Kingfisher (LSE:KGF) Q2 2027 Earnings Call

0:00 Good day ladies and gentlemen and welcome to the Kingfisher plc half year 2026-2027 results. At this time all participants are on a listen only mode. Following the presentation we'll conduct a Q&A session with research analysts. If you wish to ask a question we ask that you please use the raise hand function at the bottom of your zoom screen. Instructions will also follow at the time of the Q&A. I'd like to remind all participants that this call is being recorded. I now hand over to Thierry Garnier, Chief Executive Officer to start the presentation.

0:41 Good morning and thank you for joining us for Kingfisher's half year results presentation. Bhavesh and I will take you through our performance for the first half. Our graded outlook for the year and the continued progress we are making across our strategic priorities will then answer your questions. So let me start with the highlights. First, our strategy is delivering with momentum building across our key growth drivers. Scofix continues to perform strongly. By trade, e-commerce and marketplace are becoming increasingly important sources of growth. Second, our focus on execution continues to pay off, reflected in gross margin expansion, discipline, cost control, and strong profit growth despite a mixed market environment.

1:34 Third, our performance gives us the confidence to upgrade our fuller guidance, We are building a stronger, more resilient Kingfisher with significant opportunities ahead while remaining committed to attractive shoulder returns. So let me now hand over to Bhavesh for the financial review.

1:59 Thank you Thierry and good morning everyone. Overall, H1 was a solid delivery against our financial priorities. sales including GMS from our marketplaces grew 1.6 percent in a mixed market environment adjusted profit before tax was up 9.9 percent to 404 million pounds reflecting strong gross margin performance and disciplined cost control through our profit performance and share buyback program adjusted earnings per share grew 16 percent after investing in our strategic priorities www.thierrydominiquegerard.com Thank you for watching.

3:21 tiling and painting within seasonal demand for cooling and outdoor leisure products was strong while categories such as plants outdoor paint and fencing were weaker we also saw a shift towards online purchases overall seasonal sales grew in the half against strong competitors with all banners delivering growth in q2 in big ticket categories we continue to outperform the kitchen market and the UK and Poland, reflecting the investments we have made into our ranges, showrooms and in Poland, design studios. On the other hand, the bathroom market remained challenging across our geographies and our ranges underperformed the market. In response, we have initiated a comprehensive range review with encouraging early results from the launch of our new bathroom furniture range, Emondra 2. In the UK, the market continues to be soft.

4:20 Broadly consistent with recent quarters, B&Q performed in line with the market and outperformed when including Marketplace GMS. Marketplace contributed £12 million of profit in the half. TradePoint continued to take share in a subdued trade market. Thierry Dominique Gerard Garnier, GroupFix's strong proposition of proximity, availability, and speed makes us confident it can continue to gain share.

5:09 UK and Ireland retail profit increased 4.9% to £361 million. This includes a £14 million business rates refund in the period. The French market was broadly flat in the period, with strong seasonal demand in Q2. Castorama, like-for-like return to growth in Q2, a fourth consecutive quarter of sequential improvement, supported by our revamped stores, successful range reviews, and strong seasonal performance. Like-for-like sales including marketplace GMS were plus 0.4% and performance was in line with the market. At Brico Depot, like-for-like sales declined 4.2%, reflecting weaker demand for building materials and larger projects During the summer heat waves, as well as some temporary disruption in the customer experience following the implementation of our new website.

6:03 We will continue to make good progress in trade with sales up 21%. France retail profit increased to 74 million pounds with retail margin improving 10 basis points, reflecting our continued focus on margin and cost discipline. Our strategy to transform Casa Roma is delivering tangible results. We have now addressed 24 stores across the network with encouraging results. Right-sized stores are delivering double-digit improvements in sales densities, while revamped stores are generating a higher profit contribution than the Casa Roma estate average. Nine further stores are on track to be addressed in the second half of this year. Following the successful open of two franchise stores last year, Today we also announced the transfer of a third store to franchise.

6:53 This year, we are reviewing 20% of our ranges. Those ranges already reviewed are growing 5.1%, with some growing double digits. Alongside strengthening our stores and ranges, Castorama is making good progress on trade and e-commerce, enabling growth into new customer segments and categories. Trade penetration increased 6.5 percentage points, e-commerce sales grew 11%, Marketplace is profitable after only two years. Poland delivered a strong first half with total sales up 3.6% and like-for-like sales up 2.2%. We gained share in a growing market supported by trade, e-commerce, and design-led categories.

7:38 Strength and core was driven particularly by internal building categories. Trade sales grew 14%, e-commerce sales grew 39%, and marketplace reached breakeven. Retail profit increased 15.7% to 60 million pounds, with margin up 60 basis points. Iberia also delivered a strong market outperformance, with like-for-like sales growth of 7.7%. Growth was supported by our competitive price position and strong momentum in trade and e-commerce. We also opened two stores, our first Iberia openings in a decade. Retail profit increased 17% to 13 million pounds, Scrupex France continues to build momentum with store like for like sales increasing 48%.

8:29 We're seeing progress in the key leading indicators with growing brand awareness, strong repeat customer purchases, around 55% trade penetration, and an increasing network effect as density builds. Importantly, the earlier cohorts are showing continuous strong growth. This year, We have opened two stores, and in the second half, we'll be opening another three, bringing our total store count to 37. We delivered solid profit growth of 9.9% in the half. Excluding the one-off business rates refund in the UK, profit growth was 6.1%. Transcription by CastingWords These headwinds were more than offset by strong gross margin delivery and structural cost reductions. Gross margin added 40 million pounds delivered through the strength of our group buying and sourcing, marketplace and retail media growth, foreign exchange tailwinds, and the disposal of Romania last year, partly offset by freight headwinds and a higher trade mix. We delivered 44 million pounds of structural cost reductions, including distribution center space optimization, procurement efficiencies

10:00 and store operating model improvements looking ahead we continue to see further opportunities from buying and sourcing marketplace retail media and supply chain optimization in parallel we continue to drive productivity across the group with additional opportunities across stores head offices and global business services we're also committed to generating strong free cash flow and to delivering attractive returns to shareholders. In H1, Kingfisher generated adjusted EBITDA of £784 million. Working capital delivered a net inflow of £5 million. We have made good progress on inventory since 2022 and see further runway for working capital improvement through multiple structural actions.

10:47 Some examples of actions we are taking include reducing supplier lead times, Negotiating lower minimum order quantities and moving slow-turning first-party ranges to marketplace. We invested £171 million in capital expenditure, prioritizing growth, including nine new stores, new ranges, and technology. Overall, we generated free cash flow of £339 million, and our strong cash generation continues to support attractive shareholder returns. www.thierrydominiquegerard.com When we set out our guidance at the start of the year, we observed a mixed consumer environment.

11:48 We anticipated a limited impact from events in the Middle East on our energy and freight costs and rational pricing behavior across our markets. We also expected to continue our long track record of maintaining competitive prices while managing gross margin and cost effectively. Broadly, that is what we have seen in the first half, and so our assumptions for the second half remain largely unchanged. Reflecting our solid H1 performance, we are upgrading our adjusted profit before tax guidance to a range of 595 million to 635 million pounds, an increase of 20 million pounds at the midpoint. We are also upgrading our free cash flow guidance by 20 million pounds and now expect free cash flow between 480 million and 520 million pounds.

12:39 With that, I'll now hand back to Thierry.

12:46 Thank you Bhavesh. Our first half performance reflects strong momentum across our four strategic priorities. Growing our trade business, scaling our digital ecosystem, winning through our offer, own exclusive brands and services, and growing our banners and format. So starting with trade, an important high-value customer segment for us. Group trade sales reached 2.1 billion pounds and grew 16% when excluding scrofix. Trade penetration increased more than 3 percentage points to 31% of sales. The key foundation of this is a rollout of dedicated trade zones within our existing stores with Taylor Branges, Faster Service and Specialist Colleagues serving our trade customers. Outside ScrooFix, trade zones are now present in 49% of our stores. At Castorama France, pro zones are present across the estate, while Brico Depot France now has 14 pro corners. The pro zones are the starting point for building our relationship with the trade. It's where we identify and get to know them and where we educate them about our pro-specific product and service offering, all the time capturing more of their spend. 58% of our stores now host a trade sales partner. These colleagues provide a bespoke service to higher

14:18 value customers, helping them save time, adopt relevant services and consolidate more of their spend with us. At TradePoint, we are seeing tangible results from this model. Sales from customers covered by a trade sales partner grew 23%, allowing TradePoint to gain market share in the half. Poland is following a similar pattern. Across our banners, we now have 438 trade sales partners enrolled and see significant scope to scale this model through further recruitment, sales training and our trade credit solution. We believe that moving towards more relationship-based customer growth is our number one lever to continue to take share in the trade market.

15:07 As you heard from Bhavesh, Scofix performs strongly in H1 as well as being a well-hauled machine with a dense store network, high availability and fast fulfillment. Scofix is generating continued momentum with its rewards program and successfully growing customer share wallet. Less than a year since launch, Rewards now has more than 2.3 million active customers and accounts for 44% of total sales. Rewards also allows us to personalize our offers with features such as recommendations based on trade type, brand affinity and local weather. And this is resulting in an increase in average order value of our highest value customers as they dedicate more of their spend to Screwfix.

15:58 Screwfix is also seeing strong customer demand for a broader product range. Given the compact footprint of our Screwfix stores, it will not be practical nor economic to stock the full breadth of products our customers are looking for. So to address this, as an example, we have partnered with Footshore, one of our vendors, to offer more than 12,000 footwear SKUs across a wide selection of styles and sizes. Product are picked, packed and shipped by Futsure directly to our stores with 70% of orders collected in stores. This partnership generated 12 million pounds of sales in its first year, demonstrating the opportunity to expand customer choice without adding complexity to our store operation.

16:47 We are now ready to build on this success and scale the model. Our stores sit at the heart of a digital ecosystem that creates a virtuous cycle. Stores support fast and convenient first-party fulfillment. Marketplace broadens choice and attracts traffic. Apps and IoT programs generate valuable data and that traffic and data support personalization, retail media and further profit growth. Our investments in AI and technology also position us for the next phase of commerce, including natural language search and agent-enabled shopping. This ecosystem continues to scale across Kingfisher.

17:33 E-commerce sales reached 1.6 billion pounds and grew 16%, excluding scufix, while penetration increased to 22% of sales. Scoofix remains the most digitally advanced banner with 60% of sales coming through digital channels, while the strongest digital growth in the half came from our other banners. B&Q reached 20%, Castorama fronts now 10%, and there is further opportunity, our target being 30% e-commerce penetration across Kingfisher. A key driver of our e-commerce growth is Marketplace. which complements our first-party offering with a much broader range of third-party products.

18:19 Marketplace GMV grew 42%, representing 18% of e-commerce sales and contributing more than £13 million of retail profit. With a robust foundation in place, we also see good momentum in retail media, which grew 75% in the past. An important area of marketplace progress has been the further extension of customer choice. EMQ marketplace now offers close to 5 million SKUs. Growth is coming from categories that complement our offer. A good example is cooling products which were in high demand during the recent heatwaves. We already have strong representation from UK based vendors on our marketplace in addition We have now onboarded more than 80 international merchants which today account for less than 10% of GMV.

19:15 Mature marketplaces generate 70% of their business with cross-border trade so you can see the further potential ahead of us. The strength of our model lies in combining the scale and choice of our marketplace with the convenience and immediacy of our store network. Customers benefit from a broader product range and faster, more flexible fulfillment. And this includes marketplace click and collect, 3-hour delivery direct to site at the end queue, and the expanding reach of SCUFIX 30-minute sprint delivery service. As we extend choice, we are also investing in making the shopping journey easier. With the introduction of Buybox, we are helping customers find the best available offer for products sold by multiple vendors. In addition to enhancing our in-house digital agents with voice capability, we are rolling out natural language search on our website based on our partnership with Google.

20:20 In parallel, we continue to deploy AI selectively, with a clear focus on investment returns. Our new content platform, Fabric, creates high-quality product content in minutes, improving speed-to-market, search engine optimization, and conversion. Our own exclusive brands continue to combine affordability, quality, and innovation. In the half, our new outdoor ranges grow sales 8%, Leaning into the growing outdoor living trend, the launch of Imandra 2 marks the start of our comprehensive bathroom range review and is off to a good start. And in power tools, the sales of our expanded McAllister and Titan ranges increased 11% since launch. The growth drivers I have outlined underpins Kingfisher's attractive investment story.

21:15 We have leading positions in our market. We operate a diverse portfolio of banners, each with distinct formats and propositions that address a wide range of customer needs. Our strategic growth drivers are allowing us to grow our market share and to move into new market segments, making Kingfisher a more resilient business and giving us confidence in our continued performance against our financial priorities. Growing our sales ahead of our market, increasing our profit ahead of sales and generating strong free cash flows. So to summarize, we delivered strong momentum across our strategic growth drivers along with solid profit growth by controlling what is in our control and we have upgraded our guidance based on our first half performance and the opportunities ahead.

22:12 We are building a stronger and more resilient Kingfisher and we remain confident in our sustained performance. With that, let us move to Q&A. Thank you everyone. We will now begin the Q&A session. Thank you very much. Morning Thierry, morning Bhavesh.

23:13 Two questions for me please, if I can start things off. So first on trade sales partners, you talk about scaling the model Thierry and I just wondered how we should think about that in terms of the number of partners you're looking for across the trade point and Castorama banners or the percentage of your sales you'd expect those partners to generate. That's the first one. And then second on the gross margin outlook, obviously very strong performance in the first half. How do you see those main drivers that you talk about in the first half evolving in the second half? Thank you.

23:53 Thank you, Richard. Let me start with the first question. I think the sales is a combination of number of trade sales partners and somehow the sales per trade sales partner. So we see on the first part We see more trade sales partners in the future. We are really very happy with the results. So you can, you know, if I grow a few years from now, you could have one to two trade sales partners in every store in the medium term. Then the other job we are doing is to, and that's really a very, very important TPI of us, is The sales per trade sales partner, so we are looking at the best trade sales partner in the network, the worst one. We are actively managing them. We are creating new bonuses to incentivize them we have created specific software to help them to follow this portfolio of VIP customers so lots going on training as well lots going on in order to increase the sales of a sales partner so looking at this combination in my view you have a few years of growth ahead of you okay hi Richard thanks for your question on gross margin so I get really pleased with what we delivered in gross margin in the first half

25:08 a lot of it the things you heard me talk about before in terms of structural actions that we're taking so you know what helped us in the first half was our buying and sourcing so our group buying and sourcing scale would continue to drive that marketplace you thought you heard us on a prepared remarks talk about the profitability of marketplace and you know what we delivered in the first half alone was more than what we delivered the entirety of last year marketplace profit retail media We had some FX tailwinds on our committed sort of purchases. So all structural things largely that helped us in the first half. I'd remind you that about 10 of the 70 VIPs was our sale of Romania last year. So you won't see that in the second half. And then we have some headwinds, freight and a growing share of trade. So when we look to our second half, it's the same structural actions that will continue to push forward, right?

26:04 um buying and sourcing scale marketplace retail media we are getting a little bit of supplier um uh inflation so price request increases obviously we're mitigating and pushing that back our only big business in the scale of our sourcing gives us uh ability to push back against that but that's something we'll watch the question soon okay excellent thank you thank you Our next question comes from Tim Ramsgill with Bank of America. Please unmute your line and ask your question.

26:40 Thanks. Good morning. I've got three, please. Morning. Three questions, if that's okay. Just a little bit on big ticket observations around performance on kitchen versus bathroom. Maybe you can scale that kind of outperformance and underperformance in those two categories, please. Secondly, Poland, perhaps we don't spend enough time focused on it, but clearly very material improvement both in gross margin and overall margin in the first half. So just really interested in more of a medium term question about the recovery potential in Poland, clearly was a much more profitable business once upon a time. and then thirdly just interesting your thoughts around you know Screwfix's performance relative to its closest peer Toolstation.

27:30 I might be wrong in saying this but it feels like the gap in like-for-like performance between those two competitors is the widest it's been for a very long time so maybe I'm sure you'll just focus on yourselves rather than them but Just interested in what you pick up in terms of feedback or anything else that you think explains that very meaningful advantage you seem to be enjoying there. Thank you.

27:55 Thank you, Tim. Maybe I will answer one and three and Bhavesh will answer on Poland. I think this gets you a few considerations. We are happy with our kitchen business. We have had a lot of range reviews. We have a lot of action in stores, you know, from dedicated training and a lot of Salesforce management in the UK. We are creating design studio in Poland. France as well as a lot of additional action and really overall pleased with kitchen. Not happy with bathroom. I think the market is a bit softer than kitchen but overall we are not happy with ourselves. We believe we could do a better job on bathroom.

28:42 We identified already months ago that our ranges were not modern enough. We were lacking some color, some design and we have built a not and the new ranges at group level called Imondra. You see that in the prepared remarks. We are now starting to roll out across the group this new range of bathrooms, starting with Castorama in France, pleased with the early start of Imondra in France. Last comment that we do, you need to look at digital as well. You know, when we look at our bathroom business on Marketplace, it's extremely strong. So having a very big online business now and marketplace allow us to capture some of the shift of the market. We believe as well the bathroom is moving more online and that's something we are getting through our marketplace.

29:34 School Fix UK, really, I don't want to comment too much on competitor. I don't think it's for me to do that. I think we are really pleased with volume. We are really getting growth through the volume of items sold. and through a new initiative you know we are opening a few stores but many are on share wallet I think that in the past we are broadly at 15% of share wallet for scofix so you see we have more more to go after we have you have seen in our remarks we have launched very successfully a new loyalty program Reboards, it's allowing us to personalize our offerings and somehow to increase the share wallet.

30:21 We're increasing choices through this vendor-to-stores model. When you stay in the Scufix ecosystem to enlarge your number of SKUs, that's something we are looking forward to scale up in the coming months. we are as well you know doing more b2b business you know selling more to larger companies so lots lots going on at scufix at the moment and indeed we feel good around the competitive position of scufix at the moment hi tim uh thanks for your question on poland um but really pleased with the performance of poland three quarters of top line growth is fantastic to see

31:02 when you look underneath the numbers what's really encouraging and strong core performance so we saw a consistent and strong performance p1 and p2 trade and e-commerce our strategic levers are performing well so really pleased with the execution from the polish team significant outperformance in kitchen we talked about design studios so these are in shopping malls where we showcase some of our kitchen product and that's really helping the early days but really seeing meaningful impact from from our design studio so overall really pleased you know we outperformed the market um you know over the medium term we feel pretty optimistic about Poland there's a lot of white space that we we can go after the tier two cities with our medium um and compact format so so pleased with Poland against the supportive backup

31:57 I think when you think about pre-covid Poland was above 10 percent we we said probably was was too much you know we were in limited number of stores

32:18 the top line sales were not what it should be so I don't think we'll ever come back at this level but nevertheless I agree with you that the profit margin of Poland will improve you start to see that this year and we expect Poland to improve its profit margin in the coming years great thank you very much you're welcome Thank you. Our next question comes from Isabella de Breva from Morgan Stanley. Please unmute your line and ask your question.

32:53 Hello. Morning, Isabella. Thank you for taking my questions. I had three. The first one is to follow up on the bathroom range review. Could you tease out in a little bit more detail what you are changing in this offering? and do you currently offer a full project service in the same way you do for kitchens and is that something you are studying? I guess the point of the question is to understand how quickly you expect to be able to turn this underperformance around. Then my second question is on the marketplace. It appears that the drop-through rates and the profitability have improved. so could you comment where you are on that customer acquisition curve for the UK business and whether you would expect the profitability in France and Poland to ramp up more quickly now for those two geographies than they did for the UK in the early stage and then my last question is a quick one just on the gross margin we've heard you loud and clear on the structural initiatives Is there anything seasonal or cyclical that you would call out which might have helped the performance this half?

34:11 Thank you, Isabelle. On Bashroom, what we change is things like new colors, new design for cheaper price. So we are able to offer The new Imandra II collection for same quality of product, cheaper and as well introducing new color and new design. We already have a relatively full service. We have a team of designers in all our stores. We have software to create 3D design. We offer installation. We offer credits. So already lots going on here. If you ask me, I am fully happy with the way we do installation, etc. I think we can grow further and we are growing this business.

34:58 and then when you roll out across thousands of store big showrooms it takes a few months you know you have to change part of the showrooms so we have the we have a an approach step by step starting with testo france rico depot then you will see poland and then dnq in the coming months quickly on maybe on the on marketplace first uh potential to grow the sales You probably heard that we are now pushing hard on non-UK vendors. We're pretty happy with the UK vendors. We only have 80 non-UK vendors. It's less than 10% of our marketplace sales. When we look at very mature marketplaces in the world, they are more at 70%. So we really are seeing a very strong traction on non-UK vendors.

35:53 functionality like buy box increase in fact the price index and the price competitiveness because you allow competition on the same SKU of multiple vendors and somehow we organize this competition so that's very helpful. Then the profit is a combination of your fixed cost and your marketing cost. So the more you grow your sales, the more you reduce your fixed costs. Fixed costs are not very large, but that's still a consideration. And that is how much marketing you want to invest. What I said in previous calls, you usually start first year of marketplace around 10% marketing cost. In the long run, you're probably around 3% marketing cost. and so we are on this journey and we expect more in the future another consideration is the tech rates you know we have between 10 and 15 percent of the tech rates one of the action we are doing is increasing the services we can send to vendors from retail media to fulfillment you know we are as well testing fulfillment for vendors There are many services you can offer to your vendors to increase their sales and that will go through the tech race in the coming years.

37:15 I was just on gross margins of things that may not repeat FX. So that was just a tailwind in the half but you know it's currency exchange that can be under tailwind. As I said, Romania, 10 of the 70 bets in the first half is from our discoloration with Romania last year. And then as I flagged, we are seeing a little bit of inflationary pressure, so it's a price increase request from suppliers. Obviously, we'll push that back. What helped us in the first half is we benefited from some earlier purchasing of inventory last year, which then we sold in the first half. But as you get that inflationary pressure, we'll we'll see some of that but look confident in what we're doing our structural actions you've seen is not just this half but last year deliver it continue to focus on that that underpins you know our discipline on margin and cost as we look ahead thank you very much you're welcome thank you our next question comes from Mia Strauss with BNP Paribas please unmute your line and ask your question Good morning, Mia.

38:30 Hi, Thierry, how are you? Thanks for taking my question. I just wanted to maybe ask about sort of sourcing conditions maybe for 2027 and whether you've been doing any pre-buying on the oil derivative. And then secondly, just looking at the core performance of B&Q, and it's pretty weak, so I just wanted to know what's driving that. And then thirdly, just on marketplace, maybe in France and Poland, have you seen any changes in the market post the EU de minimis threshold being removed.

39:06 Let me take the first and the third question. I think Bhavesh will answer on the core UK. I think sourcing, remember we have broadly half of our sales is private labels, so we have long-term relationship with partners, some time in Asia, so we are able to really plan with them in advance. So now you can expect to see some of the raw material increases now into 2027, but we are relatively confident that with a strong partnership with us, with those vendors, that would be manageable. Marketplace France-Poland, we are seeing good traffic to our website.

39:52 Good progress in our marketplace. You know, I would not predict if it's coming from the de minimis EU new rules. You probably have access to, you know, traffic data to other marketplaces. You know, there are some public information here, but we are very happy with the progress of our marketplaces in that forecast to France and Poland.

40:16 I think to your question on core, Mia, I think when we look at the UK, core was down at 2.7%, a little bit more down in Q1, less in Q2. I think it's a backdrop of a market that was also down low single digit. So core was sort of similar against what we saw in terms of the UK market. When you look at our banners, two very different models. So B&Q generally serves sort of general builders, more outdoor work. some of the DIY traffic is also impacted by weather patterns and so it was an interesting half right Q1 we saw quite a little bit of weakness because of the later start to spring impacting some outdoor projects and then Q2 you saw a different impact because of heat waves so there we saw people shifting to online real concentration of demand and cooling outdoor and leisure and impacted store footfall people going more online than into stores and then when you look at screw fix actually they tend to serve more electricians plumbers who generally work more indoor and I think that helped underpin their performance but when you look at trade trade point did well in the half again a function of the nature of trade the resiliency of trade and that that was that was pretty positive and being sort of pleased with that

41:46 if i if i could just follow up on the sourcing conditions if you could just remind us about your energy and your freight hedging that would be useful uh yeah i can do that um on energy costs uh it's it's a large it's a small part of our cost base and we're pretty well hedged so fully hedged this year We tend to hedge on a declining basis to give us more sort of flexibility in outer years as prices move up and down, but we're well hedged this year on energy. And freight, again, we typically sign annual contracts. We've seen a modest increase. All the contracts have what we have like a fuel length inflation clause, so that drives a little bit of increase, but again, It's a small percentage of our cost of goods.

42:42 Perfect. Thank you so much.

42:44 You're welcome. Thank you. As a reminder, if you wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. Our next question comes from Yash Raj Rajani with UBS. Please press star six to unmute and ask a question.

43:03 Hi Monique, thank you so much for taking my question. Monique, a couple from me please. So firstly on gross margin, it seems like a couple of your peers have sounded a bit more cautious about inbound freight and also last mile. Can you give us an idea of, you know, do those things affect you in the second half and also potentially how your negotiations are going for that for the next year maybe. The second question is on screw fix. So, you know, it did seem like a lot of that performance is being driven by your initiatives, namely the loyalty program. Given there's no change to the external market condition, is that like-for-like performance a good representation of what you're seeing in Q3 till date as well?

43:58 Or do you think something's changed there? And then the last one is... On franchise stores, can you please help us on how much that's potentially helped you in the first half or maybe how those economics mature in the second half and into next year as you do that in the transfer to franchise stores? Thank you.

44:21 Thank you, Yash. Maybe I start and Bhavesh will complete on a few points. I think on the first question, we have a store-based model. So we are really using store to prep our orders over 90%. We have a high penetration of click and collect. And we try to use as much as we can of the model whereby we deliver home from our store. Therefore, yes, I last my delivery cost, but that's not necessarily a big consideration for us. Screwfix H1, H2, remember the peak of screwfix is now starting September to end of November. better season for plumber electrician change of time in october so that's a big big part of the school fix season and they are heavy preparation every year for peak so we will anniversarize a reward loyalty program early october but i you know i'm very happy and confident in the Scufix plan this year for PIC with Black Friday and this preparation of the season so I'm relatively optimistic for Scufix in H2 last comment on franchise we by the way have announced this morning in France a third Castor Amastor franchisee so it would be three for Castor, one for Breco

45:53 and so far the economics are very encouraging as expected. We see some are good top line in line with expectations for Casto, probably above our expectation for Brico. Remember Brico, it was a former Monsieur Brico last year becoming a Brico Depot stores. So we have seen a very, very significant sales increase. and we see overall a better profit by several points between before and after. So very encouraged by this early start. I think franchise in France is very strategic, it's not a tactical action.

46:38 That's a way to manage better some stores that are difficult stores, especially forecast stores. That's as well a way to open new stores quickly with very low or no CapEx involved. So we take franchise very seriously. That's several years of action, and I have high expectations in the future.

47:04 Yeah, not much to add other than the two that we did were loss-making stores, and so by moving to a franchise, that helps our profit margins. I think I'll just caveat look these are two stores another one today we're learning as we go these are the first the franchise stores that we are moving into so encouraged by early results but lots of learning testing trialing that the team are working through thank you so much you're welcome thank you our next question comes from Arthur Peel with Berenberg please unmute your line and ask your question

47:46 Good morning Arthur.

47:49 Just a couple from me, just how to think about the operating cost environment into H2 particularly with the national insurance headwinds sort of annualizing out and then just secondly on Scrufix France and the phasing of profitability there through the different cohorts and just how that's looking going forward. Thank you.

48:08 Maybe I start with Scrufix and Bhavesh will come back on cost. You've seen we've given you already in March and now after H1 the like for like per cohort. I'm really impressed by the fact we are able to keep even for three to four years old cohorts the same level of very strong like for like. So that's very encouraging. When you think about the P&L of School Fixed France, we have relatively significant We have established a DC in France. We have established a proper tech system for our school fixed business in France. We have a small head office.

48:53 So therefore, we have started this venture with relatively heavy or significant fixed costs. But that's not our focus. Really, the focus is the sales density of the store and the maturation of the store to the point they are breakeven and making profit. because if you reach that point, you know, then you can scale the business massively in the future. So that's really our focus, really pleased with H1 delivery on like for like, on sales density, and we are on the right trajectory. You know, we find those sales very encouraging for the future.

49:31 Arthur, on cost, you know, structural cost reductions is a strong focus in our business and things we will continue to look at in the second half. I just remind you last year remember we had 145 million of headwinds, national insurance, social taxes and through our structural actions we mitigated those and we grew profit last year and we continue to look at those structural initiatives across a range of things as you heard me in my prepared remarks you know distribution center space rationalization as we use our stores differently you know operating model changes whether that be in Kia or in Casco store simplification logistics procurement so there's an ongoing engine of structural cost initiatives that we continuously look at and then you can expect us to keep doing that as we look forward thanks guys you're welcome thank you our last question comes from Kate Calvert with Investec please unmute your line and ask your question Morning

50:46 Kate. Morning, hopefully you can hear me okay. Yeah. Excellent. Just three for me to be honest. So first of all, just on Poland, Thierry, you know we've had plenty of sort of false storms in the past here. You had a great first half. It feels more like that was self-help driven rather than market driven. Is that a fair assessment? and in terms of a second question I think for Bhavesh you've talked about the sort of ability to continue taking working capital out how should we think about the opportunity going forward I mean sort of any thoughts on what good might look like and a final question just on back to Screwfix France can I try and pin you down on When you think the business might become profitable, how many stores do you need to cover that fixed cost? Because I assume it's probably more than the stores you've got today.

51:44 That's my three questions. Thank you.

51:47 Thank you, Kate. We'll start with the first and the three. I think it's a combination of market and self-help. I think the market has been better in H1. But as well, we gain... clearly market share in H1 and that's Kitchen and Kitchen Deliveries, Congress in Trade, Congress in E-Commerce, a lot of what's going on on Range Review. And you're right to say I'm very impressed by the innovative spirit of the team. We launched our new loyalty programs a few days ago, a lot of new ideas on design studio and shopping mall, lots going on to create quickly e-commerce hub across Poland. So a lot of what's going on now.

52:38 My view is, if you think medium term, Poland is a good country to be in. You know, it's strong GDP, one of the strongest, or maybe strongest in Europe. We expect that to continue. We are number one in this country. We have a really strong foundation. We can open more stores. There are more to go after on trade. Somehow, we feel the big box model for trading in Poland is very relevant, and there is more space to grow on trade. Allegro is super strong but we could be a number two clearly you know in online business so a lot's going on in Poland it's true that it's a country where the changes can be relatively violent and that we stay the same but if you think around the medium-term trajectories it makes me very very optimistic to fix this quickly the fixed cost is not really our key consideration for now that's all around sales Perth Stores and we are really looking very much at the first two three course because you want to reach breakeven and having stores, sales density and profit in the right place before scaling up meaningfully and we are I think in a good trajectory you know I'm really encouraged by like for lack of the court one at the at PLUS39,

54:08 and then Core2 at PLUS39 as well, etc. So that's very strong after four years. And we are expecting a reasonable number of stores reaching breakeven and then profitability. And when we'll be there, we'll press the button to have a more significant expansion. I think we need to be a bit patient Looking at the improvement assets entity but up to now I must say the trajectory is really good and we are very encouraged by seeing that those very old cores now because some of those store open in Q4 2022 keep growing 40%. So very very encouraging.

54:54 But we consider we need to be patient because if we start the expansion is to open 600 so broadly. So before going there, we need to be absolutely sure that the central city is in the right place.

55:06 Now moving to... Let me just add to Thierry's points on Scrip Express. I think, you know, as you said, we're seeing encouraging performance across all our cohorts on top line growth. The best stores do give us confidence. We are not solving for store count. We're solving for economics. So we're looking to prioritize proof over pace, repeatable, profitable economics. And we're, you know, encouraged by what we're seeing in our best stores. And we'll continue to progress in a disciplined way. So it's not store count only that we solve for. On working capital, yes, look, well controlled in H1, not still to go after. You've heard me talk previously around inventory. You know, we're far from best in class in inventory.

55:54 So rather than looking at structural actions, not tactical actions, you've heard me talk about some examples in my prepared remarks. If you look at the last three years, we've taken about nine days of stock out. um and we'll continue to focus on that um whilst being mindful of sales and the impact that the stock production has on sales payment terms another area of focus uh by the banners so uh i would i would say that it's it's an area that we look at closely and you'll expect us to continue to look at working capital as we look forward thanks very much Thank you. There are no further questions.

56:40 I now hand over to management for closing remarks.

56:45 Thank you. First of all, thank you for being with us. Thank you for all your questions. It's always a pleasure to discuss. I would say I'm very proud of the job done by the team during this H1. You know, we are pressing ahead at pace with our strategic delivery. You know, we speak about e-commerce, trade, marketplace, retail media, spoof experience. At the same time, we have been very disciplined on managing both margin cost and cash flow efficiently. and I think I'm very proud of the job done by the team we are we are building a stronger more resilient company by pushing and pressing on those strategic priorities and that makes me very very confident so thank you everyone and talk to you soon bye-bye thank you for joining today's call you may now disconnect have a nice day