Kingfisher 1st Half Pretax Profit GBP206 Million Vs Profit GBP214 Million -2-
Thursday September 18th, 2008 / 7h39
Edited Press Release LONDON -(Dow Jones)- the beginning of this financial year Ian Cheshire was appointed as Group Chief Executive with the aim of unlocking the true potential for shareholders from the Group's leading position in European home improvement. Good progress has been made with three priorities as follows: Management Aim - a new senior team, working with a new collective responsibility for overall Group delivery of results as well as key existing cross-Group activities. The historical decentralised management structure has been replaced by a new Retail Board with collective responsibility for overall Group success. This board, which comprises the Group CEO, CFO, the three retail divisional heads and key functional heads (e.g. Group Commercial), meets monthly to monitor business performance and agree actions to achieve delivery of financial and operational objectives. Heads of the three newly created geographic retail divisions have been appointed (Philippe Tible for France, Euan Sutherland for the U.K. and Peter Hogsted for Other International). Kevin O'Byrne will also shortly be joining as CFO to complete the new Retail Board. New elements to the share-based long-term incentive plan have been introduced consistent with the aim of delivering a step-change in shareholder value. The plan awards shares for achievement of exceptional Total Shareholder Returns (TSR) and earnings growth for the Group over the next three and four years respectively. This plan has now been extended to cover the management teams at the operating businesses as well. Capital Aim - investment will be prioritised, targeting higher hurdle rates and faster payback periods. A key target is to stabilise debt at current levels, prior to reducing it in due course. A target of flat net debt has been set for the current year. New spending limits and a more rigorous approval process have been introduced and the Group is on track to meet its lowered capital investment target, around 20% lower than last year on a constant currency basis. As a result of the on-going review of existing capital employed Kingfisher recently announced an agreement to sell its relatively low returning, capital intensive Italian business for euro 560 million (GBP440 million). The disposal is expected to complete during Q4 with the proceeds to be used to reduce net debt. A target for flat net debt in 2008/09 (at last year end's exchange rates), adjusted for the recent sale of the Italian division, has been introduced as the lead financial target for annual senior management performance bonuses this year. Returns Aim - greater focus will be placed on generating higher cash returns from the retail businesses. Stretching targets for sales growth, margin improvement and cost reduction will be drawn up. The new leadership team has identified seven major steps, internally branded 'Delivering Value', which will drive up returns. The company said its target is to grow B&Q's operating margin to 7% through a combination of sales density improvements, improved gross margins and lower operating cost ratios. Since his arrival and appointment to the Retail Board in June, Euan Sutherland, CEO Kingfisher U.K., has been reviewing the business and identifying opportunities for driving profit in the short and medium-term. Higher sales densities and improved margins in existing stores remain key priorities and to achieve these aims, the renewal of B&Q's customer offer (new products, better service and an improved store environment) will continue, although a lower capital cost store revamp will be trialled. Having made significant progress with updating ranges and revamping stores over the last few years, the emphasis will now shift towards improving in-store service. Aisle accountability has now been introduced for store staff and training increased. Furthermore, more stringent store operating standards are being introduced to all stores. Profit growth also requires improved gross margins and cost efficiencies within the business. In the first half margins benefited from favourable mix, less stock markdowns and cost and stock reduction initiatives, which were successfully launched. Work is underway to deliver future cost savings, including product and supply chain cost reductions by co-ordinating activity with Screwfix and Trade Depot. An overall target to reduce B&Q's total cost to sales ratio by 150 basis points has been established. Kingfisher currently operates three brands in the U.K. trade market - B&Q, Screwfix and Trade Depot. The combined trade business, worth around GBP900 million sales per annum, is growing and makes healthy profits and returns but the companys share of this fragmented market remains low. During the first half, B&Q, with annual sales of around GBP450 million to the trade, launched a new Trade Discount Card for the professional tradesman, entitling cardholders to product and volume-based rebates. Screwfix opened a further 37 trade counters and launched a new mail order business exclusively for professional plumbers called 'Plumbfix'. Euan Sutherland is developing a co-ordinated approach across all three U.K. businesses to accelerate our profitable growth in this market segment. In France Kingfisher has two strong businesses, Castorama and Brico Dépôt, that in aggregate have consistently been taking market share for the last five years. Philippe Tible, previously CEO of Castorama France, has taken up his new role as CEO Kingfisher France with a remit to maximise the opportunities presented from trading the two brands in this geography, including greater joint French buying of the euro 1.2bn of common product that is currently bought from common suppliers but negotiated independently. Coordinated store expansion across the two brands will further develop market share with a target of opening 30 new stores (around 15% space growth) over the next three years. Kingfisher currently has three key market positions in Eastern Europe, a large and profitable business in Poland and two smaller but fast-developing businesses in Russia and Turkey (50% JV with Koç Group in Turkey). Kingfisher currently operates 69 stores across Eastern Europe which delivered GBP66 million profit in H1. Kingfisher is now targeting to open a further 80 stores in these three countries over the next four years, more than doubling current store space. Seven stores opened in the first half, on track for opening 19 in 2008/09. The Chinese market remains fundamentally attractive and an important long-term market opportunity for Kingfisher and the company said it remains committed to its future development. Its early expansion in this market has built a leading position, but without delivering the consistent returns it needs. The company said the recent disappointing performance has been due to a combination of reasons. Externally, there has been a weaker than anticipated housing market following a very rapid property market slowdown. Internally, operational issues have arisen, notably from the strain of the last few years' of rapid growth, and the increasing dependence of the business on new apartment fit outs and on suppliers for certain aspects of in-store merchandising and ranging. At the same time, local competition has improved relative to the B&Q offer. While market conditions are expected to improve in due course, B&Q China is now addressing these operational issues and a number of senior Kingfisher managers have been assigned to the team during H1 to lead this turnaround. The full team, along with Peter Hogsted, newly appointed CEO Kingfisher Other International, and Matt Tyson, newly appointed CEO B&Q Asia, will be fully in place this month. Ian Cheshire will be working directly with the strengthened team as a matter of priority to develop detailed action plans to address both the short-term trading issues and the medium-term store offer, which, as previously announced, will result in some store closures and downsizes. Group sourcing currently provides a source of new, exclusive products and purchasing savings. Momentum behind this valuable Group activity will benefit from the new, more collective way of working and new, more stretching targets. Effort will be spread across fewer categories and prioritised where cash margin gains are highest and most achievable in practice. The Group said it is on track to achieve a GBP100 million reduction in working capital this year generated by a number of initiatives. Payment terms on direct sourced product have been improved, delivered by the companys Group Commercial buying team based in Hong Kong. B&Q U.K. has significantly reduced its stock, particularly on seasonal product, through more rigorous clearance routines. In France, both businesses have continued their progress on faster collection of supplier rebates. Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=k7jH2fAtuRIiFWKroO9thw%3D%3D. You can use this link on the day this article is published and the following day.
