REG - Kingfisher PLC - Half-Year Results - (Part 2 of 2)
RNS Number : 6857MKingfisher PLC18 September 2019Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED INCOME STATEMENT
Half year ended 31 July 2019
Half year ended 31 July 2018
restated (note 18)
£ millions
Notes
Before exceptional items
Exceptional items
Total
Before exceptional items
Exceptional items
Total
Sales
4
5,997
-
5,997
6,080
-
6,080
Cost of sales
(3,776)
-
(3,776)
(3,864)
-
(3,864)
Gross profit
2,221
-
2,221
2,216
-
2,216
Selling and distribution expenses
(1,414)
(94)
(1,508)
(1,412)
4
(1,408)
Administrative expenses
(396)
-
(396)
(402)
(46)
(448)
Other income
10
1
11
11
-
11
Share of post-tax results of joint ventures and associates
-
-
-
(2)
-
(2)
Operating profit
4
421
(93)
328
411
(42)
369
Finance costs
(93)
-
(93)
(97)
-
(97)
Finance income
10
-
10
8
-
8
Net finance costs
6
(83)
-
(83)
(89)
-
(89)
Profit before taxation
338
(93)
245
322
(42)
280
Income tax expense
7
(93)
19
(74)
(87)
13
(74)
Profit for the period
245
(74)
171
235
(29)
206
Earnings per share
8
Basic
8.1p
9.6p
Diluted
8.1p
9.6p
Adjusted basic
11.8p
11.0p
Adjusted diluted
11.8p
11.0p
Underlying basic
12.3p
12.8p
Underlying diluted
12.3p
12.7p
Reconciliation of non-GAAP underlying and adjusted pre-tax profit:
Underlying pre-tax profit
353
377
Transformation costs before exceptional items
4
(16)
(52)
Adjusted pre-tax profit
337
325
Exchange differences on lease liabilities
1
(3)
Exceptional items
5
(93)
(42)
Profit before taxation
245
280
The proposed interim ordinary dividend for the period ended 31 July 2019 is 3.33p per share.
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED INCOME STATEMENT
Year ended 31 January 2019
restated (note 18)
£ millions
Notes
Before exceptional
items
Exceptional
items
Total
Sales
4
11,685
-
11,685
Cost of sales
(7,367)
-
(7,367)
Gross profit
4,318
-
4,318
Selling and distribution expenses
(2,800)
(174)
(2,974)
Administrative expenses
(799)
(63)
(862)
Other income
27
27
54
Other expenses
-
(57)
(57)
Share of post-tax results of joint ventures and associates
1
-
1
Operating profit
4
747
(267)
480
Finance costs
(196)
-
(196)
Finance income
16
-
16
Net finance costs
6
(180)
-
(180)
Profit before taxation
567
(267)
300
Income tax expense
7
(170)
63
(107)
Profit for the year
397
(204)
193
Earnings per share
8
Basic
9.1p
Diluted
9.0p
Adjusted basic
19.8p
Adjusted diluted
19.7p
Underlying basic
23.9p
Underlying diluted
23.8p
Reconciliation of non-GAAP underlying and adjusted pre-tax profit:
Underlying pre-tax profit
694
Transformation costs before exceptional items
4
(120)
Adjusted pre-tax profit
574
Exchange differences on lease liabilities
(7)
Exceptional items
5
(267)
Profit before taxation
300
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
£ millions
Notes
Half year ended
31 July 2019
Half year ended
31 July 2018
restated
(note 18)
Year ended
31 January 2019
restated
(note 18)
Profit for the period
171
206
193
Actuarial gains on post-employment benefits
11
73
86
78
Inventory cash flow hedges - fair value gains
47
63
85
Tax on items that will not be reclassified
(37)
(47)
(53)
Total items that will not be reclassified
subsequently to profit or loss
83
102
110
Currency translation differences
Group
153
34
(46)
Other cash flow hedges
Fair value gains/(losses)
4
-
(2)
(Gains)/losses transferred to income statement
(4)
-
2
Tax on items that may be reclassified
-
(1)
-
Total items that may be reclassified
subsequently to profit or loss
153
33
(46)
Other comprehensive income for the period
236
135
64
Total comprehensive income for the period
407
341
257
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Half year ended 31 July 2019
£ millions
Share capital
Share
premium
Own shares held
Retained earnings
Capital
redemption
reserve
Other
reserves
(note 13)
Total equity
At 1 February 2019
332
2,228
(25)
3,192
43
379
6,149
Profit for the period
-
-
-
171
-
-
171
Other comprehensive income for the period
-
-
-
45
-
191
236
Total comprehensive income for the period
-
-
-
216
-
191
407
Inventory cash flow hedges - gains transferred to inventories
-
-
-
-
-
(24)
(24)
Share-based compensation
-
-
-
8
-
-
8
Own shares issued under share schemes
-
-
9
(9)
-
-
-
Purchase of own shares for ESOP trust
-
-
(10)
-
-
-
(10)
Dividends (note 9)
-
-
-
(157)
-
-
(157)
Tax on equity items
-
-
-
-
-
5
5
At 31 July 2019
332
2,228
(26)
3,250
43
551
6,378
Half year ended 31 July 2018 restated (note 18)
£ millions
Share capital
Share
premium
Own shares held
Retained earnings
Capital
redemption
reserve
Other
reserves
(note 13)
Total equity
At 1 February 2018
340
2,228
(29)
3,311
35
378
6,263
Profit for the period
-
-
-
206
-
-
206
Other comprehensive income for the period
-
-
-
54
-
81
135
Total comprehensive income for the period
-
-
-
260
-
81
341
Inventory cash flow hedges - losses transferred to inventories
-
-
-
-
-
15
15
Share-based compensation
-
-
-
10
-
-
10
New shares issued under share schemes
-
-
-
2
-
-
2
Own shares issued under share schemes
-
-
3
(3)
-
-
-
Purchase of own shares for cancellation
(5)
-
-
(90)
5
-
(90)
Dividends (note 9)
-
-
-
(160)
-
-
(160)
Tax on equity items
-
-
-
-
-
(4)
(4)
At 31 July 2018
335
2,228
(26)
3,330
40
470
6,377
Year ended 31 January 2019 restated (note 18)
£ millions
Share capital
Share
premium
Own shares held
Retained earnings
Capital
redemption
reserve
Other
reserves
(note 13)
Total equity
At 1 February 2018
340
2,228
(29)
3,311
35
378
6,263
Profit for the year
-
-
-
193
-
-
193
Other comprehensive income for the year
-
-
-
46
-
18
64
Total comprehensive income for the year
-
-
-
239
-
18
257
Inventory cash flow hedges - gains transferred to inventories
-
-
-
-
-
(22)
(22)
Share-based compensation
-
-
-
15
-
-
15
New shares issued under share schemes
-
-
-
2
-
-
2
Own shares issued under share schemes
-
-
4
(4)
-
-
-
Purchase of own shares for cancellation
(8)
-
-
(140)
8
-
(140)
Dividends (note 9)
-
-
-
(231)
-
-
(231)
Tax on equity items
-
-
-
-
-
5
5
At 31 January 2019
332
2,228
(25)
3,192
43
379
6,149
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEET
£ millions
Notes
At 31 July 2019
At 31 July 2018
restated
(note 18)
At 31 January 2019
restated
(note 18)
Non-current assets
Goodwill
2,439
2,438
2,436
Other intangible assets
10
374
375
371
Property, plant and equipment
10
3,356
3,567
3,302
Right-of-use assets
2,030
2,221
2,017
Investment property
10
8
21
8
Investments in joint ventures and associates
13
12
15
Post-employment benefits
11
413
318
320
Deferred tax assets
13
40
13
Derivative assets
12
2
-
-
Other receivables
40
53
41
8,688
9,045
8,523
Current assets
Inventories
2,765
2,718
2,574
Trade and other receivables
415
472
406
Derivative assets
12
62
47
26
Current tax assets
3
1
1
Cash and cash equivalents
385
181
229
Assets held for sale
58
-
89
3,688
3,419
3,325
Total assets
12,376
12,464
11,848
Current liabilities
Trade and other payables
(2,554)
(2,657)
(2,415)
Borrowings
12
(47)
(2)
(1)
Lease liabilities
(318)
(363)
(308)
Derivative liabilities
12
(19)
(16)
(21)
Current tax liabilities
(148)
(145)
(118)
Provisions
(84)
(38)
(27)
(3,170)
(3,221)
(2,890)
Non-current liabilities
Other payables
(4)
(6)
(6)
Borrowings
12
(97)
(47)
(139)
Lease liabilities
(2,320)
(2,437)
(2,318)
Derivative liabilities
12
-
-
(2)
Deferred tax liabilities
(242)
(220)
(192)
Provisions
(39)
(34)
(37)
Post-employment benefits
11
(126)
(122)
(115)
(2,828)
(2,866)
(2,809)
Total liabilities
(5,998)
(6,087)
(5,699)
Net assets
6,378
6,377
6,149
Equity
Share capital
332
335
332
Share premium
2,228
2,228
2,228
Own shares held in ESOP trust
(26)
(26)
(25)
Retained earnings
3,250
3,330
3,192
Capital redemption reserve
43
40
43
Other reserves
13
551
470
379
Total equity
6,378
6,377
6,149
The interim financial report was approved by the Board of Directors on 17 September 2019 and signed on its behalf by:
Veronique Laury, Chief Executive Officer
Andy Cosslett, Chairman
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED CASH FLOW STATEMENT
£ millions
Notes
Half year ended
31 July 2019
Half year ended
31 July 2018
restated
(note 18)
Year ended
31 January 2019
restated
(note 18)
Operating activities
Cash generated by operations
14
613
716
1,243
Income tax paid
(34)
(77)
(132)
Net cash flows from operating activities
579
639
1,111
Investing activities
Purchase of property, plant and equipment and intangible assets
(163)
(164)
(332)
Disposal of property, plant and equipment, investment property, assets held for sale and intangible assets
125
4
45
Interest received
6
4
11
Interest element of lease rental receipts
1
2
3
Principal element of lease rental receipts
2
3
6
Advance payments on right-of-use assets
-
(1)
(4)
Dividends received from joint ventures and associates
2
5
5
Net cash flows used in investing activities
(27)
(147)
(266)
Financing activities
Interest paid
(13)
(7)
(19)
Interest element of lease rental payments
(82)
(87)
(174)
Principal element of lease rental payments
(158)
(137)
(312)
Repayment of bank loans
(1)
(1)
(1)
Issue of fixed term debt
-
44
139
Repayment of fixed term debt
-
(134)
(134)
Receipt on financing derivatives
-
37
37
New shares issued under share schemes
-
2
2
Purchase of own shares for ESOP trust
(10)
-
-
Purchase of own shares for cancellation
-
(90)
(140)
Ordinary dividends paid to equity shareholders of the Company
9
(157)
(160)
(231)
Net cash flows from financing activities
(421)
(533)
(833)
Net increase/(decrease) in cash and cash equivalents
131
(41)
12
Cash and cash equivalents at beginning of period
229
230
230
Exchange differences
25
(8)
(13)
Cash and cash equivalents at end of period
385
181
229
Kingfisher plc
2019/20 INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Kingfisher plc ('the Company'), its subsidiaries, joint ventures and associates (together 'the Group') supply home improvement products and services through a network of retail stores and other channels, located mainly in the United Kingdom and continental Europe.
The Company is incorporated in the United Kingdom and is listed on the London Stock Exchange. The address of its registered office is 3 Sheldon Square, Paddington, London W2 6PX.
The interim financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Audited statutory accounts for the year ended 31 January 2019 were approved by the Board of Directors on 19 March 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006. The interim financial report has been reviewed, not audited, and was approved by the Board of Directors on 17 September 2019.
2. Basis of preparation
The interim financial report for the six months ended 31 July 2019 ('the half year') has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. It should be read in conjunction with the annual financial statements for the year ended 31 January 2019, which have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The consolidated income statement and related notes represent results for continuing operations, there being no discontinued operations in the periods presented. Where comparatives are given, '2018/19' refers to the six months ended 31 July 2018.
New and amended accounting standards
The Group adopted IFRS 16 'Leases' on 1 February 2019 on a fully retrospective basis, resulting in the restatement of comparatives for the six months ended 31 July 2018 and year ended 31 January 2019. The cumulative effect of initial application is recognised as an adjustment to opening equity on the date of transition (1 February 2018). Refer to note 18 for further details of the Group's initial application of IFRS 16.
The statement of comprehensive income and statement of changes in equity for the half year ended 31 July 2018 have been adjusted to reflect changes to presentation required under IFRS 9 'Financial Instruments'.
Other new standards, amendments and interpretations are in issue and effective for the Group's financial year ended 31 January
2020, but they do not have a material impact on the consolidated financial statements.
Going concern
The Directors of Kingfisher plc, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the half year ended 31 July 2019.
Principal rates of exchange against Sterling
Half year ended 31 July 2019
Half year ended 31 July 2018
Year ended 31 January 2019
Average
rate
Period end
rate
Average
rate
Period end
rate
Average
rate
Year end
rate
Euro
1.14
1.10
1.14
1.12
1.13
1.15
US Dollar
1.29
1.22
1.37
1.31
1.33
1.31
Polish Zloty
4.90
4.70
4.83
4.79
4.83
4.88
Russian Rouble
83.14
77.46
82.55
81.81
84.34
86.01
Risks and uncertainties
The principal risks and uncertainties to which the Group is exposed are set out on pages 44-51 of the Kingfisher plc Annual Report and Accounts for the year ended 31 January 2019. These have been reviewed as part of the Group's half year procedures and are listed in the Financial Review.
Use of non-GAAP measures
In the reporting of financial information, the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles ('GAAP') under which the Group reports. Kingfisher believes that retail profit, underlying pre-tax profit, adjusted pre-tax profit, adjusted effective tax rate, underlying earnings per share and adjusted earnings per share provide additional useful information on performance and trends to shareholders. These and other non-GAAP measures (also known as 'Alternative Performance Measures'), such as net debt, are used by Kingfisher for internal performance analysis and incentive compensation arrangements for employees. The terms 'retail profit', 'exceptional items', 'transformation costs', 'underlying', 'adjusted', 'adjusted effective tax rate' and 'net debt' are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.
Retail profit is defined as continuing operating profit before central costs, the Group's share of interest and tax of joint ventures and associates, transformation costs and exceptional items. It includes the sustainable benefits of the transformation plan. Central costs principally comprise the costs of the Group's head office before transformation costs.
The separate reporting of exceptional items, which are presented as exceptional within their relevant income statement category, helps provide an indication of the Group's ongoing business performance. The principal items which are included as exceptional items are:
· non-trading items included in operating profit such as profits and losses on the disposal, closure, exit or impairment of subsidiaries, joint ventures, associates and investments which do not form part of the Group's ongoing trading activities;
· profits and losses on the disposal of properties and impairment losses on non-operational assets; and
· the costs of significant restructuring, including certain restructuring costs of the Group's five-year transformation plan launched in 2016/17, and incremental acquisition integration costs.
The term 'adjusted' refers to the relevant measure being reported for continuing operations excluding exceptional items, exchange differences on lease liabilities, financing fair value remeasurements, related tax items and prior year tax items (including the impact of changes in tax rates on deferred tax). Exchange differences on lease liabilities represent the income statement impact of translating lease liabilities denominated in non-functional currencies (e.g. a dollar-denominated lease in Russia) which are not able to be designated as net investment hedges. Financing fair value remeasurements represent changes in the fair value of financing derivatives, excluding interest accruals, offset by fair value adjustments to the carrying amount of borrowings and other hedged items under fair value hedge relationships. Financing derivatives are those that relate to hedged items of a financing nature.
The term 'underlying' refers to the relevant adjusted measure being reported before non-exceptional transformation costs. Non-exceptional transformation costs represent the additional costs that arise only as a result of the transformation plan launched in 2016/17, which either because of their nature or the length of the period over which they are incurred are not considered as exceptional items. These costs principally relate to the unified and unique offer range implementation and the digital strategic initiative. The separate reporting of such costs (in addition to exceptional items) helps provide an indication of the Group's underlying business performance, which includes the sustainable benefits of the transformation plan.
The adjusted effective tax rate is calculated as continuing income tax expense excluding tax on exceptional items and adjustments in respect of prior years and the impact of changes in tax rates on deferred tax, divided by continuing profit before taxation excluding exceptional items. The exclusion of items relating to prior years, and those not in the ordinary course of business, helps provide a better indication of the Group's ongoing rate of tax.
Net debt comprises lease liabilities, borrowings and financing derivatives (excluding accrued interest) less cash and cash equivalents and short-term deposits.
3. Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 January 2019, as described in note 2 of those financial statements, except where set out below. The critical accounting estimates and judgements are set out in note 3 of the annual financial statements for the year ended 31 January 2019 and remain unchanged, with the exception of those relating to IFRS 16 'Leases' as described in note 18.
Taxes on income for interim periods are accrued using the best estimate of the effective tax rate that would be applicable to expected total annual earnings.
IFRS 16 was issued by the IASB in January 2016 and has been endorsed by the European Union. The standard supersedes IAS 17 'Leases' and is effective for periods beginning on or after 1 January 2019. The adoption of IFRS 16 has had a material impact on the Group's primary financial statements, including impacts on the operating profit, profit before taxation, total assets and total liabilities lines. Further details of the Group's initial application of IFRS 16 are included in note 18, including details on the effect of initial application on the Group's financial results and the critical accounting estimates and judgements arising from application of the standard.
4. Segmental analysis
Income statement
Half year ended 31 July 2019
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Sales
2,655
2,158
753
431
5,997
Retail profit
277
114
88
(13)
466
Central costs
(25)
Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities
(5)
Exchange differences on lease liabilities of joint ventures and associates
1
Transformation costs before exceptional items
(16)
Exceptional items
(93)
Operating profit
328
Net finance costs
(83)
Profit before taxation
245
Half year ended 31 July 2018 restated (note18)
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Sales
2,635
2,267
726
452
6,080
Retail profit
282
131
90
(13)
490
Central costs
(23)
Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities
(3)
Exchange differences on lease liabilities of joint ventures and associates
(1)
Transformation costs before exceptional items
(52)
Exceptional items
(42)
Operating profit
369
Net finance costs
(89)
Profit before taxation
280
Year ended 31 January 2019 restated (note 18)
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Sales
5,061
4,272
1,431
921
11,685
Retail profit
530
221
185
(12)
924
Central costs
(49)
Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities
(5)
Exchange differences on lease liabilities of joint ventures and associates
(3)
Transformation costs before exceptional items
(120)
Exceptional items
(267)
Operating profit
480
Net finance costs
(180)
Profit before taxation
300
Balance sheet
At 31 July 2019
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Segment assets
3,083
1,858
867
677
6,485
Central liabilities
(162)
Goodwill
2,439
Net debt
(2,384)
Net assets
6,378
At 31 July 2018 restated (note 18)
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Segment assets
3,174
2,045
781
759
6,759
Central liabilities
(159)
Goodwill
2,438
Net debt
(2,661)
Net assets
6,377
At 31 January 2019 restated (note 18)
£ millions
UK & Ireland
France
Other International
Total
Poland
Other
Segment assets
3,062
1,865
791
697
6,415
Central liabilities
(160)
Goodwill
2,436
Net debt
(2,542)
Net assets
6,149
The operating segments disclosed above are based on the information reported internally to the Board of Directors and Group Executive, representing the geographical areas in which the Group operates. The Group only has one business segment being the supply of home improvement products and services. The majority of the sales in each geographical area are derived from in-store sales of products.
The 'Other International' segment consists of Poland, Iberia, Germany, Russia, Romania and the joint venture Koçtaş in Turkey. Poland has been shown separately due to its significance.
Central costs principally comprise the costs of the Group's head office before transformation costs. Central liabilities comprise unallocated head office and other central items including central assets, pensions, insurance, interest and tax.
Transformation costs before exceptional items principally relate to the unified and unique offer range implementation and the digital strategic pillar, with £1m (2018/19: £21m) included within selling and distribution expenses and £15m (2018/19: £31m) included within administrative expenses.
The Group's sales, although generally not highly seasonal on a half-yearly basis, do increase over the Easter period and during the summer months leading to slightly higher sales usually being recognised in the first half of the year.
5. Exceptional items
Half year ended
Year ended
£ millions
Half year ended
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Included within selling and distribution expenses
UK & Ireland and continental Europe restructuring
(68)
4
(124)
Impairments of Russia and Iberia assets
(26)
-
(16)
B&Q store replenishment
-
-
(12)
Romania acquisition integration
-
-
(16)
France exceptional employee bonus
-
-
(6)
(94)
4
(174)
Included within administrative expenses
Transformation exceptional costs
-
(46)
(58)
UK guaranteed minimum pension charge
-
-
(5)
-
(46)
(63)
Included within other income
Profit on disposal of properties
1
-
27
1
-
27
Included within other expenses
Impairments of properties held for sale
-
-
(57)
-
-
(57)
Exceptional items before tax
(93)
(42)
(267)
Tax on exceptional items
19
13
63
Exceptional items
(74)
(29)
(204)
Current period exceptional items include a £68m net restructuring charge principally relating to redundancy costs following formal consultation with employee representatives regarding the Group's plans to close 11 stores in France and 19 Screwfix Germany outlets.
Additional impairments of £26m have been recorded in the period primarily relating to store assets in Russia following a deterioration in trading. The Group announced the decision to exit Russia and Iberia in November 2018 and recorded impairments of £16m to store and non-operational assets in the prior year.
A profit of £1m has been recorded in the period on the disposal of properties in the UK.
6. Net finance costs
Half year ended
Year ended
£ millions
Half year ended 31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Bank overdrafts and bank loans
(10)
(7)
(15)
Fixed term debt
(2)
(1)
(3)
Lease liabilities
(82)
(87)
(174)
Exchange differences on lease liabilities
-
(2)
(4)
Unwinding of discount on provisions
-
-
(2)
Capitalised interest
1
2
2
Other interest payable
-
(2)
-
Finance costs
(93)
(97)
(196)
Cash and cash equivalents and short-term deposits
6
4
9
Net interest income on defined benefit pension schemes
3
2
4
Finance lease income
1
2
3
Finance income
10
8
16
Net finance costs
(83)
(89)
(180)
7. Income tax expense
£ millions
Half year ended
31 July 2019Half year ended
31 July 2018
restated
(note 18)
Year ended
31 January 2019restated
(note 18)
UK corporation tax
Current tax on profits for the period
(30)
(49)
(52)
Adjustments in respect of prior years
-
-
(1)
(30)
(49)
(53)
Overseas tax
Current tax on profits for the period
(29)
(31)
(66)
Adjustments in respect of prior years
(2)
-
7
(31)
(31)
(59)
Deferred tax
Current period
(11)
6
30
Adjustments in respect of prior years
(2)
-
(25)
(13)
6
5
Income tax expense
(74)
(74)
(107)
The adjusted effective tax rate on profit before exceptional items and excluding prior year tax adjustments and the impact of changes in tax rates on deferred tax is 26% (2018/19: 27%), representing the best estimate of the effective rate for the full financial year. The adjusted effective tax rate on the same basis for the year ended 31 January 2019 was 27%. Exceptional tax items for the current period amount to a credit of £19m, none of which relates to prior year items (2018/19: £13m credit, none of which related to prior year items). Exceptional tax items for the year ended 31 January 2019 amounted to a credit of £63m, none of which related to prior year items.
8. Earnings per share
Half year ended
Year ended
Pence
Half year ended
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Basic earnings per share
8.1
9.6
9.1
Effect of dilutive share options
-
-
(0.1)
Diluted earnings per share
8.1
9.6
9.0
Basic earnings per share
8.1
9.6
9.1
Exceptional items before tax
4.4
1.9
12.6
Tax on exceptional and prior year items
(0.7)
(0.6)
(2.1)
Exchange differences on lease liabilities
-
0.1
0.3
Tax on exchange differences on lease liabilities
-
-
(0.1)
Adjusted basic earnings per share
11.8
11.0
19.8
Transformation costs before exceptional items
0.7
2.5
5.6
Tax on transformation costs before exceptional items
(0.2)
(0.7)
(1.5)
Underlying basic earnings per share
12.3
12.8
23.9
Diluted earnings per share
8.1
9.6
9.0
Exceptional items before tax
4.4
1.9
12.6
Tax on exceptional and prior year items
(0.7)
(0.6)
(2.1)
Exchange differences on lease liabilities
-
0.1
0.3
Tax on exchange differences on lease liabilities
-
-
(0.1)
Adjusted diluted earnings per share
11.8
11.0
19.7
Transformation costs before exceptional items
0.7
2.4
5.6
Tax on transformation costs before exceptional items
(0.2)
(0.7)
(1.5)
Underlying diluted earnings per share
12.3
12.7
23.8
The calculation of basic and diluted earnings per share is based on the profit for the period attributable to equity shareholders of the Company. A reconciliation of statutory earnings to adjusted and underlying earnings is set out below:
Half year ended
Year ended
£ millions
Half year ended 31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Earnings
171
206
193
Exceptional items before tax
93
42
267
Tax on exceptional and prior year items
(15)
(13)
(44)
Exchange differences on lease liabilities
(1)
3
7
Tax on exchange differences on lease liabilities
-
(1)
(2)
Adjusted earnings
248
237
421
Transformation costs before exceptional items
16
52
120
Tax on transformation costs before exceptional items
(4)
(14)
(32)
Underlying earnings
260
275
509
The weighted average number of shares in issue during the period, excluding those held in the Employee Share Ownership Plan Trust ('ESOP trust'), is 2,101m (2018/19: 2,141m). The diluted weighted average number of shares in issue during the period is 2,112m (2018/19: 2,151m). For the year ended 31 January 2019, the weighted average number of shares in issue was 2,129m and the diluted weighted average number of shares in issue was 2,140m.
9. Dividends
Half year ended
Half year ended
Year ended
£ millions
31 July 2019
31 July 2018
31 January 2019
Dividends to equity shareholders of the Company
Ordinary final dividend for the year ended 31 January 2019 of 7.49p per share
157
-
-
Ordinary interim dividend for the year ended 31 January 2019 of 3.33p per share
-
-
71
Ordinary final dividend for the year ended 31 January 2018 of 7.49p per share
-
160
160
157
160
231
The proposed ordinary interim dividend for the period ended 31 July 2019 is 3.33p per share.
10. Property, plant and equipment, investment property and other intangible assets
Additions to the cost of property, plant and equipment, investment property and other intangible assets are £144m (2018/19: £152m) and for the year ended 31 January 2019 were £334m. Disposals in net book value of property, plant and equipment, investment property, property assets held for sale and other intangible assets are £77m (2018/19: £6m) and for the year ended 31 January 2019 were £68m.
Capital commitments contracted but not provided for at the end of the period are £161m (2018/19: £90m) and at 31 January 2019 were £40m.
11. Post-employment benefits
Half year ended
Half year ended
Year ended
£ millions
31 July 2019
31 July 2018
31 January 2019
Net surplus in schemes at beginning of period
205
99
99
Current service cost
(5)
(6)
(11)
Past service cost
-
-
(2)
Administration costs
(2)
(2)
(4)
Net interest income
3
2
4
Net actuarial gains
73
86
78
Contributions paid by employer
19
19
40
Exchange differences
(6)
(2)
1
Net surplus in schemes at end of period
287
196
205
UK
413
318
320
Overseas
(126)
(122)
(115)
Net surplus in schemes at end of period
287
196
205
Present value of defined benefit obligations
(3,249)
(3,036)
(2,977)
Fair value of scheme assets
3,536
3,232
3,182
Net surplus in schemes at end of period
287
196
205
The assumptions used in calculating the costs and obligations of the Group's defined benefit pension schemes are set by the Directors after consultation with independent professionally qualified actuaries. The assumptions are based on the conditions at the time and changes in these assumptions can lead to significant movements in the estimated obligations, as illustrated in the sensitivity analysis provided in note 26 of the annual financial statements for the year ended 31 January 2019.
A key assumption in valuing the pension obligation is the discount rate. Accounting standards require this to be set based on market yields on high quality corporate bonds at the balance sheet date. The UK scheme discount rate is derived using a single equivalent discount rate approach, based on the yields available on a portfolio of high-quality Sterling corporate bonds with the same duration as that of the scheme liabilities.
The principal financial assumptions for the UK scheme, being the Group's principal defined benefit scheme, are set out below:
At
At
At
Annual % rate
31 July 2019
31 July 2018
31 January 2019
Discount rate
2.1
2.5
2.5
Price inflation
3.4
3.3
3.3
12. Financial instruments
The Group holds the following derivative financial instruments at fair value:
At
At
At
£ millions
31 July 2019
31 July 2018
31 January 2019
Cross currency interest rate swaps
1
-
-
Foreign exchange contracts
63
47
26
Derivative assets
64
47
26
At
At
At
£ millions
31 July 2019
31 July 2018
31 January 2019
Cross currency interest rate swaps
-
-
(2)
Foreign exchange contracts
(19)
(16)
(21)
Derivative liabilities
(19)
(16)
(23)
The fair values are calculated by discounting future cash flows arising from the instruments and adjusted for credit risk. These fair value measurements are all made using observable market rates of interest, foreign exchange and credit risk. All the derivatives held by the Group at fair value are considered to have fair values determined by level 2 inputs as defined by the fair value hierarchy of IFRS 13, 'Fair value measurement', representing significant observable inputs other than quoted prices in active markets for identical assets or liabilities. There are no non-recurring fair value measurements nor have there been any transfers of assets or liabilities between levels of the fair value hierarchy.
Except as detailed in the following table of borrowings, the carrying amounts of financial instruments (excluding lease liabilities) recorded at amortised cost in the financial statements are approximately equal to their fair values. Where available, market values have been used to determine the fair values of borrowings. Where market values are not available or are not reliable, fair values have been calculated by discounting cash flows at prevailing interest and foreign exchange rates. This has resulted in level 2 inputs for borrowings as defined by the IFRS 13 fair value hierarchy.
Carrying amount
At
At
£ millions
At
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Bank loans
4
5
4
Fixed term debt
140
44
136
Borrowings
144
49
140
Fair value
At
At
£ millions
At
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Bank loans
4
5
5
Fixed term debt
143
44
138
Borrowings
147
49
143
At 31 July 2019, the Group had undrawn revolving credit facilities of £550 million due to expire in August 2021 and £225 million due to expire in March 2022. In August 2019, the Group completed an extension of the £550 million revolving credit facility, taking the term to August 2022.
13. Other reserves
Half year ended 31 July 2019
£ millions
Translation reserve
Cash flow
hedge reserve
Other
Total
At 1 February 2019
210
10
159
379
Inventory cash flow hedges - fair value gains
-
47
-
47
Tax on items that will not be reclassified subsequently to profit or loss
-
(9)
-
(9)
Currency translation differences
Group
153
-
-
153
Other cash flow hedges
Fair value gains
-
4
-
4
Gains transferred to income statement
-
(4)
-
(4)
Other comprehensive income for the period
153
38
-
191
Inventory cash flow hedges - gains transferred to inventories
-
(24)
-
(24)
Tax on equity items
-
5
-
5
At 31 July 2019
363
29
159
551
Half year ended 31 July 2018 restated (note 18)
£ millions
Translation reserve
Cash flow
hedge reserve
Other
Total
At 1 February 2018
256
(37)
159
378
Inventory cash flow hedges - fair value gains
-
63
-
63
Tax on items that will not be reclassified subsequently to profit or loss
-
(15)
-
(15)
Currency translation differences
Group
34
-
-
34
Tax on items that may be reclassified
(1)
-
-
(1)
Other comprehensive income for the period
33
48
-
81
Inventory cash flow hedges - losses transferred to inventories
-
15
-
15
Tax on equity items
-
(4)
-
(4)
At 31 July 2018
289
22
159
470
Year ended 31 January 2019 restated (note 18)
Translation reserve
Cash flow hedge reserve
Other
Total
At 1 February 2018
256
(37)
159
378
Inventory cash flow hedges - fair value gains
-
85
-
85
Tax on items that will not be reclassified subsequently to profit or loss
-
(21)
-
(21)
Currency translation differences
Group
(46)
-
-
(46)
Other cash flow hedges
Fair value losses
-
(2)
-
(2)
Losses transferred to income statement
-
2
-
2
Other comprehensive income for the year
(46)
64
-
18
Inventory cash flow hedges - gains transferred to inventories
-
(22)
-
(22)
Tax on equity items
-
5
-
5
At 31 January 2019
210
10
159
379
14. Cash generated by operations
£ millions
Half year ended
31 July 2019Half year ended
31 July 2018restated
(note 18)
Year ended
31 January 2019restated
(note 18)
Operating profit
328
369
480
Share of post-tax results of joint ventures and associates
-
2
(1)
Depreciation and amortisation
270
261
535
Net impairment losses
24
-
201
(Gain)/loss on disposal of property, plant and equipment, investment property, assets held for sale and intangible assets
(2)
2
(25)
Lease losses
2
-
2
Share-based compensation charge
8
10
15
(Increase)/decrease in inventories
(111)
3
95
(Increase)/decrease in trade and other receivables
(43)
41
142
Increase/(decrease) in trade and other payables
94
12
(197)
Movement in provisions
55
27
19
Movement in post-employment benefits
(12)
(11)
(23)
Cash generated by operations
613
716
1,243
15. Net debt
At
At
£ millions
At
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Cash and cash equivalents
385
181
229
Bank loans
(4)
(5)
(4)
Fixed term debt
(140)
(44)
(136)
Lease liabilities
(2,638)
(2,800)
(2,626)
Financing derivatives
13
7
(5)
Net debt
(2,384)
(2,661)
(2,542)
At
At
£ millions
At
31 July 2019
31 July 2018
restated
(note 18)
31 January 2019
restated
(note 18)
Net debt at beginning of period
(2,542)
(2,678)
(2,678)
Net increase/(decrease) in cash and cash equivalents
131
(41)
12
Repayment of bank loans
1
1
1
Issue of fixed term debt
-
(44)
(139)
Repayment of fixed term debt
-
134
134
Receipt on financing derivatives
-
(37)
(37)
Net cash flow
132
13
(29)
Movement in lease liabilities
18
1
157
Exchange differences and other non-cash movements
8
3
8
Net debt at end of period
(2,384)
(2,661)
(2,542)
16. Contingent liabilities
The Group has arranged for certain guarantees to be provided to third parties in the ordinary course of business. Of these guarantees, £45m (2018/19: £44m) would crystallise due to possible future events not wholly within the Group's control. At 31 January 2019, the amount was £43m.
The Group is subject to claims and litigation arising in the ordinary course of business and provision is made where liabilities are considered likely to arise on the basis of current information and legal advice.
The Group files tax returns in many jurisdictions around the world and at any one time, is subject to periodic tax audits in the ordinary course of its business. Applicable tax laws and regulations are subject to differing interpretations and the resolution of a final tax position can take several years to complete. Where it is considered that future tax liabilities are more likely than not to arise, an appropriate provision is recognised in the financial statements.
Included within these audits is a dispute with the French Tax Authority regarding the treatment of interest paid since the 2010 year end, where additional French tax of €49m (£45m) has been assessed and for which a bank guarantee is now in place. At the balance sheet date, interest and penalties of €52m (£47m) would be due on this assessment if not challenged successfully. Having taken external professional advice, the Group disagrees with the assessment and intends to defend its position through the courts. The Group does not consider it necessary to make provision for the amounts assessed at the current time, nor for any potential further amounts which may be assessed for subsequent years.
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption section of the UK controlled foreign company rules. While the Group has complied with the requirements of UK tax law in force at the time, in April 2019 the European Commission concluded that aspects of the UK controlled foreign company regime partially constitutes state aid. Along with many other UK-based international companies, the Group may be affected by the Commission's decision.
In June 2019, the UK government submitted an appeal to the European Courts against the decision. The Group has calculated its maximum potential liability (including compound interest) to be £62m in the event that all appeals against the position are unsuccessful. The final impact on the Group remains uncertain but based upon advice taken, the Group considers that no provision is required at this time. The Group will continue to monitor the position as it develops.
Whilst the procedures that must be followed to resolve these types of tax issues make it likely that it will be some years before the eventual outcome is known, the Group does not currently expect the outcome of these contingent liabilities to have a material effect on the Group's financial position.
17. Related party transactions
The Group's significant related parties are its joint venture, associate and pension schemes as disclosed in note 36 of the annual financial statements for the year ended 31 January 2019. There have been no significant changes in related parties or related party transactions in the period.
18. Impact of the adoption of IFRS 16 'Leases'
Initial adoption of IFRS 16 'Leases'
The Group has adopted IFRS 16 from 1 February 2019 using the full retrospective method. Comparatives for the half year ended 31 July 2018 and the year ended 31 January 2019 have been restated.
The Group applied the practical expedient available for low-value items and short-term leases, recognising rental payments for these leases on a straight-line basis in the income statement and not recognising a right-of-use asset or lease liability. This presentation of these expenses remains consistent with the annual financial statements for the year ended 31 January 2019.
Following the adoption of IFRS 16, the Group's accounting policy in respect of leases is as follows:
Lessee accounting
The Group assesses whether a contract is or contains a lease at inception of the contract. Typically, lease contracts relate to properties such as stores and distribution centres, and equipment leases such as mechanical handling equipment and vehicles. For leases in which the Group is a lessee, the Group recognises a right-of-use asset and a lease liability.
The liability is initially measured as the present value of the lease payments not yet paid at the commencement date, discounted at an appropriate discount rate. Where the implicit rate in the lease is not readily determinable, an incremental borrowing rate is calculated and applied. The calculation methodology is based upon applying a financing spread to a risk-free rate, with the resulting rate including the effect of the credit worthiness of the operating company in which the lease is contracted, as well as the underlying term, currency and start date of the lease agreement.
Lease payments used in the measurement of the lease liability principally comprise fixed lease payments (subject to indexation/rent reviews) less any incentives. The lease liability is subsequently measured using an effective interest method whereby the carrying amount of the lease liability is measured on an amortised cost basis, and the interest expense is allocated over the lease term. The lease term comprises the non-cancellable lease term, in addition to optional periods when the Group is reasonably certain to exercise an option to extend (or not to terminate) a lease.
The Group remeasures the lease liability and makes a corresponding adjustment to the related right-of-use asset whenever an event occurs that changes the term or payment profile of a lease, such as the renewal of an existing lease, the exercise of lease term options, market rent reviews and indexation. A lease liability which is denominated in a currency that is not the functional currency of the relevant Group entity (e.g. a dollar-denominated lease in Castorama Russia) is translated into that entity's functional currency with foreign exchange gains and losses recorded in the income statement, unless the lease liability is able to be designated as a net investment hedge with foreign exchange gains and losses recorded in other comprehensive income.
The right-of-use assets are initially measured at the amount equal to the lease liability, adjusted by any upfront lease payments or incentives and any initial direct costs incurred. Subsequently, the assets are measured at cost less accumulated depreciation and impairment losses.
Lessor accounting
Lessor accounting is broadly consistent with the annual financial statements for the year ended 31 January 2019. However, where the Group subleases assets, it is determined whether the sublease should be classified as an operating lease or a finance lease, with reference to the right-of-use asset (not the underlying asset as per IAS 17).
Critical accounting estimates and judgements
For IFRS 16, judgement and estimates are applied to the calculation of incremental borrowing rates for lease contracts.
Given that risk-free rates such as government bonds are based on specified terms, the range of lease terms in the Group's portfolio has required the Group to apply judgement and estimate appropriate adjustments to available risk-free rates. Additionally, the application of financing spreads which are specific to operating companies requires an estimation of the credit quality of those companies. Given that the Group has applied the full retrospective approach to IFRS 16, these judgements and estimates have been applied in the calculation of historical discount rates.
The Group expects to continue to apply judgement and estimates to the calculation of incremental borrowing rates.
Impact on the financial statements on transition
The Group adopted IFRS 16 on 1 February 2019 on a fully retrospective basis, resulting in the restatement of comparatives for the six months ended 31 July 2018 and year ended 31 January 2019. The cumulative effect of initial application is recognised as an adjustment to opening equity on the date of transition (1 February 2018).
The effect of the changes made to the Group's comparative consolidated income statements, balance sheets and cash flow statements are as follows:
Consolidated income statements - IFRS 16 restatements
Half year ended 31 July 2018
Year ended 31 January 2019
£ millions
As previously reported
Impact of IFRS 16
Restated
As previously reported
Impact of IFRS 16
Restated
Sales
6,080
-
6,080
11,685
-
11,685
Cost of sales
(3,868)
4
(3,864)
(7,376)
9
(7,367)
Gross profit
2,212
4
2,216
4,309
9
4,318
Selling and distribution expenses
(1,486)
78
(1,408)
(3,114)
140
(2,974)
Administrative expenses
(452)
4
(448)
(867)
5
(862)
Other income
11
-
11
56
(2)
54
Other expenses
-
-
-
(57)
-
(57)
Share of post-tax results of joint ventures and associates
(1)
(1)
(2)
2
(1)
1
Operating profit
284
85
369
329
151
480
Finance costs
(9)
(88)
(97)
(20)
(176)
(196)
Finance income
6
2
8
13
3
16
Net finance costs
(3)
(86)
(89)
(7)
(173)
(180)
Profit before taxation
281
(1)
280
322
(22)
300
Income tax expense
(73)
(1)
(74)
(104)
(3)
(107)
Profit for the period
208
(2)
206
218
(25)
193
Earnings per share
Basic
9.7p
(0.1)p
9.6p
10.3p
(1.2)p
9.1p
Diluted
9.7p
(0.1)p
9.6p
10.2p
(1.2)p
9.0p
Adjusted basic
11.0p
-
11.0p
19.8p
-
19.8p
Adjusted diluted
11.0p
-
11.0p
19.7p
-
19.7p
Underlying basic
12.8p
-
12.8p
23.9p
-
23.9p
Underlying diluted
12.7p
-
12.7p
23.8p
-
23.8p
Underlying pre-tax profit
375
2
377
693
1
694
Transformation costs before exceptional items
(52)
-
(52)
(120)
-
(120)
Adjusted pre-tax profit
323
2
325
573
1
574
Exchange differences on lease liabilities
-
(3)
(3)
-
(7)
(7)
Exceptional items
(42)
-
(42)
(251)
(16)
(267)
Profit before taxation
281
(1)
280
322
(22)
300
Segmental analysis
UK & Ireland
218
64
282
399
131
530
France
122
9
131
209
12
221
Poland
88
2
90
181
4
185
Other
(24)
11
(13)
(36)
24
(12)
Retail profit
404
86
490
753
171
924
Central costs
(24)
1
(23)
(49)
-
(49)
Share of interest and tax of joint ventures and associates before exchange differences on lease liabilities
(2)
(1)
(3)
(4)
(1)
(5)
Exchange differences on lease liabilities of joint ventures and associates
-
(1)
(1)
-
(3)
(3)
Transformation costs before exceptional items
(52)
-
(52)
(120)
-
(120)
Exceptional items
(42)
-
(42)
(251)
(16)
(267)
Operating profit
284
85
369
329
151
480
Consolidated balance sheets - IFRS 16 restatements
At 31 July 2018
At 31 January 2019
At 31 January 2018
£ millions
As previously reported
Impact of IFRS 16
Restated
As previously reported
Impact of IFRS 16
Restated
As previously reported
Impact of IFRS 16
Restated
Non-current assets
Goodwill
2,438
-
2,438
2,436
-
2,436
2,437
-
2,437
Other intangible assets
375
-
375
371
-
371
355
-
355
Property, plant and equipment
3,757
(190)
3,567
3,454
(152)
3,302
3,736
(200)
3,536
Right-of-use assets
-
2,221
2,221
-
2,017
2,017
-
2,218
2,218
Investment property
21
-
21
8
-
8
20
-
20
Investments in joint ventures and associates
18
(6)
12
20
(5)
15
25
(6)
19
Post-employment benefits
318
-
318
320
-
320
214
-
214
Deferred tax assets
31
9
40
9
4
13
30
9
39
Derivative assets
-
-
-
-
-
-
-
-
-
Other receivables
8
45
53
10
31
41
8
47
55
6,966
2,079
9,045
6,628
1,895
8,523
6,825
2,068
8,893
Current assets
Inventories
2,718
-
2,718
2,574
-
2,574
2,701
-
2,701
Trade and other receivables
521
(49)
472
453
(47)
406
550
(49)
501
Derivative assets
47
-
47
26
-
26
41
-
41
Current tax assets
1
-
1
1
-
1
-
-
-
Cash and cash equivalents
181
-
181
229
-
229
230
-
230
Assets held for sale
-
-
-
89
-
89
-
-
-
3,468
(49)
3,419
3,372
(47)
3,325
3,522
(49)
3,473
Total assets
10,434
2,030
12,464
10,000
1,848
11,848
10,347
2,019
12,366
Current liabilities
Trade and other payables
(2,701)
44
(2,657)
(2,444)
29
(2,415)
(2,666)
36
(2,630)
Borrowings
(17)
15
(2)
(14)
13
(1)
(140)
13
(127)
Lease liabilities
-
(363)
(363)
-
(308)
(308)
-
(309)
(309)
Derivative liabilities
(16)
-
(16)
(21)
-
(21)
(79)
-
(79)
Current tax liabilities
(145)
-
(145)
(118)
-
(118)
(140)
-
(140)
Provisions
(44)
6
(38)
(35)
8
(27)
(25)
10
(15)
(2,923)
(298)
(3,221)
(2,632)
(258)
(2,890)
(3,050)
(250)
(3,300)
Non-current liabilities
Other payables
(64)
58
(6)
(64)
58
(6)
(61)
59
(2)
Borrowings
(72)
25
(47)
(162)
23
(139)
(36)
32
(4)
Lease liabilities
-
(2,437)
(2,437)
-
(2,318)
(2,318)
-
(2,482)
(2,482)
Derivative liabilities
-
-
-
(2)
-
(2)
-
-
-
Deferred tax liabilities
(313)
93
(220)
(286)
94
(192)
(264)
93
(171)
Provisions
(77)
43
(34)
(82)
45
(37)
(73)
44
(29)
Post-employment benefits
(122)
-
(122)
(115)
-
(115)
(115)
-
(115)
(648)
(2,218)
(2,866)
(711)
(2,098)
(2,809)
(549)
(2,254)
(2,803)
Total liabilities
(3,571)
(2,516)
(6,087)
(3,343)
(2,356)
(5,699)
(3,599)
(2,504)
(6,103)
Net assets
6,863
(486)
6,377
6,657
(508)
6,149
6,748
(485)
6,263
Equity
Share capital
335
-
335
332
-
332
340
-
340
Share premium
2,228
-
2,228
2,228
-
2,228
2,228
-
2,228
Own shares held in ESOP trust
(26)
-
(26)
(25)
-
(25)
(29)
-
(29)
Retained earnings
3,811
(481)
3,330
3,696
(504)
3,192
3,790
(479)
3,311
Capital redemption reserve
40
-
40
43
-
43
35
-
35
Other reserves
475
(5)
470
383
(4)
379
384
(6)
378
Total equity
6,863
(486)
6,377
6,657
(508)
6,149
6,748
(485)
6,263
Consolidated cash flow statements - IFRS 16 restatements
Half year ended 31 July 2018
Year ended 31 January 2019
£ millions
As previously reported
Impact of IFRS 16
Restated
As previously reported
Impact of IFRS 16
Restated
Operating activities
Cash generated by operations
503
213
716
781
462
1,243
Income tax paid
(77)
-
(77)
(132)
-
(132)
Net cash flows from operating activities
426
213
639
649
462
1,111
Investing activities
Purchase of property, plant and equipment and intangible assets
(165)
1
(164)
(339)
7
(332)
Disposal of property, plant and equipment, investment property, assets held for sale and intangible assets
4
-
4
45
-
45
Interest received
4
-
4
11
-
11
Interest element of lease rental receipts
-
2
2
-
3
3
Principal element of lease rental receipts
-
3
3
-
6
6
Advance payments on right-of-use assets
-
(1)
(1)
-
(4)
(4)
Dividends received from joint ventures and associates
5
-
5
5
-
5
Net cash flows used in investing activities
(152)
5
(147)
(278)
12
(266)
Financing activities
Interest paid
(7)
-
(7)
(19)
-
(19)
Interest element of lease rental payments
(1)
(86)
(87)
(2)
(172)
(174)
Principal element of lease rental payments
(5)
(132)
(137)
(10)
(302)
(312)
Repayment of bank loans
(1)
-
(1)
(1)
-
(1)
Issue of fixed term debt
44
-
44
139
-
139
Repayment of fixed term debt
(134)
-
(134)
(134)
-
(134)
Receipt on financing derivatives
37
-
37
37
-
37
New shares issued under share schemes
2
-
2
2
-
2
Purchase of own shares for cancellation
(90)
-
(90)
(140)
-
(140)
Ordinary dividends paid to equity shareholders of the Company
(160)
-
(160)
(231)
-
(231)
Net cash flows from financing activities
(315)
(218)
(533)
(359)
(474)
(833)
Net (decrease)/increase in cash and cash equivalents
(41)
-
(41)
12
-
12
Cash and cash equivalents at beginning of period
230
-
230
230
-
230
Exchange differences
(8)
-
(8)
(13)
-
(13)
Cash and cash equivalents at end of period
181
-
181
229
-
229
Operating profit
284
85
369
329
151
480
Share of post-tax results of joint ventures and associates
1
1
2
(2)
1
(1)
Depreciation and amortisation
132
129
261
272
263
535
Net impairment losses
-
-
-
160
41
201
Loss/(gain) on disposal of property, plant and equipment, investment property, assets held for sale and intangible assets
2
-
2
(25)
-
(25)
Lease losses
-
-
-
-
2
2
Share-based compensation charge
10
-
10
15
-
15
Decrease in inventories
3
-
3
95
-
95
Decrease in trade and other receivables
41
-
41
144
(2)
142
Increase/(decrease) in trade and other payables
20
(8)
12
(203)
6
(197)
Movement in provisions
21
6
27
19
-
19
Movement in post-employment benefits
(11)
-
(11)
(23)
-
(23)
Cash generated by operations
503
213
716
781
462
1,243
Notes to the restatement tables
Income statement
· There is no impact on sales.
· The reduction in cost of sales, selling and distribution expenses and administrative expenses is due to the removal of the IAS 17 operating lease rental expense, partially offset by the IFRS 16 depreciation charge on in-scope property and equipment lease right-of-use assets. The leased properties principally comprise stores, hence the significant impact on selling and distribution expenses, but also include certain distribution centres and offices. The majority of the impact on operating profit (and the Group's alternative measure of retail profit) arises in the UK, due to the high proportion of leasehold stores.
· The increase in net finance costs is driven by the IFRS 16 interest expense on lease liabilities. Other impacts include a small increase in finance income from IFRS 16 interest income on sublease assets, the removal of IAS 17 finance lease interest expense and the recognition of IFRS 16 exchange differences on lease liabilities ('lease FX').
· Lease FX represents the impact of translating leases denominated in non-functional currencies (e.g. a dollar-denominated lease in Russia) which are not able to be designated as net investment hedges and has been excluded from the Group's adjusted and underlying performance measures due to its fluctuating nature.
· The movement in exceptional items mainly reflects the recognition of IFRS 16 impairments to right-of-use assets, partially offset by the derecognition of IAS 17 charges to onerous lease rental provisions.
· The impact on deferred tax of the above adjustments has been recorded. Note that the Group's alternative measure of adjusted effective tax rate remains broadly unchanged.
· Earnings per share reflects the net impact of the above adjustments on post-tax results. The Group's alternative measures of underlying and adjusted earnings per share remain unchanged, reflecting the broadly neutral impacts on underlying and adjusted pre-tax profits and adjusted effective tax rate.
Balance sheet
· IFRS 16 right-of-use assets and lease liabilities have been recognised for in-scope property and equipment lease contracts.
· IAS 17 finance lease assets, upfront lease premiums and capitalised costs incurred to secure leases have been derecognised from property, plant and equipment.
· IAS 17 finance lease liabilities have been derecognised from borrowings.
· IAS 17 rental prepayments and accruals have been derecognised from other receivables and payables respectively, the former partially offset by recognition of sublease assets.
· IAS 17 onerous lease rental provisions have been derecognised.
· The impact on deferred tax of the above adjustments has been recorded.
· Retained earnings have reduced, reflecting the higher cumulative expenses under IFRS 16.
Cash flow statement
· No change in reported cash and cash equivalent balances and net movement in these.
· The presentational changes to the cash flow statement principally comprise the reclassification of lease rental payments from net cash flows from operating activities to net cash flows from financing activities, with payments split between interest and principal elements.
· Other presentational changes include the increased add-back to operating profit for IFRS 16 right-of-use asset depreciation and impairment losses.
· Note that the Group's alternative measure of net debt increases significantly with the inclusion of IFRS 16 lease liabilities. The ratio of net debt to EBITDA, previously 'lease adjusted net debt to EBITDAR', reduces due to a lower lease liability than the previous '8x' rent assumption.
· Note that the Group's alternative measure of free cash flow reduces slightly under IFRS 16 to reflect the inclusion of the principal element of rental payments related to IAS 17 finance leases.
Note that the impacts on the statement of comprehensive income and statement of changes in equity are limited to the restatement of profits and adjustments for exchange differences.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of their knowledge this set of interim condensed financial statements has been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the period and their impact on the interim condensed financial statements, and a description of the principal risks and uncertainties for the remainder of the financial year; and
· material related party transactions in the period and any material changes in the related party transactions described in the last annual report.
The Directors of Kingfisher plc were listed in the Kingfisher plc Annual Report for the year ended 31 January 2019. Karen Witts resigned as Chief Financial Officer on 21 March 2019 and Anders Dahlvig resigned as a non-Executive Director on 12 June 2019.
By order of the Board
Veronique Laury Andy Cosslett
Chief Executive Officer Chairman
17 September 2019 17 September 2019
INDEPENDENT REVIEW REPORT TO KINGFISHER PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2019 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
17 September 2019
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.ENDIR DMGMLLNNGLZM
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