Earnings Transcript for KGFHY - Q4 Fiscal Year 2021

Thierry Garnier: So good morning. And thank you to everyone who has made the time to join us here at the London Stock Exchange and those of you dialing in online. On behalf of our group executive and Board, I would like to start by saying thank you to all our teams for helping to deliver a record financial year for our group. And they continue to deliver incredible work in a general environment that stays challenging. We are extremely proud to be part of that team. Before I begin, I would like to comment on the shocking and deeply concerning events that has been unfolding in Ukraine. Our thoughts today are with the people in Ukraine and in Eastern Europe impacted by the conflict. Since the start of the crisis, we immediately offered our help [ph], Castorama in Poland, Brico Dépôt in Romania, our volunteering colleagues from local stores to help refugees at the border, donating essential items and fundraising. Kingfisher and all its banners are working with charities, such as the international Red Cross and we are matching further donations from colleagues. We are part of the international efforts and stand ready to help further in any way we can. I will talk more on what the Ukraine crisis means for our business a bit later. So let's move to the agenda. I will start the presentation with an update on our operational and strategic progress. Bernard will then present our financial performance and outlook before we open the meeting for Q&A. To the key messages on slide five and we have had a year of record revenue and profits. Sales of £13.2 billion are up 10% on a like-for-like basis and adjusted pretax profit of £949 million are up 21% year-on-year. We are continuing to gain share in our key markets, growing significantly faster than the industry. We have managed very effectively and continue to manage the challenges faced by all retailers around cost inflation and product availability. And as a proof point, the group gross margin increased by 30 basis points in the year, while all banners have an excellent price index versus their closest peers. We are now over two years into our new strategy and execution is ahead of schedule. With our business in a strong position and our industry benefiting from new longer-term trends, we are accelerating our investment for growth in multiple areas of the business. And finally, we remain focused on providing attractive returns to our shareholder with over £550 million being returned over the last year. We have raised our full year dividend by 50% and will complete the final tranche of our £300 million buyback by May. Looking forward, we are confident that our continued strong execution supported by our investment and new demand drivers are positioning us for faster growth. On slide six you can see that Kingfisher is building a track record of delivering against our financial priorities. We have grown at over twice the rate of the market over the last two years, with Kingfisher's sales CAGR between 2019 and 2021 at 10%, versus 4% for our addressable home improvement market. Our aim is to grow profit in line with sales and then gradually faster over time. Over two years, we have expanded our PBT margin by 250 basis points to 7.2%. We have generated strong free cash flows, with 42% compound growth and a return over £780 million to shareholders over the last two financial years through dividends and buybacks. These attractive returns reflect our strong cash generation, as well as our confidence in continued delivery. We have done this while maintaining our focus on reinvestment in the business and keeping an efficient capital structure. Turning to Slide 7. And we are committed to deliver value for our customers while also effectively managing the near-term operational challenges that continue to impact our industry and markets. And first, let's cover the Ukraine crisis and what it means for us

Bernard Bot: Thank you Thierry. And clearly launching marketplace with a bang. Good morning everyone. I will start with Slide 22 and the key financials for the year. Kingfisher had another year of strong financial performance. In constant currency, total sales were up 9.7% to £13.2 billion. Like-for-like sales were up 9.9%, compared to the prior year, and up 18.1% versus two year ago. We generated gross profit of £4.9 billion driven by strong sales growth and a 30 basis points increase in gross margin. This increase was supported by our effective management of inflation and by savings in logistics and in inventory holding costs. In constant currency, retail profit increased by 16.7% to £1.148 billion with retail profit, up 50 basis point to 8.7%. Adjusted pretax profit increased by 20.9% to £949 million with the corresponding margin, up 80 basis points to 7.2%. Free cash flow was strong at £385 million. While EBITDA was up year-on-year, the year-on-year reduction reflects as expected the reversal of positive working capital movement from last year and a step-up in the growth element of our investments. By comparison, our free cash flow two years ago was £191 million. Our cash position remained strong with £809 million in cash. Our net debt which includes IFRS 16 leases is just under £1.6 billion with net leverage of 1 time EBITDA. Moving to Slide 23 and the performance of our major geographies. All year-on-year variances are in constant currency. Starting with UK & Ireland, where sales grew by 13.4% including a 1.5% contribution from net space growth. Like-for-like sales at B&Q grew by 12.3% and 26.9% on a two-year basis. TradePoint outperformed the rest of B&Q with like-for-like sales, up 20% and up 33% on a two-year basis. Big ticket categories like kitchens and bathrooms continued to perform strongly. Like-for-like sales at Screwfix grew by 10.9% and by 18.2% on a two-year basis, reflecting continued strong demand from trade customers. B&Q and Screwfix both grew their market share in the year. UK & Ireland retail profit increased by 16.7% to £794 million. Retail profit margin increased 30 basis points to 12.2% with a better operating cost-to-sales ratio. Gross margin rate decreased by 60 basis points, largely reflecting changes in channel and category mix and one-off logistics spend. This was partially offset by our effective management of inflation. Operating costs increased by 9.6% largely due to higher costs associated with strong trading, store openings, inflation, digital investments and the reversal of temporary COVID-related cost savings in the prior year. Turning to France. Sales grew by 9%. On a like-for-like basis, France sales grew by 9.3% and by 14.8% on a two-year basis. This includes a 1% negative impact from COVID-related temporary store closures during the first half of the year at Castorama. Like-for-like sales did benefit from the gradual opening of more stores on Sunday. Retail profit increased by 28% to £221 million with a 70 basis points increase in the retail profit margin. The gross margin rate increased by 60 basis points reflecting reductions in logistics and inventory holding costs, a higher OEB weighting at Brico Dépôt and our effective management of inflation. This was partially offset by an up-weighing of special promotions or arrivages, more trading events and category mix. Operating costs increased by 8.5%. This was mainly due to higher costs associated with strong trading and additional Sunday openings and the reversal of temporary COVID-related cost savings in the prior year. Performance in Poland was impacted by store closures for over five weeks in the first quarter. This had an impact of around 6% on like-for-like sales. As a result, like-for-like sales growth was lower at 0.3%, up by 5.3% on a two-year basis. Space growth contributed 4.7% to total sales. Poland's gross margin rate increased by 50 basis points largely reflecting our effective management of inflation. Retail profit decreased by 1.5% to £135 million with growth in gross profit offset by an increase in operating costs of 10%. Higher operating costs were driven by an acceleration in space growth and store opening costs, in addition to operating cost inflation. In Iberia, like-for-like sales increased by 23.2% and by 14.6% on a two-year basis. Retail profit of £12 million was £9 million higher than the prior year. Romania reduced its retail loss to £11 million driven by strong trading, despite the impact of COVID-related trading restrictions throughout the year. Note that, Romania sales and retail loss include one extra month of results for January 2022 as we aligned to – the business to the Kingfisher's reporting calendar. On a comparable basis, excluding this additional month, the retail loss would have been £8 million, a 35% improvement from the prior year and strong progress from the £23 million loss recorded two years ago. Other consists of the consolidated results of our new businesses NeedHelp, Screwfix International; and franchise agreements. Due to these businesses being in their early investment phase, the combined retail loss of £10 million was incurred as they scale up for growth. Our Turkish joint venture contributed an equity-accounted retail profit of £7 million, up 8.8% in constant currency. To slide 24, and the movement in group retail profit. In constant currency, this was up £145 million or 16.7%. Like-for-like sales growth and the increase in gross margin rate contributed £429 million. Inflation-related operating cost increases were limited to £71 million or 2%. Strong trading and higher digital costs drove up our operating costs. This was partially offset by cost savings as part of our strategic cost reduction program for a net impact of £106 million. Therefore, on a comparable basis, operating costs only increased by 4.9% versus a 9.9% increase in like-for-like sales. Net space growth contributed £28 million of retail profit, mainly driven by Screwfix, the permanent closure of eight Castorama France stores last year, and the disposal of our loss-making Russian business. As mentioned in my previous slide, investments in the development of our new businesses cost us £10 million in the year. Finally, while COVID-related costs were lower this year, the prior year benefited from significant non-recurring cost savings within then impact of £106 million. Temporary savings included discretionary savings such as marketing, advertising and travel; as well as employment support programs in France, Poland and Iberia. To slide 25, and the summary of cash flow movements during the year. We generated an EBITDA of over £1.6 billion in the period. The working capital outflow of £215 million is the result of an increase in inventory of £359 million, partially offset by a net increase in payables of £144 million. As expected, the increase in inventory was largely due to inflation; growth of our business, including store expansion; the rebuild of stock levels ahead of peak trading period in H1 2022; as well as an earlier Chinese New Year at the end of January. I also remind you that, we had a very low inventory in the prior year. The net increase in payable largely reflects the timing of inventory and GNFR purchases. In line with our guidance, we increased our capital expenditure in H2 as we accelerated investments for growth. And our full year CapEx was £397 million or 3% of sales. Free cash flow for the period was £385 million. The adjusting and other outflow of £114 million includes a £64 million payment made in H1 last year to HMRC in relation to a European Commission state aid challenge. This is also recorded as a receivable, while we contested. Dividends of £254 million were paid in relation to the full year 2021 final; and the full year 2021, 2022 interim dividends. And we realized £157 million of the £300 million share buyback program announced last year. Overall, this resulted in a negative net cash flow of £140 million. Moving to slide 26, and our current liquidity and financial position. As of the 31st of January, we had over £1.3 billion of total liquidity available, including over £800 million of cash, and an undrawn sustainability-linked credit facility of £550 million. Having repaid both our fixed-term loan of £50 million and £50 million in H2, our remaining financial debt is minimal. Net leverage was one time EBITDA at the end of the year below our medium-term target of a maximum of two times. Let me now move to some observations on costs and cash generation before completing my remarks with the outlook for the year. Moving to slide 27, we remain focused on optimizing our costs. This is important in the current heightened inflationary environment. At the start of 2020, we started multiple cost reduction programs, managed jointly by our banners and group functions. Some examples of these programs include improving store productivity through better use of technology, including the rollout of self-checkout terminals, continued savings in our "goods not for resale" purchases, expansion of our shared services activities and reducing dual running costs between group and banners. The latter was achieved by reorganizing our commercial operating model. As Thierry mentioned, we have also significantly reduced distribution center space in France, one of our many supply chain initiatives. And we continued to renegotiate our leases as appropriate completing 34, B&Q lease re-gears in the year, achieving an average rental reduction of over 20%. Overall, we achieved a 100 basis points reduction in our group operating cost-to-sales ratio on a constant currency basis. We continue to manage the impact of inflation well. Our group gross margin increased by, 30 basis points last year, while clearly retaining our price leadership position in our markets. Better-value OEB products 45% of our sales give customers a wider variety of price points to choose from. We also benefit from banner and group scale with many long-term supplier relationship. And we continue to hedge energy and currency to increase stability in what is clearly a volatile environment. The lessons learned from the pandemic have been invaluable, providing us with the experience and confidence, that if need be we are able to rapidly flex our cost base in negative market growth scenarios. Some examples of areas with room for adjustments are reducing overtime and temporary staff numbers, changes in performance-related incentive payments and quickly adjusting discretionary spend such as marketing and advertising. Finally, and if needed, we would carefully review the, pacing of range reviews and investments. In summary, we remain committed to delivering mitigations against inflation pressures and actively managing our operating costs in the year ahead. Moving to slide 28, which highlights Kingfisher's attractive returns opportunity, in 2021, we delivered on all our financial priorities; and generated nearly £400 million of free cash flow, twice the number of two years ago. In terms of capital allocation our priority remains reinvestment in compelling organic or inorganic growth opportunities. Last year over 60% of CapEx was growth focused equating to around £240 million. This is 20% higher than growth CapEx in the prior year. Our overall target CapEx is unchanged at 3% to 3.5% of sales per year on average. As previously guided, over the next two years we expect to be at the upper end of that range as we accelerate investments for growth. Our balance sheet remained strong and we believe this is important at this time of uncertainty. We want to sustainably grow dividends. And we increased dividends by 50%, reflecting our confidence in the business. The Board also determined there was surplus capital available for distribution to shareholders and as a result, during the year, we launched a £300 million share buyback program. We expect to complete the final £75 million tranche by May. In summary, the compelling strategic drivers of the business provide an opportunity to deliver attractive earnings growth and shareholder returns. Finally, moving to slide 29 and our outlook for the year ahead, further technical guidance can be found in the appendix on slide 36. We have made an encouraging start to our first quarter against strong comparatives. Like-for-like sales to date are down 8.1% representing growth of 16% on a two-year basis. Our performance in these early weeks of the year, indicate a very healthy retention of the demand and revenue uplift from the prior two years. Trading in all banners is encouraging, including in Poland and Romania which has traded strongly in the most recent weeks. In the U.K. and France growth was impacted by storms in February. However, the week commencing 15 March 2020 was impacted by all stores in France closing, following the start of the national lockdown. Taking all this together, we believe that underlying trading is more in line with our Q4 2021-2022 two-year like-for-like. Our product availability is good ahead of the upcoming peak trading period. And current big ticket demand is strong with the showroom order book for B&Q and Castorama France standing at plus 72% year-on-year and plus 79% on a two-year basis. We are, obviously, mindful of the current heightened macroeconomic and geopolitical uncertainty. Irrespective of this you can continue to expect from us a focus on top line growth on market share gains and on strong and consistent execution. We are accelerating our investments for growth with P&L investments of circa £25 million in new businesses such as Screwfix France and B&Q's e-commerce marketplace. New store openings largely in Screwfix and Poland are expected to contribute circa 1.5% to total sales growth. In this inflationary environment, we will continue to effectively manage our gross margin and be active and responsive in our approach to managing our operating cost base. As a result of this, we are comfortable with the current consensus of sell-side analyst estimates for full year 2022-2023 adjusted profit before tax. With that, let me now hand back to Thierry to summarize.

Thierry Garnier: Thank you, Bernard. Thanks Bernard. And to now briefly summarize here on slide 31. 2021 was a year of record revenue and profits made possible by the strong execution of our strategy and the incredible dedication of our colleagues. We are gaining share in our markets. We are delivering on value for our customers, which has never been so important as in this inflationary environment. We have effectively managed product availability and inflationary pressures in the last year and you can expect the same from us in 2022. Delivery of our strategic priorities is ahead of schedule and we are accelerating our investment for growth. Looking forward, our investment our continued strong execution and new demand drivers give us confidence in the significant long-term growth opportunity for the group. Thank you all for listening this morning. Bernard and I would now be happy to answer any questions, so over to you Maj. Thank you.

Majid Nazir: Thank you Thierry and thank you Bernard as well. So let's start with questions from the audience here. We're going to go -- well wait for the microphone. State your name and institution please. Yeah?

Q - Anne Critchlow: Thanks. It's Anne Critchlow from Societe Generale. I've got three questions please. The first one, what is the percentage of online sales in B&Q and Castorama? And then secondly, looking at the average lease length in B&Q how long is that now? And how much flexibility have you got for rightsizing of stores if you want to continue doing that? And then thirdly, looking at the NeedHelp marketplace, do you have an idea what percentage of customers might be using it? Thank you.

Thierry Garnier: Thank you very much. Let me start. And I think Bernard will give you the data point on online. Just a few word on rightsizing; again it's not a burning platform. We don't have a store losing money. It's really a long-term plan. We have discussed that several time in the past two years. We really consider that the -- across the group we have -- with Screwfix, Brico Depot in France, in Poland, Iberia, Romania we have the right size. And we just have a small proportion of B&Q and of Castorama, France store that could be considered as oversized. So I would say we are very happy with the first test results. What is critical when you do this kind of test is when you reduce the space by example -- for example by 30%, how much sales you lose. What is your margin level? What is the right promotional level? What is your cost improvement? And so far let's say all that is in a good place. So we -- it's really a 10-year program. And then we'll regularly do more of those rightsizing and as I said it's inside our CapEx guidance. On NeedHelp it's still early days in the UK and Poland. NeedHelp has been a very long-time partner of Kingfisher in France, so we know them very well. That's why when we made the acquisition, we were already in a known territory. The first step in 2021 was really to roll out NeedHelp across all B&Q and Poland. And in 2021, we must admit there were still a few lockdown, still pressure on the trade people or fitters going to people's home but overall again you saw the growth of -- in the number of jobs of NeedHelp. This is according to plan. And we are happy with the rollout of NeedHelp in the UK and Poland in 2021. Maybe on online the data point there...

Bernard Bot: On online, as we said, excluding Screwfix, we're above 7%. If you look at the difference between the banners B&Q is comfortably above 10%. And then the French banners are comfortably above 5%.

Majid Nazir: We'll come -- Richard?

Richard Chamberlain: Thank you. Morning, Richard Chamberlain, RBC. A couple of questions please, guys. First of all could you just give a comment on the sort of overall inventory composition? You've given several reasons for why inventory is obviously up year-on-year. I wondered, if you can just comment on the kind of composition. Is it sort of balanced across categories? Is it -- have you brought forward a lot of sort of best-selling lines and so on? And then the second one is on Screwfix, France. Thierry, how are you thinking about the sort of store rollout there at the moment particularly into next year? Is that going to be a sort of cluster approach for sort of key cities, or is that -- are you thinking really about a sort of nationwide-type expansion? Thank you.

Thierry Garnier: To start with inventory, Bernard...

Bernard Bot: Yes. So if you look at the inventory movement on a constant currency basis, it's about £261 million. If you what I just said was £359 million. So you'll see there was quite a lot of FX impact on that. If you unpick it it's basically one-third is due to inflation. One-third is due to stock rebuild. You'll remember that last year, we were actually quite low. I think we said something £80 million £90 million below what we would have expected. And then the other part is, what we call temporary and seasonal and I think it's in the word seasonal. If you look at the composition obviously, it's all the stock but probably we've got a little bit more of seasonal stock as we anticipate obviously, the peak season, which is very important for us; and also some of the things we mentioned early Chinese New Year really want to focus on availability so brought a little bit of that forward to be all ready for our peak season, which has now just started.

Thierry Garnier: Maybe one further comment to take the opportunity to say a word on availability. I would qualify that our availability this week as normal or close to normal across the group, which is a very good news for us, yes. So you know we have stored our benchmark for availability. It's never 100% in retail. And we really did a very strong job in the past months especially on outdoor season probably one of the best outdoor season prepared outdoor season for Kingfisher. So we are really ready for the season and availability is high. On Screwfix France, you are right to say that the idea was to start with a regional cluster of stores. Screwfix stores heavily rely on supply chain, so you need to open a small distribution center. And then you need to open a store let's say, around or not too far from the distribution center. So for competitive reason, I will not tell you where is a distribution center and where are our plans but we already signed a few store location. We are engaged on a DC or talking to a DC provider. So all that moving at pace. I'm very happy to see the new Screwfix France team. It has been a mix. It's we are fully ready with the Screwfix team, the Kingfisher French team, even people from outside. And we have really built a very high-level team for the operation. So we are getting ready to open store in H2 yes.

Majid Nazir: Can we get to Pam on the front row, please?

Pam Liu: Thank you very much. I have three questions, please. Number one is, about the exposure or the percentage exposure to trade customers. I found the data for France is very interesting. And it's a positive surprise for me, as previously I seemed to understand that the Casto and Brico seems to be more consumer focused, so have I got my number wrong, or has your new analysis summarized or uncovered something that we're not aware of? And in light of that if trade demand is very attractive in France, again would you not accelerate Screwfix France, which would be a mostly trade-focused proposition? Question number two, think about just the business model of the marketplace please and how that interact or cannibalize potentially with your – selling your product normally online. Do you see a future, where all of these transactional goods and stock can be sold and will be sold online? And therefore, would your rightsizing ambition need to be a bit more aggressive than the 3% to 4%? Finally is a near-term question. So how do we think about a potential inflection point for demand? Are we far or close to a point where price might be so high that demand could weaken? And if that happens, is it fair to assume that as a retailer we would have a possible scenario where you do promotion on expensive stock and therefore take a hit on margin? And if that happens, what are the tools you have in the bag to protect your gross margin? Thank you.

Thierry Garnier: Yes, thank you. That's great question. Thank you. So first starting with the new disclosure. You have DIFM and trade and you're looking at what is DIFM. I'll give you typical categories. When you want to do a kitchen but large proportion of people that you would rely on trade to fit your kitchen, building material or a large part of building material you don't – you do that yourself. So we analyze through customer survey category by category, which are the category where clearly you are relying on trade. And that's what we call DIFM. So in fact, when you compare B&Q and Casto for example

Bernard Bot: Before said, I think compared to the pure-play marketplaces that is one of the assets we have that we can have click & collect. We can have returns in store so we can have that asset base that they can't leverage. In addition to what they don't have is a already very high traffic. I think B&Q is the 13th website in the UK for traffic 300 million visits. So that makes also your customer acquisition cost which is an important element for marketplaces a lot lower. So we've got fantastic assets to leverage exactly with this opportunity.

Thierry Garnier: And you're right to say when you compare ourselves to a pure play today already you can returns -- any product to B&Q stores. And in the coming months you will do that. We'll do that as well for click & collect so you will be able to buy online and click & collect your product in the B&Q stores. We are not ready today, but we are working hard on that. Then inflation and elasticity, I will start to say that again we have good price index everywhere. We have -- we are monitoring on a weekly basis our price index across the group. At the same time, you saw our gross margin was up 30 basis points. So we have been able to manage relatively efficiently inflation. And clearly I will -- or Bernard will comment the outlook. We are committed to do the same this year. That's what we see at the beginning of this year where we have good price index. And we are still continuing to manage inflation across the group. So then inflation can be different by categories and elasticity can be different by categories to be a bit simple. If you need screws well you need screws. And then the elasticity is less important that maybe if you are more impulse product like power tool or kitchen well then elasticity has more an impact. So it's very different by categories. Inflation is different. We are looking at that but up to now you see the order well is pretty strong. The trade -- all the indicators we have the customer surveys we are doing all that so far are pretty good yes, but as Bernard says we are ready. If we have -- we can't manage uncertainty so if we see a different pattern of demand we are committed to manage efficiently our gross margin. And we have demonstrated during COVID. I'll remind you we have been -- we have had our store network more or less closed for two months during COVID. And we have managed that relatively efficiently so we are agile. We are organized with Powered by Kingfisher strategy. And if we have to adjust our cost base we will do that.

Bernard Bot: And maybe I would also say we're -- we've got some defensive assets against inflation if -- Thierry mentioned our OEB. So that's 45% of our sales. And they offer a much better value-for-money proposition compared to some of the leading brands. We've got two Brico Dépôt in France and Iberia which are very strong discounters about 20% of our sales so that also positions us well. And then in general DIFM -- DIY when maybe things are a little bit tougher people will turn a little bit more to DIY so being positioned in that next to DIFM should also help us.

Majid Nazir: All right. Thanks very much. Let's go to Tony first and then Simon.

Tony Shiret: Thanks so much. Tony Shiret from Panmure. You're talking about some of the metrics on your trade customers TradePoint. I was a bit surprised the basket wasn't a bit larger for the trade customer. I wonder if you could give us the absolute levels of the basket for retail and trade customers. Following on from that bearing in mind the state of your balance sheet do you think that probably you could accelerate trade business more if you had a credit offer for them apart from the DIFM? And just a last unrelated question. You referred to changes in I think the buying operations in one of the countries so I just wondered if you could update us on where your buying is based for the various banners. I mean how much is central? And how much is localized? That's it.

Thierry Garnier: Sure. Thank you. Maybe let's me start with the last one and come back to credit offer. Maybe we can give you some data on what we are doing because on Screwfix and B&Q we already have some credit offers. To start with buying, let's say the group is fully responsible for OEB. So OEB 100% managed by the group that's part of our powered – that's a key part of our Powered by Kingfisher strategy. B&Q does not create private label. It's managed by the group, so you have sourcing offices across the world. For years, we have really a strong team. We have designer when you want to do kitchen or bathroom. We have engineers that are expert of material. We have quality team to control factories. So that's – that the first part. We have a few international vendors that are managed by the group, because we consider their scale make them more appropriate for group discussion, but all the rest of the buying are managed by the banner. So the UK-based supplier, they will be managed by B&Q or Screwfix et cetera, et cetera. Does it answer your question, or…

Tony Shiret: Just the number of – so OEB?

Thierry Garnier: OEB is 46%.

Tony Shiret: OEB is 46%, so it's half and half, is it?

Thierry Garnier: Well a – well yes, a little bit. You have a few percentage point of international vendors. So we have about – above the half that is managed by the group and a little bit less than the half managed by banners, yes, all right? Then on TradePoint and credit offer, yes, the basket is indeed larger. You – I can't say more. We have – that's what we see very consistently at B&Q on the basket side, and the frequency. When I look at Home Depot's comment to be honest, I see as well that a few trade people will buy a lot so knowing your customer interacting with them creating more loyalty in your trade people is a really number one priority. Because usually, they will shop at you for a small percent – percentage of their buying and they will go to many different places, so to be able to increase their loyalty and their spending inside your store is critical for TradePoint yes. Maybe to comment on customer credit...

Bernard Bot: Yes on credit and also on the trade customers. I mean it depends what you compare it with. I mean, with a lot of trade customers the B&Q the TradePoint, et cetera is – it's a convenience buying. So if you do a big project you typically will go to for example a merchant that has obviously a bigger spend. So we're not disappointed with the higher basket. And we do support it with credit in the UK. So we've got Trade UK, which we offer both in Screwfix and in B&Q and TradePoint.

Tony Shiret: But what are the actual numbers? What is the retail basket? And what is the trade basket you know for those numbers?

Bernard Bot: Yes, yes, yes but we don't share them so...

Tony Shiret: But the retail basket can be quite a small, is it? And the trade basket is not that much bigger in absolute terms so, are you actually getting a trade customer I think is where the question is. Or are you getting some first-fix builder who so happens to be passing by?

Bernard Bot: No. We think we get real trade customers. They're part of our loyalty programs. If you look at Screwfix, they're real plumbers and electricians so yes we're happy with them.

Thierry Garnier: The large, large majority of Screwfix sales is trade especially electrician plumbers. So yeah that's really our business yeah.

Majid Nazir: Also Thierry, the frequency of trade business is significantly higher than the retail customers FYI to get the most effect on that. I'm just saying.

Thierry Garnier: Yes.

Majid Nazir: Should we go to Simon?

Thierry Garnier: Yeah.

Simon Irwin: Hi. It's Simon Irwin at Credit Suisse. Just going back to trade the – and particularly in France. The French market seems to be amazingly resistant to consolidation in recent years. I don't think you can kind of really wait to push into trade just to roll out Screwfix. What can you do through Brico and Casto? Are we going to get a TradePoint type of offer going into Casto going forwards? OEB you seem to be signaling a reacceleration of penetration from OEB. Have you – do you think you've kind of fixed the initial issues that there were re-execution and you're now kind of ready to go again? And how far can we go? And Bernard, maybe you can just talk a bit about your thoughts around the buyback, obviously, nothing announced at this stage. There's a bit more to go. I mean, do we have to wait till the interim say, or is it something a decision that the Board could make before that?

Thierry Garnier: Yes. Thank you, Simon. I think -- to tell you the truth I think the area of the trade outside even for TradePoint has been largely forgotten and underestimated. When -- I think I was one of the first one to mention TradePoint when I arrived. People will say, well TradePoint yes. It still exists. It's still alive, but in fact and I said that since two years ago, it was a miracle to see TradePoint doing such a good business, while there were nobody taking care of it. So, now we have a team. We have a CEO for TradePoint. We have specific OEBs. And it's -- I think it's just the beginning. I think it were just not the focus of the group. And we were building ONE Kingfisher around DIY not around trade. And I think that's our job. And what you see with TradePoint always our American peers is inside a big box, you can do a lot of things. And that's around dedicated loyalty program for the trade, dedicated services because they need different services, dedicated online services, dedicated OEB, et cetera, et cetera. We are totally able to do all these over time. And at the same time, when you want to buy a kitchen and you are a trade guy, you go to a B&Q store. Well you're happy to be able to buy a kitchen on top of all the range dedicated for the pro. So, we strongly believe that we can do more in our trade big box -- in our home improvement big box looking forward. And France, it's the case. And you're right to say that probably the French market historically have been more protected, but I see Toolstation progressing well. So, I think it's the right time for us yes. OEB, I don't feel there is any execution issue today. We have a good balance between the group and the banners. You see that the penetration of OEB continued to be stable or grows slightly, while at the same time, we have introduced in the past two years a lot of local brands. You'll remember in 2019, we said well we are missing brands, et cetera so we -- even some question with some of you saying, well how come you will increase local brands and still being strong on OEB? How come you -- it will impact your margin? But today you see that OEB, it's stable or growing. I'm very happy with that and very happy with the new innovation coming in. We mentioned kitchen in the past two years with incredible success. It's very rare to see the same range of products successfully in absolutely every country. Usually you have colors, material. It was -- it's successful everywhere with very, very strong feedback from the UK to Poland and Romania. And there is more to come. Take smart home. What do we do with smart home OEB? That's something will come in the coming months and years. There are a lot to do. Then the last question I'll leave it to Bernard. It's easy one.

Bernard Bot: Yes. Thank you, Simon. As I highlighted on my slide, we do see an opportunity for interesting capital returns over time. And the one we're now completing is not a one-off. However, we just very strictly apply our capital allocation framework different dials, but we invest in growth; sustainable dividends; resilience in terms of the overall health -- financial health of the company. And just for now maybe the resilience dial is we need to see how things go. And then once we're a little bit further and we -- I assure you we'll look at it diligently, we'll see what we can do.

Unidentified Analyst: Hi, thanks for taking the question. A couple from me. The first is on Poland. It's great to see that you are expanding out there but relative to the evolving circumstances in that part of the world, how might you manage that or mitigate in the unfortunate event that things escalate? And if you have to pause for example where might you reallocate that spend in the first -- in this financial year? The second is on the DIFM and DIY split in the future. Obviously there's an element of resurgence in DIY. And right now broadly across the markets it's sort of 50/50, but -re pandemic DIFM seemed to be growing a little stronger than DIY. And obviously you're doing a lot with the high-ticket items, how might you expect this 50/50 split to kind of change, or do you expect it might be broadly maintained? And finally, you spoke a little on the trade exposure in France, but on the ground what about the French consumer? So across the space, we hear a lot about concerns on the U.K. consumer being pressured, but given the Screwfix rollout later this year, what are your thoughts on consumer spend in France? And how is the French consumer feeling at the minute? Thank you so much.

Thierry Garnier: Thank you. That's -- I'm happy to cover those questions. First of all, give me the opportunity to say, again, what Bernard said. It's if I look at the past weeks, we rather see a positive impact on our Polish and Romanian operations. So we don't see negative impact. If we look at an impact, it's rather stronger current trading in Poland and Romania. The team on the ground are already supporting refugees and doing many things with the local charities. And I -- we have a very strong expansion plan in Poland, so if you tell me if there is any plan if something happened in Poland, I don't believe it at the moment. So we have a very strong plan. We'll open more store in Poland. We are number one in Poland and we are building on that. So far the trading is very strong. On do-it-for-me and DIY. Something I mentioned and to be honest, we'll check again all those data in the past months. In crisis time, home improvement and DIY seems pretty resilient. I think it's a question for many of us around discretionary spending, but all the past crises, we didn't see a massive impact on home improvement. On the contrary is the DIY part performed well, because you know we can understand, if you want to save money, you do more things yourselves. You cook yourself and you do more DIY yourself. So pre-pandemic, you're right to say that we saw a stronger do-it-for-me, but again that was one of the topic that was mentioned by the team two years ago when I arrived. And we did a lot of customer survey to try to understand that. And in fact we saw a very gradual shift in the U.K. and rather stable situation in Europe. I still believe to follow your point that we'll see do-it-for-me increasing in the future, but it won't be a massive surge. I'll give you another example. To do -- to have more trade and do-it-for-me, you need trade people. You need trade people in this country. You need trade people in Europe. And it's you -- we know we have shortages of staff in many areas, so that's as well a constraint on do-it-for-me. So I believe do-it-for-me and trade will grow, but will be a gradual shift. And what we want to show it. In fact we are well-positioned to grow on both side. And there is good business to do on do-it-for-me and DIY. French customer. Maybe give me the opportunity to discuss a bit the customer survey. Some of you remember last year, we explained in detail some customer survey around emerging trends. So we did it again in January and then we did it again in March, because Ukraine was there. And in short, the underlying trends even in March around home improvement are still there. What you see is more people working from home still there. And we have a direct correlation between people working from home and home improvement spends and I believe would stay with us. And we can explain psychologically why, where and tier, et cetera, but clearly more working from home will drive more home improvement. And in my view in the medium-term that one -- the number one long-term driver for home improvement will be this one. We saw as well the impact of the housing market. You know very well the housing markets were very strong in the past two years. So when you move usually for the past -- after moving -- the 12 to 18 months after moving you are a high spender of home improvement. So it's still there. The customer survey shows that people are still -- they still want to move. They are still looking for larger houses, expect outdoor spaces. And if you work in London only two days a week, well, maybe you will consider to move to another places. It will still be there for the coming years. So, the impact of more working from home in many areas of our industry in our reviews are very significant, including on housing market and moving. Then we have been recruiting a lot of new customers. You saw the data. And as well, we checked a lot to say well are they still there. And globally, you see the retention of the new customer is still pretty good, especially, the younger generation. And I don't want to draw a lot of philosophy around circular economy, but if you want -- if you believe in circular economy, well, you do DIY. And that's -- in the long term is as well positive. At last, energy crisis, energy saving, green homes is there -- are there for long term. All governments in Europe will try to go to Net Zero and housing is a key component of that. We have already ranges in our store insulation, new energy-saving system, new heating system. We are not perfect. I consider we should work harder on how you help people to install heat pumps solar panel, et cetera. It's still very expensive. It's very complex, so we can help our customer to do more on this. I think it will come and that as well will support the business. So, if you say, France versus the U.K. more or less it's the same underlying trend. Maybe the inflation level in the U.K. is higher than in France, but overall, the topics around home improvement, working from home, energy are the same. Go ahead Bernard.

Bernard Bot: I'd add one or two comments on do it for me and DIY. I haven't -- recently spoken to our offer and sourcing director. Obviously, he was very passionate about especially the DIY area and developing products which make it easier for people to do DIY. And, for example, the Atomia range is very successful. That make it -- makes it easier for you to partition your home. Maybe things you would done -- with somebody to get done, you can now do yourself. And we're doing many things in the way people paint, tools, et cetera and to make that more accessible. If you then look at the gradual at the statistics and the numbers you're really talking about 0.5 percentage point movement in a year or two years, so it is not -- so while it's gradual, it is very small. And obviously, in the pandemic, we saw a little bit of a resurgence again of DIY.

Majid Nazir: All right, we're now going to move to Medi, the call operator, to see if there's any questions from the telephones please.

Operator: Thank you, Majid. [Operator Instructions] And our first question is coming from Georgina Johanan of JPMorgan. Please go ahead.

Georgina Johanan: Hi. Thank you for taking my question. It was really just about the U.K. business and particularly in the second half of fiscal 2022. I see that the gross margin was down over 100 basis points, which was a bit more than I had been anticipating. And also, if I'm correct on my math, there was some deleverage in the OpEx base versus pre-crisis levels, which I just found surprising. I'm not sure if I'm perhaps missing something. I know, there was a lot of moving parts over the last couple of years, but if you could just speak to that and explain it in a little bit more detail it would be appreciated please. Thanks.

Thierry Garnier: Yes, thank you, Georgina. Bernard, do you want to answer this one or --

Bernard Bot: Sure. I think just to look at the gross margin H1, H2. I think, H1 clearly B&Q benefited from full-price sales. So that was a positive for them. If we look at the second half just a little bit more of channel and category mix that ran slightly negative and a little bit more of supply and logistic costs, just in support of availability. So, I think, still strong margin performance, but a little bit weaker than H1, given those elements. And in terms of the deleveraging, and I think we tried to explain it in the profit bridge, there was quite a positive impact last year of savings in terms of advertising, marketing and also some furlough support. So if you net that out, the cost increase including inflation was 4.9% for a 9.9% increase in like-for-like sales, so we're pretty happy with that. And finally, do consider that obviously in a record year, obviously the incentives we pay our store colleagues and across the group of course are a little bit higher.

Georgina Johanan: Sorry. Just to follow-up

Bernard Bot: Well, those two elements obviously come in, but I'm not sure I entirely follow the leverage in terms of operating. I mean, there's as you said, many moving pieces. There is inflation. There is incentives, but obviously we're also expanding the business in terms of store growth and new investments in digital. So if we look at it on a like-for-like basis, as shown in the retail profit bridge, we see sustained operating leverage.

Georgina Johanan: So next year, going into next year you'd expect to see further operating leverage in the UK business versus pre-crisis levels assuming the top line holds up?

Bernard Bot: We don't see any change in the dynamics of the business. And obviously, on top of that as we explained, we've got quite a few cost savings programs ongoing anything from stores to IT to re-gears et cetera that also support our cost base.

Georgina Johanan: Thank you very much. Thank you.

Thierry Garnier: Just to say well that we are strongly committed on costs. We have -- among the program that Bernard mentioned for example, we are rolling out very quickly, self-checkout in B&Q. As I said, I don't want to give the data for -- to our competitors today, but we are very happy with the transaction level far ahead of expectations. So customer are happy driving as well efficiently. We are now accelerating this self-checkout program across B&Q. We continue to invest on IT. We as well are negotiating more lease re-gears. So no, we are strongly committed on the plan in the UK. Thank you, Georgina.

Georgina Johanan: Thank you very much.

Majid Nazir: Any more questions on the phones at all Medi?

Operator: There are no further questions. [Operator Instructions]

Majid Nazir: We'll take that as a no then Medi. Well, let's just go back to the floor for a second just to check. Any final questions from here? No. I think we're all Q&A out. Thierry, back to you for final remarks.

Thierry Garnier: Very simply, it was a pleasure for Bernard and I to update you on our progress. I hope you see a stronger Kingfisher. We are now accelerating our investment for growth; and really looking forward to update you on marketplace Screwfix in France, more trade business more -- as well more store in Poland; and looking forward to talk to you in the coming months. Thank you everyone for this morning. Thank you. Thank you, Medi.