REG - Kingfisher PLC - Final Results (Part 2 of 2)
25/03/2024 07:00
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RNS Number : 0566I Kingfisher PLC 25 March 2024
Consolidated income statement
Year ended 31 January 2024
2023/24 2022/23
Before adjusting items Adjusting items Before adjusting items Adjusting items
(note 4) (note 4)
£ millions Notes Total Total
Sales 3 12,980 - 12,980 13,059 - 13,059
Cost of sales (8,204) - (8,204) (8,264) - (8,264)
Gross profit 4,776 - 4,776 4,795 - 4,795
Selling and distribution expenses (3,143) (87) (3,230) (3,087) (136) (3,223)
Administrative expenses (982) (8) (990) (868) (12) (880)
Other income 23 2 25 25 1 26
Share of post-tax results (1) - (1) 5 - 5
of joint ventures and associates
Operating profit 3 673 (93) 580 870 (147) 723
Finance costs (133) - (133) (129) - (129)
Finance income 28 - 28 17 - 17
Net finance costs 5 (105) - (105) (112) - (112)
Profit before taxation 568 (93) 475 758 (147) 611
Income tax expense 6 (153) 23 (130) (169) 29 (140)
Profit for the year 415 (70) 345 589 (118) 471
Earnings per share 7
Basic 18.2p 23.8p
Diluted 18.0p 23.5p
Adjusted basic 21.9p 29.7p
Adjusted diluted 21.6p 29.4p
The proposed dividend for the year ended 31 January 2024, subject to approval
by shareholders at the Annual General Meeting, is 12.40p per share, comprising
an interim dividend of 3.80p in respect of the six months ended 31 July 2023
and a final dividend of 8.60p.
Consolidated statement of comprehensive income
Year ended 31 January 2024
Notes 2023/24 2022/23
£ millions
Profit for the year 345 471
Remeasurements of post-employment benefits 9 (42) (278)
Inventory cash flow hedges - fair value (losses)/gains (32) 58
Tax on items that will not be reclassified 28 85
Total items that will not be reclassified subsequently to profit or loss (46) (135)
Currency translation differences
Group (3) 129
Joint ventures and associates (1) 11
Transferred to income statement (2) -
Inventory cash flow hedges - losses/(gains) transferred to income statement 12 (5)
Tax on items that may be reclassified (2) -
Total items that may be reclassified subsequently to profit or loss 4 135
Other comprehensive expense for the year (42) -
Total comprehensive income for the year 303 471
Consolidated statement of changes in equity
Year ended 31 January 2024
2023/24
Share capital Own shares held Other reserves Total
£ millions Notes Share Retained earnings Capital redemption reserve equity
premium
At 1 February 2023 305 2,228 (22) 3,796 71 285 6,663
Profit for the year - - - 345 - - 345
Other comprehensive expense for the year - - - (20) - (22) (42)
Total comprehensive income/(expense) for the year - - - 325 - (22) 303
Inventory cash flow hedges - losses transferred to inventories - - - - - 33 33
Share-based compensation - - - 22 - - 22
New shares issued under share schemes - - - 4 - - 4
Own shares issued under share schemes - - 15 (15) - - -
Purchase of own shares for cancellation (11) - - (153) 11 - (153)
Purchase of own shares for ESOP trust - - (24) - - - (24)
Dividends 8 - - - (237) - - (237)
Tax on equity items - - - (1) - (6) (7)
At 31 January 2024 294 2,228 (31) 3,741 82 290 6,604
2022/23
Share capital Own shares held Other reserves Total
£ millions Notes Share Retained earnings Capital redemption reserve equity
premium
At 1 February 2022 325 2,228 (46) 4,025 50 196 6,778
Profit for the year - - - 471 - - 471
Other comprehensive (expense)/income for the year - - - (181) - 181 -
Total comprehensive income for the year - - - 290 - 181 471
Inventory cash flow hedges - gains transferred to inventories - - - - - (117) (117)
Share-based compensation - - - 19 - - 19
New shares issued under share schemes 1 - - 7 - - 8
Own shares issued under share schemes - - 24 (24) - - -
Purchase of own shares for cancellation (21) - - (275) 21 - (275)
Dividends 8 - - - (246) - - (246)
Tax on equity items - - - - - 25 25
At 31 January 2023 305 2,228 (22) 3,796 71 285 6,663
Consolidated balance sheet
At 31 January 2024
£ millions Notes 2023/24 2022/23
Non-current assets
Goodwill 2,398 2,408
Other intangible assets 368 371
Property, plant and equipment 3,206 3,205
Investment property 27 30
Right-of-use assets 1,881 1,947
Investments in joint ventures and associates 19 30
Post-employment benefits 9 212 251
Deferred tax assets 10 16
Other tax authority asset 68 64
Other receivables 15 19
8,204 8,341
Current assets
Inventories 2,914 3,070
Trade and other receivables 344 347
Derivative assets 2 16
Current tax assets 73 40
Cash and cash equivalents 360 286
Assets held for sale 3 3
3,696 3,762
Total assets 11,900 12,103
Current liabilities
Trade and other payables (2,445) (2,483)
Borrowings (7) (16)
Lease liabilities (366) (343)
Derivative liabilities (23) (47)
Current tax liabilities (12) -
Provisions (9) (10)
(2,862) (2,899)
Non-current liabilities
Other payables (3) (4)
Borrowings (102) (102)
Lease liabilities (2,001) (2,101)
Derivative liabilities (1) (5)
Deferred tax liabilities (207) (205)
Provisions (7) (10)
Post-employment benefits 9 (113) (114)
(2,434) (2,541)
Total liabilities (5,296) (5,440)
Net assets 6,604 6,663
Equity
Share capital 294 305
Share premium 2,228 2,228
Own shares held in ESOP trust (31) (22)
Retained earnings 3,741 3,796
Capital redemption reserve 82 71
Other reserves 290 285
Total equity 6,604 6,663
The financial statements were approved by the Board of Directors on 24 March
2024 and signed on its behalf by:
Thierry Garnier
Bernard Bot
Chief Executive Officer
Chief Financial Officer
Consolidated cash flow statement
Year ended 31 January 2024
£ millions Notes 2023/24 2022/23
Operating activities
Cash generated by operations 10 1,438 984
Income tax paid (117) (130)
French tax authority payment - (34)
Net cash flows from operating activities 1,321 820
Investing activities
Purchase of property, plant and equipment and intangible assets (363) (449)
Disposal of property, plant and equipment, intangible assets and assets held 2 2
for sale
Purchase of businesses (3) -
Disposal of subsidiaries and associates 9 8
Interest received 16 5
Interest element of lease rental receipts 1 1
Principal element of lease rental receipts 3 3
Advance payments on right-of-use assets (4) (7)
Advance receipts on right-of-use assets - 2
Dividends received from joint ventures and associates - 3
Net cash flows used in investing activities (339) (432)
Financing activities
Interest paid (7) (5)
Interest element of lease rental payments (126) (124)
Principal element of lease rental payments (348) (329)
Issue of fixed term debt - 99
New shares issued under share schemes 4 8
Purchase of own shares for cancellation (160) (337)
Purchase of own shares for ESOP trust (24) (9)
Ordinary dividends paid to equity shareholders of the Company 8 (237) (246)
Net cash flows used in financing activities (898) (943)
Net increase/(decrease) in cash and cash equivalents and bank overdrafts 84 (555)
Cash and cash equivalents and bank overdrafts at beginning of year 270 809
Exchange differences (1) 16
Cash and cash equivalents and bank overdrafts at end of year 11 353 270
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
One Paddington Square, London, W2 1GG.
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 2024 ('the year' or '2023/24'). The comparative
financial year is the year ended 31 January 2023 ('the prior year' or
'2022/23').
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 2024, but are derived from those
statements. Statutory financial statements for 2022/23 have been filed with
the Registrar of Companies and those for 2023/24 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 2023/24
statutory financial statements, which have been prepared in accordance with
United Kingdom adopted international accounting standards and International
Financial Reporting Standards (IFRSs). The financial statements have also been
prepared in accordance with International Financial Reporting Standards as
issued by the IASB. 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 remote downside 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 condensed consolidated
financial statements for the year ended 31 January 2024.
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 the going concern assessment. Further
details, including the analysis performed and conclusions reached, are set out
below.
As of 31 January 2024, Kingfisher had access to over £900m of liquidity,
comprising cash and cash equivalents (net of bank overdrafts) of £353m and
access to an undrawn Revolving Credit Facility (RCF) of £550m (of which £46m
expires at the end of May 2025, with the balance expiring at the end of May
2026). The ratio of net debt to EBITDA was 1.6 as of 31 January 2024.
In considering whether the Group's financial statements can be prepared on a
going concern basis, the Directors have reviewed the Group's business
activities together with factors likely to affect its performance, financial
position and access to liquidity (including consideration of financial
covenants and credit ratings).
The terms of the RCF require that the ratio of Group operating profit
(excluding adjusting items) to net interest payable (excluding interest on
lease liabilities) must be no less than 3:1 for the preceding 12 months as at
the half and full year-ends. As of 31 January 2024, Kingfisher was compliant
with this requirement.
In forming their outlook on the future financial performance, the Directors
considered the risk of higher business volatility and the potential negative
impact of the general economic environment on household and trade spend.
The Directors' review also included consideration of a remote scenario that
models the impact of a significant demand or supply shock preventing the Group
from realising a large part of its sales over the period of a month followed
by subdued demand for the remainder of the year. The total loss of sales in
this scenario is c.£1.5bn (12% over the impacted period). The scenario
assumes the impact of lost sales is partially offset by a limited set of
mitigating actions on variable and discretionary costs, capital expenditure
and the suspension of capital returns to shareholders. Even under this remote
scenario, which requires drawing on the RCF for a few months, the Group
retains headroom on its credit facilities.
Given current trading and expectations for the business, the Directors believe
that this scenario reflects a remote outcome for the Group. Should a more
extreme scenario occur than currently modelled by the Directors under this
remote 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 2023, as described in note
2 of those financial statements.
Critical accounting judgements and key sources of estimation uncertainty
The critical accounting judgements and key sources of estimation uncertainty
are consistent with those of the annual financial statements for the year
ended 31 January 2023, as described in note 3 of those financial statements.
New and amended accounting standards
New standards, amendments and interpretations are in issue and effective for
the Group's financial year ended 31 January 2024, but they do not have a
material impact on the consolidated financial statements.
Principal rates of exchange against Sterling
2023/24 2022/23
Average rate Year end rate Average rate Year end rate
Euro 1.15 1.17 1.17 1.13
US Dollar 1.25 1.27 1.23 1.23
Polish Zloty 5.20 5.08 5.48 5.34
Romanian Leu 5.71 5.83 5.76 5.58
Turkish Lira* 38.64 38.64 23.18 23.18
* the Turkish Lira average exchange rates represent the closing rates for the
year, due to the application of hyperinflation accounting in Turkey.
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', 'adjusting items', 'adjusted', 'adjusted
effective tax rate', 'net cashflow' 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
adjusting items. Central costs principally comprise the costs of the Group's
head office before adjusting items.
Adjusting items, which are presented separately 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. Adjusting items may
include, but are not limited to:
· 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;
· the costs of significant restructuring and incremental
acquisition integration costs;
· profits and losses on the disposal/exit of properties,
impairments of goodwill and significant impairments (or impairment reversals)
of other non-current assets;
· prior year tax items (including the impact of changes in tax
rates on deferred tax), significant one-off tax settlements and provision
charges/releases and the tax effects of other adjusting items;
· financing fair value remeasurements i.e. 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 (or non-designated) hedge relationships. Financing
derivatives are those that relate to hedged items of a financing nature.
The term 'adjusted' refers to the relevant measure being reported for
continuing operations excluding adjusting items.
The adjusted effective tax rate is calculated as continuing income tax expense
excluding prior year tax items (including the impact of changes in tax rates
on deferred tax), significant one-off tax settlements and provision
charges/releases and the tax effects of other adjusting items, divided by
continuing profit before taxation excluding adjusting items. Prior year tax
items represent income statement tax relating to underlying items originally
arising in prior years, including the impact of changes in tax rates on
deferred tax. 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.
Refer to the Financial Review for definitions of all of the Group's
Alternative Performance Measures, including further information on why they
are used and details of where reconciliations to statutory measures can be
found where applicable.
3 Segmental analysis
Income statement
2023/24
UK & Ireland France Poland Other Other International Total
Sales 6,387 4,246 1,694 653 2,347 12,980
Retail profit/(loss) 555 139 82 (27) 55 749
Central costs (60)
Share of interest and tax of joint ventures and associates (16)
Adjusting items (93)
Operating profit 580
Net finance costs (105)
Profit before taxation 475
2022/23
UK & Ireland France Poland Other Other International Total
Sales 6,200 4,452 1,734 673 2,407 13,059
Retail profit/(loss) 603 195 148 (23) 125 923
Central costs (49)
Share of interest and tax of joint ventures and associates (4)
Adjusting items (147)
Operating profit 723
Net finance costs (112)
Profit before taxation 611
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
reportable 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 and online sales of products.
The 'Other International' segment consists of Poland, Iberia, Romania, the
joint venture Koçtaş in Turkey, Screwfix International, NeedHelp and results
from franchise and wholesale agreements. Poland has been shown separately due
to its significance.
Central costs principally comprise the costs of the Group's head office before
adjusting items.
4 Adjusting items
2023/24 2022/23
£ millions
Included within selling and distribution expenses
Net store asset impairment losses (76) (139)
Operating model restructuring (11) -
Release of France and other restructuring provisions - 3
(87) (136)
Included within administrative expenses
NeedHelp goodwill impairment (8) -
Romania goodwill impairment - (16)
Release of Castorama Russia disposal warranty liability - 4
(8) (12)
Included within other income
Profit on disposal of Crealfi associate investment 2 -
Profit on exit of properties - 1
2 1
Adjusting items before tax (93) (147)
Prior year and other adjusting tax items 23 29
Adjusting items (70) (118)
In consideration of 2023/24 performance, we have revised future projections
for a number of stores across the Group's portfolio. This has resulted in the
recognition of £76m of net store impairment charges in the year. Impairment
charges of £104m have been recorded principally in France, Romania and the
UK, partially offset by impairment reversals of £28m principally in the UK.
An impairment charge of £8m has been recorded relating to the goodwill
originally recorded on the acquisition of NeedHelp in 2020/21, principally
driven by revised financial projections.
During the year, the Group commenced formal consultation with employee
representatives regarding a proposed Group Technology operating model
restructuring programme. Operating model restructuring costs of £11m have
been recorded in the year, primarily related to this programme. The total cost
is expected to be c.£15m by FY 2024/25.
On 30 June 2023, the Group completed the disposal of its 49% interest in its
French associate investment Crealfi S.A., for cash proceeds of £9m, resulting
in a gain on disposal of £2m.
Prior year and other adjusting tax items relate principally to deferred tax
credits recorded in respect of the impairment and restructuring expenses noted
above, movements in prior year provisions to reflect a reassessment of
expected outcomes, agreed positions with tax authorities and items that have
time-expired.
5 Net finance costs
£ millions 2023/24 2022/23
Bank overdrafts, bank loans and derivatives - (3)
Fixed term debt (7) (2)
Lease liabilities (126) (124)
Finance costs (133) (129)
Cash and cash equivalents and short-term deposits 16 5
Net interest income on defined benefit pension schemes 7 11
Finance lease income 1 1
Other interest income 4 -
Finance income 28 17
Net finance costs (105) (112)
6 Income tax expense
£ millions 2023/24 2022/23
UK corporation tax
Current tax on profits for the year (73) (44)
Adjustments in respect of prior years 2 3
(71) (41)
Overseas tax
Current tax on profits for the year (37) (77)
Adjustments in respect of prior years 8 4
(29) (73)
Current tax (100) (114)
Deferred tax
Current year (25) (25)
Adjustments in respect of prior years (4) (3)
Adjustments in respect of changes in tax rates (1) 2
Deferred tax (30) (26)
Income tax expense (130) (140)
The adjusted effective tax rate on profit before adjusting items is 27%
(2022/23: 22%). The adjusted effective tax rate calculation is set out in the
Financial Review in part 1 of this announcement.
7 Earnings per share
Pence 2023/24
2022/23
Basic earnings per share 18.2 23.8
Effect of dilutive share options per share (0.2) (0.3)
Diluted earnings per share 18.0 23.5
Basic earnings per share 18.2 23.8
Adjusting items before tax per share 4.9 7.4
Prior year and other adjusting tax items per share (1.2) (1.5)
Adjusted basic earnings per share 21.9 29.7
Diluted earnings per share 18.0 23.5
Adjusting items before tax per share 4.8 7.3
Prior year and other adjusting tax items per share (1.2) (1.4)
Adjusted diluted earnings per share 21.6 29.4
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.
The calculation of basic and diluted earnings per share is based on the profit
for the year attributable to equity shareholders of the Company. A
reconciliation of statutory earnings to adjusted earnings is set out below:
£ millions 2023/24 2022/23
Earnings 345 471
Adjusting items before tax 93 147
Prior year and other adjusting tax items (23) (29)
Adjusted earnings 415 589
The weighted average number of shares in issue during the year, excluding
those held in the Employee Share Ownership Plan Trust ('ESOP trust'), is set
out below:
Weighted average number of shares (millions) 2023/24 2022/23
Basic 1,898 1,980
Diluted 1,921 2,002
8 Dividends
£ millions 2023/24 2022/23
Dividends paid to equity shareholders of the Company
Ordinary interim dividend for the year ended 31 January 2024 of 3.80p per 72 74
share
(year ended 31 January 2023: 3.80p per share)
Ordinary final dividend for the year ended 31 January 2023 of 8.60p per share 165 172
(year ended 31 January 2022: 8.60p per share)
237 246
The proposed dividend for the year ended 31 January 2024, subject to approval
by shareholders at the Annual General Meeting, is 12.40p per share, comprising
an interim dividend of 3.80p in respect of the six months ended 31 July 2023
and a final dividend of 8.60p.
9 Post-employment benefits
2023/24 2022/23
£ millions UK Overseas Total UK Overseas Total
Net surplus/(deficit) in schemes 251 (114) 137 540 (130) 410
at beginning of year
Current service cost (3) (8) (11) (3) (10) (13)
Past service credit - 3 3 - - -
Administration costs (4) - (4) (4) - (4)
Net interest income/(expense) 11 (4) 7 12 (1) 11
Net remeasurement (losses)/gains (43) 1 (42) (308) 30 (278)
Contributions paid by employer - 5 5 14 4 18
Exchange differences - 4 4 - (7) (7)
Net surplus/(deficit) in schemes at end of year 212 (113) 99 251 (114) 137
Present value of defined benefit obligations (1,826) (133) (1,959) (1,979) (134) (2,113)
Fair value of scheme assets 2,038 20 2,058 2,230 20 2,250
Net surplus/(deficit) in schemes 212 (113) 99 251 (114) 137
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 full actuarial valuation of the scheme is carried out every three years by
an independent actuary for the Trustee and the last full valuation was carried
out as at 31 March 2022. Following this valuation and in accordance with the
scheme's Statement of Funding Principles, the Trustee and Kingfisher have
agreed to cease annual employer contributions during the period from August
2022 to July 2025. This agreement has been reached with reference to a funding
objective that targets a longer-term, low risk funding position in excess of
the minimum statutory funding requirements. This longer-term objective is
based on the principle of the scheme reaching a point where it can provide
benefits to members with a high level of security, thereby limiting its
reliance on the employer for future support. The Company monitors the scheme
funding level on a regular basis and will reassess with the scheme Trustee the
appropriate level of contributions at future valuations.
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 2023/24 2022/23
Discount rate 4.85 4.50
Rate of pension increases 2.95 3.15
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 2023/24 2022/23
Age to which current pensioners are expected to live (60 now)
- Male 85.6 86.2
- Female 88.3 88.7
Age to which future pensioners are expected to live (60 in 15 years' time)
- Male 86.9 87.5
- Female 90.4 90.8
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.
Assumption Change in assumption Impact on defined benefit obligation
Discount rate Increase/decrease by 0.5% Decrease/increase by £137m
Rate of pension increases Increase/decrease by 0.5% Increase/decrease by £113m
Mortality Increase/decrease in life expectancy by one year Increase/decrease by £66m
10 Cash generated by operations
£ millions 2023/24 2022/23
Operating profit 580 723
Share of post-tax results of joint ventures and associates 1 (5)
Depreciation and amortisation 641 582
Net impairment losses 87 155
Gain on disposal of investments in associates (2) -
Lease gains (7) (2)
Share-based compensation charge 22 19
Decrease/(increase) in inventories 132 (234)
Increase in trade and other receivables (6) (44)
Decrease in trade and other payables (14) (196)
Movement in provisions (3) (13)
Movement in post-employment benefits 7 (1)
Cash generated by operations 1,438 984
11 Net debt
£ millions 2023/24 2022/23
Cash and cash equivalents 360 286
Bank overdrafts (7) (16)
Cash and cash equivalents and bank overdrafts 353 270
Bank loans (3) (3)
Fixed term debt (99) (99)
Lease liabilities (2,367) (2,444)
Net financing derivatives - 2
Net debt (2,116) (2,274)
£ millions 2023/24 2022/23
Net debt at beginning of year (2,274) (1,572)
Net increase/(decrease) in cash and cash equivalents and bank overdrafts 84 (555)
Issue of fixed term debt - (99)
Net cash flow 84 (654)
Movements in lease liabilities 71 (41)
Exchange differences and other non-cash movements 3 (7)
Net debt at end of year (2,116) (2,274)
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
illegal state aid. In January 2021, the Group received a charging notice from
HM Revenue & Customs for £57m, which was paid in February 2021, with a
further £7m interest paid in April 2021.
The UK Government and the Group, along with other UK-based multinational
groups, appealed the European Commission decision to the European Courts. In
June 2022, the General Court of the European Union dismissed several of those
appeals, including the UK Government's. This decision has been appealed to the
European Court of Justice and the hearing took place on 10 January 2024. The
Advocate General's opinion is expected on 11 April 2024 and the final decision
will follow after that, the date of which is not known.
The final impact on the Group remains uncertain but, based upon advice taken,
the Group continues to consider that the amount paid of £64m plus accrued
interest of £4m, which is included in non-current assets, will ultimately be
recovered.
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 consider the likelihood of adverse
outcomes in relation to these matters (other than those matters for which
liabilities have already been recorded) to be probable.
13 Post balance sheet events
An accounting surplus is recognised for the UK defined benefit pension scheme
- refer to note 9. The surplus has been recognised on the basis that the
future economic benefits are unconditionally available to the Group, which is
assumed to be via a refund assuming the full settlement of plan liabilities in
the event of a plan wind-up. On 22 November 2023, the UK government announced
that the authorised surplus payments charge would be reduced from 35% to 25%
from 6 April 2024. The legislation had not been substantively enacted as at 31
January 2024 and the corresponding deferred tax liability therefore continues
to be recognised at 35% at the balance sheet date, although this was enacted
on 11 March 2024. Should this legislation have been enacted at the year-end
this would have resulted in a reduction in the deferred tax liability of £32m
with a corresponding credit to other comprehensive income.
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