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Edited Transcript of KGF.L earnings conference call or presentation 18-Sep-19 8:00am GMT

Half Year 2019 Kingfisher PLC Earnings Presentation

London Sep 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Kingfisher PLC earnings conference call or presentation Wednesday, September 18, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Cosslett

Kingfisher plc - Chairman

* Graham Bell

Kingfisher plc - CEO of B&Q UK & Ireland

* John Wartig

Kingfisher plc - Interim CFO

* Thierry Garnier

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Conference Call Participants

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* Adam Gareth Cochrane

Citigroup Inc, Research Division - Director

* Alasdair McKinnon

The Scottish Investment Trust PLC - Acting Manager

* Andrew Hughes

UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research

* Anne Critchlow

Societe Generale Cross Asset Research - Equity Analyst

* Geoff Lowery

Redburn (Europe) Limited, Research Division - Partner of Non-Food Retail, Luxury & Sporting Goods Research

* Geoffrey Frith Ruddell

Morgan Stanley, Research Division - MD

* James Robert Grzinic

Jefferies LLC, Research Division - Equity Analyst

* Kate Calvert

Investec Bank plc, Research Division - Retail Analyst

* Richard B. Chamberlain

RBC Capital Markets, LLC, Research Division - MD of Consumer Retail

* Simon William George Irwin

Crédit Suisse AG, Research Division - Director

* Tony Shiret

Whitman Howard Limited, Research Division - UK General Retail Analyst

* Tushar Jain

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Andrew Cosslett, Kingfisher plc - Chairman [1]

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Thanks very much. Good morning, everyone, and thanks very much for joining us today for Kingfisher's half year results.

For those of you who don't know me: My name is Andy Cosslett. I'm the Chairman of Kingfisher Group.

I'm joined today by John Wartig, who joined the company as our interim CFO back in April. In addition to his CFO responsibilities, the Board also asked John to take over the running of our transformation office, including a very specific and detailed focus on Castorama France as part of that. John has got deep operational experience of change management and his insights, some of which we will hear in some detail today, have been very valuable to both the Board and to the Kingfisher team generally since he joined. We're also joined this morning by our incoming Chief Executive, Messr. Thierry Garnier. And you'll be hearing a few words from Thierry shortly. Thierry, welcome.

We will follow the usual format this morning. I'll start with an overall summary of our performance before handing over to John, who will run through the financials in more detail. And then of course, we'll return. We're going to look at the priorities and then take your questions.

So let me start with Slide 4 and the overall picture for the year -- for the half year.

While the transformation of the Kingfisher business continued during the half, further progress was made in unifying our products. We launched a number of innovative new ranges, and we introduced further capabilities to our unified IT platform. The financial performance in the half, however, was mixed. Screwfix, Poland and Romania all delivered like-for-like sales growth in the period. At B&Q, LFL sales were 3.2% lower, which included a 2% impact related to the discontinuation of our installation services last year. And of course, the business continues to be exposed to the U.K.'s weak consumer backdrop. John will cover the performance drivers in more detail shortly.

I should have said that we also have Graham Bell here, who's the CEO of B&Q, so any particularly asked questions will be given straight to Graham. Welcome.

So the sales performance at Castorama France was impacted in roughly equal measure by the price repositioning that began in the latter half of last year and by issues related to our change program that are impacting supply chain and logistics operations. The performance of Castorama France has been a major source of disappointment and concern to both our shareholders and our Board and rightly so. Now later on, John will go through in detail the actions that we have underway to get on top of these issues. For the Brico Dépôt formats in France, gross margin rates and gross profit pounds were both higher year-on-year on lower sales, and that reflects the proactive decision we took to reduce the level of low-margin promotional activity there.

On the digital front, the investments that we've been making are starting to gain some traction, with good sales growth across the group from that channel. In the half, the group's overall gross margin rate grew by 60 basis points after clearance, the improvement largely coming as a result of our unified sourcing. Both the sales and gross margin rates of our unified products were up, increasing by 0.4% and 150 basis points, respectively. We would also note that gross profit pounds for the group as a whole were up year-on-year.

Our balance sheet remained strong. And in his section, John will take you through the detail of how IFRS 16 has impacted us.

Overall then, a mixed picture for the half with some positive developments but also clearly some key areas that we need to address.

Now Thierry joins us next Wednesday; and will take over the reins from Véronique, who steps down next week, too. We're not sure who step downs next week. Now given the closeness of this meeting to Véro's departure and the forward-looking nature of this presentation in many respects, we felt it was more appropriate for me to take comments and make comments in this area rather than Véro, and hence her absence today, but let that not detract from the tremendous contribution that Véro has made to this business over many years. Over the last few months, Véro has remained fully committed to Kingfisher and has worked really hard to ensure that the transition with Thierry was an orderly one. She leaves with our best wishes for the future.

Now turning briefly to Slide 5 and the key highlights before I pass on. 59% of group sales in the half were unified. That's up from 42% in half 1 last year. While it inevitably takes time for new private label brands to establish themselves, sales of these ranges are growing, and the benefits of unified sourcing are delivering a higher gross margin. And as we showcased at our Innovation Day in May, we've also started to increase the focus on the amount of product that is unique to Kingfisher, with a number of key new ranges launched during the period.

As I said, digital performance in the half was encouraging, with digital now representing 7% of the overall sales volume for the group -- sorry, sales value. And that's up from 6% last year and, looking back, 3% in 2016. Group digital sales were up 18% overall, with click & collect growing by 24%. Each of our operating companies delivered growth in this area, with all achieving higher website conversion and penetration rates.

We are encouraged by the movement in our overall price tracker, which again improved during the period. And the latest set of Net Promoter Scores show an increase for each of our markets, which is also reassuring. Now of course, the success of all the activity we're doing, in the end, will be measured by revenues and profits, but these leading indicators are important signposts for us because they tell us that we're moving in the right direction.

And last but by no means least, our colleague engagement scores remain very strong. These continue to sit above retail averages, which is very encouraging given all the change and disruption that's taking place across the business and which, as you might imagine, can cause a negative impact on team and individual morale indications.

So let me now introduce Thierry. Thierry is a highly experienced international retailer who has spent over 20 years leading large-scale operations and successful change management journeys for Carrefour in France, South America and Asia. Most recently, he's been based in China, where the pace of change in retail is quite extraordinary and driven by the digital-savvy customer. I'm absolutely delighted that Thierry is joining the company, and I know he will make a big difference for us.

Thierry, perhaps I could ask you to come and say a quick few words.

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Thierry Garnier, [2]

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Well, thank you, Andy. Good morning, everyone. It's a -- really a great pleasure for me to be here and to meet you all.

As you know, I will formally start in the business in a week from now, in a few days, but I think it's a great opportunity for me to introduce myself, so I don't want to let it pass. First, to tell you how excited I am to be joining Kingfisher and all the colleagues at Kingfisher in a few days' time. I am a retailer. I have a deep passion for retail; and I like spending time in stores with customers, with colleagues. And I like building teams and mobilizing organization around addressing the changing needs of the customers. That's very important for me. A big part of it as well is around digital. As you know, I spent several years in China. So digital is very important for me. I will say it's a passion as well, and I think we have a lot of opportunities ahead of us.

Maybe let me tell you a few things about my experience. As Andy just mentioned, I spent the last recent years in Asia. I was based in Shanghai, leading Carrefour Asia operation. As many of you knows, who follow retail, China is now a real retail laboratory for the world. And we led Carrefour, we led in Asia and in China, a big -- a transformation plan. First, this is about new formats, new convenience store format, new big box format. We as well established a very large new supply chain in many different cities in China to improve fulfillment and availability. This was around digital. So we built a very big food online operation in China. We did many partnership with the Chinese digital ecosystem, like Alibaba, Tencent, et cetera. You know those companies. And at last, at the same time, we had to take tough decision on costs with store closures, downsizing of stores, reduction of costs overall. And all this plan drove much better -- I will say, much better results of the Asian zone for Carrefour in the past 2 to 3 years. And the last example I would like to give you is we launched in 2015 Carrefour food online operation, and by this summer, it represent the largest Carrefour food online operation based on number of order per day or by the participation.

Previously, I've worked extensively as well in France in many different formats. And I led the transformation. You know we had the Champion banner. So I led the transformation from Champion to Carrefour Market a few years ago. That was a successful transformation for our website and supermarket. Maybe last thing to say is in China, as in France, I've been working in matrix organization, where getting the balance right between center and the operating companies, central markets is obviously a key success factor.

I think clearly, today, I'm in a position to listen. I'm not in a position to take questions. It's too early for me. But just to let you know, in the past couple of weeks, I've had the opportunity to listen to many of the largest shareholder of Kingfisher. And I wish to continue to have this conversation. I'm settling down in London. I will live in London, so now it will be much easier for me to meet with all of you and looking forward to meeting you properly face-to-face in the coming shows.

So thank you all, and now I hand you over back to Andy. Thank you.

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Andrew Cosslett, Kingfisher plc - Chairman [3]

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Thank you, Thierry.

So as Thierry said, he's now starting for a few days, so probably a bit early to -- for him to be answering questions today, but I know he wants to engage over the next few months in as many of these as possible. Now despite not being in the chair, Thierry has already been very engaged with me over the last few months on the important task of filling gaps and adding new talent to our leadership team. We've had a lot of change at the top of this organization over the past few years. And we now need to fill out this -- the executive team, settle it down and move forward together with Thierry's leadership. We do need to attract more talent to this business. And while, of course, we will always have deep sector knowledge in the team, the balance in the team would benefit from more class-leading functional skills, some more experience of change management and from best practice in the wider world of retail. We've been working hard on this throughout the summer, and we expect to have a steady flow of news on senior appointments over the next few months.

Now with that, let me just hand over to John, who is going to come up now and take you through the financial performance in more detail.

John?

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John Wartig, Kingfisher plc - Interim CFO [4]

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Thanks, Andy. And good morning, everyone.

In terms of structure, I'm going to start by giving you an overview of the group's performance in the half before taking you through the detail and the drivers. And as Andy mentioned, part of my role involves steering the group's transformation offers, and so I'm going to give you some insights and actions on this and Castorama France specifically. I'll then update you on the outlook for the full year. Before I start, just to remind you, that from 1st of February this year, we have adopted IFRS 16, the new accounting standard for leases. All the numbers presented are therefore under the new standard, and the restated comparatives are in line with what we published to the market in our IFRS update last month.

Turning to Slide 7 and an overview of the income statement.

Total group sales were GBP 6 billion and down 0.9% and like-for-like down 1.8%, both on a constant currency basis. Gross margin for the group was up 60 basis points at both reported and constant rates. This was a solid margin performance, with the sourcing and price repositioning benefits partly offset by logistics and stock inefficiencies, largely in Castorama France, as well as incremental clearance. As a result of the margin improvement, gross profit was slightly ahead of half 1 last year, with operating costs up just over 2% on last year. Retail profit was down 4.4% on a constant currency basis to GBP 466 million.

Adjusted profit before tax, which is after central costs, interest and transformation costs, was up 3.7% in the period to GBP 337 million, reflecting the expected reduction in transformation cost year-on-year. And I'm pleased to say, in the next financial year, we'll simplify our reporting by removing the underlying profit measure given that the vast majority of the transformation P&L costs will have been incurred by the end of the current year.

Our adjusted effective tax rate was down slightly at 26%. Adjusted basic earnings per share were up 7.3%, reflecting the lower tax rate and the impact of last year's buyback. Statutory EPS, which is after exceptional items, was down 15.6%. Finally, the Board has maintained the interim dividend of 3.33p.

So now let me take you through the exceptional charges of GBP 93 million for the first half of the year. These largely relate to the ways we are dealing with the underperforming parts of our business. The first component, a charge of GBP 68 million, relates to the redundancy provisions associated with the 11 planned store closures in France over the next 18 months and the previously announced store closures in Germany which completed during the period. Sales of freehold stores subject to closure are expected to cover these cash costs of exit. The Russia and Iberia charge of GBP 26 million largely reflects store impairments in Russia. Given the challenging conditions in that market, we announced last year that we are focusing on markets where we are leading or can become the market leader and therefore made the decision to exit Russia and Iberia. Both processes are ongoing.

Moving on to Slide 9, let me now cover the performance of our major geographies, which as you can see from this overview is mixed, with weaker sales performance in the U.K. and France offset by higher gross margins. There was a modest decline in profit in the U.K. of 1.7% and a 12.2% decline in France. Poland was broadly flat. And the losses from the other remaining geographies were flat year-on-year.

On to Page 10 and performance in the U.K. & Ireland. Against the backdrop of a weaker consumer and a softer housing market, B&Q delivered a negative 3.2% LFL for the half, which as Andy mentioned earlier includes negative 2% from the discontinuation of installation services at the end of Q3 last year. There were several other factors that impacted the top line, as follows. The ongoing implementation of new ranges, including surface and décor and kitchens, caused disruption, while weather-related categories were down nearly 3% against the strong comparative driven by very hot weather in Q2 last year. And as a reminder, our Q2 finished at the end of July. Digital sales, however, continued to grow, up 10%, now representing 5% of total B&Q sales. And we also saw a modest benefit from home-based store closures.

Screwfix continues to gain market share through its convenience model and spend in digital. Like-for-like sales grew by more than 5%, while digital sales grew by 18%, now representing 32% of Screwfix sales. We also opened another 16 stores in half 1, taking the total number of stores to 643. We look forward to the business opening its first store in the Republic of Ireland later this year, and our store opening targets for the full year remains unchanged.

Gross margin for the U.K. & Ireland increased by 60 basis points, benefiting from unified sourcing and B&Q discontinuation of installation services. The margin in the second half of the year will be impacted by incremental clearance from B&Q's old kitchen range and ongoing investments in price in Screwfix. Overall constant currency retail profit in the U.K. was lower by 1.7%.

Continuing on to Slide 11. LFL sales in France were down 4.4%. This compares unfavorably with Banque de France's data for the French DIY market for the same period which was up nearly 2%.

Looking at each business in turn. Brico Dépôt's 4.6% like-for-like decline was driven by the proactive reduction in lower-margin promotional activity, which had a negative 5% impact on Brico's like-for-like. As a result of these actions, gross profit pounds increased year-on-year. At Castorama, we saw a decline of 4.3%, largely reflecting price repositioning and transformation-related activity which I'll talk more about on the next slide.

Total France gross margin increased 60 basis points, with an increase at Brico Dépôt partly offset by logistics and stock inefficiencies at Castorama. Overall, the increase in France gross margin rate was not enough to offset the like-for-like decline, and retail profit in France ended up lower by 12.2% at constant rates.

Turning to Slide 12 and an update on Castorama. First, I'll recap on where we are today, give some insights on some of the operational issues we are working through and then highlight the area of focus.

During the period, we launched a number of new major ranges including outdoor, surface and décor, bathroom, storage and tools and hardware. And around 60% of the offer is now new unified product. Surface and décor is an important category for Castorama; and there was disruption as the new ranges landed, adversely impacting like-for-like sales. On a more positive note, the leading customer indicators are moving in the right direction. For example, price perception is on an improving trend, and customer Net Promoter Scores have improved by 5 points over the year. The price index has also come down and now only slightly above our closest competitor. Digital sales, click & collect and website conversion rates are also up at Castorama, albeit off a small base.

The key for the business will be improve the effectiveness of enabling technologies and operational processes, and that's what we're working hard on. To contextualize: The operating model across Kingfisher today is underpinned by a unified IT platform, along with a split of responsibilities across local markets and our group offer and sourcing organization. Applying this model to Castorama France, which comes from a legacy of a decentralized model, has been highly challenging. The implementation of the change program at Castorama France has therefore caused issues and continues to cause issues in our stock planning, stock management and logistics processes, which in turn is leading to lower-than-expected stock availability and fulfillment rate. These issues have arisen due to ongoing challenges with vendor management, product data and changes to store operations, which are all being aligned to the new IT platform, operational processes and unified ranges within the business.

Let me illustrate this with a simple example. Castorama is currently working with over 1,000 vendors who are each required to comply with defined processes around ordering, receiving and invoicing. If a vendor fails to comply with the ordering process, this can mean stock is received but booking to the stock system manually, requiring significant time and effort through workarounds to be completed. This in turn can lead to temporary inaccurate stock records, additional costs and delays. To amplify this, we are incurring additional costs due to running legacy systems in parallel during the transitional phase. These operating issues are typically manifesting themselves in the supply chain, which ultimately has an impact on our stores, online and, of course, our gross margin. Therefore, correcting the underlying operational issues is a key area of focus for us.

Alongside the implementation of new differentiated ranges, we will continue our work to improve the effectiveness of Castorama's IT platform, along with the efficiency of its operational processes and fulfillment function. Part of getting this right is to review and adjust, where necessary, the balance of responsibilities between group and Castorama. We believe we have identified the pain points and have a series of ongoing detailed work streams to both eliminate the underlying issues and take corrective action to drive through the benefits of the change program. Over time, this should improve the overall performance of our supply chain and logistics operations, which is essential for Castorama to be in a position to grow again. We'll also launch the next stage of our e-commerce platform in the second half to support continued digital growth.

Turning to costs and store performance. Cost benefits are being delivered from the 5% FTE reduction that took place in the second half of last year following the transition to our financial shared services center in Poland. And following consultation processes, we'll be closing 9 underperforming Castorama stores over the next 18 months.

In summary, the performance of Castorama continues to disappoint. However, the business has taken important steps to improve its customer proposition, its offer, its price competitiveness and its e-commerce capabilities. The primary causes of the operational issues have been identified, and we're taking the necessary actions to address them. This will take time, but we have a focused workplace -- work plan in place to deliver tangible and sustainable improvements in these areas.

Turning to Poland and Romania. Poland delivered good LFL sales growth of 3.3%, benefiting from weather-related category, particularly in Q1. We estimate that Sunday trading restrictions, which removed 1 further day of trading per month, impacted like-for-like sales growth by 1 percentage point in half 1. Poland's gross margin was down 20 basis points largely due to higher clearance and higher outdoor sales, which are lower margin. Cost increases related to wage inflation, higher digital costs and preopening costs, as we opened 2 new stores during the half, also impacted margin. As a result, retail profit was broadly flat.

In Romania, like-for-like sales increased by 10.5%. Contributing to this was the good performance from the unified ranges. Praktiker stores have now been rebranded as Brico Dépôt, with the final store to complete in the second half of this year. In addition, the quality of ranges has both improved as an -- and is expanding in terms of SKUs. This is, however, a period of transition for Romania, and the overall business made a retail loss of GBP 8 million driven by losses in the former Praktiker stores. Towards the end of H2, we will start the back-office integration process for the businesses. It should be noted we are currently running both businesses separately.

Let's now turn to Slide 14 and the remaining geographies. Combined like-for-like sales in Iberia, Russia and Screwfix Germany declined by 4.9%, with reported retail loss of GBP 5 million, including equity accounting profits from our JV in Turkey. Our exit processes for Russia and Iberia are progressing. We are currently reviewing a number of options for both businesses, and we're going to update you as soon as we can.

Spain continues to generate a small profit, whilst the trading environment in Russia remains challenging, resulting in impairment, in the impairment that I mentioned earlier. In Germany, for Screwfix, we have now closed all 19 stores and with no further Germany-related losses in the second half.

Moving on to Slide 15, we can see that unified and unique ranges continued to outperform our non-unified ranges in both sales and gross margin. 59% of sales were from unified and unique ranges, which grew by 0.4% against a 0.9% decline in the non-unified ranges. We achieved growth in 4 of our 7 categories. Of the 2 negative categories, 1 experienced significant rain changes during the period, and the other faced tough weather-related comparatives. Before logistics and stock inefficiencies, all categories delivered gross profit growth, demonstrating the ongoing benefits of unified sourcing.

On Slide 16, we set out the bridge of the gross -- group gross margin movement of 60 basis points for half 1. We can see that a 150 basis point gross margin improvement in unified product has driven an 80 basis point benefit across the group, whilst the margin on our non-unified offer was flat year-on-year. Other positive margin drivers for the group included price repositioning mainly driven by Brico Dépôt, which led to a 30 basis points improvement; and the discontinuation of installations at B&Q, which had a 20 basis point positive impact. Partly offsetting factors included incremental clearance ahead of the new ranges launched in half 1, which had a 40 basis points impact during the period. And as highlighted earlier, logistics and stock inefficiencies, mainly in Castorama France, had a 30 basis point impact on margin.

Slide 17. This provides an overview of our cash flows and a summary of our net debt position under IFRS 16.

Firstly, on cash flow. We generated GBP 695 million of EBITDA in half 1 and paid GBP 236 million of net rent. Moving through the bridge, there was a GBP 45 million outflow working capital. And this reflected an increase of stock of GBP 111 million which was driven by store expansion, changes in operating model and higher stock levels primarily in France. This was partly offset by a net increase in creditors of GBP 66 million, bearing in mind we are looking here at the movement in working capital over the 6-month period, so seasonality plays a part. However, as mentioned earlier, improving stock management and planning processes is a key area of focus for Castorama France. After capital expenditure of GBP 163 million and tax and interest payments, free cash flow in the period was GBP 204 million.

Income from property disposals is largely driven by a small number of sale and leaseback transactions in B&Q. After dividends, the movement in cash was positive GBP 131 million, helping to improve our cash balance to GBP 385 million at the end of the half.

Under IFRS 16, which I'll cover in a moment, you'll be aware our lease liabilities of GBP 2.6 billion are now included on our balance sheet. Our lease liabilities were largely unchanged since year-end, but the improved cash position helped reduced our net debt by GBP 158 million during the period. As a result, our restated net debt-to-EBITDA ratio fell from 2x to 1.8x, which remains consistent with our objective of maintaining our solid investment-grade credit rating.

Turning now to Slide 18 and our full year '19/'20 outlook and technical guidance.

Full technical guidance is outlined on this slide, so I'll just pick out a few items. As we enter the second half, the outlook for our main markets remains mixed. The U.K. market in particular remains uncertain in the short term in B&Q. The discontinuation of installations will annualize at the end of Q3. In France, we expect Castorama to underperform. And the reduction in promotional activity annualizes in Brico Dépôt at the end of Q3. Excluding Russia and Iberia, we continue to expect gross margin after clearance to be flat year-on-year. Some of the positive margin drivers in half 1 such as price repositioning at Brico Dépôt and discontinuation of installations at B&Q will not fully repeat in half 2. In addition, we have also slightly upped our incremental clearance guidance for the full year to GBP 30 million to GBP 35 million from GBP 25 million to GBP 30 million, which includes clearance for B&Q kitchens in half 2. Screwfix will also ramp up its investments in price in the second half.

We now expect central costs to increase to around GBP 55 million, which are GBP 5 million higher than previously guided, largely reflecting additional activity at the center as we strengthen our resources and leadership team. For this year, P&L -- transformation P&L costs are now expected to be around GBP 50 million to GBP 60 million.

Our guidance on CapEx remains unchanged. We expect total CapEx to be up to GBP 375 million, which includes investments to support the unified range implementations, new store openings in Poland as well in -- as investment in fulfillment capabilities. And finally, in respect of store closures, we continue to expect any future cash costs of exit to be covered by sale proceeds from the owned stores.

Slide 19. On this slide, we summarize the impact of implementing IFRS 16, the new accounting standard for leases. We adopted a full retrospective transition approach from the 1st of February 2019. The first thing to say is that the new standard has no impact on cash flows or the underlying economics of the business. The table on the slide shows the respective impacts on retail profit and the balance sheet for last year's full and half year. In FY '18/'19, retail profit increased by 170 million -- GBP 171 million, as the pre-IFRS 16 rental charge is replaced by a lower depreciation charge. By geography, the main impact is in the U.K. due to the high proportion of leased stores. However, after IFRS 16 impacts on interest costs of GBP 169 million, the net benefit to underlying profit before tax is negligible.

In terms of the balance sheet, net assets at 31st of January 2019 have reduced as expected. This reflects the new right-of-use asset of GBP 2 billion; and the new lease liability of GBP 2.6 billion, which is lower compared to the liability which arises under IAS 17 from our previous assumption of 8x property operating lease rentals. As a result, the net debt-to-EBITDA model end of last year is restated to 2x under IFRS 16 versus 2.6x under IAS 17.

Moving to Slide 20, where we've set out the steps taken to manage Brexit and foreign exchange risks. We do not anticipate any significant change to stock levels in a 31st of October no-deal Brexit scenario and have sufficient stock in place to cover near-term demand. We'll continue to monitor this position and take action if needed. With regards to tariffs and customs, if the government's counterproposal for no-deal tariffs are confirmed, it would have mutual impact, as most of our products would carry a 0% tariff. We've also updated our importation process to prepare for a hard border between the U.K. and the EU, including efforts to simplified customs procedures and alternative cross-channel and deep-sea ports of entry. We also remain engaged with our key vendors in this area.

On talent, as you would expect, we are keeping a close eye on retention and hiring but haven't seen a noticeable impact to date. We've also been helping some existing employees to gain settled status.

Now looking at foreign exchange exposure. Of our total annual COGS balance of GBP 7 billion, around 20% is purchased in U.S. dollars, of which half relates to the U.K. We have in place an 18-month rolling hedging program to hedge all committed orders against changes in FX rates for the U.S. dollar and the euro, along with a significant percentage of our forecast net exposure above and beyond what is committed. There is also some protection from cost price inflation from our existing stock levels and some of our existing supplier agreements.

Finally to summarize.

The first half sales performance was mixed but, frankly, disappointing. The positive performance of Screwfix and in Poland were offset by France and B&Q. For Castorama France, the primary causes of the operational issues have been identified, and we have a work -- a focused work plan in place to deliver tangible and sustainable benefits over time. Encouragingly, group margin was ahead by 60 basis points, benefiting from unified sourcing and price repositioning.

The business remains cash-generative, and we retain a strong balance sheet. These results were delivered against a challenging backdrop, and the outlook for our main markets remains mixed. This is particularly the case in the U.K. where Brexit uncertainty remains high. Finally, we have reiterated our guidance of a flat gross margin percentage, after clearance, for the full year.

And with that, I will now hand back to Andy. Thank you.

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Andrew Cosslett, Kingfisher plc - Chairman [5]

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Thank you. Thanks, John.

So just moving on to the final section. I think it's generally acknowledged by most people that what it takes to win in mainstream retailing these days is quite different to where it was a few years ago perhaps. And while the core disciplines of retailing remain as necessary as ever, they are no longer sufficient. Mainstream retailers today certainly need to be recognizably competitive on price, offer great value. They need to deliver ultimate convenience through a seamless integration of their physical stores and digital platforms. And they need to present a range of products and services which differentiate them from their competition. Now Kingfisher in its old form ticked few of these boxes, so both to survive and prosper into the future, the group really had to make some fundamental changes as to how it went to market and to its internal ways of working. It needed to become much more efficient to generate the source of funds it needed to reinvest in the customer proposition, in better prices, in digital capability and in the quality of its products.

Kingfisher's strategic approach is pretty simple. You can see it in this slide, at the top of the house on this slide. So using our scale more intelligently for the benefits of our customers, it seems there are fairly obvious things we want to do. Scale is one of Kingfisher's greatest assets, and it would -- it does seem odd not to want to deploy that as a competitive advantage. To make it pay on a scale pay, we need to get 2 discrete blocks of activity right. First, we need to have the right customer proposition: the right balance of local, international and private label brands; competitive prices; leading-edge digital experience; active management and developments of our stores; brilliant customer service; and for Screwfix in particular, a well-resourced expansion plan to maximize its tremendous growth potential. And at the heart of all these sit our teams. It's absolutely vital that they are working in-sync, with real clarity of understanding about what's best done in the center and what's best done staying local. This is a critical part of making our revised operating model work and a scenario that we're keeping under close review. It's certainly an area Thierry is going to be spending a lot of time.

Now underpinning that superstructure, we have what we call our enablers. These are the services and infrastructure platforms that connect our business and that, once fully installed, will allow it to function much more efficiently. These enablers include our sourcing capability, IT, supply chain and shared services. Now most of these enablers have either been completely rebuilt or built from scratch over the last 3.5 years. We've centralized what was a completely disparate sourcing model in which each operating company was fully responsible for its own ranging. We've implemented a common IT platform capable of delivering significant operational efficiencies and clear customer benefits. We've launched a scalable e-commerce capability across the business, and we've leveraged our scale to establish group-wide GNFR and shared service capabilities. These are fundamental changes to our DNA and to our ways of working that will allow our scale advantage to be fully realized.

Now much of this work has worked and it's worked well. As I mentioned earlier, sales and margin from our unified offer continues to grow. We're seeing quality output now really coming through in the area of product design. And digital sales, as you've seen, are on the rise, but it's equally clear that some of our enabling technology and operational processes are not working as well as they need to, as you've heard, the performance of Castorama France being the key area where the enablers are not yet working well enough and it's been highly disappointing. We know the benefits of what we've built are there, but we do not yet see them flowing through to the customer or into our financial results. The fact is, I believe, that we underestimated the operation and financial disruption that IT, supply chain and product range transformation at this scale would cause. And as a result, we're incurring too much duplication and remediation costs, and our trading performance is being hampered.

Now while these enablers are largely now in place, we need to make them work more effectively. And we are 100% clear that execution in this regard is our first priority.

On Slide 24. This has been a busy year, as we said it would be, for new range launches, and the first half of the year was particularly busy. And many of these new products, as we've said, are unique to Kingfisher, which is a trend which we shared with you at our Innovation Day in May. Extensions to our highly successful bathrooms range landed in half 1, as did new outdoor ranges and a revamped tools and hardware offer. Unified ranges for surfaces and décor, which is the group's largest category by sales, are now being rolled out. And the much-anticipated new kitchens ranges will arrive in B&Q during the second half of this year, with introductions into France planned for next year. As we've heard, all this activity does cause disruption in store and sometimes in our system, but we are nearly through the heavy lifting and the changes are key to turning up the dial with our customers over time.

So to Slide 25 and our priorities for this year.

It's essential then, and I hope we've made this clear, that we are going to tune up the key enablers of our transformation program: IT, digital, supply chain. These underpin the long-term growth of our business. It's also essential and a real priority that we get on top of the underperforming elements of our business, particularly in Castorama France. And the 2 issues clearly are linked. And in addition, we need to see through other pieces of work which remain outstanding. Following relevant consultations, we're committed to closing 15 stores across the business, including 11 in France over the next 18 months. And most of these will take place in the full year, up to the end of '21 -- up to the end of our year '21. And we are reviewing, as you've heard, a number of options with regards to our planned exits from Russia and Iberia.

And just a word on Screwfix. As planned, we're looking to expand this business faster by taking action in our core U.K. market, including continued investments in price. At the same time, we're going to be pushing ahead faster with our international rollout plans. We're on track with our U.K. store openings program. We're on track for our first store opening in the Republic of Ireland. And we're continuing to validate urgently the potential of this brand in the French and Polish markets.

Now the success of all the above will ultimately be measured by a return to group sales growth, which we are confident about, in the medium to long term. We believe our margins and our cash generation can grow as the inefficiencies related to stock managements and logistics, clearance and dual running costs are driven out of the system; and the benefits of scale are finally allowed to flow down to the bottom line.

And to summarize then and close on Slide 26.

Kingfisher remains financially strong and is well placed with leading positions, first or second, in the markets in which it operates, all of which have long-term growth potential. The transformation that started nearly 4 years ago now has continued across the group in the first half of this year. Most of the building blocks to support future growth are now in place, and the focus very much now is on proving the effectiveness of the -- of our enabling technology and processes. In terms of guidance, the outlook for our main markets remains mixed, with the U.K. in particular facing continued uncertainty that is affecting the consumer and the housing market. Kingfisher continues to expect a flat gross margin percentage for the full year after clearance.

And to close. We are very much looking forward to Thierry joining us as new CEO next week and for him bringing a completely fresh perspective to everything we do. His experience will be invaluable in taking advantages of the considerable opportunities we know this business still has in front of it. He is engaged in the plan to bring new talent into our executive team urgently, and I'm very confident he's going to hit the ground running.

So thank you very much for listening and your attentiveness. John and I would be very happy now to take any questions you might have. And please -- I do apologize for not knowing all your names at this point, but if you could raise your hand, I'll take you in order. And we will -- please, if you can say your name, that would be great as well. I think the gentleman in the blue shirt was first, and then we're going to the gentleman in front.

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Questions and Answers

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James Robert Grzinic, Jefferies LLC, Research Division - Equity Analyst [1]

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It's James Grzinic from Jefferies. Appreciate the added transparency on Castorama France. In the spirit of that, I'm wondering whether if you can give us more details in terms of when were you able to exactly articulate what was going on. And at what point did you start putting remedial actions to work?

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Andrew Cosslett, Kingfisher plc - Chairman [2]

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I think we started to become aware that -- the early signs started about this time last year in terms of starting to believe that there was -- there were tensions in the team, which is usually a leading indicator that there are deep problems. I think the actual supply chain issues didn't really manifest themselves until the spring. And since the spring, in John's arrival, we've been able to increase the line of sight that we've had on those issues rapidly. And in that discovery process, we found a lot more going on, so we've been making our fixes since then. And John has been highly engaged in that. We're working with obviously our teams in France. And because it's a combination of IT and supply chain working together, it's a complex but highly important set of things we've got in place now in such work streams. So that's really been the issue. I think that was the first sign back in last year, but really in terms of the manifestation, probably in the spring. Gentleman in the, sorry, pink shirt.

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [3]

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It's Andy Hughes from UBS. I've got a few related questions here just picking off with the GBP 68 million exceptional charge. I mean it seems a pretty hefty sum. I mean there's, what, 11 big stores and, I guess, 19 [fiddlers] in Screwfix. It seems quite a big charge. Is there any stock clearance within that? So is the stock within the stores being cleared?

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John Wartig, Kingfisher plc - Interim CFO [4]

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(inaudible) consultation related to the actual program itself primarily (inaudible) through the balance that's relating to (inaudible).

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [5]

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Okay. So nothing on stock.

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John Wartig, Kingfisher plc - Interim CFO [6]

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Yes.

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Andrew Cosslett, Kingfisher plc - Chairman [7]

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Yes.

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [8]

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Yes. And just moving on to stock. Obviously, you've got sitting there are 2.8 billion of stocks. I mean stocks have been going up, while your sales have been going down. Can you give us any sort of feel for what the right level (inaudible) new products -- or not new products, new offers and old products? So can you give us a split? I mean 59% of sales are in new categories. Is that mirrored in your stock, or is that more or less in terms of (inaudible)...

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John Wartig, Kingfisher plc - Interim CFO [9]

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Well, as you've alluded to too, it's a combination of that. And what we have got is part of the buildup has been, as we're bringing in the new ranges, we need to actually have a peak. And as we're building new inventory for the sell-through, that should graduate over time, but also we've got a sort of a growing amount, particularly in France, of actually stock that's actually now ready for clearance. So that's got to work through as well. So I think there's been a buildup in both new ranges coming through; and then we've also had the deleted items, if you like, that we've got to work through as well. In terms of a number where that should get to, I'd hesitate to give a number at the moment, but I think we're doing this to actually reduce this in both areas. One will happen naturally as the new ranges come in, but the other actually, the non-unified ranges or those that have been deleted, they'll have to reduce over the next 6 to 12 months.

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [10]

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Now of the line stock or stock which is going to be discontinued, what sort of rough percentage of inventory is that?

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John Wartig, Kingfisher plc - Interim CFO [11]

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To give you a number: It'd be sort of 5%.

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Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [12]

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Okay. So that's quite low. So I mean what -- clearly what I'm trying to get at is when the magic year is going to be when you get your supply chain gains coming through and you don't have the clearance to offset it. Is that FY '21?

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John Wartig, Kingfisher plc - Interim CFO [13]

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Yes, I see where you're coming from. I'm going -- in terms of -- why don't you say it? What's our baseline clearance when everything goes through? I think we're going to need another 1.5 years, at a minimum, with -- it definitely won't happen this year. We still have new ranges coming in, particularly in kitchens in France next year. And then there will be some range extensions of the existing ranges we will put through, but I think it's probably another year, 1.5 years before we get down to a normalized level. But we don't have a total fixed number at the moment.

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Andrew Cosslett, Kingfisher plc - Chairman [14]

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Thank you, Andy. There was a lady down here.

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Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [15]

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Anne Critchlow from SG. 2 questions from me, please. When do you think you'll be able to drop the legacy supply chain systems in France? And then secondly, what percentage of products is now relating to the product unique to Kingfisher?

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Andrew Cosslett, Kingfisher plc - Chairman [16]

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John...

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John Wartig, Kingfisher plc - Interim CFO [17]

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It's a good question on the legacy. Yes, I'm on it. Most definitely, I think there has been an issue as we've been transitioning. We're now actually launching or completing the IT platform rollout in Brico Dépôt during the course of this year, working it through with the team. We're really looking through in the course of next year. Second half of next year obviously is dropping the core legacy systems, and that'll actually release the duplication in some of the costs we've got in the IT area. And part of that is obviously going to be dependent on how quickly we can move through these ways of working and the process engineering that's required because, as Andy said as well and I said, that both of these models have been decentralized models that we actually have to centralize and then actually get to process in the ways of working, but I'm aiming for the second half of next year.

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Andrew Cosslett, Kingfisher plc - Chairman [18]

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A unique number, I believe, and I'll be corrected if it's wrong, 6%.

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Unidentified Company Representative, [19]

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(inaudible).

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Andrew Cosslett, Kingfisher plc - Chairman [20]

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6%, 7%.

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Unidentified Company Representative, [21]

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Yes.

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Andrew Cosslett, Kingfisher plc - Chairman [22]

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So it's still relatively low, but as you saw if you were there in May, it's an area where we think there is a lot of mileage and the opportunity is to be more innovative. And we have invested quite heavily in the last few years in product design capability that we never had before. So we do actually have now teams of people coming up with our own customer-focused new range of products which we're now getting a new supplier base we needs to make those. So again, it's a journey, but we are confident that that's going to rise. But again, one of the questions with Thierry is exactly how far would that go. What sort of selling investment is that? And how does that stack up against international brands and local brands, which is really part of that customer proposition piece that we were talking to. Lady here in the front.

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Kate Calvert, Investec Bank plc, Research Division - Retail Analyst [23]

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Kate Calvert from Investec. Can you explain why Brico Dépôt didn't have the sort of same supply chain issues as Casto? And what's the difference in the implementation?

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John Wartig, Kingfisher plc - Interim CFO [24]

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Well, 2 things. First of all, Brico Dépôt isn't fully on the template yet and hasn't been fully transitioned. That will happen in the second half of this year. And secondly, I think a major component there is it actually has significantly less SKUs. And if you take Castorama, it has close to 60,000 SKUs, but currently, Brico Dépôt only has 13,000. And also it's had less unification. So the complexity there has been less, but also I'd like to think that we've learned some of the lessons from what has actually transpired just recently with Castorama. So it's a lot of the same people that are working on that. And I think the last point to add, not a small point, the master data which is critical to this was actually in much better shape in Brico Dépôt because of its legacy of how it ran its business.

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Andrew Cosslett, Kingfisher plc - Chairman [25]

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I think that's really important -- sorry. If I may, just to add. So it is a really important point. All our different OpCos started in a different place. We were never in a rollout situation, and some companies have these. But we were in a situation where we had legacy businesses and all were running differently. And we've had to migrate them all to this new future. And while those benefit the ones that have had the longest journey to travel out of centralized curve, which is Castorama, are fairly much challenged. Brico Dépôt has always had a fair amount of centralized -- within their culture and their management structures and their frameworks, it's always been much more of a central model. So I think that really helps psychologically, and in the stories, people are prepared to follow and understand central instructions much more rapidly. So it's the combination of all those things, I think, together will change the question. Sorry. Did you have a follow-up?

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Kate Calvert, Investec Bank plc, Research Division - Retail Analyst [26]

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No, I don't. No. That was great.

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Andrew Cosslett, Kingfisher plc - Chairman [27]

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We'll go on the front here, actually, first, if we may, [JV]. Sorry. He came here first. There you go. And then where are we now? Sorry. I was kind of blinded by the light. Sorry.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [28]

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Simon Irwin from Crédit Suisse. A few random questions. Can you talk a bit about footfall in Castorama? I'm intrigued by your kind of comments around NPS going up. I mean what's happening? Are people just not coming to the store and finding poor availability? In which case, what's driving the Net Promoter Scores improving? Can you just talk a bit more about that dynamic? Second is just how has GoodHome gone down as a brand within the business? It's clearly a very important initiative for the group. Can you just talk about clearance and guidance? My impression was that clearance this year was going to be a bit more first half weighted, and now you're talking about it being second half weighted.

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Andrew Cosslett, Kingfisher plc - Chairman [29]

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Thanks, Simon. I mean I'll take the first 2, if I may. And then, John, maybe talk a little bit more on clearance. So footfall is down, obviously. We don't know -- I don't know by how much, but it's probably by 1/4 in the last -- thereabouts and [Matthew's] saying, thereabouts, but with definitely less footfall over the last 2, 3 years. Part of that has been the reaction to the EDLP strategy which we've implemented. We brought the overall price index of Castorama down substantially by about 5, 6 points over the last couple of years or 2.5 years, but in doing that, we've also taken away the price point spikes that you get in promotional activity. We know that a fair portion of people who came into the store were coming in on promotion deals and which was the same in Brico Dépôt. So the strategy was around trying to make sure that we had a more widely understood universal messaging of everyday low price which people will respond to. So I don't think they're in conflict.

I think the fact that we've got lower footfall is a reality which we are trying to address through all the things we've talked about. But the fact that the NPS scores -- because you do NPS scores with the people who shop with you. So I think we're actually providing a better service and product and experience for the people who actually use the store in the way we would like them to use them, which is it's a place to come as their first-choice home improvement center. The promotional people have gone for now. And it's our job to convert them into loyal customers, not just deal seekers. So I think that's what's happened.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [30]

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GoodHome?

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Andrew Cosslett, Kingfisher plc - Chairman [31]

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GoodHome is very new. We've spent a lot of time building that brand and just putting it together. It's our first multiregional, multi-category entry. And I think it is important, as you say, not just because it is our first one that's like that and is therefore a really interesting brand departure for us but also because it ticks some boxes which some of our other brands aren't quite successful on such as the sustainability of platform and profile of the brands, in fact which we know are going to be really important for customers going forward. It's landing well, but it's just rolling out. It's just beginning. And we've got flooring in stores. Maybe, Graham, you'd like to make a comment. Very early days. Customers have to get used to new brands, but do you have a comment about ups and downs of the introductions, Graham?

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Graham Bell, Kingfisher plc - CEO of B&Q UK & Ireland [32]

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I think as ever with a new brand, there is a timing issue. And I think, if I could say, the earliest ones we've had done has been the GoodHome paint. And of course, paint is one of those brands where some customers have a lot of loyalty and getting the changeover, but what we have found, especially from our staff and customers that are using the new GoodHome paint, they're delighted with the quality and the price of the product. So that's landed really well. With GoodHome flooring, which kind of have been the next ones we've been in, we're getting a lot of great feedback and starting to see the sales lift with that. And I think the next big one for us probably is going to be GoodHome kitchens, which we're obviously just kicking off at the moment.

So I think it has a timing issue but some great feedback from the customers and the staff, which I always think is a great measurement. And listening to our customers, it's about the quality of the brand as well as some of that sustainable issues that really are coming to the floor. And predominantly, we've been asked a lot, from customers, about not just the sustainability of that paint and also is it suitable for children, which is questions that our older generation never used to ask.

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Simon William George Irwin, Crédit Suisse AG, Research Division - Director [33]

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Clearance guidance?

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John Wartig, Kingfisher plc - Interim CFO [34]

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Yes. On clearance, yes, Simon. We've -- yes. We always say that we thought that clearance should be half 1 weighted, primarily associated with the implementation of surfaces and décor. We have increased it, what I said earlier, from GBP 25 million to GBP 30 million, to GBP 30 million to GBP 35 million. But we also expect incremental clearance now in half 2 associated with the new B&Q kitchen range. And just to note: The half 1 clearance was about 40 bps on sales of GBP 6 billion, so that calculates to around GBP 20 million, so which is building in the incremental from B&Q.

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Andrew Cosslett, Kingfisher plc - Chairman [35]

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Thank you. Sorry. Finally, in the back...

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Geoffrey Frith Ruddell, Morgan Stanley, Research Division - MD [36]

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So Geoff Ruddell here from Morgan Stanley. Can I just take you back to Slide 16 in the presentation, which is the gross margin bridge where you have a 30 basis points improvement from price repositioning mainly at Brico Dépôt France? Could you just explain to us exactly what you've done in terms of price repositioning at Brico Dépôt France?

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Unidentified Company Representative, [37]

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The -- did we...

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Andrew Cosslett, Kingfisher plc - Chairman [38]

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I'll take it. I'll try. You'll know that (inaudible). The main -- one of the main features at Brico Dépôt France is we used to run about 16% to 17% of our sales around arrivage, which is imported product which is sold in a deal [at one-off lots]. That has gone down significantly. We're probably at the 4, 5 level now again, [as you know], but that helps stress to you how much, where is it. We're just testing the market to see where the right, probably the best, it's that. It's the reduction because that was typically -- if we made anything from it, it wasn't much. So it was about taking that away from our sales line and converting that into more profitable sales even though we got an impact on the top line.

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Geoffrey Frith Ruddell, Morgan Stanley, Research Division - MD [39]

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Great. And if I could just have one more. Obviously, we don't know where we're going with Brexit at the moment, but if we do end up with the U.K. having a different trade policy to the rest of the EU, are you still going to be able to get the group scale buying benefits, do you think, going forwards? Because obviously, if the U.K. has different tariff imports relative to the EU tariff imports from, let's say, China or wherever else you may be sourcing product from, could that sort of obviate the whole sort of strategy of buying jointly?

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Andrew Cosslett, Kingfisher plc - Chairman [40]

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Well, we don't. Well, I mean, we don't think so because we'd still be better off than we otherwise would be, unless we are buying most of our things locally, which I don't think we'll ever be, so...

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John Wartig, Kingfisher plc - Interim CFO [41]

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With -- it's roughly 1/3, 1/3, 1/3 in terms of sourcing because a part of the strategy has been to -- and the unified product particularly is to source from the Far East. So we actually have hedging there and also having the sourcing locally. But to your point, in terms of the tariffs, just particularly from Europe, if the government guidelines that they've put out, which they're still to reaffirm, come through, because we're not actually selling food or pharmaceuticals, et cetera, the products on that list are the ones that we still actually have 0 tariffs. So if that falls into place...

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Andrew Cosslett, Kingfisher plc - Chairman [42]

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It's depending on how it landed.

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John Wartig, Kingfisher plc - Interim CFO [43]

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How it lands.

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Andrew Cosslett, Kingfisher plc - Chairman [44]

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Yes. So I don't think so, no. Sorry. Gentleman in front of the fella -- gentleman who just spoke. Thank you.

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Geoff Lowery, Redburn (Europe) Limited, Research Division - Partner of Non-Food Retail, Luxury & Sporting Goods Research [45]

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Geoff Lowery at Redburn. Can we talk a bit about Screwfix? I think price and Screwfix were sort of co-joined 4 or 5 times through the presentation. Should we take out of this that you've been a bit greedy on price in recent years? How far do you need to go? Can you help us sort of quantify in that group gross margin bridge what the Screwfix price component is in half 1, half 2?

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Andrew Cosslett, Kingfisher plc - Chairman [46]

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Do you want to take that, John?

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John Wartig, Kingfisher plc - Interim CFO [47]

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Well -- yes, sure. I think well, we have been -- we are sensitive to the competition. We have actually been addressing -- we have put some price realignment in the first half. We do have some up-weighted in the second half, but it's -- I wouldn't use the term "greedy." I think it's just recognizing the competitive situation. Our price index now is actually in some categories quite close at sort of 101%, 102%, but we're continuing to assess that.

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Geoff Lowery, Redburn (Europe) Limited, Research Division - Partner of Non-Food Retail, Luxury & Sporting Goods Research [48]

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Can we talk about transformation costs? You're obviously taking away 1 of your 3 CBD destinations, which is certainly fine and logical. Should we be adding back GBP 50 million to GBP 60 million next year to the adjusted number of the non-recurrence of transformation costs? So given all the -- that you've got to do, is this just going to be a permanent feature now?

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John Wartig, Kingfisher plc - Interim CFO [49]

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I think part of the logic there is that the transformation costs, we think, within P&L transformation, we'll try and expect those costs that were actually a part of the initial establishment of, for example, unified offering, as that's now come into play and that continues to work. That is actually generating profitability for the business. So it would be incorrect for us to actually expect that and show it as a separate P&L-ed item. So any associated cost with -- in the ongoing is actually absorbed within the margin generation that's occurred, but I wouldn't be adding GBP 60 million to the underlying costs as a consequence.

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Andrew Cosslett, Kingfisher plc - Chairman [50]

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Over here and then move back here. Sorry. I was going there first. I beg your pardon. No, it's my signalings are falling. So gentleman on the right-hand side, some very good questions (inaudible).

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [51]

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Tushar from Goldman Sachs. Just on B&Q. It seems the like-for-like has been underperforming some of the listed peers. Is there anything apart from range changes and installations, issues going on in the B&Q that might be impacting the performance there?

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Andrew Cosslett, Kingfisher plc - Chairman [52]

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B&Q in particular.

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [53]

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Yes.

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Andrew Cosslett, Kingfisher plc - Chairman [54]

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Well, we'll ask Graham. And I think those are the 2 we've -- 3 we've called out, Brexit, the installation disruption and kitchens, but any other things you would like to add? [We have JV here.]

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [55]

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[And go to side] on the B&Q, the digital part as well. It just only grew 10%. If there is something...

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Andrew Cosslett, Kingfisher plc - Chairman [56]

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Yes. We [put up] new platforms.

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Graham Bell, Kingfisher plc - CEO of B&Q UK & Ireland [57]

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Yes. I think I mean, obviously, the economy is something that we're aware of, but I think what we have been doing is really getting our house in order and really getting fit. The installations was a decision we took. I think it was the right decision. At the time, we were not technically set up. We didn't have a product range. We were not giving our customers a good service, and we weren't making money out of it. So I think it was the right decision for B&Q. And I think what we've got to do is get our new kitchen range in, get supply and logistics properly set up and then maybe look at where we go on installations in the future, but I'd rather get the base elements in first to get ourselves really set and ready; be famous for doing a great service, great product; and then building up.

I think on digital, as you probably know, having coming from Screwfix, I've got a great passion. And I think the work that I'm doing with John Mewett at Screwfix, we really have a great opportunity to push forward. And as you know, it's all about getting the base elements in the technical fulfillment. And we've got a great opportunity there, I think, in the future. We're making great strides forward in that. And we're having a lot of disruption issue. We have changed probably over 1/3 of the store, which has led to a lot of disruption. And we're just coming through that, apart from kitchens. We've worked hard at clearing the stock as well as getting the new range in and really trying to minimize the impact on the customers. And I think we're looking forward to now as really being able to sweat that new product and drive forward a better performance in the future.

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [58]

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And just maybe one question on unified ranges. Basically, it does look like the growth has slowed down in unique, unified ranges. It was growing close to 2% last year, broadly flat this -- in the first half of this year. Is it all linked to the Castorama issues or how these ranges are being accepted in the rest of the...

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Andrew Cosslett, Kingfisher plc - Chairman [59]

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Sorry. I missed the question. There is...

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Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [60]

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So unique and unified ranges growth was close to 2% last year. And it's close to broadly flat, 40 basis points up this year. Is there something specific happening in the growth in the unique, unified ranges?

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Andrew Cosslett, Kingfisher plc - Chairman [61]

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Not that I'm aware of...

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John Wartig, Kingfisher plc - Interim CFO [62]

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No. There's no issues. I think if anything, the growth is sort of -- as we've seen across both unified and non-unified, some of the disruptions we've had in France have been in terms of supply chain, some of the competitive issues and some of the disruption we've had across the business, but it's not something specific to unified ranges that's changed. And at the end of the day, unified is still growing versus non-unified.

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Andrew Cosslett, Kingfisher plc - Chairman [63]

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We move down here next. So if we can move on.

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Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [64]

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Richard Chamberlain, RBC. Can we just touch on Eastern Europe? I think it looks like that growth in Poland has slowed in the second quarter. I mean can you just give the reasons for that and also how much the -- in Romania, how much the Praktiker integration contributed to the losses we saw there?

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John Wartig, Kingfisher plc - Interim CFO [65]

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Okay. I think in the second quarter, there was more -- some comparatives and also some -- it's more the comparatives quarter-on-quarter. And there was -- I wouldn't say -- we're not seeing it as a slowing. We actually had new store openings and a couple of events taking place in the quarter which are more standalone, but it's not a slowing of the overall business. In terms of Praktiker, it has proved challenging. The businesses had -- have integrated. They've got a lot -- as I said in my presentation, there's a lot of transitional work still taking place, and that will go into next year as well. It's taking longer and taking more time. Once we've integrated the 2 businesses and they can actually manage their inventory and everything better, I think their execution will improve. But it's stores, as I said, in transition over the next 6 to 12 months. But it has been the drag on earnings in the short term, as we said.

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Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [66]

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And can I just ask a follow-up on Castorama France, the digital offer, where you think you are on that journey to improve the customer experience and functionality and search optimization and so on? When can we expect a sales uplift from that?

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Andrew Cosslett, Kingfisher plc - Chairman [67]

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Our -- so our digital upgrades will come out in a series of releases. So Graham has just been on the latest one, which I should think it was giving us some clunky moments when that was going in, in the spring. So there was a bit of impact from that, but that's now working a lot better. And we're getting -- if you look at the NPS -- because we also measure the NPS, our official customer reaction. And that's rising, but I'd say it's rising from a low start in both B&Q and Castorama.

So I think, yes, it's better. The sales have been rising in all our businesses, including Castorama, but it starts from a long way back and there's still a lot we can do. And I think the next release that we put into the B&Q release that we've done this spring, I think, is scheduled for, I'm going to get this wrong, next spring in Casto. So it will be coming probably in 6 months. Now we have to line everything up with all the other questions we've had today where -- how do we sequence the change program. Because there's no doubt that the compound effect of the changes in France have been what's really hurt us. So each -- if you just track the individual activities, you don't actually see the compounding effect until it's late in the game.

So I think what we need to do is to go back, as we said, and look at how we're sequencing these change programs so that we're not submerging our people continually with more change. So it's just how we do it. And I think the current forecast is for that, but we'll review that. But hopefully, it will be that because it's fairly discrete work. So yes, it should increase from there, but a long way to improve, big opportunity. Gentleman behind. Yes, 2 more. Okay. 3 more quick ones, 1, 2, 3.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [68]

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Adam Cochrane, Citi. Can you explain the moving parts of the gross margin guidance of flat for the full year versus up for the first half, if you can? And secondly, I'm trying to wrap my brains as to you've talked about dual running costs, clearance. What is the source of underlying profitability of the business? How much dual running costs are sitting in there? How much of your gross margin is being negatively impacted? I can't quite get a feel for what it should look like at the end.

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Andrew Cosslett, Kingfisher plc - Chairman [69]

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So 3 questions, full year guidance...

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John Wartig, Kingfisher plc - Interim CFO [70]

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Yes. I think first, on the margin there, I think it's we still have -- I think the primary drivers there are the ongoing clearance as we've actually up-weighted our guidance in terms of clearance. And the second part is just the ongoing disruption, particularly around Castorama France. We don't expect that to change materially over the short to medium term as we're sort of working through a number of the issues we're talking about. And then there's a sort of a third element to that too that we don't expect to get the same level of before clearance and disruption costs because we've got the annualization of both the installation removal in B&Q and also the arrivage or the price repositioning in France that annualizes at the end of Q3.

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Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [71]

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So there's less positives coming through...

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John Wartig, Kingfisher plc - Interim CFO [72]

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Less positives and 2 main negatives coming through.

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Andrew Cosslett, Kingfisher plc - Chairman [73]

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Okay. And underlying profitability. We don't have a calculation on that at this point. It's large. Does that help?

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John Wartig, Kingfisher plc - Interim CFO [74]

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I think it would be fair to say that there's significant unlocked potential and value once we remove a number of these impediments: clearance being normalized, removing the supply chain and logistics issues, getting our fulfillment in place and getting digital in place. We're currently working through our 3-year plan analysis at the moment, which we'll be going through with Thierry. And I'm sure that Thierry will actually have a number of inputs into that. So the business going forward, it's something we'll be working through over the next 3 to 6 months.

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Andrew Cosslett, Kingfisher plc - Chairman [75]

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But we agree it would be helpful to have some visibility of that, point taken. So gentleman, next one.

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Alasdair McKinnon, The Scottish Investment Trust PLC - Acting Manager [76]

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Alasdair McKinnon, Scottish Investment Trust. Look, I get it's been several years of pain unifying everything. What I wonder, though, was with Thierry's arrival whether there's an opportunity to step back a level -- at the Board level and say, "Is this the right way forward? Is this what the customer wants?" Or is there a way to look at the portfolio of assets and say perhaps different countries want different things? Perhaps there's a different way of doing. I know that one won't be popular because of the journey we've been on, but I just wonder what your thoughts are on why you think a unified offering across different geographies will work. What can you point to, to say it works?

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Andrew Cosslett, Kingfisher plc - Chairman [77]

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Well, I think that's, look -- and it's a great question. And as I said at the start of the presentation, Thierry has no handcuffs on him. He can come and he can look. We're operating to a business that it's common sense in any business that you manage the best of your assets, however you define that to be. We definitely want to try and get a return from the investments we've made, and we think that some of the things we've done are certainly obvious ways to improve the efficiency of the business as it's composed.

I think Thierry will come in and take a full view and a good look at everything. And we need to have some priorities of resource allocation. We need to think through that. That's going to be part of the process that we're going to be going through with the Board and with Thierry's input over the next few months. There are -- I think there are evidence points that it's always a balance. This is not an act of faith. This is about finding the right pragmatic balance between what you know you can unify and get benefit from, where customers are happy with the innovation you bring. I mean the fact that it's unified is not the end of that. It can be unified. And it's the advantage that you've seen in better pricing and unique attributes with the product. So you improve the product. You drop the price, and it's a price category -- and it's a product category that is insensitive in terms of customer loyalty.

Those exist. We have large amounts of our ranges exist like that. Finding the balance between those products and how much local product we have, and international, again. So it's back to this question. And we need to continually test and make sure that we are serving our customers, and I'm sure Thierry would agree with it, with what they want and finding the places where we can get the efficiencies out with no detriment, if not, an improvement in the customer offer. So it's a balance, and we'll see where we go. But I think Thierry's arrival is opportune. I think it's a good opportunity to get a completely fresh perspective, and we'll be back to talk to you about that. Thank you. Last question, if we may.

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Tony Shiret, Whitman Howard Limited, Research Division - UK General Retail Analyst [78]

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Tony Shiret from Whitman Howard. Back to the business as it is. You mentioned availability at Castorama. And I wonder if you could sort of give us some sort of quantification of how bad presumably the availability is and where you think you can get it to on what you measure is availability. And second point, on the unique offer, where you've got 150 basis points of gross margin benefit, is that a net figure? I mean have you sort of retained all of the benefit? Or I presume there is some pass-through in price as well as retention in the gross margin. Can you give us some sort of sense with that?

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John Wartig, Kingfisher plc - Interim CFO [79]

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Yes. So I think, on the 150 basis points, it is gross. It's the gross. And I think that stretching it out there, you can see in our margin we haven't been able to retain all of that. There is some safety eye in inflation coming through there. We're trying to actually offset, but not all of it gets retained. It's going to get dissipated somewhat through supply chain. As we've said too, the ways of working now is that under the new operating model, we are actually owning more of the supply chain, particularly from the Far East. We're not just sourcing from around the corner. So there are some additional costs that are actually offsetting that.

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Tony Shiret, Whitman Howard Limited, Research Division - UK General Retail Analyst [80]

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So the 150 is before those costs.

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John Wartig, Kingfisher plc - Interim CFO [81]

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Correct.

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Andrew Cosslett, Kingfisher plc - Chairman [82]

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And the availability question.

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John Wartig, Kingfisher plc - Interim CFO [83]

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The availability. I mean again in broad terms, I mean, if you're looking at what does good look like, I mean, you can look around the group. That will -- sort of sits more like at 98%, 99% in terms of fulfillment. That's what we should be going for. In some cases -- and some of it's because things have just fallen over in some of the DCs that were being sort of sub 95%. And that's the heart of the issue that we're addressing. And in some cases, it is actually -- it's a disconnect in processes, the way we've actually had inventory in location and where we've entered into the system.

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Andrew Cosslett, Kingfisher plc - Chairman [84]

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Well, thank you very much for your time this morning, ladies and gentlemen, and before seeing you again soon. Thank you.