TIDMKGF
RNS Number : 1626Q
Kingfisher PLC
17 June 2020
Consolidated income statement
Year ended 31 January 2020
2019/20 2018/19 restated (note 13)
----------- ----------- ------- ---------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
GBP millions Notes items items Total items items Total
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
Sales 3 11,513 - 11,513 11,685 - 11,685
Cost of sales (7,258) - (7,258) (7,367) - (7,367)
----------- ----------- -------
Gross profit 4,255 - 4,255 4,318 - 4,318
Selling and distribution expenses (2,772) (398) (3,170) (2,800) (174) (2,974)
Administrative expenses (790) (51) (841) (799) (63) (862)
Other income 21 15 36 27 27 54
Other expenses - - - - (57) (57)
Share of post-tax results
of joint ventures and associates 3 - 3 1 - 1
Operating profit 3 717 (434) 283 747 (267) 480
Finance costs (191) (7) (198) (196) - (196)
Finance income 18 - 18 16 - 16
----------- ----------- -------
Net finance costs 5 (173) (7) (180) (180) - (180)
Profit before taxation 544 (441) 103 567 (267) 300
Income tax expense 6 (136) 41 (95) (170) 63 (107)
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
Profit for the year 408 (400) 8 397 (204) 193
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
Earnings per share 7
Basic 0.4p 9.1p
Diluted 0.4p 9.0p
Adjusted basic 19.1p 19.8p
Adjusted diluted 19.0p 19.7p
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
Reconciliation of non-GAAP adjusted pre-tax profit:
----------------------------------------------------------------------------------------------------------------------
Adjusted pre-tax profit 544 574
Exchange differences on lease liabilities - (7)
Exceptional items 4 (441) (267)
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
Profit before taxation 103 300
----------------------------------------- ----- ----------- ----------- ------- ----------- ----------- -------
The Directors propose no final dividend for the year ended 31
January 2020.
Consolidated statement of comprehensive income
Year ended 31 January 2020
2018/19
restated
GBP millions Notes 2019/20 (note 13)
-------------------------------------------------------------------------- ------ -------- -----------
Profit for the year 8 193
-------------------------------------------------------------------------- ------ -----------
Actuarial gains on post-employment benefits 9 42 78
Inventory cash flow hedges - fair value gains 20 85
Tax on items that will not be reclassified (24) (53)
-------------------------------------------------------------------------- ------ -----------
Total items that will not be reclassified subsequently to profit or loss 38 110
-------------------------------------------------------------------------- ------ -----------
Currency translation differences
Group (134) (46)
Joint ventures and associates (1) -
Other cash flow hedges
Fair value losses (3) (2)
Losses transferred to income statement 3 2
--------
Total items that may be reclassified subsequently to profit or loss (135) (46)
------ --------
Other comprehensive (loss)/income for the year (97) 64
-------------------------------------------------------------------------- ------ -------- -----------
Total comprehensive (loss)/income for the year (89) 257
-------------------------------------------------------------------------- ------ -------- -----------
Consolidated statement of changes in equity
Year ended 31 January 2020
2019/20
------------- ----------- ------------- -------------- ------------ --------- ----------
Capital
Share Share Own shares Retained redemption Other Total
GBP millions Notes capital premium held earnings reserve reserves equity
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
At 1 February 2019 332 2,228 (25) 3,192 43 379 6,149
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
Profit for the year - - - 8 - - 8
Other comprehensive income/(loss)
for the year - - - 22 - (119) (97)
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
Total comprehensive income/(loss)
for the year - - - 30 - (119) (89)
Inventory cash flow hedges - gains
transferred to inventories - - - - - (40) (40)
Share-based compensation - - - 11 - - 11
Own shares issued under share
schemes - - 12 (12) - - -
Purchase of own shares for ESOP
trust - - (10) - - - (10)
Dividends 8 - - - (227) - - (227)
Tax on equity items - - - - - 8 8
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
At 31 January 2020 332 2,228 (23) 2,994 43 228 5,802
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
2018/19 restated (note 13)
------------- ----------- ------------------------------------------------------------------
Capital
Share Share Own shares Retained redemption Other Total
GBP millions Notes capital premium held earnings reserve reserves 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 8 - - - (231) - - (231)
Tax on equity items - - - - - 5 5
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
At 31 January 2019 332 2,228 (25) 3,192 43 379 6,149
----------------------------------- -------- ------------ ----------- ------------ ---------------- ---------------- --------- ----------
Consolidated balance sheet
At 31 January 2020
2018/19 restated 2017/18 restated
GBP millions Notes 2019/20 (note 13) (note 13)
---------------------------------------------------------- ------ -------- ----------------- -----------------
Non-current assets
Goodwill 2,416 2,436 2,437
Other intangible assets 339 371 355
Property, plant and equipment 2,988 3,302 3,536
Right-of-use assets 1,916 2,017 2,218
Investment property 8 8 20
Investments in joint ventures and associates 16 15 19
Post-employment benefits 9 404 320 214
Deferred tax assets 12 13 39
Other receivables 27 41 55
---------------------------------------------------------- ------ ----------------- -----------------
8,126 8,523 8,893
Current assets
Inventories 2,485 2,574 2,701
Trade and other receivables 293 406 501
Derivative assets 14 26 41
Current tax assets 9 1 -
Cash and cash equivalents 189 229 230
Assets held for sale 196 89 -
---------------------------------------------------------- ------ -------- ----------------- -----------------
3,186 3,325 3,473
---------------------------------------------------------- ------ -------- ----------------- -----------------
Total assets 11,312 11,848 12,366
---------------------------------------------------------- ------ -------- ----------------- -----------------
Current liabilities
Trade and other payables (2,210) (2,415) (2,630)
Borrowings (43) (1) (127)
Lease liabilities (306) (308) (309)
Derivative liabilities (43) (21) (79)
Current tax liabilities (78) (118) (140)
Provisions (65) (27) (15)
Liabilities directly associated with assets held for sale (88) - -
---------------------------------------------------------- ------ -------- ----------------- -----------------
(2,833) (2,890) (3,300)
Non-current liabilities
Other payables (5) (6) (2)
Borrowings (93) (139) (4)
Lease liabilities (2,221) (2,318) (2,482)
Derivative liabilities (3) (2) -
Deferred tax liabilities (189) (192) (171)
Provisions (39) (37) (29)
Post-employment benefits 9 (127) (115) (115)
---------------------------------------------------------- ------ -------- ----------------- -----------------
(2,677) (2,809) (2,803)
---------------------------------------------------------- ------ -------- ----------------- -----------------
Total liabilities (5,510) (5,699) (6,103)
Net assets 5,802 6,149 6,263
---------------------------------------------------------- ------ -------- ----------------- -----------------
Equity
Share capital 332 332 340
Share premium 2,228 2,228 2,228
Own shares held in ESOP trust (23) (25) (29)
Retained earnings 2,994 3,192 3,311
Capital redemption reserve 43 43 35
Other reserves 228 379 378
---------------------------------------------------------- ------ -------- ----------------- -----------------
Total equity 5,802 6,149 6,263
---------------------------------------------------------- ------ -------- ----------------- -----------------
The financial statements were approved by the Board of Directors
on 16 June 2020 and signed on its behalf by:
Thierry Garnier Bernard Bot
Chief Executive Officer Chief Financial Officer
Consolidated cash flow statement
Year ended 31 January 2020
GBP millions Notes 2019/20 2018/19 restated (note 13)
---------------------------------------------------------------------- ------ --------- ---------------------------
Operating activities
Cash generated by operations 10 1,052 1,243
Income tax paid (155) (132)
---------
Net cash flows from operating activities 897 1,111
Investing activities
Purchase of property, plant and equipment and intangible assets (342) (332)
Disposal of property, plant and equipment, investment property,
assets held for sale and intangible
assets 188 45
Interest received 12 11
Interest element of lease rental receipts 1 3
Principal element of lease rental receipts 5 6
Advance payments on right-of-use assets (3) (4)
Dividends received from joint ventures and associates 1 5
Net cash flows used in investing activities (138) (266)
Financing activities
Interest paid (35) (19)
Interest element of lease rental payments (165) (174)
Principal element of lease rental payments (319) (312)
Repayment of bank loans (1) (1)
Issue of fixed term debt - 139
Repayment of fixed term debt - (134)
Receipt on financing derivatives - 37
New shares issued under share schemes - 2
Purchase of own shares for ESOP trust (10) -
Purchase of own shares for cancellation - (140)
Ordinary dividends paid to equity shareholders of the Company (227) (231)
Net cash flows from financing activities (757) (833)
Net increase in cash and cash equivalents 2 12
Cash and cash equivalents at beginning of year 229 230
Exchange differences (36) (13)
Cash and cash equivalents at end of year 195 229
---------------------------------------------------------------------- ------ --------- ---------------------------
Cash and cash equivalents at the end of the year include GBP6m
of cash included within assets held for sale on the balance sheet
(2018/19: GBPnil).
Notes
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 England and Wales, United
Kingdom, and is listed on the London Stock Exchange. The address of
its registered office is 3 Sheldon Square, Paddington, London W2
6PX.
2 Basis of preparation
The consolidated financial statements of the Company, its
subsidiaries, joint ventures and associates are made up to 31
January. The current financial year is the year ended 31 January
2020 ('the year' or '2019/20'). The comparative financial year is
the year ended 31 January 2019 ('the prior year' or '2018/19').
The condensed financial information, which comprises the
consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity,
consolidated balance sheet, consolidated cash flow statement and
related notes do not constitute statutory financial statements for
the year ended 31 January 2020 , but are derived from those
statements. Statutory financial statements for 2018/19 have been
filed with the Registrar of Companies and those for 2019/20 will be
filed in due course. The Group's auditors have reported on both
years' accounts; their reports were unqualified and did not contain
statements under Section 498 (2) or (3) of the Companies Act
2006.
The condensed financial information has been abridged from the
2019/20 statutory financial statements, which have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ('IFRS') and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS and
therefore the consolidated financial statements comply with Article
4 of the EU IAS legislation. The consolidated income statement and
related notes represent results for continuing operations, there
being no discontinued operations in the years presented. The
condensed financial information has been prepared under the
historical cost convention, as modified by the use of valuations
for certain financial instruments, share-based payments and
post-employment benefits.
Going concern
Based on the Group's liquidity position and cash flow
projections, including a forward looking Covid-19 scenario, the
Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future and they continue to adopt the going
concern basis of accounting in preparing the annual financial
statements.
The impacts of Covid-19 have been considered as part of the
Group's assessment of post balance sheet events (see note 14). The
financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Financial Review in
part 1 of this announcement. The directors have considered these
areas alongside the principal risks and how they may impact going
concern, the assessment of which is considered to be a critical
accounting judgement.
Further details, including the analysis performed and
conclusions reached, are set out below.
Overview
In line with the FCA's statement on 26 March 2020 announcing
temporary relief measures for corporate reporting during the
Covid-19 crisis, the Directors decided to make appropriate use of
the time available within regulatory deadlines to ensure accurate
and carefully prepared disclosures. This allowed the Directors to
assess the day-to-day changes in events within the Group's markets,
gather further information on the expected duration of the measures
that governments are taking to contain the crisis and review and
refine planning assumptions accordingly.
In determining whether the Group's accounts can be prepared on a
going concern basis, the Directors considered the Group's business
activities together with factors likely to affect its performance
and financial position.
These factors included governments' categorisation, under
Covid-19 regulations, of the Group's activities as 'essential' in
its largest markets, actual trading performance during periods in
which stores were closed or not operating under normal trading
conditions, expectations of the future economic environment, the
impact of mitigation actions and government support measures,
available liquidity as well as the other principal risks associated
with the business's ongoing operations.
The key judgements in relation to this assessment are the
likelihood and impact of a potential resurgence of the Covid-19
pandemic and the more durable impact of Covid-19 on the economy and
household spending in the markets in which the Group operates. In
informing these judgements, the Directors considered trading since
the beginning of the financial year and especially during periods
of lockdown restrictions, mitigation actions available, the current
outlook for the business in addition to an unlikely future Covid-19
worst case scenario, and finally a 'reverse stress test' scenario
which is described in further detail below.
Operational and business impact risk assessment
Under Covid-19 regulations, the Group's stores in the UK and
France have been categorised as 'essential' and reopened after a
period of trialling alternative operating models and introducing
safe operating procedures. More specifically:
-- In the UK, management, with the support of the Directors,
took the decision to close all B&Q and Screwfix stores to
customers for browsing and in-store purchasing on 23 March. This
decision was made to allow the teams to establish safe store
operating protocols to protect customers and colleagues. To ensure
the continued supply of essential goods, from 24 March, the two
entities introduced a contactless click & collect service for
customers, initially for essential products only, alongside a home
delivery service. The stopping of in-store trading led to a
significant drop in revenue at B&Q only somewhat mitigated by
higher click & collect and home delivery income. The impact at
Screwfix was more limited given its already high proportion of
click & collect business.
On 17 April, B&Q trialled the reopening of 14 B&Q
stores. Following the success of this trial, B&Q progressively
reopened further stores, with nearly all stores reopened by the
beginning of May. All stores have traded very strongly since
reopening. Screwfix continued to successfully offer a contactless
click & collect service until the second week of May, when it
introduced new customer journeys and processes within stores.
Trading at Screwfix, which was much less impacted by store
closures, further improved from the end of April.
-- In France, all Castorama and Brico Depot stores were closed
from 15 March. A contactless click & collect service via 'drive
through' was gradually introduced from 23 March, alongside a home
delivery service and the opening up of stores' external building
materials yard, which mitigated somewhat the significant drop in
revenue. From 24 April, stores in France were gradually reopened
and by 11 May all stores were again accessible to customers. As in
the UK, trading since reopening has been very positive.
The Group's stores in Poland, Romania and Portugal remained open
throughout the period during which strict confinement rules were in
place. While revenue was impacted during the time that stricter
social distancing rules were applicable, trading levels quickly
recovered and have been very positive since the beginning of
May.
Stores in Ireland, Spain and Russia were closed for browsing by
the public under lockdown rules in those countries, but operated
home delivery and / or click & collect services. Stores in
Ireland reopened on 18 May. Normal activity started to resume on 25
May in Spain and Russia, with a gradual reopening of stores.
Currently, nearly all of the Group's stores are open for
in-store purchasing.
The designation as an 'essential retailer' in the Group's
largest markets, coupled with the successful operation of stores
while adhering to strict social distancing and safety procedures,
indicate that the Group would be able to mitigate the negative
impact on sales of stricter confinement rules that could be
reintroduced in the event of a resurgence of the Covid-19
pandemic.
Financial impact risk assessment
As a result of Covid-19, in the third week of March, Group
like-for-like (LFL) sales dropped by (22.9)% compared to a similar
period in the prior year, as stores closed in France and stricter
social distancing rules were applied in Poland. This drop increased
to (59.1)% in the next week, after the introduction of confinement
measures in the UK.
April started with a weekly decline of (74.0)%, recovering to
(17.5)% by the end of the month, following the expansion of click
& collect and home delivery services, the gradual reopening of
stores and the easing of regulations in those countries where we
continued to trade throughout.
The month of May has seen consistently strong trading with year
on year LFL growth of +2.7% in the first week increasing to +26.7%
in the final week of the month as stores were reopened and services
and opening hours expanded.
LFL sales for the full month of May are +14.3% and year to date
May LFL sales are ( 14.0 )% lower.
The Group's net cash outflow, representing the net change in
cash at bank excluding physical cash in tills and cash in transit
and excluding drawdown on Revolving Credit Facilities (RCFs), from
1 February up to the first week of May was c.GBP(250)m. This
reflected reduced sales over the preceding seven weeks, along with
significant payments to suppliers during this period for orders
made prior to the coronavirus crisis (in anticipation of the
Company's usual peak trading period). The negative cash flow was
covered by drawing down our RCFs of GBP225m and GBP550m. With the
turnaround in sales, the Group has more than compensated the cash
outflow up to the beginning of May. The cumulative cash inflow
between 1 February and 12 June 2020 was c.GBP730m (representing net
change in cash at bank excluding physical cash in tills and cash in
transit and excluding receipts or repayments of liquidity
arrangements). The drawn RCFs were fully repaid in May.
While trading continues to be exceptionally strong on a year on
year basis since early May, in forming their outlook on future
financial performance, the Directors considered the normalisation
of store traffic and average spend levels, the risk of higher
business volatility and the negative impact of the general economic
environment on household and trade spend. The Directors also
considered that the business would continue to benefit from
continued cost reduction measures, lower levels of investment and
an ongoing focus on working capital.
Forward looking Covid-19 worst case scenario
In addition to their outlook for the financial performance of
the Group, the Directors also reviewed a downside 'worst case'
scenario for Covid-19. This Covid-19 worst case scenario assumes a
return of stricter confinement rules following a period of easing,
followed by a prolonged period to return to normal trading levels.
It also assumes an ongoing negative effect on sales from economic
disruption. The impact on sales, taking the Group's original budget
for 2020/21 as a basis, would be as follows:
-- A 25% decline in Group sales over a period of 8 weeks
starting in late summer of 2020 (total impact of approximately
GBP(450)m). While the Group has shown that its stores can remain
open to the public by adhering to comprehensive social distancing
measures, a return to stricter rules could reduce traffic to stores
that may not be compensated by higher average spend per customer.
The percentage decline is in line with the revenue drop seen in
stores that remained open throughout the past period of strict
confinement;
-- A gradual recovery, with a Group sales decline of between
(10)% and (5)% up to January 2021; and
-- Ongoing pressure on sales for the remaining period to June 2021.
The Covid-19 worst case scenario would result in approximately
GBP1bn lower sales over the 12 month going concern period compared
to a similar 12 month period of the budget for 2020/21.
Given current trading and expectations for the business, the
Directors believe that this scenario reflects an unlikely worst
case outcome for the Group.
Further downside sensitivities were applied to the Covid-19
scenario. These sensitivities extended the length of time during
which strict social distancing measures would be in place and
increased the depth of the impact on sales. In particular, the
Directors reviewed a reverse stress test scenario that models the
decline in sales that the Group would be able to absorb before
requiring additional sources of financing, over and above what is
currently guaranteed.
The decline is sales would be around GBP4bn over a 12 month
period compared to a similar 12 month period of the original budget
for 2020/21. The financing sources used in this scenario would be
the EUR600m (c.GBP535m) term facility with three French banks,
GBP600m of the UK Government's Covid Corporate Financing Facility
(CCFF) funds and, for a limited time, part of the Group's RCFs that
contain a financial covenant. If such a scenario would occur, the
Group would take additional mitigation actions, including further
initiatives on cost and cash and negotiating a waiver or relaxation
of the financial covenant of its RCFs and term loan. This scenario,
including the events that could lead to it, was considered to be
remote.
Mitigating actions
The mitigating actions available to the Group, either already
utilised or which could be (re)implemented are as follows:
-- Cost savings, including through store operating efficiencies
(adjustment of store variable costs, maintenance and store opening
hours), reduction in discretionary costs (marketing and
advertising, consumables and other goods not for resale spend,
travel) and freezing of pay and recruitment;
-- Reducing inventory purchases by adjusting purchasing plans
beyond the automatic reductions from lower sales;
-- Limiting capital expenditure to the minimum required under
contractual or legal obligations or for health and safety
purposes;
-- Optimising working capital by negotiating longer payment
terms for rental and supplier payments, while continuing to pay all
suppliers in full and according to contractual payment terms;
-- Benefiting from government support programmes as far as these
are maintained or reintroduced, such as business rates relief in
the UK (Kingfisher's annual business rates bill for retail premises
in the UK is estimated at GBP140m); furloughing schemes in the UK,
France, Spain and Romania and government allowances for deferring
direct and indirect tax and social security payments; and
-- Continuing to cease dividend payments. The cash cost of the
final 2018/19 dividend and the interim 2019/20 dividend was GBP227m
in total. To date the Board has not proposed a final dividend for
2019/20 and intends to consider the appropriateness, quantum and
timing of future dividend payments when it has a clearer view of
the scale and duration of the impact of Covid-19 on the
business.
Financing actions
As at 31 January 2020, the Group had cash and cash equivalents
(including amounts held for sale) of GBP195m.
To further protect the Group against extended lockdown measures
and deeper periods of disruption than anticipated, the Group
secured access to additional funding arrangements.
On 18 May 2020, the Group drew on a EUR600m (c.GBP535m) term
facility with three French banks. This loan is guaranteed at 80% by
the French State ('Prêt garanti par l'État') and has a maturity of
one year, extendable for up to five years.
The Group also confirmed its eligibility under the UK
Government's CCFF and on 12 June issued 11-month Commercial Paper
for GBP600m under this programme, the maximum amount under its
allocated issuer limit. These funds will have to be repaid by 12
May 2021 at the latest. Through issuing the Commercial Paper, this
source of finance is committed and can be included in the Group's
going concern assessment. Due to the terms of eligibility of the
CCFF programme, the Group is unable to rely on eligibility alone in
its going concern assessment.
While the Directors do not believe that this additional
liquidity is needed even under the worst case Covid-19 scenario,
the additional liquidity could be required should the impact of the
pandemic on trading conditions be significantly more prolonged or
severe.
The Group has also agreed an additional RCF of GBP250m with a
syndicate of its relationship banks. This facility is currently
undrawn and expires in May 2021.
These additional funding arrangements complement the already
available two RCFs totalling GBP775m. The RCFs expire in March 2022
(GBP225m) and August 2022 (GBP550m). The two RCFs are currently
undrawn.
The Group has a number of financing facilities, including the
three RCFs, that require the Group to maintain an interest cover
ratio that is tested semi-annually. The terms of these financing
facilities require that the ratio of Group operating profit
(excluding exceptional items) to net interest payable (excluding
interest on IFRS 16 lease liabilities) must be no less than 3:1 for
the preceding 12 months as at the half and full year ends. At the
date of this report, the Group is in compliance with its financial
covenant and expects to remain compliant even under the forecast
Covid-19 worst case scenario over the going concern period.
As a result of the strong sales since the beginning of May and
the drawings under the French and UK Government facilities, at 12
June 2020 the Group had access to over GBP3bn in total liquidity,
including cash and cash equivalents of c.GBP2bn and access to over
GBP1bn of funding under the RCFs.
Going concern basis
Considering the above, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
For these reasons, the Directors consider it appropriate for the
Group to continue to adopt the going concern basis of accounting in
preparing the annual financial statements. Should the impact of the
pandemic be more prolonged or severe than currently forecast by the
Directors under the reverse stress test scenario, the Group would
need to implement additional operational or financial measures.
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.
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 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
13 for further details of the Group's initial application of IFRS
16.
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.
Principal rates of exchange against Sterling
2019/20 2018/19
-------- --------- -------- ---------
Average Year end Average Year end
rate rate rate rate
---------------- -------- --------- -------- ---------
Euro 1.14 1.19 1.13 1.15
US Dollar 1.28 1.32 1.33 1.31
Polish Zloty 4.91 5.11 4.83 4.88
Romanian Leu 5.44 5.69 5.26 5.43
Russian Rouble 82.13 84.48 84.34 86.01
---------------- -------- --------- -------- ---------
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, adjusted pre-tax
profit, adjusted effective tax rate 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', '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, and exceptional items. Central costs
principally comprise the costs of the Group's head office before
exceptional items.
Exceptional items, which are presented as exceptional within
their relevant income statement category, include items which by
virtue of their size and/or nature, do not reflect the Group's
ongoing trading 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
significant write-downs of goodwill and other assets;
-- 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;
and
-- significant one-off tax settlements and provision
charges/releases and the tax effects of other exceptional
items.
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 adjusted effective tax rate is calculated as continuing
income tax expense excluding tax 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, including such balances
classified as held for sale.
The Group no longer reports profits on an 'underlying' basis,
with the single 'adjusted' measure now judged by management to be a
better and simpler reflection of business performance. The term
'underlying' previously referred to the relevant adjusted measure
being reported before non-exceptional transformation costs
('transformation P&L costs'). Non-exceptional transformation
costs previously represented the additional costs that arose 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 were incurred were not considered as exceptional items.
As a result, 2018/19 'Retail profit' and 'Central costs'
comparatives have been restated to include their respective share
of costs previously reported as non-exceptional transformation
costs (see note 3). Note that the 'adjusted' performance measures
are unaffected by this change.
A further restatement of 2018/19 comparatives has been performed
for the reallocation of certain central support costs between
operating segments, which has also impacted their reported retail
profits (see note 3).
3 Segmental analysis
Income statement
2019/20
---------------------------------------------------------
Other International
----------------------------------------------------------- ------------- ------- ---------------------- -------
GBP millions UK & Ireland France Poland Other Total
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Sales 5,112 4,082 1,461 858 11,513
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Retail profit 499 164 151 (28) 786
Central costs (62)
Share of interest and tax of joint ventures and associates (7)
Exceptional items (434)
Operating profit 283
Net finance costs (180)
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Profit before taxation 103
----------------------------------------------------------- ------------- ------- ----------- --------- -------
2018/19 restated (see below)
---------------------------------------------------------
Other International
----------------------------------------------------------- ------------- ------- ---------------------- -------
GBP millions UK & Ireland France Poland Other Total
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Sales 5,061 4,272 1,431 921 11,685
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Retail profit 498 183 167 (24) 824
Central costs (69)
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)
Exceptional items (267)
Operating profit 480
Net finance costs (180)
----------------------------------------------------------- ------------- ------- ----------- --------- -------
Profit before taxation 300
----------------------------------------------------------- ------------- ------- ----------- --------- -------
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, Romania,
Spain, Portugal, Germany, Russia and the joint venture Koçta in
Turkey. Poland has been shown separately due to its
significance.
Central costs principally comprise the costs of the Group's head
office before exceptional items.
Reallocation of central support costs and transformation P&L
costs
In recent years the Group has developed its offer, sourcing and
supply chain organisations. The services and benefits provided to
each of Kingfisher's retail banners have evolved over time.
Consequently, management has updated its assessment of how the
Group's centrally-incurred costs are most appropriately allocated
across the businesses.
Although neutral at a Group Retail profit level, this has
resulted in a change to Retail profit by geography for 2019/20,
with the principal effect of more costs being allocated to Poland
and less to the UK & Ireland. The 2018/19 comparatives have
been restated on a consistent basis.
As set out in note 2, 2018/19 comparatives have also been
restated for the reallocation of Transformation P&L costs to
Retail profit and Central costs. This has reduced the reported
segment Retail profits and increased reported Central costs.
The impacts of IFRS 16 'Leases' and the reallocation of central
support costs and Transformation P&L costs on the 2018/19
segmental analysis income statement comparatives are set out
below:
2018/19
----------------------- -------- ------------------- ------------------------------- -------------------------------------------- --------
Impact of
As previously reported IFRS 16 As previously reported Impact of central support cost Impact of transformation P&L cost
GBP millions (IAS 17) (note 13) (IFRS 16) reallocation reallocation Restated
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
Sales 11,685 - 11,685 - - 11,685
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
UK & Ireland 399 131 530 13 (45) 498
France 209 12 221 - (38) 183
Poland 181 4 185 (10) (8) 167
Other (36) 24 (12) (3) (9) (24)
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
Retail Profit 753 171 924 - (100) 824
Central costs (49) - (49) - (20) (69)
Share of interest
and tax of joint
ventures and
associates (4) (1) (5) - - (5)
Exchange
differences on
lease
liabilities of
joint ventures
and associates - (3) (3) - - (3)
Exceptional items (251) (16) (267) - - (267)
Transformation
costs before
exceptional
items (120) - (120) - 120 -
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
Operating profit 329 151 480 - - 480
Net finance costs (7) (173) (180) - - (180)
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
Profit before
taxation 322 (22) 300 - - 300
------------------ ----------------------- ------------ ------------------------ --------------------------------- --------------------------------- --------
4 Exceptional items
2018/19 restated
GBP millions 2019/20 (note 13)
--------------------------------------------------- -------- -----------------
Included within selling and distribution expenses
UK & Ireland and continental Europe restructuring (67) (124)
Impairments of Russia assets and other exit costs (130) (15)
Impairments of Romania assets (39) -
Store asset write-downs (118) -
IT asset write-downs and related costs (44) (1)
Romania acquisition integration - (16)
B&Q store replenishment - (12)
France exceptional employee bonus - (6)
(398) (174)
--------------------------------------------------- -------- -----------------
Included within administrative expenses
Transformation exceptional costs (8) (58)
Penalties on French Tax Authority settlement (17) -
France business tax (26) -
UK guaranteed minimum pension charge - (5)
(51) (63)
--------------------------------------------------- -------- -----------------
Included within other income/expenses
Profit on disposal of properties 15 27
Impairments of properties held for sale - (57)
15 (30)
--------------------------------------------------- -------- -----------------
Included within net finance costs
Interest on French Tax Authority settlement (7) -
--------------------------------------------------- -------- -----------------
(7) -
--------------------------------------------------- -------- -----------------
Exceptional items before tax (441) (267)
French Tax Authority settlement (51) -
Other exceptional tax items 92 63
Exceptional items (400) (204)
--------------------------------------------------- -------- -----------------
Current year exceptional items include a GBP67m 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.
The Group announced the decision to exit Russia in November 2018
and has recorded exceptional costs of GBP130m in the current year
relating to this business, representing both underlying store asset
write-downs and additional impairments recorded on classification
of the business as held for sale that reflect anticipated net
proceeds under the planned sale, and other exit costs.
Impairments of GBP39m have been recorded on goodwill and certain
store assets relating to the Romania business. This has arisen due
to a revision in future projections for the business following
continued trading losses.
As a result of 2019/20 performance, we have revised future
projections for a number of stores across the Group's portfolio.
This, combined with reduced freehold property valuations, has
resulted in the recognition of GBP118m of asset write-downs in the
year (excluding Russia and Romania), principally relating to
impairments of freehold and leasehold properties. These impairments
have been recorded principally in Castorama France, but also
include B&Q in the UK and Iberia.
Refer to note 14 for further information on the estimated
impacts of Covid-19 on impairments to goodwill, property, plant
& equipment and right-of-use assets after the balance sheet
date.
IT asset write-downs and related costs of GBP44m relate
principally to impairments of IT intangible assets under
development, mainly reflecting modules of the unified IT platform
and digital tools for which no further development is currently
planned.
In February 2018, the Group commenced formal consultation with
employee representatives regarding its plans in France to
restructure the business as part of the Group's transformation
plan. Additional transformation exceptional costs of GBP8m have
been recorded in the current year relating to the restructuring
plan.
During the year, the Group concluded a final settlement with the
French Tax Authority (FTA) regarding the treatment of interest paid
since 2009/10. A contingent liability for EUR101m (GBP92m) had been
disclosed in the 2019/20 interim condensed financial statements
with respect to this matter related to the periods 2009/10 to
2011/12. At the end of the third quarter of 2019/20, Kingfisher was
given the opportunity by the FTA to settle for all periods under
review (2009/10 to 2018/19), and subsequent discussions held with
the FTA resulted in a comprehensive settlement. A cash payment of
GBP75m was made in the final quarter of 2019/20 and recorded as an
exceptional charge, comprising GBP51m of tax, GBP7m of interest and
GBP17m of penalties (with the latter recognised in operating
profit). A provision of GBP26m has also been recognised in
operating profit for an uncertain position in relation to a
multi-year business tax in France.
A profit of GBP15m has been recorded on the disposal of
properties in the UK and France.
Other exceptional tax items include a GBP35m non-cash release of
a provision on settlement of a case in Hong Kong.
5 Net finance costs
2018/19 restated
GBP millions 2019/20 (note 13)
--------------------------------------------------------- -------- -----------------
Bank overdrafts and bank loans (22) (15)
Fixed term debt (4) (3)
Lease liabilities (165) (174)
Exchange differences on lease liabilities - (4)
Unwinding of discount on provisions - (2)
Capitalised interest 3 2
Other interest payable (3) -
Exceptional interest on French Tax Authority settlement (7) -
Finance costs (198) (196)
--------------------------------------------------------- -------- -----------------
Cash and cash equivalents and short term deposits 10 9
Net interest income on defined benefit pension schemes 7 4
Finance lease income 1 3
Finance income 18 16
--------------------------------------------------------- -------- -----------------
Net finance costs (180) (180)
--------------------------------------------------------- -------- -----------------
6 Income tax expense
2018/19 restated
GBP millions 2019/20 (note 13)
------------------------------------------------ -------- -----------------
UK corporation tax
Current tax on profits for the year (57) (52)
Adjustments in respect of prior years (5) (1)
(62) (53)
------------------------------------------------ -------- -----------------
Overseas tax
Current tax on profits for the year (46) (66)
Adjustments in respect of prior years (6) 7
------------------------------------------------ -------- -----------------
(52) (59)
------------------------------------------------ -------- -----------------
Deferred tax
Current year 20 30
Adjustments in respect of prior years - (25)
Adjustments in respect of changes in tax rates (1) -
19 5
------------------------------------------------ -------- -----------------
Income tax expense (95) (107)
------------------------------------------------ -------- -----------------
The adjusted effective tax rate, based 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%). Exceptional tax items for the year amount to a net credit of
GBP41m, with a GBP20m charge relating to prior year items (2018/19:
GBP63m credit, none of which related to prior year items).
7 Earnings per share
2019/20 2018/19 restated (note 13)
------------- -------------------------------- -----------------------------------------------
Weighted Weighted
average average
number Earnings per number Earnings per
Earnings of shares share Earnings of shares share
GBP millions millions pence GBP millions millions pence
-------------------- ------------- ----------- ------------------- ------------- ----------- -------------------
Basic earnings per
share 8 2,101 0.4 193 2,129 9.1
Effect of dilutive
share options - 13 - - 11 (0.1)
-------------------- ------------- ----------- -------------------
Diluted earnings
per share 8 2,114 0.4 193 2,140 9.0
-------------------- ------------- ----------- ------------------- ------------- ----------- -------------------
Basic earnings per
share 8 2,101 0.4 193 2,129 9.1
Exceptional items
before tax 441 21.0 267 12.6
Exceptional tax and
prior year items (49) (2.3) (44) (2.1)
Exchange
differences on
lease liabilities - - 7 0.3
Tax on exchange
differences on
lease liabilities - - (2) (0.1)
Adjusted basic
earnings per share 400 2,101 19.1 421 2,129 19.8
Diluted earnings
per share 8 2,114 0.4 193 2,140 9.0
Exceptional items
before tax 441 20.9 267 12.6
Tax on exceptional
and prior year
items (49) (2.3) (44) (2.1)
Exchange
differences on
lease liabilities - - 7 0.3
Tax on exchange
differences on
lease liabilities - - (2) (0.1)
Adjusted diluted
earnings per share 400 2,114 19.0 421 2,140 19.7
-------------------- ------------- ----------- ------------------- ------------- ----------- -------------------
Basic earnings per share is calculated by dividing the profit
for the year attributable to equity shareholders of the Company by
the weighted average number of shares in issue during the year,
excluding those held in the Employee Share Ownership Plan trust
('ESOP trust') which for the purpose of this calculation are
treated as cancelled.
For diluted earnings per share, the weighted average number of
shares is adjusted to assume conversion of all dilutive potential
ordinary shares. These represent share options granted to employees
where both the exercise price is less than the average market price
of the Company's shares during the year and any related performance
conditions have been met.
8 Dividends
GBP millions 2019/20 2018/19
--------------------------------------------------------------------------------- -------- --------
Dividends paid to equity shareholders of the Company
Ordinary interim dividend for the year ended 31 January 2020 of 3.33p per share
(year ended 31 January 2019: 3.33p per share) 70 71
Ordinary final dividend for the year ended 31 January 2019 of 7.49p per share
(year ended 31 January 2018: 7.49p per share) 157 160
227 231
--------------------------------------------------------------------------------- -------- --------
The Directors propose no final dividend for the year ended 31
January 2020.
9 Post-employment benefits
2019/20 2018/19
----------------------------- -----------------------------
GBP millions UK Overseas Total UK Overseas Total
-------- --------- -------- -------- --------- --------
Net surplus/(deficit) in schemes
at beginning of year 320 (115) 205 214 (115) 99
Current service cost (2) (8) (10) (2) (9) (11)
Past service cost - - - (5) 3 (2)
Administration costs (3) - (3) (4) - (4)
Net interest income/(expense) 8 (1) 7 6 (2) 4
Net actuarial gains/(losses) 51 (9) 42 74 4 78
Contributions paid by employer 30 2 32 37 3 40
Exchange differences - 4 4 - 1 1
------------------------------------------------- -------- --------- -------- -------- --------- --------
Net surplus/(deficit) in schemes at end of year 404 (127) 277 320 (115) 205
------------------------------------------------- -------- --------- -------- -------- --------- --------
Present value of defined benefit obligations (3,114) (147) (3,261) (2,842) (135) (2,977)
Fair value of scheme assets 3,518 20 3,538 3,162 20 3,182
------------------------------------------------- -------- --------- -------- -------- --------- --------
Net surplus/(deficit) in schemes 404 (127) 277 320 (115) 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.
A key assumption in valuing the pension obligations 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 are as
follows:
Annual % rate 2019/20 2018/19
----------------- -------- --------
Discount rate 1.6 2.5
Price inflation 2.9 3.3
----------------- -------- --------
For the UK scheme, the mortality assumptions used have been
selected with regard to the characteristics and experience of the
membership of the scheme as assessed from time to time relating to
triennial funding valuations. The assumptions for life expectancy
of UK scheme members are as follows:
Years 2019/20 2018/19
----------------------------------------- -------------- --------- --------
Age to which current pensioners are expected
to live (60 now)
- Male 86.4 87.3
- Female 87.2 89.0
Age to which future pensioners are expected
to live (60 in 15 years' time)
- Male 87.5 88.5
- Female 90.1 90.9
------------------------------------------------- ------ --------- --------
The following sensitivity analysis for the UK scheme shows the
estimated impact on the obligation resulting from changes to key
actuarial assumptions, whilst holding all other assumptions
constant.
Impact on defined benefit
Assumption Change in assumption obligation
---------------- ---------------------------- --------------------------
Decrease/increase by
Discount rate Increase/decrease by 0.5% GBP330m
Increase/decrease by
Price inflation Increase/decrease by 0.5% GBP263m
Increase in life expectancy
Mortality by one year Increase by GBP110m
---------------- ---------------------------- --------------------------
Refer to note 14 for further information on the estimated
impacts of Covid-19 on the Group's defined benefit pension schemes
after the balance sheet date.
10 Cash generated by operations
GBP millions 2019/20 2018/19 restated (note 13)
------------------------------------------------------------------------------- -------- ---------------------------
Operating profit 283 480
Share of post-tax results of joint ventures and associates (3) (1)
Depreciation and amortisation 545 535
Net impairment losses 315 201
Gain on disposal of property, plant and equipment, investment property, assets
held for sale
and intangible assets (15) (25)
Lease (gains)/losses (5) 2
Share-based compensation charge 11 15
(Increase)/decrease in inventories (65) 95
Decrease in trade and other receivables 53 142
Decrease in trade and other payables (91) (197)
Movement in provisions 43 19
Movement in post-employment benefits (19) (23)
------------------------------------------------------------------------------- -------- ---------------------------
Cash generated by operations 1,052 1,243
------------------------------------------------------------------------------- -------- ---------------------------
11 Net debt
GBP millions 2019/20 2018/19 restated (note 13)
--------------------------------------------------------------- ---------- ---------------------------
Cash and cash equivalents 189 229
Cash and cash equivalents held for sale 6 -
--------------------------------------------------------------- ---------- ---------------------------
Cash and cash equivalents including amounts held for sale 195 229
Bank loans (3) (4)
Fixed term debt (133) (136)
Net financing derivatives (22) (5)
Lease liabilities (2,527) (2,626)
Lease liabilities held for sale (36) -
Net debt (2,526) (2,542)
--------------------------------------------------------------- ---------- ---------------------------
GBP millions 2019/20 2018/19 restated (note 13)
--------------------------------------------------------------- ---------- ---------------------------
Net debt at beginning of year (2,542) (2,678)
--------------------------------------------------------------- ---------- ---------------------------
Net increase in cash and cash equivalents 2 12
Repayment of bank loans 1 1
Issue of fixed term debt - (139)
Repayment of fixed term debt - 134
Receipt on financing derivatives - (37)
Net cash flow 3 (29)
Movement in lease liabilities including amounts held for sale 40 157
Exchange differences and other non-cash movements (27) 8
Net debt at end of year (2,526) (2,542)
--------------------------------------------------------------- ---------- ---------------------------
12 Contingent liabilities
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.
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 constitute state aid. The UK
Government and the Group, along with other UK-based international
companies, have appealed the European Commission decision to the
European Courts.
At present it is not possible to determine the final amount that
will be payable as discussions are ongoing with HM Revenue &
Customs as to how the decision should be applied to the Group's
facts. The Group has calculated its maximum potential liability
(including compound interest) to be GBP63m 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.
As set out in note 4, the Group's dispute with the French Tax
Authority regarding the treatment of interest paid since the 2010
year end, previously disclosed as a contingent liability, was
settled during the year.
13 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
fully retrospective method. Comparatives for 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 judgements
For IFRS 16, judgement is 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 in selecting appropriate
risk-free rates to apply. Additionally, the application of
financing spreads, which are specific to operating companies,
requires a judgement over the credit quality of those companies.
Given that the Group has applied the full retrospective approach to
IFRS 16, these judgements have been applied in the calculation of
historical discount rates.
The Group expects to continue to apply judgement 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 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 statement, balance sheets and cash flow
statement are as follows:
Consolidated income statement - IFRS 16 restatement
2018/19
--------------------------------------------------------
Impact of
GBP millions As previously reported IFRS 16 Restated
---------------------------------------------------------- ----------------------- ------------------- ----------
Sales 11,685 - 11,685
Cost of sales (7,376) 9 (7,367)
------------------- ----------
Gross profit 4,309 9 4,318
Selling and distribution expenses (3,114) 140 (2,974)
Administrative expenses (867) 5 (862)
Other income 56 (2) 54
Other expenses (57) - (57)
Share of post-tax results of joint ventures and
associates 2 (1) 1
Operating profit 329 151 480
Finance costs (20) (176) (196)
Finance income 13 3 16
---------------------------------------------------------- ----------------------- ------------------- ----------
Net finance costs (7) (173) (180)
---------------------------------------------------------- ----------------------- ------------------- ----------
Profit before taxation 322 (22) 300
Income tax expense (104) (3) (107)
---------------------------------------------------------- ----------------------- ------------------- ----------
Profit for the year 218 (25) 193
---------------------------------------------------------- ----------------------- ------------------- ----------
Earnings per share
Basic 10.3p (1.2)p 9.1p
Diluted 10.2p (1.2)p 9.0p
Adjusted basic 19.8p - 19.8p
Adjusted diluted 19.7p - 19.7p
Adjusted pre-tax profit 573 1 574
Exchange differences on lease liabilities - (7) (7)
Exceptional items (251) (16) (267)
---------------------------------------------------------- ----------------------- ------------------- ----------
Profit before taxation 322 (22) 300
---------------------------------------------------------- ----------------------- ------------------- ----------
Consolidated balance sheets - IFRS 16 restatements
2018/19 2017/18
------------------------------------ ------------------------------------
Impact Impact
As previously of IFRS As previously of IFRS
GBP millions reported 16 Restated reported 16 Restated
------------------------------- -------------- --------- --------- -------------- --------- ---------
Non-current assets
Goodwill 2,436 - 2,436 2,437 - 2,437
Other intangible assets 371 - 371 355 - 355
Property, plant and equipment 3,454 (152) 3,302 3,736 (200) 3,536
Right-of-use assets - 2,017 2,017 - 2,218 2,218
Investment property 8 - 8 20 - 20
Investments in joint ventures
and associates 20 (5) 15 25 (6) 19
Post-employment benefits 320 - 320 214 - 214
Deferred tax assets 9 4 13 30 9 39
Other receivables 10 31 41 8 47 55
------------------------------- -------------- --------- --------- -------------- --------- ---------
6,628 1,895 8,523 6,825 2,068 8,893
Current assets
Inventories 2,574 - 2,574 2,701 - 2,701
Trade and other receivables 453 (47) 406 550 (49) 501
Derivative assets 26 - 26 41 - 41
Current tax assets 1 - 1 - - -
Cash and cash equivalents 229 - 229 230 - 230
Assets held for sale 89 - 89 - - -
------------------------------- -------------- --------- --------- -------------- --------- ---------
3,372 (47) 3,325 3,522 (49) 3,473
------------------------------- -------------- --------- --------- -------------- --------- ---------
Total assets 10,000 1,848 11,848 10,347 2,019 12,366
Current liabilities
Trade and other payables (2,444) 29 (2,415) (2,666) 36 (2,630)
Borrowings (14) 13 (1) (140) 13 (127)
Lease liabilities - (308) (308) - (309) (309)
Derivative liabilities (21) - (21) (79) - (79)
Current tax liabilities (118) - (118) (140) - (140)
Provisions (35) 8 (27) (25) 10 (15)
------------------------------- -------------- --------- --------- -------------- --------- ---------
(2,632) (258) (2,890) (3,050) (250) (3,300)
Non-current liabilities
Other payables (64) 58 (6) (61) 59 (2)
Borrowings (162) 23 (139) (36) 32 (4)
Lease liabilities - (2,318) (2,318) - (2,482) (2,482)
Derivative liabilities (2) - (2) - - -
Deferred tax liabilities (286) 94 (192) (264) 93 (171)
Provisions (82) 45 (37) (73) 44 (29)
Post-employment benefits (115) - (115) (115) - (115)
------------------------------- -------------- --------- --------- -------------- --------- ---------
(711) (2,098) (2,809) (549) (2,254) (2,803)
------------------------------- -------------- --------- --------- -------------- --------- ---------
Total liabilities (3,343) (2,356) (5,699) (3,599) (2,504) (6,103)
------------------------------- -------------- --------- --------- -------------- --------- ---------
Net assets 6,657 (508) 6,149 6,748 (485) 6,263
------------------------------- -------------- --------- --------- -------------- --------- ---------
Equity
Share capital 332 - 332 340 - 340
Share premium 2,228 - 2,228 2,228 - 2,228
Own shares held in ESOP
trust (25) - (25) (29) - (29)
Retained earnings 3,696 (504) 3,192 3,790 (479) 3,311
Capital redemption reserve 43 - 43 35 - 35
Other reserves 383 (4) 379 384 (6) 378
------------------------------- -------------- --------- --------- -------------- --------- ---------
Total equity 6,657 (508) 6,149 6,748 (485) 6,263
------------------------------- -------------- --------- --------- -------------- --------- ---------
Consolidated cash flow statement - IFRS 16 restatement
2018/19
GBP millions As previously reported Impact of IFRS 16 Restated
Operating activities
Cash generated by operations 781 462 1,243
Income tax paid (132) - (132)
Net cash flows from operating activities 649 462 1,111
Investing activities
Purchase of property, plant and equipment and intangible
assets (339) 7 (332)
Disposal of property, plant and equipment, investment
property, assets held for sale and intangible
assets 45 - 45
Interest received 11 - 11
Interest element of lease rental receipts - 3 3
Principal element of lease rental receipts - 6 6
Advance payments on right-of-use assets - (4) (4)
Dividends received from joint ventures and associates 5 - 5
Net cash flows used in investing activities (278) 12 (266)
Financing activities
Interest paid (19) - (19)
Interest element of lease rental payments (2) (172) (174)
Principal element of lease rental payments (10) (302) (312)
Repayment of bank loans (1) - (1)
Issue of fixed term debt 139 - 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 cancellation (140) - (140)
Ordinary dividends paid to equity shareholders of the Company (231) - (231)
-------------------------------------------------------------- ----------------------- ------------------ ---------
Net cash flows from financing activities (359) (474) (833)
-------------------------------------------------------------- ----------------------- ------------------ ---------
Net increase in cash and cash equivalents 12 - 12
Cash and cash equivalents at beginning of year 230 - 230
Exchange differences (13) - (13)
-------------------------------------------------------------- ----------------------- ------------------ ---------
Cash and cash equivalents at end of year 229 - 229
-------------------------------------------------------------- ----------------------- ------------------ ---------
Operating profit 329 151 480
Share of post-tax results of joint ventures and associates (2) 1 (1)
Depreciation and amortisation 272 263 535
Net impairment losses 160 41 201
Gain on disposal of property, plant and equipment, investment
property, assets held for sale
and intangible assets (25) - (25)
Lease losses - 2 2
Share-based compensation charge 15 - 15
Decrease in inventories 95 - 95
Decrease in trade and other receivables 144 (2) 142
Decrease in trade and other payables (203) 6 (197)
Movement in provisions 19 - 19
Movement in post-employment benefits (23) - (23)
-------------------------------------------------------------- ----------------------- ------------------ ---------
Cash generated by operations 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
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 measure of
adjusted earnings per share remains unchanged, reflecting the
broadly neutral impact on adjusted pre-tax profit 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 lease liabilities
under IFRS 16. 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.
14 Post balance sheet events
The effects of the Covid-19 pandemic and the related financial
statement impacts could not have been reasonably anticipated at 31
January 2020 and are therefore deemed to be non-adjusting post
balance sheet events.
Impact on trading
In March 2020, following the outbreak of Covid-19, despite being
categorised as a retailer of 'essential' goods and eligible to
remain open, the Group took the decision to close all UK and France
stores to customers for browsing and in-store purchasing while safe
store operating protocols were established. Government lockdown
restrictions resulted in temporary store closures in the Republic
of Ireland, Spain and Russia. The impact of these store closures,
and potential further impacts of Covid-19, on the Group's
assessment of Going Concern is outlined in Note 2. Nearly all of
the Group's stores have since reopened for browsing and in-store
purchasing following a phased reopening of stores from
mid-April.
Asset balances
The Group has performed an assessment of the estimated impacts
of Covid-19 on impairments to goodwill, property, plant and
equipment and right-of-use assets, which concluded that these
impacts were not material for the Group given the relatively
short-term and temporary nature of the adverse effects of Covid-19
on the Group's projected cash flows.
Defined benefit pension scheme
A review of the key financial assumptions relating to the
Group's defined benefit pension schemes subsequent to the balance
sheet date indicate a decline in the obligations that falls within
the range of sensitivities described in note 9, driving an overall
increase in the net surplus since 31 January 2020. The fair value
of plan assets is expected to be volatile in the short term due to
uncertain market conditions.
Government support
The Group received government business support measures in the
territories in which it operates, including the UK Government's
Coronavirus Job Retention Scheme, the French Government's 'activité
partielle' relief measures, and similar schemes in Spain and
Romania. This led to c.50% of the Group's employees being
furloughed in April, reducing to c.10% by the end of May.
The UK Government announced in March 2020 that retail premises
in England will be granted a 'holiday' from paying business rates
in the 2020/21 tax year, effective from April 2020, with similar
measures (a combination of payment deferrals and 'holidays')
announced by the local governments and assemblies of Scotland,
Wales and Northern Ireland.
Financing
As announced on 12 May 2020, the Group arranged a EUR600m
(c.GBP535m) term facility with three French banks. The loan is
guaranteed at 80% by the French State ('Prêt garanti par l'État')
and has a maturity of one year, extendable for up to five years. As
required under the terms of the loan, the full amount was drawn
down on 18 May 2020.
On 9 May 2020, the Group entered into a new committed Revolving
Credit Facility (RCF) with a syndicate of its relationship banks,
comprising GBP250m, due to expire in May 2021, bringing the total
value of RCFs available to the Group to GBP1,025m.
The Group's eligibility to access funding under the Bank of
England's Covid Corporate Financing Facility (CCFF) was confirmed
in May 2020. On 12 June 2020, the Group issued GBP600m of 11-month
Commercial Paper under the CCFF.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFEFUMESSELM
(END) Dow Jones Newswires
June 17, 2020 02:00 ET (06:00 GMT)
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