EuroBusiness Media (EBM): Kingfisher’s results over the last couple of years have seen a big change in the balance sheet with a major reduction in debt. We’re talking now to the Group Finance Director, Kevin O’Byrne. You have just published first-half results. What are some of the key highlights?
Kevin O'Byrne: We are pleased with the performance in the first half of this year. We grew sales by 3.8% and we saw a relatively good sales performance right across the business in all the markets in some challenging conditions. We grew profits by 24%, earnings per share grew 27%, and we announced a dividend increase of 28%, which we are pleased about. In the period, we also had a good cash performance. We generated free cash flow of £133 million and we finished the period with a net debt of about £186 million. The net debt figure increased in the period as we chose to invest; because of our financial flexibility and the strength of our balance sheet, we chose to invest in the business in a number of ways. We bought 29 Focus stores in the UK. We invested further in all our markets, particularly Poland, Russia and in our systems and processes. We also bought some freeholds in the UK to strength our balance sheet. And finally, to cover the shares under our share incentive schemes, we purchased shares in the market - 41 million shares in the market place - to ensure that we didn’t dilute shareholders in the future.
EBM: The balance sheet is now quite strong. What are your plans in this area? Might some cash be returned to shareholders?
Kevin O'Byrne: The way we think about cash generation in the businesses is the way we have been looking over the last number of years. We want to generate cash to delever the Group and pay back debt, and we’ve made substantial progress there. We want to generate cash, so we can invest in growing the business. We want to generate cash, so we increase the dividend to our shareholders. And we’ve made very good progress in all three areas there. We want to be solid investment grade - that’s very important for us. It’s appropriate for a business like Kingfisher to be solid investment grade. So getting a balance in those things is important. The focus going forward now will be more on investment in the business and on paying dividends to shareholders, because we feel we’ve got the debt position at an appropriate level. And it’s probably worth noting that, while on paper we don’t look to have a lot of debt, we clearly have debt in our leases. So we’ve got about 50% leverage in the business, and that feels about right and gives us an efficient cost to capital.
EBM: And finally, Kevin, can you say a bit more about your plans for capital expenditure for the remainder of this year and next?
Kevin O'Byrne: Yes, we are increasing our capital expenditure this year, quite materially from last year in a number of areas. Overall, our gross capital expenditure was somewhere around £550 million for the year. That’s made up of a couple of elements. There is an underlying capital expenditure of somewhere between £400 and £420 million and that’s just opening stores across our markets, investing in our IT systems, investing in maintenance and our capital, etc. The big increases year-on-year are in markets like Poland, in Russia, etc. But we’re investing right across the board. We are also investing in systems around Forecast and Replenishment, around E-commerce, again giving us a strong infrastructure for growing the business. In addition to the underlying capital expenditure, we’re purchasing, as we said earlier, 29 Focus stores. The total capital related to that purchase and refurbishing those stores is about £65 million. And finally, we are strengthening the balance sheet by buying some freeholds in the UK, roughly for about the same kind of money, £65 million.
EBM: Kevin O’Byrne, Group Finance Director of Kingfisher, thank you very much.
Kevin O'Byrne: Thank you very much.
