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Kingfisher PLC (KGF) Q2 2023 Earnings Call Transcript

KGF Earnings Call - Final Transcript

Kingfisher PLC  (LSE: KGF) Q2 2023 earnings call dated Sept. 20, 2022

Corporate Participants:

Majid Nazir — Group Investor Relations Director

Thierry Garnier — Chief Executive Officer

Bernard Bot — Chief Financial Officer


Anne Critchlow — Societe Generale — Analyst

Pam Liu — Morgan Stanley — Analyst

Simon Irwin — Credit Suisse — Analyst

Richard Chamberlain — RBC Capital Markets — Analyst

Warwick Okines — BNP Paribas — Analyst

Adam Cochrane — Deutsche Bank — Analyst

Georgina Johanan — JPMorgan — Analyst


Majid Nazir — Group Investor Relations Director

Good morning, everyone, and welcome to the Kingfisher plc Half-Year ’22-’23 Results Presentation, hosted by CEO, Thierry Garnier; and CFO, Bernard Bot. At this time, all participants on the phones are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

Without any further ado, I’m now going to hand over to Thierry to open the presentation.

Thierry Garnier — Chief Executive Officer

Thank you, Majid. So good morning, and thank you as always to everyone joining 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 thanking all our colleagues across the Group for delivering what has been a resilient performance despite such a challenging environment. Once again, we are extremely proud of the Kingfisher team and are proud to be part of this team.

Before we begin, I would like to take a moment to reflect on yesterday’s funeral for our Majesty The Queen whose life of service was a powerful example to us all. On behalf of all our colleagues, I would like to offer our deepest condolences to the Royal Family, our thoughts are with everyone in this country and around the world who has mourned her passing.

Turning to slide three and the agenda for today. I will start 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 delivered a first half performance that is fully in line with our expectations. Sales are significantly ahead of pre-pandemic levels. Three-year like-for-like sales are up by 16.6%, supported by continued momentum in market share gains in the UK, France, and Poland. Sales from both DIY and DIFM/trade categories have been resilient, and we are delivering on value for all our customers while effectively managing pressures from the current environment. We remain fully focused on the delivery of our strategic objectives, including our investment to drive growth. These include the growth of our e-commerce marketplace, the development of our trade business, and the expansion of Screwfix and our business in Poland. We also remain on track with our responsible business priorities, including the ambitious commitment we have made around colleagues, customers, climate, and our communities. And finally, we continue to provide attractive shareholder returns through dividends and share buyback, reflecting the confidence in our growth and cash generation opportunities.

To slide six and to quickly cover some of the key financials. Total sales of GBP6.8 billion are down 2.8% year-on-year on constant currency. This is very resilient given the exceptionally strong comparatives of H1 last year when Kingfisher sales were up by over 22%. Like-for-like sales are down 4.1% year-on-year and our three-year like-for-like performance of 16.6% better represents the impact of our Powered by Kingfisher strategy with growth ahead of the market. Like-for-like sales saw a sequential improvement from Q1 to Q2 on a one-year and three-year basis. The total e-commerce sales for the period were down 19% as footfall returned to stores, but again on a three-year basis, they are up significantly by over 150%. E-commerce penetration of 16% remains much higher than the pre-pandemic level of 7%. And we have seen an encouraging start to trading in the first seven weeks of Q3. Like-for-like sales to-date are up 15.2% on a three-year basis, down 0.7% year-on-year. Adjusted profit before tax for the half of GBP472 million is down by 29%, but up by 40% versus the same period in 2019, with the margin improving by 130 basis points over 2019. We have announced our interim dividend at 3.8 pence per share, equal to the one of last year. And to-date, we are roughly one-third of the way through our second GBP300 million share buyback program. Overall, I’m pleased to report that our results for the first half are in line with the full-year profit guidance we set out at the start of this year of circa GBP770 million, and all the indications in our current trading to mid-September are consistent with delivering this guidance. For the balance of the year, we have also run several trading scenarios to take into account a potential for a more uncertain macroeconomic environment. These point towards a range of outcomes for full year adjusted PBT of GBP730 million to GBP770 million.

Turning to slide seven. And Kingfisher is well positioned as a strong and diversified business with proven resilience. The home improvement industry is growing solidly, capitalizing on emerging and enduring trends. We believe the shift in trend to working from home is here to stay and there is heightened focus on improving our homes, including energy efficiency. We believe these are long-term trends that will continue to support our industry. Our consistent execution against our strategy is driving market share gains across our key banners and markets in the UK, France, and Poland, and we have multiple investments and initiatives in place to continue our progress here.

At the full year, we disclosed our exposure to the DIY and DIFM/trade markets for the first time. We think this is an important proof point of our diversification. And in H1, we maintained a 50-50 split between these categories. Further to this, as you can see on the slide, we added 2.8 million new customers during the first half of this year, and the growth in our customer base continues to exceed 2019 levels. Our revenue retention rates remain high, meaning customers acquired in previous years are continuing to shop with us. It’s worth remembering Kingfisher and indeed the wider home improvement sector has proven its resilience in previous challenging environments, including recessions. Part of the reason for this is that a significant proportion of our sales are from products that are essential for repairs and nothing else. Consumers continue to spend on repairs not announced and indeed renovations during these times, which is now reinforced by the new industry trends I mentioned earlier.

Finally, we have general home improvement, trade and discounter retail banners across multiple European geographies, and these bring us strengths and diversification. 45% of sales are from our own exclusive brands which provide us with strong differentiation in terms of affordability and sustainability, while also carrying a higher gross margin. And finally, our 1,500 stores are an extraordinary asset to help deliver on our e-commerce ambitions, allowing us to flex up or down to follow demand levels without relying on rigid and costly large fulfillment centers.

Moving now to slide eight. As with our previous presentations, we have conducted extensive consumer surveys in our markets over the last few weeks. Overall, the sentiment remains positive but also more cautious than before, given the strain on personal finance. I mentioned working from home was here to stay, but more broadly, there is a renewed focus on the home which we believe is enduring. On average, consumers are working from home between 2.5 and 3.5 days per week. This is over 2 times more than pre-pandemic levels. More working from home means more wear and tear and also means more time to look at the home with a critical eye. And this is borne out in the figures with average spend on home improvement nearly 40% higher for home workers.

We also see consumers putting an increasing focus on energy efficiency, with nine out of 10 looking to reduce their energy consumption and six out of 10 looking to improve the energy efficiency of their homes ahead of the winter. Our banners are well positioned to make this a reality for our customers, and already 10% of our Group sales are from energy and water-saving products. There remains robust demand from house moves completed over the last two years and a desire to renovate homes. Our surveys show that recent home movers have spent up to 2 times more than average and 50% are likely to do more improvement in the next 12 months. In addition, protecting the value of our homes is a key driver of home improvement when housing activity slows.

Now on the trade front, our survey shows that trades people are more concerned than before on the economic outlook and the state of their personal finances. Having said that, they remain extremely busy with 93% of trade people surveyed in the UK currently working and 82% having more work in the pipeline, a level equivalent to pre-pandemic. Central to all our insights is that the home nesting trend that has emerged over the last two years remains very apparent.

On the next two slides, I want to show you quickly some of the campaigns we have been running across our markets that reinforce how we can deliver value to our customers at a time when they need it most. Here on slide nine, you can see some examples of how we have been promoting value through money-back guarantees, price lock, price cuts and leveraging our own exclusive brands. This comes on top of an already attractive price positioning. We believe this commitment and ability to provide value to customers, create a strong point of differentiation in the current environment.

And on slide 10, we are all aware of the impact of energy prices on people’s lives. Throughout our markets and particularly in the UK, housing stock is relatively old and often energy inefficient. This puts us in a privileged position in the context of the current energy crisis and us helping homeowners to address energy waste will both help them to save money and be beneficial through wider efforts to tackle climate change. The fact that we can be part of the solution means this is a key area of focus for us. In the coming weeks, we will launch energy-saving diagnostic tools at B&Q and Brico Depot France, with similar initiatives at other banners being piloted. More on this later. As you can see on this slide, we have been active in all our markets in promoting our range of energy-saving products, including energy-saving light bulbs, smart thermostats, electric radiators or insulation. At the same time, we are working hard to develop new innovations to help our customers save money and future-proof their homes.

On slide 11, I would like to explain how we are successfully responding to the pressures of the macroeconomic environment. Starting with our customers, we have sharpened our commitment to deliver on value, as I just highlighted. We remained focused on delivering attractive prices and maintaining a price index relative to our peers of 100 or lower. Our own exclusive brands provide customers with savings of 15% to 30% versus branded alternatives, and we also have some of the industry’s best hard discounters in Brico Depot France and Iberia, which together are around 20% of Group sales. We continue to manage the impact of cost-price inflation effectively, more on this on the next slide. Leveraging our scale to deliver costs and operational efficiencies has been a key weapon in mitigating the impact of inflation. Over the last 2.5 years, we have notified and implemented hundreds of cost reduction projects, covering all our retail banners and Group teams. In H1, operating cost reductions fully mitigated operating cost inflation, and Bernard will cover this in more detail shortly.

The quality of our supply, sourcing and logistics teams has enabled us to manage our supply chain very effectively through the pressures of the last two years. There are not so many businesses we can say today that they are at pre-pandemic levels of product availability and no major supply concerns. I’m proud of our teams for achieving this and this is a key factor supporting our market share gains. To help tackle supply chain issues and inflation, we have been proactive with our inventory management strategy. However, it is not surprising that the principal driver of our inventory increase year-on-year is inflation, which together with new stores account for 70% of the movement. And more on this on the next slide. Finally, we have continued to retain and recruit the talent and capability we need to unlock further growth. As part of our focus on creating new customer propositions, we have recruited in the key areas of marketplace, technology and data.

On slide 12, I wanted to focus further on how we are managing against an uncertain and challenging economic backdrop. It’s important to address that our Group gross margin is down 130 basis points in H1, but as highlighted on many occasions last year, this is from an exceptionally strong comparative in 2021. This reflects three principal factors. First, normalized promotional activity versus the prior year at a time when there were COVID restrictions across all our markets. Second, mix impact, due to a lower year-on-year share in H1 of B&Q’s higher gross margin revenues, given very strong prior year sales. Category mix was also a factor, due to the lower year-on-year share of higher gross margin categories, such as surface & decor. And finally, as we built our product availability and invested in buffer stock, we incurred one-off logistic spend in H1 to secure and manage the stock. Against a more normal comparative in H2, we expect gross margin in the second half to be up year-on-year, resulting in a full year gross margin that is in line with our pre-pandemic level of 37%.

More generally, we continue to manage cost-price inflation and other pressures within gross margin effectively, and I would like to highlight the moving parts. Throughout the last two years, we have engaged with our suppliers early in order to manage raw material price increases as effectively as possible. Favorable movements in our year-on-year currency hedging positions have upset some of these increases in H1. For container shipping from Asia, which supplies to around 20% of our purchases, we have seen year-on-year price increases in common with the industry. We have contracts in place to protect ourselves from spot price volatility. We have also maintained a disciplined approach to promo and clearance with no abnormal behavior, and all activity carefully planned many months in advance. And then in supply and logistics, our agile operational setup means we have been able to quickly flex down logistic and distribution costs to follow the demand. Looking forward, we believe that stable raw material prices, for example, metals and plastics, have peaked. The benefits of this will be seen as we work through the time lag between ordering products and their subsequent sales. We have also seen maritime freight prices to ease since January. And as is common practice in Asia, we are proactively negotiating with suppliers on price, given the strength of the US dollar this year. Finally, we are committed to maintain normal levels of promotional activity.

Turning to our active management of operating costs, we continuously plan for a wide range of different trading scenarios to ensure that we can tailor our costs to reflect different demand levels. The pandemic taught us many lessons on adjusting our cost base during times of volatile sales. The key levers we have here include the adjustment of staffing levels and incentives. We also have the ability to flex discretionary spend, including marketing, in-store spend, head office cost, and many components within our circa GBP1.9 billion of goods not for re-sale. We can also refer significant areas of investments, such as rent reviews as needed. Looking to the second half of this year, our revenues are currently in line with our expectations, but we remain vigilant against a more uncertain outlook in H2 and stay ready to act quickly as required.

And finally, to our inventory. I’ve already mentioned that 70% of the year-on-year increase was driven by inflation and new stores was the balance. We decided in the summer of 2021 to build inventory from Q4 for three reasons; to rebuild availability given the global supply chain issues, to ensure that we had enough stock during our peak trading period, and to purchase ahead of anticipated further cost inflation. These were proactive decisions to ensure customers can buy the product they need at competitive prices. And as you know, we restored availability back to pre-pandemic levels already in Q1. I would also remind you that most of our stock is neither perishable nor seasonal and therefore, we have no pressure to clear. However, our inventory remains healthy with our stock provisioning rates below pre-pandemic levels. Looking ahead, we expect to sell through at normal price a large part of our buffer stock in the second half. In summary, you can continue to expect from us effective management of our gross margin and close alignment of our cost and inventories to market conditions.

Switching now gears to slide 13, and we are on track to complete the final phase of our fixes in France this year. In particular, I would like to highlight four key areas of progress. First, we have extended Castorama’s product range through the introduction of more local and international brands and by launching new OEBs. We have added more than 1,200 SKUs over the last six months, bringing the total added over the last 2.5 years to more than 8,500. Brico Depot has also been adapting its range to differentiate it from Castorama and other general DIY peers. We have reduced some non-core ranges and introduced discounter-specific OEBs, such as our new Evalux paint brand, as well as more local trade brands. We are now in the final phase of updating Brico Depot’s SAP platform and expect to complete our work before the end of the financial year. And we have reorganized our logistics operation in France to create an optimized network for both banners. We are making significant progress with reducing distribution center space with an expected 8% of space coming out this month alone. This will bring the total space reduction to circa 27% versus two years ago. At the same time, with the fixes now largely complete, we are making excellent progress in areas such as e-commerce, OEB, our store footprint, and new store services. As you can see on this slide, our progress in France continues to drive an improvement in its operational and financial metrics, including high levels of customer satisfaction. This is the last time you will hear me talking about fixing France. We have strengthened our banners in every department and remain focused on driving improvement in profitability going forward.

Turning now to slide 14, I would like to spend the rest of my presentation taking you through how we are delivering against our strategic priorities and how we are staying focused on the long-term development of our business. Starting with e-commerce on slide 15. E-commerce sales remains significantly ahead of pre-pandemic levels with penetration of total sales up 8.4 percentage points over the same time period. Digitally-enabled sales, which are sales from e-commerce channels, and online orders plus in-stores, now represent around a quarter of overall Group sales. We expect this metric to continue to grow and we have made further progress in the first half. Many of you who joined our Teach-in event in July, would have heard us talk in detail about how we are leveraging our stores to improve the speed and costs of both click and collect and home delivery. We currently have 54 B&Q stores that we are using as digital hubs for fulfilling home deliveries, and these serve nearly 100% of UK postcodes. Similar models have been introduced at Castorama France and Castorama Poland.

During H1, we started the development of optimized order management capabilities, leveraging B&Q app stores to cast a wider net for the availability of products ordered online, thereby lowering the rate of abandonment of online baskets. We have now completed the rollout of click and collect lockers to Castorama Poland stores and we continue testing lockers at some B&Q stores. Screwfix Sprint, which offers delivery direct to home or site within one hour is now just over a year old. With more than 300 participating stores, it currently covers around 45% of UK postcodes with further rollout plan in H2. And we are now sharing lessons from the rollout with other retail banners that are testing same-day delivery. And our first e-commerce marketplace on B&Q’s has been performing ahead of expectations. More on this on the next slide.

Looking forward, our focus is on extending the ranges that we offer online and aiming to speed up the delivery time to homes will further improve picking efficiencies, particularly at Castorama France. This will support faster click and collect, as well as new collection options. We will be completing the implementation of our Group technology stack in Poland, which will accelerate our e-commerce capability there. And finally, we are preparing for the rollout of marketplaces in Spain and Portugal in the coming weeks, then in France and Poland, leveraging the technology and investments already made by Kingfisher for B&Q. B&Q marketplace is performing ahead of expectation and now preparing for rollout across France, Poland and Iberia.

So now to B&Q marketplace on slide 16 which was launched in March this year. As a reminder, the marketplace platform offers Kingfisher an incremental profit opportunity through commissionable sales of third-party products together with other services for third-party vendors. We had build a skilled and experienced team to coordinate our market-based initiatives and build the technology with scalability in mind alongside the team as Mirakl, Mirakl Europe’s leading marketplace platform. Our early achievements at B&Q give you an idea of the opportunity marketplace presents to the Group as we plan for rollout across Iberia, France, and Poland. B&Q successfully reached its target of 100,000 additional home improvement SKUs within six months of launch compared to its previous offer of circa 40,000 products available in-store and online. Our sales growth has been ahead of our expectations, reaching a penetration of 8% of B&Q e-commerce sales in August, less than six months from its launch. We are already able to offer returns for items to all B&Q stores, giving customers more convenience. The scale and speed of this growth shows you how rapidly we can scale this platform. Over the medium term, we have ambitions to reach 1 million SKUs across all core categories. We also want to offer additional services for further speed and convenience, such as in-store click and collect. And we are already preparing for new market launches with Iberia aiming to go live next month. Our long-term ambition is for marketplace to reach 40% e-commerce sales participation for the Group excluding Screwfix. In summary, we are convinced the incremental sales and profit opportunity for Kingfisher in this area is very attractive.

Now to slide 17 and Screwfix, where we are accelerating expansion on multiple fronts across the UK, Ireland and France. In the UK and Ireland, we have opened 31 new stores in the first half of the year, a record for the Group, bringing our total to over 820 at the end of H1. We remain on track to open a further 50 stores by the end of the financial year. We are trialing an intra-compact store format, which has been developed to take the core Screwfix range into catchment area unable to cater for the full traditional trade counter offer. We have seven of these testing operations, and they are showing good early results. We have made steps to significantly improve our e-commerce offering with a new app, containing innovative new features and integrated capabilities, such as Screwfix Sprint. And finally, we have continued to expand our product range, launching over 5,000 new SKUs in the first half with plans to roll-out a further 10,000 by the year-end. We are making similar strides to prepare for our launch in France and we are very excited to open our first store in the coming weeks. Screwfix online business in France has been in operation since April 2021 and that’s seen very encouraging results, with strong web traffic and conversion rates and growing brand awareness across the country.

We have now opened our first distribution center with vendors at local and national level already on-boarded. We are also on track to deliver a dedicated IT system for Screwfix operations in France and are stepping up our marketing and advertising campaigns in the coming months. All of this puts us in an external position ahead of what will be an exciting milestone for the Screwfix banner and we have decided to make a further GBP10 million of P&L investments this year to speed up our start in France. Following our first store launch in the coming weeks, we are planning for a meaningful step-up in store openings in 2023 and we are excited about the potential of this opportunity.

Now moving to Slide 18 and the wider trade customer opportunity across our markets. As I mentioned earlier, Do It For Me and trade already represent 50% of our sales and we have outperformed the market in this area over the last two years. We know from our banners and trade customers have a higher visit frequency and average baskets than retail customers. And so we are keenly focused on capturing this opportunity. We have developed five key focus areas that we believe will drive our traded penetration higher. Firstly, we are updating and growing TradePoint presence at our B&Q stores in the UK and planning for a launch in Ireland. We are also exploring the rollout of dedicated trade counters in France, Poland and Iberia. Second, we are considering how we can optimize our pricing and loyalty programs for our trade customers. We have launched a pilot trade loyalty scheme in Poland and Iberia, now seeing early positive signs. Third, we are continuing to launch new trade-focused ranges across our banners, including many new and redeveloped own exclusive brands. Fourth, we are enhancing our trade-focused services proposition. For example, in H1, we launched new responsible waste disposable partnership with AnyJunk and LoveJunk, which are targeted directly to trade customers. And finally, we’ll be launching a dedicated TradePoint app in 2023 to enhance the membership experience and drive loyalty. As you can see from the right-hand side, TradePoint is a blueprint for success of our trade offer in big boxes. The performance of this business continues to impress with like-for-like sales outperforming the rest of B&Q and also Screwfix in H1. Trade customers represent a GBP50 billion addressable opportunity in the UK, France, and Poland, and we are well positioned to grow our share within this part of the market.

Turning now to slide 19 and our strengthening position in Poland. In H1, we grew our like-for-like sales in Poland by 26%, supported by significant market share gains. Our activity in Poland this year has focused on the further development of our product ranges, our e-commerce proposition, our services offering and testing new store formats. The performance of our OEB kitchen range in Poland has demonstrated our ability to create a new market opportunity, having the right combination of offer, price and service, delivering over 60% like-for-like sales growth in H1. During the period, we also completed the rollout of click-and-collect lockers and drive-thru collections to all our stores, as well as introducing our NeedHelp services marketplace to the country. We have also now brought self-checkout terminals to nearly half of our state in Poland. With strong adoption by customers, we opened three new stores in H1, including our third compact store test under the Castorama Smart banner. These Smart stores are showing positive results to-date and we believe that this format is a great solution for urban areas of the country where we see significant white space. Poland is a market that has exhibited growth and high return on capital and we remain focused on delivering on our ambitious expansion plans to build on our number one market position.

On to slide 20, and now we are adapting our store footprint to drive higher sales on cities and market share across our geographies. We continue to test compact stores in urban catchments with six new stores opened in H1 and a total of 31 now in operations. These stores span three markets and four banners in locations such as small retail parks and high streets, which are performing well. Last month, we opened our first 500 square meter store in Poland, and Brico Depot France will also be testing a 1,000 square meter format in Q1 next year, its first compact store trial. Initial results from the five big-box rightsizing we completed last year at B&Q and Castorama was positive with good sales retention and improved profitability, further rightsizing are planned for selected stores in H2, consistent with our longer-term goal of up to 40 rightsizing in the UK and France over 10 years.

And finally on slide 21, the energy efficiency of our homes. At Kingfisher, we believe there is a huge unmet need for energy efficiency. Last month, we published research which highlights the scale of the problem. Approximately 75% of homes in the UK and France have an energy efficiency rating of D or worst. These homes are those which would be most impacted by energy price rises, with 83% of people already feeling the financial impact. However, our research shows the majority of people do not know the option available to them for improving energy efficiency or the possible impact these could have. We consider this a serious problem but one that Kingfisher is well positioned to help address. We have a strong and growing offer in this area which can help customers make a huge difference. Today we offer more than 11,500 energy-saving SKUs and across our banners, we have developed partnerships and campaigns, educational initiatives and customer support systems. These initiatives can all help in a meaningful way, but our customers need more. At B&Q and Brico Depot France, we have developed innovative end-to-end solutions to help customers actively improve their home-to-energy efficiency. These offer our customers the opportunity to create a detailed and personalized diagnosis and action plan. With these, the service will offer dedicated advice and ultimately delivery of the appropriate products and services, including partnership for installation and in some cases, the finance to fund the changes. This is a topic we care about deeply, something that has a real impact on lives and our climate, and something that we are uniquely positioned to take action on.

With my presentation now concluded, I will hand over to Bernard.

Bernard Bot — Chief Financial Officer

Thank you, Thierry, and good morning. To slide 23 and the key financials for the half. Total sales in constant currency were down 2.8% to GBP6.8 billion. Like-for-like sales were down 4.1%, which was a resilient performance against an exceptionally strong comparative and a more challenging economic backdrop. Like-for-like sales were up 16.6% versus three years ago as we continue to grow sales ahead of the market. We generated a gross profit of GBP2.5 billion with gross margin down 130 basis points year-on-year. As explained by Thierry, the movement, which was largely UK-driven, was the result of low promotional activity and very favorable banner and category weightings last year.

During this H1, we continued to manage the impact of inflation on our gross margin effectivity. In constant currency, retail profit decreased by 27.1% to GBP555 million, with retail profit margin down 270 basis points to 8.2%. And as you can see from the comparisons to 2019 on this slide, we have realized a 60 basis points improvement in our retail profit margin in constant currency. The investment of 40 basis points of gross margin was more than offset by operating leverage in the business. Adjusted pre-tax profit decreased by 29.5% to GBP472 million, which is 40% higher than in 2019. We generated free cash flow of GBP104 million, absorbing a negative working capital impact in the half. Our cash and liquidity position remains strong with GBP479 million of cash and over GBP1 billion of total liquidity. Our net debt, which includes IFRS 16 leases, is GBP1.8 billion with net leverage of 1.3 times EBITDA.

Moving to slide 24 and the performance of our major geographies. All year-on-year variances are in constant currency. Starting with the UK and Ireland, where total sales decreased by 9.8% to GBP3.2 billion, reflecting the strong prior-year comparative I just mentioned. Like-for-like sales were 11.6% lower with space growth contributing plus 1.8%, mainly from Screwfix. The like-for-like sales trend in the UK improved from minus 15.8% in Q1 to minus 7.1% in Q2, supported by sales from both DIY and Do It For Me trade categories.

Like-for-like sales at B&Q were down 13% and up 16.7% on a three-year basis. TradePoint outperformed the rest of B&Q with like-for-like sales down by just 3.1% and up 34% on a three-year basis. All categories at B&Q have seen good growth on a three-year basis with standout performances in building and joinery and outdoor. Larger ticket categories like kitchens and bathrooms saw good sales throughout the first half, supported by enhancement to B&Q’s range and customer journey.

Like-for-like sales at Screwfix were down 8.8% and up by 14.4% on a three-year basis, reflecting resilient demand from trade customers throughout the period. UK and Ireland retail profit decreased by 41.3% to GBP339 million, reflecting the exceptionally high sales and gross margin in H1 last year. Retail profit remains over 20% higher than in 2019. Operating costs were 3.9% higher year-on-year. This was driven by 88 new store openings in the last 12 months, the normalization of COVID-related under-spend last year, and operating cost inflation, including higher utility charges.

Turning to France, sales decreased by 2.6%, reflecting resilient sales from both DIY and Do It For Me trade customers, despite strong prior year comparatives. On a like-for-like basis, sales were down 3% and up by 13.6% on a three-year basis as we continue to improve our competitive position in France, led by Castorama. Retail profit increased by 2.4% to GBP129 million with a 30 basis points increase in retail profit margin. The gross margin rate in France decreased by 30 basis points, reflecting category mix impacts and normalized promotional activity, which was partially offset by lower logistics cost. Going forward, France’s gross margin will be further supported by the removal of an additional 8% of distribution center of space this month. Operating costs decreased by 4.5% due to lower staff costs, including the phasing of store staff incentives, lower store property cost, and ongoing strategic cost reduction programs.

Performance in Poland was very strong with like-for-like sales up 25.9% and space growth adding a further 3.1%. This performance partly reflects the temporary store closures in the prior year, but the business also delivered strong market share again during the half. Like-for-like sales were up by 23.8% on a three-year basis. Poland’s gross margin rate increased by 10 basis points, largely reflecting favorable category and channel mix impacts. Retail profit increased by 66.4% to GBP94 million, taking the business up to a retail profit margin of 10.3%. Operating cost increases of 18.1% were largely driven by space growth and new store opening costs, higher marketing spend and general operating cost inflation.

In Iberia, like-for-like sales increased by 2.3% and by 15.6% on a three-year basis. Retail profit of GBP6 million was GBP5 million lower than the prior year as a result of lower gross margin and a 2% increase in operating costs. Romania’s like-for-like sales increased 8.9% despite being impacted by corporate-related trading restrictions in February and early March. Excluding the additional months of business included in the prior year comparative, which is there to align to Kingfisher’s reporting calendar last year, the business kept its retail loss flat at GBP4 million. This represents significant progress from the GBP12 million loss recorded three years ago.

Other consists of the consolidated results of our new businesses; Screwfix International, NeedHelp, and Franchise agreements. Due to these businesses being in their early investment phase, a combined retail loss of GBP13 million was realized as they scale up for growth. Our Turkish JV contributed an equity accounted retail profit of GBP4 million, up GBP3 million from prior year.

To slide 25 and the movement in Group retail profit. In constant currency, this was down GBP206 million or 27.1%. The lower sales and gross margin rate, as already described, contributed GBP168 million to the overall decrease. We also had a normalization of COVID-related underspend in the prior year, amounting to GBP17 million. The principal areas where we normalized spend were marketing, advertising and travel. Operating cost inflation was GBP77 million, largely driven by higher staff and utility costs. We were able to fully offset this increase by flexing our staff cost and were supported by reductions achieved as part of our strategic cost reduction program. Operating costs associated with net space investments were GBP20 million, mainly driven by new stores at Screwfix and in Poland. And finally, we spent GBP8 million more year-on-year on the development of our new businesses.

To slide 26 and the summary of cash flow movements during the period. We generated EBITDA of GBP811 million in H1. The working capital outflow of GBP223 million was the result of an increase in inventory of GBP395 million, partially offset by net movement in payables and receivables of GBP172 million. The increase in inventory, as Thierry described, was largely driven by inflation and store expansion. The balance is explained by the Group’s proactive inventory purchases from Q4 last year. This was done to rebuild product availability, build seasonal and buffer stock ahead of peak trading and to buy in ahead of forecast cost increases. The net increase in payables largely reflects the timing of inventory purchases and higher VAT creditors. Capital expenditure in the period was GBP184 million. Free cash flow was GBP104 million. As previously guided, in February, we paid EUR40 million or GBP34 million to the French tax authorities with regards to historic tax liability. The amount was fully provided for in prior periods. Dividends of GBP172 million were paid in relation to last year’s final dividend and a further GBP218 million was returned to shareholders via our share buyback programs. Overall, this resulted in a net decrease in cash of GBP329 million.

Moving to slide 27 on our current liquidity and financial position. As of July 31, we had over GBP1 billion of total liquidity available, including GBP479 million of cash and an undrawn credit facility of GBP550 million. The facility has been extended by one year to May 2025, and as a reminder, is linked to sustainability and community-based targets. We have no significant financial debt and our net leverage was 1.3 times EBITDA as of July 31.

Turning now to slide 28 and an overview of our work to increase productivity. At the start of 2020, we initiated a program to reduce costs through initiatives covering all of our retail banners and Group teams. In stores, we are focused on increasing staff productivity. For example, through the use of technology, such as self-checkout terminals and through the use of analytics and operating best practices to reduce stock shrinkage. We have also continued to optimize our GBP1.9 billion goods not for resale purchases, with a range of products led by both category managers that operate across banners and local procurement teams. There are 220 such projects currently in train, 70 of which each deliver more than GBP250,000 of annualized savings. Our teams also continue to work on distribution center and logistics network optimization. Thierry has already mentioned the material space reductions in France over the last two years. We’ve also realized efficiencies in the UK through the opening of a new bulk distribution center for B&Q and the automation of Screwfix operations in Trenton. Across our Group and banner head offices, we are seeing savings of overhead expenditure, including through the expanded use of our shared service center in Poland. And finally, we continue to negotiate favorable lease terms at B&Q with 34 lease renegotiations completed in the last 12 months, realizing an average net rent reduction of 19%. Initial results from our five right-sized stores to-date are positive with good sales retention and improved profitability with many more opportunities identified and being planned for.

Finally, moving to slide 29 and our outlook and guidance for the full year. Further technical guidance can be found in the appendix on slide 36. We have made an encouraging start to the third quarter across all our markets. Like-for-like sales for Q3 to-date are down 0.7%, representing growth of 15.2% on a three-year basis. And we have seen resilient trends in our outdoor, kitchen and bathroom categories. Overall, our first-half performance and current trading are consistent with the full year profit guidance we set-out at the start of this year of GBP770 million. For the balance of the year, we have run several trading scenarios to take into account the potential for a more uncertain macroeconomic environment. These point towards a range of outcomes for the full year adjusted EBIT of between GBP730 million and GBP770 million. You can expect from us a continuous focus on execution against our strategic objectives and further market share growth. We expect gross margin in the second half to be up year-on-year, resulting in a full year gross margin that is in line with our pre-pandemic level of 37%. We are also accelerating our investment in Screwfix France and have decided to make a further GBP10 million of P&L investment this year to speed-up the start there. And given the uncertainty levels, we will continue to be active and responsive in the management of the Group’s operating cost. Regarding inventory, we anticipate our stock levels to reduce in the second half related to the sell-through at normal prices of a large part of buffer stock, which was previously held to predict product availability.

With that, let me now hand back to Thierry to summarize.

Thierry Garnier — Chief Executive Officer

Thanks Bernard. To briefly summarize here on slide 31. Kingfisher has delivered a very resilient first half of sales against the backdrop of strong comparative period and the challenging economic environment. We made further gains in market share in each of our key geographies, supported by demand, both from DIY and trade customers. We are delivering on value for our customers at a time where they need it most, and we continue to effectively manage the pressures from the current environment. With the business and our balance sheet in a strong position, we continue to deliver against our strategic priorities and invest in opportunities to drive growth. And our shareholder returns remain attractive as we remain confident in the opportunity for growth and cash generation.

Thank you all for listening this morning. And Bernard and I will now be happy to answer any questions. Over to you, Majid.

Questions and Answers:

Majid Nazir — Group Investor Relations Director

Thank you, Thierry and Bernard. So we’ll start with Q&A from the audience here. So, as usual, please wait for the microphones to get to you. State your name and institution, please. And let’s start with Anne.

Anne Critchlow — Societe Generale — Analyst

Thanks. It’s Anne Critchlow from SG. I’ve got two questions, please. So first of all, on inflation. Are you seeing inflation roughly in line with the market or have you broadly invested in price?

And then secondly on Screwfix France. Could you talk a bit about any customer overlap between your current Screwfix front sales and maybe Brico Depot and how that’s maybe affecting your positioning of the stores there?

Thierry Garnier — Chief Executive Officer

Yeah. Thank you, Anne. Starting with the first topic on inflation. For us, we are always starting to look at price index first and we are happy with price index. We had already very good price index in January, we continue to have very strong price index while we speak. And at the same time, we consider we have very effectively managed our gross margin, engaging with suppliers, hedging. So I would say, overall, we’re very happy with H1 management of price index and gross margin. Now, as we mentioned, we start to see early sign of peak of some raw material, like metal, plastic. Clearly the peak is behind us. Freight costs are down. Dollar is strong, but at the same time, the usual practice in Asia, because we are mainly buying in dollar in Asia, the usual practice in Asia is when the dollar versus the RMB in China is strong, in fact, you can discuss and negotiate with suppliers. So that’s what we see at the moment. We see some modest suppliers more in Europe, we continue to see inflation, but overall we started to see some prices down for some of our projects.

Screwfix France, we usually have the same question in the UK. Screwfix is really focused on electrical plumbing, relatively small and technical devices. And the overlap with our other French banners is relatively small. Even with Brico Depot, when you go to Brico Depot, is a world of building material, of paint etc. And at last, I’m not afraid of cannibalization, to be honest. Each time you are afraid of cannibalization, you have a competitor that come. So it’s better for us to be there. If they are relatively marginal cannibalization, it’s totally acceptable, and that’s what we are driving in our markets. We believe in different banners. Sometimes there are small overlaps, but that’s part of the strategy. You’re welcome.

Majid Nazir — Group Investor Relations Director

Paul, can you get to Pam, please?

Pam Liu — Morgan Stanley — Analyst

Yeah. Pam Liu from Morgan Stanley. Three questions, please. First, I’d like to get behind on your sensitivity range of your adjusted PBT for the full year. For GBP730 million, what are the exact scenarios you assumed to get to that number and what could that mean for the year, even after — particularly, how much of it is driven by volume and pricing?

And second of all, given the amount of fixes you have already completed and the number of flexibilities you have to manage ongoing cost, can you commit that your margin today is largely sustainable, doesn’t matter of what happens going forward?

And the third question is with online marketplace, would you be [Speech Overlap]

Bernard Bot — Chief Financial Officer

You mean profit margin or gross margin, to be precise?

Pam Liu — Morgan Stanley — Analyst


Bernard Bot — Chief Financial Officer

Both, okay. I shouldn’t have asked.

Pam Liu — Morgan Stanley — Analyst

And with the online marketplace, can I check if you are happy to disclose a full year impact on revenue and profit? Thank you.

Thierry Garnier — Chief Executive Officer

I think it’s more than three questions for Bernard.

Bernard Bot — Chief Financial Officer

There we go. Yeah, look. on the guidance we’ve given. On the GBP770 million is and I’ll reiterate that what we’re seeing in the trading to date is fully in line with GBP770 million. And I can rattle-off all the positive signs we see. However, there is a market-wide expectation around uncertainty, be it consumer and macro. So our objective is to be transparent to say what could that do to us. And that’s the only thing we’ve done, so we’ve run a couple of scenarios and then said, what’s the range of outcomes and that’s represented in the GBP730 million to GBP770 million. Now exactly what, there are elements of trading, cost, many things could come into play. It depends on timing and severity that we’re comfortable that those scenarios lead us to the GBP730 million to GBP770 million. But again, I’ll reiterate, the current performance all shows we are on track to GBP770 million and some of those things that Thierry mentioned, the Q2 sales are up from Q1. We’ve had an excellent start to Q3. As you could see, big ticket items are holding up well, the order well is also holding up well. Thierry mentioned a couple of things around net customer growth, that is continuing. And also we’ve got some resilience in the business. If you look at repair and maintenance, non-discretionary, that’s a large proportion of what we do and we’re very well positioned with our product and brands. Again, Brico Depot, hard discounters, or we being at a price differential. So we feel very good and again tracking towards the GBP770 million.

Now within the scenarios, let’s just go on your second question. And as Thierry also explained, we’ve got levers we can pull should things move less good than we anticipated. And we’ve shown that flexibility in the pandemic. We continue to monitor it and it will be the levers that we highlighted in terms of what can you do further on your staff cost, what can you do on your discretionary spend, and if need be that that would be the last resort, what do we do with investment and ranging, and we have got quite a few levers we can pull should things happen.

Majid Nazir — Group Investor Relations Director

Marketplace effect.

Bernard Bot — Chief Financial Officer

The marketplace impact on revenue, I mean, the — so the marketplace, ultimately what we take is the commission revenue. So one is GMV. The other is commission revenue. And that, as it’s scaled up, it will be more, but for this year in the overall scheme it will be limited, we are not guiding to an exact number.

Thierry Garnier — Chief Executive Officer

Maybe, let me just take a few minutes to give some colors on the current trading because that’s important. The way we look at our business, in fact, we have three kinds of categories. So you have seasonal categories, what we call core categories, like building material, electrical, plumbing, hand tools, paints as well, and we have the big project like kitchen, bathroom, and storage. So for us, because obviously we are on the depth we are looking at what’s going on around us. What is most critical is to look at the core and kitchen, bathroom, storage categories, because in H2, seasonal won’t be there and seasonal is much more volatile. So we are already tracking that very carefully. And what I can tell you, if I look at the last three weeks, so last three weeks is back to school and people are back, they are not traveling, so probably from August 28 to this week, we are seeing a positive one year like-for-like on every category, except outdoor, including kitchen, including bathroom, and with a very strong acceleration around electrical, plumbing, heating, insulation.

To give you a figure, I was even surprised when I checked the past days. When you look at insulation category across the Group for the past three weeks, the Group is up 70% versus 2019 and 32% versus last year. And if you look into the UK at B&Q, B&Q is up 110% versus 2019 and 82% versus 2021. And we have dedicated campaign, I could give you a few examples. We are the market leader. The key thing in insulation is the loft wall. We are tracking the market share, we are gaining share, we are the absolute market leader because we want to be the best. And the volume increase, the said volume increase of loft wall at B&Q is 260% versus 2019, because we are working hard. So that’s what we see today. So when we say, well, we are comfortable with GBP770 million when we look at current trading, there is no sign in our current trading that something is different, but we have gotten pretty expert at trading scenario. We have managed COVID. So we were running scenario all the time, we keep this practice. And I think in a such volatile environment, we consider that running scenario is a good practice because if you have scenarios, then you can decide the cost base and inventory base. So that’s what we are doing. And that’s why we are again fully in line with GBP770 million. We feel it’s reasonable to speak of scenarios.

Majid Nazir — Group Investor Relations Director

Let’s go to Simon, please.

Simon Irwin — Credit Suisse — Analyst

Hi, it’s Simon Irwin from Credit Suisse. Three for you. Firstly, can you just talk a bit about Poland? Firstly, can you break down the performance this year between the low base, the benefits you may have seen from [Indecipherable] and potentially the benefits you may have seen from refugee and population growth? And also how do you see the outlook for next year?

Secondly, well, obviously, we can’t expect you to kind of underline margins for next year. Can you just talk about how you’re thinking about some of the OpEx for next year in terms of utilities, labor, etc?

And thirdly, Screwfix was a bit softer than expected in 2Q. Can you give us some thoughts as to why that might have been the case?

Thierry Garnier — Chief Executive Officer

Yeah. So Poland is very — it’s very encouraging in short, because we are the number one, we have the best brand image. It is absolutely fair to say, Simon, that last year our stores were closed for several weeks. So we have to acknowledge that. And that was indeed in our forecast. But you’re right as well to say that globally, I think the Polish market is home improvement, relatively strong, because we have millions of refugees. And on top of that, we are strongly gaining market share. So if you follow the GfK data, we are already gaining a very significant amount of market share.

So other thing I would like to mention before discussing the future is we have opened three stores in H1, we have opened two more stores this summer. So we already opened five stores. We will open more stores in the second half, while our main competitor, you mentioned, opened one store. So the impact of what’s going on is on sales, but as well on your plans for the future. So what we see is we are gaining shares and we have clearly a stronger expansion versus our competitor. So then your future is difficult to guess. What I’ve seen in my previous life, including in Asia, when you have such an emotional boycott against somebody, it doesn’t disappear overnight. So obviously, things can change, but I do believe the brand perception of the customer we have gained for many months will not disappear overnight. We have a great price index, ready — we are speeding up our expansion. So we are in a good position for the future. I will let Bernard say few words about few of the components of 2023.

Screwfix, again, we always forget the like-for-like of last year. So I keep that with me, because Screwfix, H1 last year, plus 26.8%. So, well, you don’t see that very often in retail. So obviously, when you do plus 26.8%, you have a small decrease this year. I know that is not too bad versus our main competitor, if you look at the figures, which was not the case before. I see a very good price index in Screwfix. We opened 31 stores in H1, never did that before. We are in line to open 80 stores this year, never did that before. So it shows how confident we are. Now I think things are moving well with a lot of progress on the digital front, on Sprint, on — a lot of progress on the Screwfix side.

So on 2023?

Bernard Bot — Chief Financial Officer

Yeah. I mean, obviously, the callout you had was around OpEx and I think there are things that are going down. So freight, as Thierry mentioned, is coming off its peak, which is a good thing. And obviously that will then roll into the cost of inventory and ultimately in the cost of goods sold. There are things that will not change. So a large part of what we have are rentals and depreciation. So that’s not fixed, fortunately. And then there are a couple of things which are up. So I would say for wages, we are generally in line with the rest of the industry. And then there is the part of energy, which I think has been mentioned by a couple of other retailers. For us, it’s a small part of our operating costs. And the GBP77 million which I highlighted was in the profit bridge inflation. Part of that is increased utility costs. The impact is different by region. It’s the UK versus France, given the different profiles of the business, but also the different way in which energy contracts are contracted.

For this year, we’re basically hedged. So we’ve got full visibility as to what it’s going to be. Next year is only partly helped. So what do we do about it? Obviously, we’ve got a number of longer-term initiatives around reducing our Scope one, Scope two energy spend of heat pumps, solar panels, but also more recently, we’re taking measures in terms of temperatures in store, lighting, at what time do you put the lights on, lights off, more extensive use of building management and even what time do we charge the forklift batteries to try to mitigate some of those costs. And then we’ll see a little bit what the measures then are, for example, have been announced here in the UK will do, but that is still uncertain. So I think within the guidance we’ve given for this year, we know what it’s going to be next year, it’s just still a little bit too early to tell, but we’re very much focused on that part.

Majid Nazir — Group Investor Relations Director

Yeah. Richard?

Richard Chamberlain — RBC Capital Markets — Analyst

Thank you. Richard Chamberlain, RBC. I’m going to ask a couple of questions, please, one on inventory. You’ve talked about selling down the buffer stock you’ve built up. How much stock or what sort of proportion would you say relates to this sort of rebuild of stock that you bought in advance? And are there any particular areas that’s concentrated in?

And then the second one, Thierry, I wondered if you could give a bit more color on these new trade OEBs, you brought in new range. Is that very much focused on the UK TradePoint or was that actually right across the Group that you brought in those new brands and ranges? Thanks.

Thierry Garnier — Chief Executive Officer

Thank you, Richard. So I’ll start with inventory, but Bernard, you correct me. So what we said is about 70% of the inventory growth is inflation in new stores. So the answers is about 30% is what I would call buffer stock. And as I think, Bernard explained, we decided in summer 2021 to purchase more for the reason of global supply chain issues, to be ready for the peak. And as well, we estimated we should buy looking — we were already expecting some inflation. So I would say in this buffer stock, you have two kind of things, rather permanent products that will gradually disappear. So why so? Because, for example, during COVID, the supplier lead times some time was multiplied by two. So we’ll renegotiate the supplier lead times. So you put that in the system, and then you know, you decrease your stock. There are multiple parameters in our supply chain system that we increased during COVID that we already moved back to the previous, let’s say, parameter.

So over-time, we are absolutely sure that those products will be sold at normal price. Then we have a little bit more seasonal product than last year. And to be very clear with you, we have decided even this year to have very limited clearance in garden furniture, it could surprise you, because we have such a good purchasing price, that would be silly to do so. And we’ll purchase new garden furniture at a much more expensive price than the one we do. So in fact, this year, decided to have very limited garden furniture clearance because that’s very good products, we have great purchasing price and we’d keep some of the stock for the season 2023.

Go ahead, Bernard, yeah.

Bernard Bot — Chief Financial Officer

For the complete picture, so as we said, delisted is lower than it’s ever been, provisioning rates are lower than the historic range. So we’re happy with that. And also our stock is not perishable or is not subject to fashion. So we are carrying it over, especially if we bought it more cheaply than we would have to pay now for that stock.

Thierry Garnier — Chief Executive Officer

Then on trade OEB, clearly that’s a Group policy. We are already erasing our own OEBs managed by the Group. We have consistent ranges across banners. So usually it starts from one banner. So if you take a brand called Fluidmaster or LAP, it was started at Screwfix. And gradually, you can find those brands at TradePoint, but as well in some of our stores in France. So that’s — or Titan, that’s another very strong power tool, pressure washer etc, dedicated for some of those banners. So that’s a Group policy that allow us to have the scale and yeah.

Majid Nazir — Group Investor Relations Director

Paul, can we get to Warwick please, in the second row.

Warwick Okines — BNP Paribas — Analyst

Thank you very much. Warwick Okines at BNP Paribas. You gave a very helpful profit bridge year-on-year in the slides, but if we just think about the UK profit bridge since COVID, your like-for-like sales were up very strongly and your profit margins are flat. Can you just make some comments about that, what does that tell us about the mix of the different businesses and products within that and your ability to leverage costs? Thank you.

Bernard Bot — Chief Financial Officer

I mean, I would say it’s up 3.9% year-over-year, which obviously, in that are 88 new store openings for Screwfix. As we mentioned, the COVID underspend was especially there this year. And, obviously, we’ve got inflation, including the utilities inflation, which I mentioned. And if I look at the CTS rate compared to ’19-’20, we were at 27.6% compared to 28.5% in ’19-’20. So reduced the overall cost pressure, but obviously something we continue to look at and continue to work on.

Majid Nazir — Group Investor Relations Director

Could we get to Adam, please, Paul.

Adam Cochrane — Deutsche Bank — Analyst

Hey, it’s Adam Cochrane at Deutsche Bank. Couple of questions, please. A number of retailers have given us the utility costs either as a percentage of sales or in absolute numbers. Would you be able to provide that, just so we can have a view on our sensitivity on what the governments may or may not do? Just help us a little bit with next year’s forecast, if we have a starting point for what it would be this year.

Secondly, in terms of your consumer and trade surveys where you talk to your customers, are they saying anything, are you seeing full order books of the tradespeople, are you seeing — I am hearing that some consumers are taking longer to make decisions on bathrooms, kitchens, bedrooms, etc. Are you seeing any of that?

And then third question, finally, given a slightly tougher economic environment, do you think there’s a chance that you continue to take share from independents and other smaller players who may find it more difficult than yourselves to secure, whether it’s hedging on utilities or whether it’s better input costs? Thanks.

Thierry Garnier — Chief Executive Officer

Maybe I will start with the second and the third, and we come back to utility costs. I think customer survey, we are running surveys around 6,000 to 7,000 customers, so it’s very large samples [Indecipherable] same questions regularly every quarter. In summary, surprisingly, positive feedback. And obviously, we have some feedback slightly down, but overall, if I summarize the sentiment for the future is relatively strong. And it seems, when we hear those customers, and again, it’s a very large sample, they are not cutting home improvement as a priority. They, for a different reason, working from home. You know my speech, you have great new trends, people working from home. Part of our sales are maintenance and repair. So overall, that’s what we see, in short.

Even the new things, I would say, you have a large proportion of people that say, well, I don’t change my plan. You have a small proportion of people that say, I’ll delay my plan, but in fact, we have as well a new proportion of people that say, well, I want to invest on energy efficiency now. And to be honest, that’s what we start to see in the last weeks that we are seeing very strong demand on insulation, new heating system etc and that’s pretty consistent. UK, France, Poland, slightly different. And so that’s the result. You could say, well, home improvement is more homeowner. When we look at the demographic of B&Q, we have high proportion of homeowners, probably a bit middle-class. The same in France. People have been moving in the past two years, a lot of — and you know that when you move you spend more. So that’s what we see.

In short, market share is absolutely our priority number one. So we believe that in retail you’re successful if you drive the top line first. It doesn’t mean you are not interested by the rest, but there is an order of priority and that’s our clear priority and we keep investing for growth. We are opening more Screwfix stores, we are opening in France, marketplace investment, we are opening in Poland. We are in a good place for TradePoint. So we are really preparing ourselves for growth in the future. We are not slowing down investment.

Bernard Bot — Chief Financial Officer

Yes. I mean, on the energy, it’s — I’ll spare you going through our Responsible Business Report, looking at our energy spend and multiplying it by the energy rates, but it’s around 1%. But be careful in that there is obviously a mix of countries, which obviously are subject to different rates and contracting. So, for example, France is much more a longer-term contract. The UK is much more on that six months renewal basis. And also the mix of electricity and gas, it’s about two-thirds electricity and one-third gas. Then that plays into that equation.

Majid Nazir — Group Investor Relations Director

Right. I’m just going to take a pause for the questions in the room now, just check with the phone lines to see if there is anyone the line who wants to ask a question. So can I check with the operator, Christoph, at the back?


Yeah. Thank you, Majid. So everyone, we will begin questions from the phone line. [Operator Instructions] We’ll take our first question from Georgina Johanan from JPMorgan. Please go ahead.

Georgina Johanan — JPMorgan — Analyst

Hello. Hi, good morning and thanks for taking my questions. And three quick questions from me, please. And one, just some clarification around energy the bills, the 1% that you referenced. Was that 1 percentage point of OpEx sales, or 1% of sales to use?

And then the second question was the stats you gave around insulation and so forth were very helpful. Can you just clarify what proportion of the sales mix is insulation and other kinds of direct energy efficiency products that consumers might buy, sort of, roughly, what proportion of your mix would that be on a normalized basis? Thank you.

Thierry Garnier — Chief Executive Officer

Yeah, go ahead, Bernard.

Bernard Bot — Chief Financial Officer

Around 1%, it is for the year ’22-’23 with all the hedges and contracts we have in place, and it is a percentage of total sales for this year.

Thierry Garnier — Chief Executive Officer

Yeah. Second question is we consider we have about 10% of the Group sales that are related to energy savings or water savings, but large part is really energy savings. And we are working hard for probably one year now to extend those ranges, to bring new services, new partnership, new tools. I described some of these, and you would see more. And we are, on prices, clearly investing on those products to make sure we have a very strong price positioning to gain shares.

Georgina Johanan — JPMorgan — Analyst

Thank you very much.

Thierry Garnier — Chief Executive Officer

You are welcome.


There are no further questions on the conference line. So I will now hand over back to Majid.

Majid Nazir — Group Investor Relations Director

Okay. Thanks, Christoph. Just check for any further questions in the room here, please. I’m going to take that as a no, we’re all done. So Thierry, I’m going to pass back to you for concluding remarks, please.

Thierry Garnier — Chief Executive Officer

Well, it will be very short. Thank you for being with us this morning. Thank you for your questions. And I hope you see our confidence in the current trading, our confidence through the share buyback, the dividends we are giving back to our shareholders, as well as we are continuing to invest for growth. So very happy to see you very soon and thank you for being with us this morning. Thank you.


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