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Article Excerpt
DAVID NEWLANDS, CHAIRMAN, KESA ELECTRICALS PLC: Good morning ladies and gentlemen. Welcome to this Kesa interim results presentation. Before handing you over to Jean-Noel and Simon, I just want to make a few comments.
First of all, trading conditions are, and are likely to remain extremely tough. This is particularly true in the UK and Spain. In these circumstances, Darty France and our established businesses in Continental Europe, have performed well. In the UK, Comet's management had to deal with very difficult market conditions and have reduced costs significantly, which will have a benefit to the second half.
In Spain, we remain convinced of the logic of the acquisition of Menaje Del Hogar which was to buy a retail network in Spain and to implement the Kesa business model there. We have now put in place an experienced management team and have a clear plan to rebuild the business, but this of course is going to take time. However, in the light of the market conditions, we have reviewed the goodwill and brand value sitting on the books and have concluded that the prudent decision is to write these off 100%, and this is what we have done. There is no cash cost to this decision.
Our operating cash flow in this period was again strong with good control being exercised over costs and stocks. Good management has ensured that we have entered these recessionary conditions with our finances in very good shape and capable of withstanding the most stormy weather. In particular, the sale of BUT earlier this year, for some EUR550 million, has meant that we now have net cash. And, as the stock bought for Christmas trading turns into cash, our financial position will get even stronger.
It is likely that 2009 will be extremely difficult, but no-one knows how difficult, and we are fortunate to have such a wide range of financial and operational weapons in our arsenal which will enable us to cope. Nevertheless, given the recessionary environment, the Board has reduced the interim dividend to 1.75p. And I'll now hand you over to Jean-Noel and Simon.
SIMON HERRICK, FINANCE DIRECTOR, KESA ELECTRICALS PLC: Thank you David. Good morning ladies and gentlemen. So, to the Group results for the first half.
In very tough market conditions, Group revenue at nearly GBP2.2 billion was up 11%, 0.4% in constant currency. Like-for-like sales fell 5.5%. Comet made a loss in the first half compared to a profit last year, and the new losses at Menaje Del Hogar further reduced retail profit. Consequently, retail profit fell from GBP45.1 million last year to GBP13 million in this first half. This, after GBP17.5 million of start-up losses at Darty Box, Italy, Switzerland and Turkey.
In light of the most difficult retail market conditions in Europe, and the deteriorating economic conditions in Spain, which has led to a worse than anticipated performance at Menaje Del Hogar, we have written-off GBP114.4 million of acquired goodwill and other intangible assets. This is of course a non-cash item.
A GBP2.9 million reduction in the P&L interest charge to GBP2.1 million resulted directly from a lower funding requirement during the period, with net cash interest income of GBP0.3 million, less the notional cost of funding Comet's defined pension scheme of GBP2.4 million.
The loss before tax was GBP103.8 million, compared to a profit of GBP40.5 million last year. The effective tax rate on profits from continuing operations, before exceptional items, including the share of joint venture and associated tax, but excluding the effect of prior year tax adjustments, was 33%. This represents the best estimate of the full year effective tax rate and generated a small overall tax credit on the losses before tax.
Losses after tax were GBP103.2 million representing basic undiluted loss per share of 19.4p for continuing operations, representing 2.2p per share after adjusting for the Menaje exceptional charges.
Darty France saw total revenue fall just at 0.7%, or 2.2%, excluding the Darty Box, and down 3.8% on a like-for-like basis. In the UK, Comet's revenue declined by 7.9%; 11.6% on a like-for-like basis. This reflected a fall in footfall, while in-store conversion rates remained fairly stable leading to a volume decline. Total revenue at other businesses grew over 28%, due largely to the inclusion of Menaje Del Hogar in Spain; like-for-like sales were up 1.4%.
Darty France was able to partially limit the impact of the small revenue decline by holding gross margins stable. Costs were impacted by the relatively high number of new store openings in the period, but were otherwise well controlled. Retail profit, excluding Box, was EUR59.8 million. Darty Box losses started to reduce as the subscriber numbers built. ARPU, margin and costs are in line with expectations.
Comet made a loss in the first half resulting from the revenue decline and aggressive market pricing, reducing gross margins by around 100 basis points. The loss however was limited to GBP8.1 million through exceptional cost control. Total costs were lower than the same period last year.
The established other businesses in Holland, Belgium and Czech Republic and Slovakia resisted well in negative market conditions with only EUR1.3 million fall in retail profit to EUR8.8 million. The start-up operations in Italy, Switzerland and Turkey recorded a small reduction in losses from EUR13.7 million to EUR12.9 million as scale built.
Spain has experienced the worst retail market conditions in Europe and Menaje Del Hogar reported a loss of EUR11 million, before the exceptional write-off of goodwill and intangible assets. Jean-Noel will talk about our plans for this business in a few minutes.
Central costs were flat in local currency, but the euro denominated central costs were impacted by the weakening pound, so overall costs increased from GBP6 million to GBP7 million.
Cash generated from operations was GBP122.3 million. On this slide we have highlighted the cash generated from continuing operations, excluding BUT from the cash lines, so that the line detail does not match that on the cash flow in note 16 of the accounts. The Menaje exceptional charge has also been identified separately, so as not to distort the cash flow.
Stock reductions year-on-year resulting from further improvement in stock rotation and lower order quantities as a reaction to the lower market volumes, combined with our usual close management of other working capital, meant that cash generated from continuing operations was GBP127.8 million; a fall of GBP26.5 million. While operating profit before non-cash exceptionals, fell by GBP33.1 million.
The GBP5.5 million outflow from discontinued operations represents the final settlement of the BUT working capital adjustments which we had fully provisioned in last year's accounts.
Interest and tax paid were less than last year, as a result of lower net debt during the period and lower overall tax on reduced profits. In the first half we invested GBP74.9 million in capital expenditure. This compares to GBP60 million in the prior year, excluding BUT and the acquisition of Menaje.
Capital expenditure for the full year is expected to be approximately GBP130 million.
The increase in cash dividend was the direct result of a 7.5% increase in dividend to 10.8p, plus the one-off 3.6p a share payment for the additional three month period, February to April, on changing the year-end.
In line with the seasonal profile of the Group, there was a cash outflow in the first half with the net...
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