Shares in the world's third biggest home improvement retailer Kingfisher (KGF) have winged their way 2.2% higher to 289.6p on publication of its full-year results. Investors had already discounted a dip in the B&Q-owner's annual profits and chose to focus on the retail giant's better-than-expected cash flow and a 7% hike in the full year dividend to 9.46p.


The £6.7 billion cap, whose main retail brands are B&Q, Castorama, Screwfix and Brico Depot, reported pre-tax profit down 11% to £715 million for the financial year to 2 February. Sales were down 2.4% at £10.6 billion. This result was in line with guidance given in last month's (21 Feb) fourth quarter trading update.


Last year was a testing one for Paddington-headquartered Kingfisher. It faced the twin headwinds of terrible weather, particularly in the UK, and weak consumer confidence across Europe. Moribund housing markets and negative currency swings which impacted profits on translation into sterling proved unhelpful, too.


Operating profits fell almost 14% to £234 million in the UK, with sales of outdoor seasonal and building products at B&Q hit by the summer downpours. Profits also slipped more than 6% lower to £397 million in France, although Castorama's outperformance in a slow market provided grounds for encouragement.


Earnings declined by more than 15% in Poland to £107 million. Russia, now the second largest business in Kingfisher's 'Other International' division, made dramatically-improved profits of £16 million, up from £2 million a year earlier.


The market warmed to news of strong free cash flow generation from Kingfisher, which ended the year with £38 million net cash in the coffers compared with £88 million debt a year earlier.


Also buoying spirits was an upbeat statement from chief executive officer (CEO) Ian Cheshire, who remains 'very confident in our prospects, with clear initiatives underway to make it easier for our customers to have better and more sustainable homes.'


Consumer confidence remains fragile in many markets, yet the CEO is focused on Kingfisher's 'Creating the Leader' self-help plan, which involves investment in online initiatives, increased use of margin-enhancing direct and common sourcing, as well as new store openings and strengthening of the wider Kingfisher management team.


Stockbroker Panmure Gordon, with a 'buy' rating and 350p price target, explains that 'having massaged expectations down over the last 12 months, strong cash flow should be the focus today.' It adds: 'We are buyers on the view that the long term outlook for earnings remains good. Also, at some stage, there might be some help from the UK economy and, in the meantime, self-help opportunities should support profits and therefore the shares.'


Espirito Santo analyst Caroline Gulliver has a 'buy' recommendation and 300p fair value estimate for Kingfisher. She thinks there are 'a few signs of improvement in the UK housing market and the dramatic year-on-year declines in French housing starts should moderate as FY13/14 progresses.' the analyst adds: 'What's more, the negative currency impact has reversed (at this stage) and thus, assuming the weather improves at some point, we are comfortable with our forecast for 10% pre-tax profit growth in FY13/14.'

Issue Date: 26 Mar 2013