Kingfisher Regulatory News (KGF)

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

The proposed interim ordinary dividend for the period ended 31 July 2016 is 3.25p per share.

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEET

The interim financial report was approved by the Board of Directors on 19 September 2016 and signed on its behalf by:

KINGFISHER PLC

2016/17 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED CASH FLOW STATEMENT

KINGFISHER PLC

2016/17 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 2016 were approved by the Board of Directors on 23 March 2016 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 19 September 2016.

2. Basis of preparation

The interim financial report for the six months ended 31 July 2016 ('the half year') has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services 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 2016, 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, '2015/16' refers to the 26 weeks ended 1 August 2015.

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 2016.

There have been no changes in estimates of amounts reported in prior periods that have had a material effect in the current period.

Principal rates of exchange against Sterling

Risks and uncertainties

The principal risks and uncertainties to which the Group is exposed are set out on pages 31-35 of the Kingfisher plc Annual Report and Accounts for the year ended 31 January 2016 and remain unchanged. As noted in the Financial Review, the Group is monitoring developments following the EU referendum, which has resulted in uncertainty for the UK economic outlook. The weakening of Sterling against other currencies following the EU referendum has had a beneficial impact on translation of the Group's reported results, cash flows and net cash position. UK earnings have not been significantly impacted in the period due to foreign currency hedging in place prior to the referendum. The weakening of Sterling has also resulted in significant foreign exchange gains recognised in other comprehensive income from the retranslation of the Group's overseas businesses' net assets and an increase in the value of foreign exchange contracts hedging US dollar denominated inventory purchases for our UK businesses. The fall in long-term bond yields has resulted in a lower discount rate used to value the UK defined benefit pension scheme obligation, increasing the gross liability, but this has been largely offset by the growth in asset values over the period due to interest rate hedging in place. Lower discount rates have also increased the balance, before other movements, of the UK restructuring provisions, resulting in an exceptional interest charge.

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 adjusted sales, retail profit, underlying pre-tax profit, adjusted pre-tax profit, 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 such as net cash are used by Kingfisher for internal performance analysis and incentive compensation arrangements for employees. The terms 'retail profit', 'exceptional items', 'transformation costs', 'underlying', 'adjusted', 'effective tax rate' and 'net cash' 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, exceptional items and amortisation of acquisition intangibles. It includes the sustainable benefits of the transformation programme. 2015/16 comparatives exclude B&Q China's operating results. Central costs principally comprise the costs of the Group's head office before transformation costs.

The separate reporting of non-recurring 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 or impairment of subsidiaries, joint ventures, associates and investments which do not form part of the Group's 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 programme 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, financing fair value remeasurements, amortisation of acquisition intangibles, related tax items and prior year tax items (including the impact of changes in tax rates on deferred tax). 2015/16 comparatives exclude B&Q China's operating results. 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 short-term additional costs that arise only as a result of the transformation programme 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 programme.

The 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.

Net cash comprises cash and cash equivalents and short-term deposits less borrowings and financing derivatives (excluding accrued interest). It excludes balances classified as assets and liabilities held for sale.

3. Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 January 2016, as described in note 2 of those financial statements.

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

The most significant areas of accounting estimates and judgements are set out in note 3 of the annual financial statements for the year ended 31 January 2016 and remain unchanged.

4. Segmental analysis

Income statement

Balance sheet

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 'Other International' segment consists of Poland, Spain, Portugal, 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 pensions, insurance, interest and tax.

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. In the half year ended 31 July 2016, France operating costs were increased by £9m due to a change in legislation relating to a levy (TASCOM) which has resulted in the levy being recognised evenly across the year rather than only in the second half. Comparatives for 2015/16 have not been restated.5. Exceptional items

Current period exceptional items include a £15m net credit principally due to the reversal of a restructuring provision relating to the B&Q store closure programme in the UK, following the announcement that one of the stores originally earmarked for closure would remain open, and a £6m interest charge relating to the reduction in discount rate used to measure the overall UK provision. In the prior period a charge of £151m (£305m for the full year) was recognised relating principally to the closure of B&Q stores and loss-making stores in continental Europe.

Transformation exceptional costs of £1m have been recorded in the period relating to the initial costs of setting up the Group's new offer and supply chain organisation.

A profit of £3m on disposal was recognised on disposal of the Group's remaining 30% stake in B&Q China - refer to note 16 for further information. In the prior period a profit of £143m was recorded on disposal of the Group's controlling 70% stake.

6. Net finance costs

The £7m charge relating to the unwinding of discount on provisions includes a £6m exceptional charge relating to the restructuring provisions for the UK & Ireland and continental Europe businesses. 

7. Income tax expense

The effective rate of tax on profit before exceptional items and excluding prior year tax adjustments and the impact of changes in tax rates on deferred tax is 26% (2015/16: 26%), representing the best estimate of the effective rate for the full financial year. The effective tax rate on the same basis for the year ended 31 January 2016 was 26%. Exceptional tax items for the current period amount to a charge of £2m, none of which relates to prior year items (2015/16: £29m credit, none of which related to prior year items). Exceptional tax items for the year ended 31 January 2016 amounted to a credit of £67m, £1m of which related to prior year items.

8. Earnings per share

 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:

The weighted average number of shares in issue during the period, excluding those held in the Employee Share Ownership Plan Trust ('ESOP trust'), is 2,271m (2015/16: 2,327m). The diluted weighted average number of shares in issue during the period is 2,275m (2015/16: 2,329m). For the year ended 31 January 2016, the weighted average number of shares in issue was 2,311m and the diluted weighted average number of shares in issue was 2,319m.

9. Dividends

The proposed ordinary interim dividend for the period ended 31 July 2016 is 3.25p 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 £136m (2015/16: £178m) and for the year ended 31 January 2016 were £331m. Disposals in net book value of property, plant and equipment, investment property, property assets held for sale and other intangible assets are £5m (2015/16: £2m) and for the year ended 31 January 2016 were £28m.

Capital commitments contracted but not provided for at the end of the period are £36m (2015/16: £50m) and at 31 January 2016 were £46m.

11. Post-employment benefits

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 27 of the annual financial statements for the year ended 31 January 2016.

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:

12. Financial instruments

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

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 directors consider that the carrying amounts of financial instruments 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.

13. Other reserves