Kingfisher Regulatory News (KGF)

Final results for year ended 31 January 2019

FY 18/19 Group results

· Total sales up 0.3% in constant currency; LFL down 1.6% with growth in Screwfix (UK), Brico Dépôt France and Poland offset by B&Q and Castorama France

· Gross margin after clearance flat (-10bps in constant currency)

o FY gross margin up in UK, Poland & Brico Dépôt France; H2 Group gross margin +30bps

· Underlying PBT down 13.0%, with retail profit increases in the UK and Poland (56% of total sales) more than offset by weakness in Castorama France and losses in Russia & Romania

· Statutory PBT down 52.8% largely reflecting property-related exceptional items

· Balance sheet remains strong:

o Working capital inflow of £24m with last year's mitigation stock eliminated

o Returned £371m to shareholders (£231m ordinary dividend; £140m share buyback)

ONE Kingfisher transformation progress update

· Building of Kingfisher 'engine' nearing completion

· Substantially delivered strategic milestones for third year in a row: Unified 44% of product (COGS) (exit rate 50%), continued growth in sales and margin from unified and unique ranges; successful further rollout of unified IT platform; delivered £42m of operational efficiencies

· Fulfilled commitment to return £600m via share buyback over first three years of plan

· Estimated benefits from transformation after three years in line with 2016 plan

o Benefits offset by weaker performance from underlying business due to external environment and underperforming parts of the business; clear priorities for year ahead

FY 19/20 and beyond

· Expect FY 19/20 gross margin(2) to be flat after incremental clearance costs

· Infrastructure to support more profitable future growth largely in place

· Remain convinced in ability to deliver significant further financial benefits from transformation

· Separation of transformation benefits ('£500m uplift in FY 20/21') from rest of business ('BAU') no longer reflects how we manage the business

· Targeting growth in Group sales, gross margin, retail profit and ROCE over the medium term, reflecting improved underlying business performance and further transformation benefits

Clear priorities for FY 19/20

· Address underperformance of Castorama France and other parts of the business

· Considering the closure of 15 poor performing stores across the business over next 2 years; also closing 19 Screwfix Germany outlets

· Extend rollout of Screwfix outlets in the UK and enter new markets

· Complete the building of the 'engine' and make our innovation more visible to customers

\* Throughout this release '*' indicates first instance of a term defined and explained in the Glossary (section 5). Not all of the figures and ratios used are readily available from the unaudited final results included in part 2 of the announcement. These non-GAAP measures (also known as alternative performance measures), including constant currency and like-for-like sales growth, underlying and adjusted profit measures, management believes are both useful and necessary to better understand the Group's results. Where required, a reconciliation to statutory amounts is set out in the Financial Review (Section 4).

(2) Gross margin movement excluding Russia and Iberia

Véronique Laury, Chief Executive Officer, said:

"We have achieved radical organisational and behavioural change across Kingfisher over the last three years. We've done this against the backdrop of rapid structural change in retail alongside high levels of macroeconomic uncertainty, which are ongoing. Navigating these conditions while maintaining focus on a transformation of this scale has required huge commitment from our people.

"During the year, the UK, Poland and Brico Dépôt France performed well, leveraging the benefits of our transformation. However, Castorama France has been disappointing and we are implementing a clear plan to sustainably improve its performance. Screwfix's leading omnichannel proposition has consistently delivered strong growth in recent years and we have identified additional expansion opportunities in both the UK and in new markets, initially in the Republic of Ireland.

"Much of our focus over the last three years has been on building an 'engine' to deliver a superior customer proposition and the agility to succeed in the new retail environment. Our customers are starting to benefit from differentiated product, in store and online, at everyday low prices. Over the next year we will be accelerating our unique product activity and making our innovation more visible to customers including testing new store concepts.

"Our 'engine' is now largely built and we are confident in delivering significant financial benefits over time. We are targeting growth in sales, margin and returns over the medium term."

Leadership changes

Kingfisher is also today announcing some senior management changes. Firstly, Steve Willett, Chief Transformation, Digital & IT Officer, has decided to retire after nearly 20 years with the business. The Company would like to thank Steve for all his dedicated and tireless hard work during this time. In addition, the Company is pleased to announce the appointment of John Wartig, who replaces Karen Witts as Chief Financial Officer on an interim basis. John will join the business on 8 April 2019 and brings a wealth of international experience covering both financial and consumer facing businesses. John will not become a member of the Board of Directors.

Contacts

This announcement can be downloaded from www.kingfisher.com. We can be followed on Twitter @kingfisherplc with the full year results tag #KGFFY.

We will host a results presentation to analysts and investors today at 09.00 (UK time) at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London, EC4A 2BB. A simultaneous live audiocast of the presentation will be available via the Investors section of the Company's website at www.kingfisher.com and where, subsequent to the live audiocast, a copy of the results presentation will also be available for viewing.

Kingfisher American Depository Receipts are traded in the US on the OTCQX platform: (OTCQX: KGFHY) http://www.otcmarkets.com/stock/KGFHY/quote

Our next results announcement will be the Q1 trading update for the three months ended 30 April 2019 on 15 May 2019. On the same day we will also host a Capital Markets Event in London, United Kingdom. For further details of the event and attendance in person, please contact Kingfisher's investor relations team at investorenquiries@kingfisher.com.

* These dates are provisional and may be subject to change.

The remainder of this release is broken down into six main sections:

1) ONE Kingfisher transformation update

2) Trading review by division

3) FY 19/20 Technical guidance

4) FY 18/19 Financial review and, in part 2 of this announcement, the condensed financial statements

5) Glossary

6) Forward-looking statements

Section 1: ONE Kingfisher transformation update

The ONE Kingfisher transformation plan, which started in FY 16/17, is focused on creating a unified company by leveraging the scale of the business, where customer needs always come first. Transformation on this scale is a significant undertaking but necessary to ensure a strong, sustainable and agile business with a superior customer proposition.

The plan focuses on building the Kingfisher 'engine' through three strategic pillars:

1. Creating a unified, unique and leading home improvement offer;

2. Driving our digital capability; and

3. Optimising our operational efficiency.

In January 2016 we set out the financial targets of our transformation plan, with the intention for the transformation to deliver a sustainable annual profit uplift of £500m by the end of FY 20/21, over and above what the business would have delivered without the plan. The total expected cash cost of the transformation was £800m (P&L, exceptional and capex).

Three years into the five-year plan, we have significantly reorganised our business including establishing a single buying organisation, which is leveraging the scale of the Group, and implementing a unified IT infrastructure. For the third year in a row we have substantially delivered our strategic milestones, against the backdrop of profound changes in the retail landscape and an uncertain macroeconomic environment. We have unified 44% of our products (COGS) (exiting FY 18/19 at 50%) with the sales and margin from unified & unique ranges continuing to grow and outperforming our non-unified ranges. Our unified IT platform implementation is substantially complete and our digital sales continue to grow, now reaching 6% of the Group. And finally, our operational efficiency initiatives have delivered £100m of savings to date.

The transformation plan is delivering. After the first three years, the benefits from the transformation are in line with our initial plan. However, this has been outweighed by weakness in our base business, or 'business as usual' (BAU), due to a combination of 'internal' factors and 'external' challenges. Over the same time, a significant proportion of the costs to deliver the transformation has already been incurred, meaning that much of the 'heavy lifting' has been completed. We are now well positioned to benefit from future sales growth and will progressively start to see the benefits of operational leverage. To date, transformation costs (P&L, exceptional and capex) have totalled £490m, and we anticipate the total cash cost of the transformation over the five-year period will be less than the £800m guidance.

'External' challenges have included weaker than expected economic growth in the UK, significant cost price inflation (commodity prices and FX) and higher wage inflation in the UK and Poland. 'Internal' factors, include transformation-related disruption and the underperformance of Castorama France. We have clear priorities for FY 19/20 and beyond, on which we provide more detail on pages 7-8.

We continue to believe in the significant opportunity the transformation provides to grow sales, margin and returns. However, it is increasingly evident that separating transformation benefits ('£500m profit uplift in FY 20/21') from the rest of the business ('BAU') no longer reflects how we manage the business. Having established a single buying organisation, unified half of our offer, and substantially implemented our unified IT platform, transformation and business as usual are increasingly indistinguishable.

We are therefore targeting the following financial outcomes for the Group over the medium term, which combine market dynamics with our initiatives to drive profitable growth:

· Growth in ongoing Group sales

· Higher gross margin

· Higher retail profit

· Higher ROCE

The following sections update on our progress against our three key strategic pillars for FY 18/19:

1. Unified & unique offer

We are unifying our offer, with the same products, available to all our customers. This is delivering customer benefits (newer products, higher quality, better sustainability, lower prices, simpler ranges, clearer merchandising and better packaging) alongside business benefits (higher sales, fewer SKUs*, fewer suppliers, cost price reduction (CPR*) and improved processes).

Unifying ranges means rationalising the number of global SKUs and suppliers whilst improving the quality and functionality for our customers and leveraging our scale. This generates cost price reduction and better prices for customers. Products are unified across the whole range; from selling the same product in all our markets to having some customer driven market adaptions where needed. Unified includes our own exclusive brands alongside international and national brands.

Unique ranges relate to the development of our own product ranges to provide differentiation for customers. These ranges are not available elsewhere and are always sold under our own exclusive brands. Instead of buying products off the shelf from suppliers, we are designing the ranges ourselves based on our deep customer insights.

Our FY 18/19 strategic milestones were to:

· Deliver growth in unified & unique sales and gross margin

· Unify 40% of product (cost of goods sold (COGS))

In FY 18/19, we achieved unification of 44% of product (COGS), ending the year at the rate of 50% unified. We have significantly reduced the number of our global suppliers and SKUs on ranges that have been unified to date, but are still offering customers similar breadth of choice.

In FY 18/19 we continued to implement new ranges including additional outdoor products, doors,

indoor and outdoor lights, nails, bolts and screws and glues. Sales of our unified & unique ranges continue to outperform non-unified ranges. Sales of unified & unique ranges including clearance, were up 1.3%(1) compared to last year and sales of non-unified ranges were down 1.8%(1).

During the year, for unified & unique ranges, we achieved growth in four of the seven key categories and gross profit uplift in all seven (five at H1 18/19). Growth in unique ranges, such as the new bathroom furniture and shower ranges, is ahead of unified ranges, however the mix of ranges implemented to date is weighted towards unified. For example, sales of unified & unique bathroom & storage increased by 5.0% whereas total sales for this category were up 1.1%.

Since the start of the plan, cumulative gross margin for unified & unique has increased by 230bps, after cost price inflation and price investment (before clearance and the impact of logistics and stock inefficiencies). In FY 18/19, gross margin for unified & unique ranges increased by 120bps year on year. This uplift was on the 44% of COGS that have been unified, contributing 50bps to the Group gross margin movement in FY 18/19. Clearance costs were flat year on year.

(1) In constant currency including clearance, excluding Praktiker Romania, Screwfix Germany, Portugal and services

2. Digital

Implementation of a new unified IT system is a key enabler of our transformation plan. It is providing the foundation to deliver a seamless and stronger digital offer for our customers, and to increase sales and digital penetration.

Our FY 18/19 strategic milestones were to:

· Complete the final year of unified IT platform rollout

· Complete ecommerce rollout in France & Poland

· Market launch of first home improvement services in UK & France

This involves continuing to invest in our core ecommerce platforms, enabled by the new unified IT infrastructure, and leveraging our Screwfix best-in-class capability. This includes upweighted digital marketing, improved site search, new checkout and launching new mobile sites.

Our unified IT platform rollout is substantially complete and our ecommerce initiatives continue to make good progress. Digital sales grew by 17% and now account for 6% of the Group sales, double the level at the start of the transformation plan. 'Click & collect' sales at B&Q grew by 42% year on year, mainly driven by the rollout of the one-hour click & collect service which went live in the second half of FY 17/18.

We continued to invest in our core ecommerce platforms, enabled by the new unified IT infrastructure. This included in B&Q, the first phase of the 'next generation' ecommerce platform, improved site search, new checkout, as well as launching, new mobile sites and upweighted digital marketing. In France, we launched a new castorama.fr website in January 2018. We are encouraged by the increase in conversion seen to date and continue to work on further content development to enhance the overall customer proposition.

We also continued to develop our digital home improvement services tools including the bathroom

planner tool, which is integrated into the B&Q website. Since launch it has attracted 255,000 unique users. The bathroom planner tool was also launched in France and is now integrated into the castorama.fr website.

3. Operational efficiency

We are delivering operational efficiency benefits through several initiatives including unifying our annual spend on GNFR*. This programme is a combination of cost savings together with an opportunity to work in a simpler and more effective way across the business.

Our FY 18/19 strategic milestones were to:

· Implement finance shared services in at least two operating companies

· Deliver £30m of benefits (from the unified GNFR programme and other efficiencies)

In FY 18/19 we delivered a further £42m of operational efficiency benefits, of which £28m resulted from our GNFR programme including categories such as building services, professional services and energy consumption. The remaining £14m of benefits arose from restructuring activity at B&Q and France. We implemented finance shared services in three operating companies (B&Q, Castorama France and Brico Dépôt France) using our shared services centre in Krakow, Poland.

Cumulatively, we have delivered benefits of £100m, of which £86m resulted from our GNFR programme.

Clear priorities for FY 19/20 and beyond

1. Address underperformance of Castorama France and other parts of the business

Castorama France: In France, whilst Brico Dépôt's sales and gross margin improved, with clear benefits from the transformation plan, Castorama's performance has been weak, due to lower footfall, price repositioning and transformation-related activity (including logistics & stock inefficiencies). While there is no quick fix, the new management team has implemented a recovery plan that we expect to deliver a sustainably improved performance:

· In the second half of FY 18/19 Castorama accelerated its move to an everyday low price (EDLP) strategy. Price positioning has improved over the year and is now only slightly higher than the market;

· Progress was made in reducing Castorama's stock position which is helping to address logistics & stock inefficiencies;

· Variable cost reduction initiatives were implemented including a 5% reduction in employees (FTE) (FY 18/19);

· The rollout of our unified IT platform is substantially complete;

· In 2019 Castorama will benefit from new unique ranges, increased customer marketing and an improved digital experience.

These actions are ongoing and the benefit is still to be realised. Encouragingly customer perception improved at Castorama, with net promoter score (NPS) showing a clear increase in the second half of FY18/19.

Closing underperforming stores across the business: Whilst the majority of stores in our portfolio are delivering satisfactory returns on capital, certain stores are loss making and achieving low returns. As a result, we are considering closing 15 stores across the business over the next two years. These stores are a combination of owned and leased properties and the estimated cash costs of exit are expected to be covered by sale proceeds from the owned stores.

Focusing on markets where we are, or can be, leading: At Q3 we announced the strategic decision to exit Russia and Iberia to focus on markets where we have, or can reach, a market leading position. Those exit processes are ongoing. Further, we have taken the decision to close all 19 of our Screwfix Germany outlets, while retaining an online presence. These outlets are expected to close in FY 19/20.

2. Extend rollout of Screwfix outlets in the UK and enter new markets

Screwfix has achieved very strong growth over the last five years with compound annual sales growth of 20%. Its success is rooted in its customer focus, digital capability and convenience proposition. At the end of FY 18/19 Screwfix UK had 627 outlets (nearly double the number five years ago).

In FY 19/20, Screwfix will strengthen its overall customer proposition and extend its store plan in the UK. We are now targeting approximately 800 outlets in the UK, having previously targeted 700.

We also remain confident that the Screwfix model will work in markets outside of the UK. In 2019 Screwfix plans to open outlets in the Republic of Ireland. The choice of entering this market is a result of Screwfix's strong existing online presence and similarities in customer behaviour with the UK.

Screwfix's experience in Germany highlighted the importance of staying true to its core model and of extensive testing. We are embedding this experience into our plans and conducting extensive validation for market entry opportunities in France and Poland, initially via an online presence. These are both markets where the Group has existing scale, infrastructure and in-depth market knowledge.

3. Complete the building of the 'engine'

We will continue to implement our transformation plan in FY 19/20 to complete the building of our 'engine'.

Having achieved a critical mass of unified product, we are placing much greater emphasis on developing more unique product in order to drive sales growth which, in conjunction with the delivery of cost price reduction on unified COGS, should drive gross margin uplift.

In FY 19/20 we will complete a further rollout of our unified IT platform, which will unlock additional operational efficiencies. Enabled by the new IT infrastructure, we are planning to launch 'next generation' ecommerce capability in all remaining markets, as well as developing further digital services to support customers' home improvement projects.

Having successfully established finance shared services in Krakow, Poland, we plan to implement these services for further operating companies in FY 19/20.

4. Make our innovation more visible to customers

Our aim is to differentiate ourselves from competitors by leveraging our in-depth knowledge of our customers' lives, homes, improvement projects and style preference. We are focused on applying this knowledge to help customers realise their entire home improvement projects.

To enable this, in FY 19/20 we will:

· Accelerate the design and development of our own unique and differentiated product;

· Deliver a series of global and coordinated marketing campaigns;

· Reinforce our everyday low price proposition;

· Launch new digital planning and design tools;

· Upskill our store colleagues;

· Trial innovative new store concepts; and

· Develop new in-store services.

Investing in our people gives them the expertise to fully understand the needs of our customers and their home improvement projects. Our Home Improvement Academy provides relevant product training and project knowledge, through seminars, practical sessions, and situational role plays, both in person and through digital channels, to help our store colleagues become range ambassadors and take information and ideas back to their stores. In the future, we aim to provide similar resources to customers both in-store and through our digital channels.

During the year we will be testing innovative new store concepts. Initially, these will focus on France and the UK.

Sustainable, good homes for everyone

We know sustainability is important for our colleagues, customers and investors, to know they work, shop and invest in the right kind of business.

Last year, we launched our sustainable growth plan which sets out the next stage on our journey towards being a truly sustainable business, starting with what customers care about: their families, their homes and their communities.

In 2019 we will continue to help customers improve their homes through products that help them save energy and water and reduce their household bills. We're also responding to customers' desires for fewer and less harmful chemicals in their homes and have committed to phasing out high priority chemicals such as phthalates, PFCs and halogenated flame retardants from all own-branded products by 2025.

In 2015, we made a public commitment to set science-based carbon reduction targets through the Science Based Targets initiative (SBTi). Our carbon reduction targets have recently attained official approval by the SBTi. This approval confirms that our targets align with the goal of the Paris Climate Agreement to keep global temperature rises below 2°C. We have already made significant progress to cut the environmental footprint of our business and our products. For example:

· The energy saving products in our ranges enable an estimated reduction in energy use in our customers' homes by over a third;

· Our unified range of kitchen taps are all low flow;

· We've cut our operational absolute carbon emissions by 15% since 2016/17; and

· In the UK, our electricity is now 100% renewably sourced and we launched our first zero-energy store in the UK, with more planned in 2019.

We also continue to feature prominently in key investor indices including:

· An 'AAA' rating from MSCI;

· Maintaining our 'A-' leadership position in CDP Climate Change;

· Continuing to be listed in the Dow Jones Sustainability Index (DJSI) in 2018

Kingfisher also ranked 11th in a recent study, published by the Business and Human Rights Resource Centre (BHRRC), a monitoring group, of Modern Slavery Act statements by FTSE 100 companies listed on the London Stock Exchange. Please visit www.kingfisher.com/sustainability for further details.

Summary & outlook

The building of Kingfisher's 'engine' is now nearing completion. We have now reached a critical mass of both unified product and the rollout of our unified IT platform, whilst unlocking significant operational efficiency benefits. We have also fulfilled our commitment to return £600m via share buyback over the first three years of the transformation plan, in addition to ordinary dividends of £692m over the same period. 

During FY 18/19, our financial performance was mixed due to a combination of internal challenges and the external macroeconomic environment. The UK, Poland and Brico Dépôt France performed well, leveraging the benefits of our transformation, and at a Group level we delivered solid gross margin progression in the second half of the year. However, the performance of Castorama France has been disappointing and we are in the process of implementing a clear plan to sustainably improve its results. 

In Q3 we took the decision to exit Russia and Iberia to focus on markets where we are, or can be leading. We are also considering the closure of 15 underperforming stores across the business over the next two years and have taken the decision to close all 19 of our Screwfix Germany outlets, while retaining an online presence. Screwfix's leading omnichannel proposition has consistently delivered strong growth in recent years and we have identified additional expansion opportunities in both the UK and in new markets, initially in the Republic of Ireland.

Our customers are starting to benefit from differentiated product, in store and online, at everyday low prices. Over the next year we will be strengthening our customer proposition by accelerating our unique product launch and development activity and testing new store concepts in order to make our innovation more visible to customers.

As we enter FY 19/20, the outlook by country is mixed. The UK market remains uncertain and we are mindful of softer housing market activity in France. In Poland the market remains supportive. We are positive about the longer term outlook for the home improvement sector and we are focused on delivering growth in sales, margin and returns.

Section 2: Trading review by division

Note: all commentary below is in constant currencies

UK & IRELAND*

Kingfisher UK & Ireland sales were up 1.1% (-0.8% LFL) to £5,061 million within the context of a weak consumer backdrop. Gross margin increased by 20 basis points and costs were tightly managed resulting in retail profit up 6.0% to £399 million.

B&Q total sales declined by 2.8% to £3,390 million. LFL sales declined by 3.0%. The discontinuation of installations impacted LFL by c. 2% in H2 and in c. 1% the full year. LFL sales of weather-related categories increased by 1.8% while sales of non-weather-related categories, including showroom, were down 4.4%.

B&Q's total online sales continued to make good progress with sales growing by 9% (including click & collect up 42% and mobile up 44%) and now represent 5% of total sales.

Screwfix total sales increased by 10.3% (+4.1% LFL) to £1,671 million, driven by specialist trade desks exclusive to plumbers and electricians, strong digital growth of 19% (e.g. mobile + 44%; click & collect +23%) and the continued rollout of new outlets. 50 new outlets were opened, taking the total to 627 and a fourth distribution centre was opened in Lichfield in May. We have increased our overall target to approximately 800 outlets in the UK, up from approximately 700 previously and also intend to open stores in the Republic of Ireland from 2019 to complement our existing online presence.

FRANCE*

Kingfisher France sales decreased by 3.4% (-3.7% LFL) to £4,272 million with improved sales performance at Brico Dépôt offset by a weak performance in Castorama. Both businesses were impacted by national demonstrations in Q4 which resulted in difficulty accessing stores and some temporary store closures. The estimated negative impact on France LFL was c. 3% in Q4 and c. 0.5% in FY 18/19. According to Banque de France data*, sales for the home improvement market were down 0.5% and continue to be volatile from month to month.

Castorama total sales declined by 7.3% (-7.1% LFL) to £2,246 million reflecting weak footfall, price repositioning, the impact of transformation-related activity and national demonstrations in Q4. LFL sales of weather-related categories were down 6.5% and sales of non-weather-related categories, including showroom, were down 7.4%.

Brico Dépôt total sales grew by 1.4% (+0.4% LFL) to £2,026 million reflecting a good performance of the new unified & unique ranges and supported by investment in marketing (representing the first year of LFL growth since 2011/12). Q4 performance was also impacted by national demonstrations.

Across the two businesses space remained broadly flat, with Brico adding two net new stores and Castorama closing one net store.

France gross margin declined by 60 basis points with an increase at Brico Dépôt offset by a decrease at Castorama. The gross margin at Castorama was impacted by logistics and stock inefficiencies resulting in a c.80bps impact on France gross margin. Retail profit decreased by 35.2% to £209 million. This reflected weak sales, a decrease in gross margin and higher costs, including additional marketing investment and higher digital costs.

OTHER INTERNATIONAL*

Other International total sales increased by 5.7% (+1.0% LFL) to £2,352 million reflecting growth in Poland and the acquisition of Praktiker Romania in November 2017. Retail profit decreased by 4.3% to £145 million, with growth in Poland offset by losses in Russia, Romania and Screwfix Germany.

Across the businesses space remained broadly flat, with three net store closures in Romania.

Sales in Poland were up 3.4% (+1.7% LFL) to £1,431 million despite the introduction of new laws on Sunday trading which had an estimated adverse impact on LFL sales of c. 1.5%. LFL sales of weather-related categories were up 3.4% with sales of non-weather-related categories, including showroom up 1.4%. Gross margin was up 110 basis points reflecting sourcing benefits. Retail profit grew by 6.6% to £181 million reflecting sales growth and higher gross margin, partly offset by higher staff costs (as wage inflation is running significantly ahead of retail price inflation). 

In Romania sales increased by 63.4% (+0.2% LFL) to £210m driven by the acquisition of Praktiker Romania and made a retail loss of £15 million (2017/18: £3 million reported retail profit) reflecting a year of transition following acquisition of Praktiker Romania and significant range change. Brico Dépôt Romania continue to make a retail profit. The integration of Praktiker is progressing with new unified ranges being implemented and the stores now rebranded to Brico Dépôt.

At Q3 18/19 we announced the strategic decision to exit Russia and Iberia to focus on markets where we have, or can reach, a market leading position. Today we have also announced that we will close our 19 Screwfix Germany outlets and retain an online presence.

In Iberia sales decreased by 1.1% (-1.1% LFL) to £346 million and made a £1 million retail profit (2017/18: break even reported retail profit). In Russia sales increased by 0.3% (+0.2% LFL) to £352 million. The business incurred a £12 million retail loss (2017/18: £8 million reported retail loss) reflecting a challenging environment and store pre-opening and refurbishment costs.

Screwfix Germany sales increased by 8.3% (+9.1% LFL) and made a £16 million retail loss (2017/18: £18 million reported retail loss).

In Turkey, Kingfisher's 50% JV, Koçtaş, contributed retail profit of £6 million (2017/18: £7 million reported retail profit).

Section 3: FY 19/20 Technical guidance(1)

Employees, new stores and space growth:

(3) Screwfix sales area relates to the front of counter area of an outlet

Income statement:

· Sales outlook:

o UK - heightened levels of uncertainty; annualisation of discontinuation of installations (c.1-2% impact to B&Q H1 19/20 LFL)

o France - weaker housing data; encouraged by Castorama's start to the year

o Poland - loss of one further Sunday of trading per month (3 non-trading Sundays; previously 2)

· Gross margin after clearance expected to be flat(2)

o Includes c.£25-30m incremental clearance costs (H1 19/20 weighted) associated with the implementation of new unified ranges including kitchens in B&Q

· Central costs expected to be c.£50m

· Total transformation costs over 5 years to FY 20/21 expected to be less than £800m

o Transformation P&L costs expected to be c.£60-80m in FY 19/20

o Transformation exceptional costs expected to be c.£40m in FY 19/20

· Adjusted effective tax rate expected to be around 26-27%, subject to the blend of profit within the companies' various jurisdictions, as well as the timing of exits from Russia and Iberia

Cash flow:

· Total capex including transformation of up to c.£375m

· Stores considered for closure: cash costs expected to be covered by disposal proceeds

(1) Guidance given before the impact of the new lease accounting rules per IFRS 16

(2) Gross margin movement excluding Russia and Iberia

Section 4: FY 18/19 Financial review

A summary of the reported financial results for the year ended 31 January 2019 is set out below:

(1) Kingfisher separately reports exceptional items and transformation P&L costs in order to calculate adjusted and underlying results, as it believes these measures provide additional useful information on underlying performance and trends

Total sales increased by 0.3% on a constant currency basis to £11.7 billion, with LFL sales down 1.6%. On a reported rate basis, which includes the impact of exchange rates, sales increased by 0.3%. During the year, sales growth benefited from 51 net new stores (excluding 26 Praktiker Romania stores that were acquired in November 2017), mostly driven by 50 Screwfix outlet openings in the UK.

Gross margin was flat as increases in the UK, Brico Dépôt France and Poland were offset by a weak performance at Castorama France.

Reported retail profit decreased by 11.3% including £1 million of favourable foreign exchange movement on translating foreign currency results into sterling. In constant currencies retail profit decreased by 11.4%, reflecting a significant decrease in profit in France, partly offset by an increase in profit in the UK and Poland and including £43 million of losses in Russia, Romania and Screwfix Germany.

Underlying pre-tax profit, which excludes the impact of transformation P&L costs and exceptional items, decreased by 13.0%, to £693 million.

Adjusted pre-tax profit, which excludes the impact of exceptional items, decreased by 16.1% to £573 million, reflecting £120 million of transformation P&L costs.

Statutory pre-tax profit, which includes the impact of transformation costs and exceptional items, decreased by 52.8% to £322 million.

We continued to invest in the business and the transformation, we paid £231 million in cash dividends and repurchased a further £140 million of shares while maintaining a strong balance sheet.

A reconciliation from the underlying basis to the statutory basis for pre-tax profit is set out below:

Transformation P&L costs of £120 million principally relate to the unified and unique offer range implementation and the digital strategic pillar. Range implementation activities principally comprise remerchandising work associated with introducing the unified and unique offer, incremental in-store labour costs and point of sale change. Digital transformation P&L costs represent the initial revenue expenditure of investing in developing wider digital services to support customers' home improvement projects.

Exceptional items (post tax) resulted in a net charge of £190 million (2017/18: net nil impact) as detailed below:

Transformation exceptional costs of £58 million were driven by people changes associated with restructuring in France and the UK. People related changes include the move of transactional processing activity to a shared service centre in Poland.

We have recognised a £111 million charge principally relating to impairments for underperforming stores. This includes 15 stores across the business that we are considering closing in the next two years and 19 Screwfix Germany outlets. The stores are a combination of owned and leased properties and we expect to cover the cash costs with sale proceeds.

A net charge of £28 million has been recorded relating to property disposals. This reflects a profit of £29 million relating to the disposal of properties in the UK and France and impairment losses of £57 million in advance of planned disposals for properties classified as held for sale in the UK and Poland.

As previously announced we intend to exit Russia and Iberia and recognised a £16 million impairment during the period mainly relating to stores. Praktiker Romania integration costs of £15 million principally comprise planned store closure costs. B&Q store replenishment restructuring of £12 million relates to redundancy costs associated with the transfer of store replenishment routines from the nighttime into the daytime.

Other exceptionals of £11 million include a £6 million one-off 'Macron premium' payment to employees in France and a £5 million charge as a result of the recent UK High Court ruling in respect of the equalisation of Guaranteed Minimum Pensions.

Taxation

The Group's adjusted effective tax rate is sensitive to the blend of tax rates and profits in the Group's various jurisdictions. It is higher than the UK statutory rate because of the amount of Group profit that is earned in higher tax territories. The adjusted effective tax rate, calculated on profit before exceptional items, prior year tax adjustments and the impact of future rate changes is 27% (2017/18: 30%).

The adjusted effective tax rate is lower than the prior year mainly due to the one off 30% French tax surcharge applicable in 2017/18 that increased the French tax rate to 44%. At a Group level this surcharge increased the adjusted effective tax rate by c.3% in the prior year.

The overall rate of tax includes the impact of exceptional items and prior year adjustments. The effect of such items increased the rate from 27% to 32%. This predominately reflects the applicable tax treatment of exceptional items and the decision to derecognise assets related to historic tax losses in Russia and Iberia, partially offset by a release of prior year provisions which reflect a reassessment of expected outcomes, agreed positions with tax authorities and items that have time expired.

The Group continues to monitor developments in relation to a European Commission state aid investigation opened in October 2017, which concerns the UK's controlled foreign company rules. Further details are provided in note 13 of the full year condensed financial statements (part 2 of this announcement).

The tax rates for this financial year and the expected rates for next year in our main jurisdictions are as follows:

Underlying basic earnings per share decreased by 6.3% to 23.9p, which excludes the impact of transformation P&L costs, exceptional items and the effect of prior year tax items. Adjusted basic earnings per share decreased by 9.2% to 19.8p, which excludes the impact of exceptional items and prior year tax items. Basic earnings per share decreased by 53.4% to 10.3p as set out below:

During 2018/19 51 million shares were returned to shareholders via share buyback, following a buyback of 82 million shares in the prior year.

Dividends and capital returns

The Board has proposed a final dividend of 7.49p which results in a full year dividend of 10.82p (2017/18: 10.82p). The full year dividend is covered 1.8 times by adjusted earnings (2017/18: 2.0 times). We continue to be comfortable with medium term dividend cover in the range of 2.0 to 2.5 times(1) based on adjusted basic earnings per share, a level the Board believes is consistent with the capital needs of the business.

The final dividend will be paid on 15 July 2019 to shareholders on the register at close of business on 7 June 2019. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. The shares will go ex-dividend on 6 June 2019. For those shareholders electing to receive the DRIP the last date for receipt of election is 24 June 2019.

In January 2016 Kingfisher announced its intention to return around a further £600 million of surplus capital to shareholders in the following three financial years. During 2018/19 £140 million of shares (51 million shares) were repurchased via share buyback. Cumulatively therefore, £600 million of shares (191 million shares) have now been repurchased.

(1) Medium term dividend cover range before the impact of the new lease accounting rules per IFRS 16

Lease adjusted return on capital employed (ROCE)

Our key returns metric, leased adjusted ROCE declined by 70 basis points from 10.4% to 9.7% this year, reflecting our profit performance including the increase in P&L transformation costs. ROCE by geographic division is analysed below:

Free cash flow*

A reconciliation of free cash flow is set out below:

(1) Other non-cash items include depreciation and amortisation, share-based compensation charge, share of post-tax results of JVs and associates, pension operating cost and profit/loss on non-property disposals

 (2) Includes exceptional cash flow items, principally relating to B&Q closures and transformation costs

Net cash at the end of the period was £48 million (2017/18: £68 million).

Operating profit before exceptional items was £105 million lower than last year reflecting higher transformation costs and lower profits in France.

Free cash flow of £382 million was generated in the year, an increase of £376 million against the prior year due primarily to more favourable movements in working capital. During the year the £180 million of mitigation stock held as at FY 17/18 was sold through.

Gross capital expenditure for the year was £339 million (2017/18: £368 million). Of this 30% was invested on refreshing and maintaining existing stores, 19% on new stores (excluding Screwfix), 29% on IT, 12% on the transformation and 10% on other areas including Screwfix expansion and supply chain investment.

This resulted in free cash flow of £382 million. £371 million was returned to shareholders in the form of the ordinary dividend and share buybacks.

Management of balance sheet and liquidity risk and financing

The Group finished the year with £48 million of net cash on the balance sheet. However, the Group's overall leverage is more significant when including capitalised lease debt that, in accordance with accounting standards (pre IFRS16) does not appear on the balance sheet. The ratio of the Group's lease adjusted net debt (capitalising leases at 8 times annual rent) to EBITDAR* is 2.6 times as at 31 January 2019 (2.4x at 31 January 2018). At this level the Group has financial flexibility whilst retaining an efficient cost of capital.

A reconciliation of lease adjusted net debt to EBITDAR is set out below:

 (1) Kingfisher believes 8x is a reasonable industry standard for estimating the economic value of its leased assets

The introduction of IFRS 16 (see pages 20-22 for further details) is expected to result in a lower adjusted net debt to EBITDAR ratio of c. 2x, reflecting a lower IFRS 16 lease liability than the 8x adjustment above.

Kingfisher holds a BBB credit rating with all three rating agencies. Kingfisher aims to maintain its solid investment grade credit rating whilst investing in the business where economic returns are attractive and paying a healthy annual dividend to shareholders. After satisfying these key aims and taking into account the economic and trading outlook, any surplus capital would be returned to shareholders.

Kingfisher regularly reviews the level of cash and debt facilities required to fund its activities. This involves preparing a prudent cash flow forecast for the medium term, determining the level of debt facilities required to fund the business, planning for repayments of debt at its maturity and identifying an appropriate amount of headroom to provide a reserve against unexpected outflows.

At 31 January 2019 the Group had two undrawn committed facilities: £550 million that expires in August 2021 and £225 million that expires in March 2022.

In May 2018 the Group repaid its US Private Placement debt (notional value of $179 million) and also

updated its €2.5 billion European Medium Term Note (EMTN) programme. In July 2018, following a

reverse enquiry, a €50 million Floating Rate Note (FRN) was issued under the programme. The note

matures in July 2020.

The Group entered into two new fixed term loans in the financial year, €50 million in September 2018 and £50 million in December 2018. The loans mature in September 2021 and December 2021 respectively.

The maturity profile of Kingfisher's debt is illustrated at: www.kingfisher.com/index.asp?pageid=74

Pensions

At the year end, the Group had a net surplus of £205 million (2017/18: £99 million net surplus) in relation to defined benefit pension arrangements, of which a £320 million surplus (2017/18: £214 million surplus) was in relation to the UK scheme. The favourable movement is mainly due to continued UK employer contributions and a lower pension increase assumption used to measure the UK scheme liabilities. This accounting valuation is sensitive to various assumptions and market rates which are likely to fluctuate in the future. A £5 million exceptional charge has been recognised in the year relating to the equalisation of guaranteed minimum pension benefits between men and women.

Property

Kingfisher owns a significant property portfolio, almost all of which is used for trading purposes. A valuation was performed for internal purposes in October 2018 with the portfolio valued by external professional valuers. Based on this exercise, on a sale and leaseback basis with Kingfisher in occupancy, the value of property is £3.4 billion at year end (2017/18: £3.5 billion).

This is compared to the net book value of £2.7 billion (2017/18: £2.8 billion) recorded in the financial statements (including investment property and property held for resale). Balance sheet values were frozen at 1 February 2004 on the transition to IFRS.

Retail profit on a fully rented basis

The Group currently operates out of a mix of freehold and leasehold property, with the mix varying significantly between our geographic markets. In order to more easily compare divisional performance, a summary of the retail profit margins on a fully rented basis are set out below:

Impact of IFRS16 - Leases

IFRS 16 provides a single lessee accounting model and requires a lessee to recognise assets and liabilities for most leases, largely eliminating the current off-balance sheet accounting under IAS 17. IFRS 16 'Leases' supersedes IAS 17 'Leases' and is effective for periods beginning on or after 1 January 2019. The adoption of IFRS 16 will have a material impact on the Group's primary financial statements, including impacts on operating profit, profit before tax, total assets and total liabilities lines.

Lessee accounting: For operating leases in which the Group is a lessee, the Group will recognise a new right-of-use asset and a new lease liability for its leases of properties and equipment assets. Existing finance leases and onerous lease provisions for rental charges will be derecognised under IFRS 16.

Under IFRS 16 the income statement expense comprises a straight-line depreciation charge on the right-of-use asset and a front-loaded interest charge on the lease liability, both over the term of the lease. For an individual lease, this provides an overall front-loaded expense profile compared with the straight-line rental charge recognised under IAS 17.

The historical discount rates applied have been based on the incremental borrowing rate where the implicit rate in the lease is not readily determinable. 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.

Lessor accounting: No significant impact is expected for leases in which the Group is a lessor. Where the Group subleases assets, it is determined whether the sublease should be classified as an operating lease or a finance lease, applying IFRS 16.

The Group plans to apply IFRS 16 from 1 February 2019 using the full retrospective method and will thereby restate the comparatives for the year ended 31 January 2019. The Group plans to apply the practical expedient available for low-value items and short-term leases, recognising rental payments for these leases on a straight-line basis but not recognising a right-of-use asset or lease liability.

Impact of the new standard

The Group has assessed the impact that the application of IFRS 16 has on its income statement for the year ended 31 January 2019 and on its balance sheet as at that date. The standard is not expected to result in a material impact on restated underlying profit before tax. It is expected that the right-of-use asset recognised on the restated balance sheet as at 31 January 2019 will be c.£2.0 billion, whilst the lease liability will be c.£2.6 billion.

IFRS 16 indicative impact on FY 2018/19 income statement

(1) Numbers are rounded to the nearest £10m

(2) Excludes FX relating to translation of leases denominated in non-functional currencies

IFRS 16 indicative impact on 31 January 2019 balance sheet

(1) Includes goodwill, other intangible assets, property, plant and equipment, investment property and investments in joint ventures and associates

(2) Net debt under IFRS 16 comprises lease liabilities and financial net cash ('net cash' under IAS 17 excluding finance leases)

Section 5: Glossary (terms are listed in alphabetical order)

Banque de France data includes relocated and extended stores.

http://webstat.banque-france.fr/en/browse.do?node=5384326

CPR (cost price reduction) refers to the savings made on cost of goods sold.

Digital sales are sales derived from online transactions, including click & collect. This includes sales transacted on any device, however not sales through a call centre.

EDLP refers to everyday low price.

France consists of Castorama France and Brico Dépôt France.

GNFR (Goods Not For Resale) covers the procurement of all goods and services a retailer consumes (including media buying, mechanical handling equipment, printing & paper).

Iberia consists of Brico Dépôt Spain and Brico Dépôt Portugal.

Other International consists of Poland, Iberia, Romania, Russia, Screwfix Germany and Turkey (Koçtaş JV).

Sales refer to Group sales excluding Joint Venture (Koçtaş JV) sales.

SKU (Stock Keeping Unit) is defined as the number of individual variants of products sold or remaining in stock. It is a distinct type of item for sale, such as a product and all attributes associated with the item type that distinguish it from others. These attributes could include, but are not limited to, manufacturer, description, material, size, colour, packaging and warranty terms.

UK & Ireland consists of B&Q in the UK & Ireland and Screwfix UK.

Section 6: Forward-looking statements

You are not to construe the content of this announcement as investment, legal or tax advice and you should make your own evaluation of the Company and the market. If you are in any doubt about the contents of this announcement or the action you should take, you should consult a person authorised under the Financial Services and Markets Act 2000 (as amended) (or if you are a person outside the UK, otherwise duly qualified in your jurisdiction).

This announcement has been prepared in relation to the financial results for the full year ended 31 January 2019. The financial information referenced in this announcement is not audited and does not contain sufficient detail to allow a full understanding of the results of the Group. Nothing in this announcement should be construed as either an offer or invitation to sell or any offering of securities or any invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Group or an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000 (as amended).

Certain information contained in this announcement may constitute "forward-looking statements" (including within the meaning of the safe harbour provisions of the United States Private Securities Litigation Reform Act of 1995), which can be identified by the use of terms such as "may", "will", "would", "could", "should", "expect", "anticipate", "project", "estimate", "intend", "continue", "target", "plan", "goal", "aim" or "believe" (or the negatives thereof) or other variations thereon or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements.

The Company does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in the Company's expectations.