the lease liability principally comprise fixed lease payments (subject to indexation/rent reviews) less any incentives. The lease liability is subsequently measured using an effective interest method whereby the carrying amount of the lease liability is measured on an amortised cost basis, and the interest expense is allocated over the lease term. The lease term comprises the non-cancellable lease term, in addition to optional periods when the Group is reasonably certain to exercise an option to extend (or not to terminate) a lease.

 

The Group remeasures the lease liability and makes a corresponding adjustment to the related right-of-use asset whenever an event occurs that changes the term or payment profile of a lease, such as the renewal of an existing lease, the exercise of lease term options, market rent reviews and indexation. A lease liability which is denominated in a currency that is not the functional currency of the relevant Group entity (e.g. a dollar-denominated lease in Castorama Russia) is translated into that entity's functional currency with foreign exchange gains and losses recorded in the income statement, unless the lease liability is able to be designated as a net investment hedge with foreign exchange gains and losses recorded in other comprehensive income.

 

The right-of-use assets are initially measured at the amount equal to the lease liability, adjusted by any upfront lease payments or incentives and any initial direct costs incurred. Subsequently, the assets are measured at cost less accumulated depreciation and impairment losses.

 

Lessor accounting

 

Lessor accounting is broadly consistent with the annual financial statements for the year ended 31 January 2019. However, where the Group subleases assets, it is determined whether the sublease should be classified as an operating lease or a finance lease, with reference to the right-of-use asset (not the underlying asset as per IAS 17).

 

Critical accounting estimates and judgements

 

For IFRS 16, judgement and estimates are applied to the calculation of incremental borrowing rates for lease contracts.

 

Given that risk-free rates such as government bonds are based on specified terms, the range of lease terms in the Group's portfolio has required the Group to apply judgement and estimate appropriate adjustments to available risk-free rates. Additionally, the application of financing spreads which are specific to operating companies requires an estimation of the credit quality of those companies. Given that the Group has applied the full retrospective approach to IFRS 16, these judgements and estimates have been applied in the calculation of historical discount rates.

 

The Group expects to continue to apply judgement and estimates to the calculation of incremental borrowing rates.

 

Impact on the financial statements on transition

 

The Group adopted IFRS 16 on 1 February 2019 on a fully retrospective basis, resulting in the restatement of comparatives for the six months ended 31 July 2018 and year ended 31 January 2019. The cumulative effect of initial application is recognised as an adjustment to opening equity on the date of transition (1 February 2018).

 

The effect of the changes made to the Group's comparative consolidated income statements, balance sheets and cash flow statements are as follows:

 

 

Consolidated income statements - IFRS 16 restatements

 

 

Half year ended 31 July 2018

Year ended 31 January 2019

£ millions

As previously reported

Impact of IFRS 16

Restated

As previously reported

Impact of IFRS 16

Restated

Sales

6,080

-

6,080

11,685

-

11,685

Cost of sales

(3,868)

4

(3,864)

(7,376)

9

(7,367)

Gross profit

2,212

4

2,216

4,309

9

4,318

Selling and distribution expenses

(1,486)

78

(1,408)

(3,114)

140

(2,974)

Administrative expenses

(452)

4

(448)

(867)

5

(862)

Other income

11

-

11

56

(2)

54

Other expenses

-

-

-

(57)

-

(57)

Share of post-tax results of joint ventures and associates

(1)

(1)

(2)

2

(1)

1

Operating profit

284

85

369

329

151

480

Finance costs

(9)

(88)

(97)

(20)

(176)

(196)

Finance income

6

2

8

13

3

16

Net finance costs

(3)

(86)

(89)

(7)

            (173)

(180)

Profit before taxation

281

(1)

280

322

(22)

300

Income tax expense

(73)

(1)

(74)

(104)

(3)

(107)

Profit for the period

208

(2)

206

218

(25)

193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

Basic

9.7p

(0.1)p

9.6p

10.3p

(1.2)p

9.1p

Diluted

9.7p

(0.1)p

9.6p

10.2p

(1.2)p

9.0p

Adjusted basic

11.0p

-

11.0p

19.8p

-

19.8p

Adjusted diluted

11.0p

-

11.0p

19.7p

-

19.7p

Underlying basic

12.8p

-

12.8p

23.9p

-

23.9p

Underlying diluted

12.7p

-

12.7p

23.8p

-

23.8p

 

 

 

 

 

 

 

Underlying pre-tax profit

375

2

377

693

1

694

Transformation costs before exceptional items

(52)

-

(52)

(120)

-

(120)

Adjusted pre-tax profit

323

2

325

573

1

574

Exchange differences on lease liabilities

-

(3)

(3)

-

(7)

(7)

Exceptional items

(42)

-

(42)

(251)

(16)

(267)

Profit before taxation

281

(1)

280

322

(22)

300

 

 

 

 

 

 

 

 

Segmental analysis

 

 

 

 

 

 

UK & Ireland

218

64

282

399

131

530

France

122

9

131

209

12

221

Poland

88

2

90

181

4

185

Other

(24)

11

(13)

(36)

24

(12)

Retail profit

404

86

490

753

171

924

Central costs

(24)

1

(23)

(49)

-

(49)

Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities

(2)

(1)

(3)

(4)

(1)

(5)

Exchange differences on lease liabilities of joint ventures and associates

-

(1)

(1)

-

(3)

(3)

Transformation costs before exceptional items

(52)

-

(52)

(120)

-

(120)

Exceptional items

(42)

-

(42)

(251)

(16)

(267)

Operating profit

284

85

369

329

151

480

 

 

 

 

 

 

 

 

 

Consolidated balance sheets - IFRS 16 restatements

 

 

At 31 July 2018

At 31 January 2019

At 31 January 2018

£ millions

As previously reported

Impact of IFRS 16

Restated

As previously reported

Impact of IFRS 16

Restated

As previously reported

Impact of IFRS 16

Restated

Non-current assets

 

 

 

 

 

 

 

 

 

Goodwill

-

2,438

2,436

-

2,436

2,437

-

2,437

Other intangible assets

-

375

371

-

371

355

-

355

Property, plant and equipment

(190)

3,567

3,454

(152)

3,302

3,736

(200)

3,536

Right-of-use assets

2,221

2,221

-

 2,017

2,017

-

 2,218

2,218

Investment property

-

21

8

-

8

20

-

20

Investments in joint ventures and associates

(6)

12

20

(5)

15

25

(6)

19

Post-employment benefits

-

318

320

-

320

214

-

214

Deferred tax assets

9

40

9

4

13

30

9

39

Derivative assets

-

-

-

-

-

Other receivables

8

45

53

10

31

41

8

47

55

 

6,966

2,079

9,045

6,628

1,895

8,523

6,825

2,068

8,893

Current assets

 

 

 

 

 

 

 

 

Inventories

-

2,718

2,574

-

2,574

2,701

-

2,701

Trade and other receivables

(49)

472

453

(47)

406

550

(49)

501

Derivative assets

-

47

26

-

26

41

-

41

Current tax assets

-

1

1

-

1

-

 -

-

Cash and cash equivalents

-

181

229

-

229

230

-

230

Assets held for sale

 -

 -

-

89

-

89

-

 -

-

 

3,468

(49)

3,419

3,372

(47)

3,325

3,522

(49)

3,473

Total assets

10,434

2,030

12,464

10,000

1,848

11,848

10,347

2,019

12,366

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Trade and other payables

44

(2,657)

(2,444)

29

(2,415)

(2,666)

36

(2,630)

Borrowings

15

(2)

(14)

13

(1)

(140)

13

(127)

Lease liabilities

 (363)

(363)

-

 (308)

(308)

-

(309)

(309)

Derivative liabilities

-

(16)

(21)

-

(21)

(79)

-

(79)

Current tax liabilities

-

(145)

(118)

-

(118)

(140)

-

(140)

Provisions

(44)

6

(38)

(35)

8

(27)

(25)

10

(15)

 

(2,923)

(298)

(3,221)

(2,632)

(258)

(2,890)

(3,050)

(250)

(3,300)

Non-current liabilities

 

 

 

 

 

 

 

 

Other payables

58

(6)

(64)

58

(6)

(61)

59

(2)

Borrowings

25

(47)

(162)

23

(139)

(36)

32

(4)

Lease liabilities

 (2,437)

(2,437)

-

(2,318)

(2,318)

-

 (2,482)

(2,482)

Derivative liabilities

 -

-

(2)

-

(2)

-

 -

-

Deferred tax liabilities

93

(220)

(286)

94

(192)

(264)

93

(171)

Provisions

43

(34)

(82)

45

(37)

(73)

44

(29)

Post-employment benefits

(122)

-

(122)

(115)

-

(115)

(115)

-

(115)

 

(648)

(2,218)

(2,866)

(711)

(2,098)

(2,809)

(549)

(2,254)

(2,803)

Total liabilities

(3,571)

(2,516)

(6,087)

(3,343)

(2,356)

(5,699)

(3,599)

(2,504)

(6,103)

Net assets

6,863

(486)

6,377

6,657

(508)

6,149

6,748

(485)

6,263

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Share capital

-

335

332

-

332

340

-

340

Share premium

-

2,228

2,228

-

2,228

2,228

-

2,228

Own shares held in ESOP trust

-

(26)

(25)

-

(25)

(29)

-

(29)

Retained earnings

(481)

3,330

3,696

(504)

3,192

3,790

(479)

3,311

Capital redemption reserve

-

40

43

-

43

35

-

35

Other reserves

475

(5)

470

383

(4)

379

384

(6)

378

Total equity

6,863

(486)

6,377

6,657

(508)

6,149

6,748

(485)

6,263

                       

 

 

Consolidated cash flow statements - IFRS 16 restatements
 

 

Half year ended 31 July 2018

Year ended 31 January 2019

£ millions

As previously reported

Impact of IFRS 16

Restated

As previously reported

Impact of IFRS 16

Restated

Operating activities

 

 

 

 

 

 

Cash generated by operations

503

213

716

781

462

1,243

Income tax paid

(77)

-

(77)

(132)

-

(132)

Net cash flows from operating activities

426

213

639

649

462

1,111

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment and intangible assets

(165)

1

(164)

(339)

7

(332)

Disposal of property, plant and equipment, investment property, assets held for sale and intangible assets

4

-

4

45

-

45

Interest received

4

-

4

11

-

11

Interest element of lease rental receipts

-

2

2

-

3

3

Principal element of lease rental receipts

-

3

3

-

6

6

Advance payments on right-of-use assets

-

(1)

(1)

-

(4)

(4)

Dividends received from joint ventures and associates

5

-

5

5

-

5

Net cash flows used in investing activities

(152)

5

(147)

(278)

12

(266)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Interest paid

(7)

-

(7)

(19)

-

(19)

Interest element of lease rental payments

(1)

(86)

(87)

(2)

(172)

(174)

Principal element of lease rental payments

(5)

(132)

(137)

(10)

(302)

(312)

Repayment of bank loans

(1)

-

(1)

(1)

-

(1)

Issue of fixed term debt

44

-

44

139

-

139

Repayment of fixed term debt

(134)

-

(134)

(134)

-

(134)

Receipt on financing derivatives

37

-

37

37

-

37

New shares issued under share schemes

2

-

2

2

-

2

Purchase of own shares for cancellation

(90)

-

(90)

(140)

-

(140)

Ordinary dividends paid to equity shareholders of the Company

(160)

-

(160)

(231)

-

(231)

Net cash flows from financing activities

(315)

(218)

(533)

(359)

(474)

(833)

Net (decrease)/increase in cash and cash equivalents

(41)

-

(41)

12

-

12

Cash and cash equivalents at beginning of period

230

-

230

230

-

230

Exchange differences

(8)

-

(8)

(13)

-

(13)

Cash and cash equivalents at end of period

181

-

181

229

-

229

 

 

 

 

 

 

 

Operating profit

284

85

369

329

151

480

Share of post-tax results of joint ventures and associates

1

1

2

(2)

1

(1)

Depreciation and amortisation

132

129

261

272

263

535

Net impairment losses

-

-

-

160

41

201

Loss/(gain) on disposal of property, plant and equipment, investment property, assets held for sale and intangible assets

2

-

2

(25)

-

(25)

Lease losses

-

-

-

-

2

2

Share-based compensation charge

10

-

10

15

-

15

Decrease in inventories

3

-

3

95

-

95

Decrease in trade and other receivables

41

-

41

144

(2)

142

Increase/(decrease) in trade and other payables

20

(8)

12

(203)

6

(197)

Movement in provisions

21

6

27

19

-

19

Movement in post-employment benefits

(11)

-

(11)

(23)

-

(23)

Cash generated by operations

503

213

716

781

462

1,243

 

Notes to the restatement tables

 

Income statement

 

·      There is no impact on sales.

·      The reduction in cost of sales, selling and distribution expenses and administrative expenses is due to the removal of the IAS 17 operating lease rental expense, partially offset by the IFRS 16 depreciation charge on in-scope property and equipment lease right-of-use assets. The leased properties principally comprise stores, hence the significant impact on selling and distribution expenses, but also include certain distribution centres and offices. The majority of the impact on operating profit (and the Group's alternative measure of retail profit) arises in the UK, due to the high proportion of leasehold stores.

·      The increase in net finance costs is driven by the IFRS 16 interest expense on lease liabilities. Other impacts include a small increase in finance income from IFRS 16 interest income on sublease assets, the removal of IAS 17 finance lease interest expense and the recognition of IFRS 16 exchange differences on lease liabilities ('lease FX').

·      Lease FX represents the impact of translating leases denominated in non-functional currencies (e.g. a dollar-denominated lease in Russia) which are not able to be designated as net investment hedges and has been excluded from the Group's adjusted and underlying performance measures due to its fluctuating nature.

·      The movement in exceptional items mainly reflects the recognition of IFRS 16 impairments to right-of-use assets, partially offset by the derecognition of IAS 17 charges to onerous lease rental provisions.

·      The impact on deferred tax of the above adjustments has been recorded. Note that the Group's alternative measure of adjusted effective tax rate remains broadly unchanged.

·      Earnings per share reflects the net impact of the above adjustments on post-tax results. The Group's alternative measures of underlying and adjusted earnings per share remain unchanged, reflecting the broadly neutral impacts on underlying and adjusted pre-tax profits and adjusted effective tax rate.

 

 

Balance sheet

 

·      IFRS 16 right-of-use assets and lease liabilities have been recognised for in-scope property and equipment lease contracts.

·      IAS 17 finance lease assets, upfront lease premiums and capitalised costs incurred to secure leases have been derecognised from property, plant and equipment.

·      IAS 17 finance lease liabilities have been derecognised from borrowings.

·      IAS 17 rental prepayments and accruals have been derecognised from other receivables and payables respectively, the former partially offset by recognition of sublease assets.

·      IAS 17 onerous lease rental provisions have been derecognised.

·      The impact on deferred tax of the above adjustments has been recorded.

·      Retained earnings have reduced, reflecting the higher cumulative expenses under IFRS 16.

 

 

Cash flow statement

 

·      No change in reported cash and cash equivalent balances and net movement in these.

·      The presentational changes to the cash flow statement principally comprise the reclassification of lease rental payments from net cash flows from operating activities to net cash flows from financing activities, with payments split between interest and principal elements.

·      Other presentational changes include the increased add-back to operating profit for IFRS 16 right-of-use asset depreciation and impairment losses.

·      Note that the Group's alternative measure of net debt increases significantly with the inclusion of IFRS 16 lease liabilities. The ratio of net debt to EBITDA, previously 'lease adjusted net debt to EBITDAR', reduces due to a lower lease liability than the previous '8x' rent assumption.

·      Note that the Group's alternative measure of free cash flow reduces slightly under IFRS 16 to reflect the inclusion of the principal element of rental payments related to IAS 17 finance leases.

 

 

Note that the impacts on the statement of comprehensive income and statement of changes in equity are limited to the restatement of profits and adjustments for exchange differences.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors confirm that to the best of their knowledge this set of interim condensed financial statements has been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 

·      an indication of important events that have occurred during the period and their impact on the interim condensed financial statements, and a description of the principal risks and uncertainties for the remainder of the financial year; and

·      material related party transactions in the period and any material changes in the related party transactions described in the last annual report.

 

The Directors of Kingfisher plc were listed in the Kingfisher plc Annual Report for the year ended 31 January 2019. Karen Witts resigned as Chief Financial Officer on 21 March 2019 and Anders Dahlvig resigned as a non-Executive Director on 12 June 2019.

 

By order of the Board

 

 

 

Veronique Laury                                                                  Andy Cosslett

Chief Executive Officer                                                      Chairman

17 September 2019                                                            17 September 2019

 

 

INDEPENDENT REVIEW REPORT TO KINGFISHER PLC

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2019 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

17 September 2019

 

 

 


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