Download full Annual Report and Accounts - Kingfisher

08
A conversation with
the executive team
There is also a huge opportunity in sourcing. Last year our gross margin
percentage grew by 1.1 percentage points and it will grow again in 2010
as we signifi cantly increase our direct sourcing from around the world.
We import around 12% of the products we sell and this will double over
the next few years.
But what about top line growth?
B&Q has much more to offer its customers but we must have the
business fi ring on all cylinders fi rst. A lot of ‘retail engineering’ has taken
place at B&Q from improving store standards and clearing excess stock
levels (top stocks) to reducing the shelf space needed to display ranges.
Trials run over the last 18 months have shown us that we can achieve
the same total store sales using only 80-90% of the space in our bigger
stores. This is a fantastic growth opportunity as it means we can
broaden our business and create more top line sales from the spare
space in our 119 bigger stores, and for minimal investment. And the
additional sales are highly profi table because we are leveraging what
is a largely fi xed cost base in the existing store.
The fi rst example of how we will use this new available space is the
introduction of a 4,000 square foot specialist trade area called TradePoint.
TradePoint combines Screwfi x’s know how and specialist trade brands
with the convenience of B&Q’s store location and long opening hours.
Add to this, access to the rest of B&Q’s offer with exclusive year round
tradesman discounts and I believe we have created something unique
and very attractive for our professional customers. We will have 118 of
these by the end of the summer and we will also trial other new categories,
the best of which will be rolled out in 2011.
Peter Hogsted – CEO, Kingfi sher International
It’s been a busy year for you in China, are you making headway?
Yes, we had a lot of work to do in 2009 and all credit to the team that we
ended the year in much better shape. We delivered exactly what we said
we would do; consolidated our store base, improved our working capital
and reduced costs. The losses were signifi cantly reduced as planned
and we were actually cash generative across the year. We have also
started to downsize our stores and implement a new store format. There
is much work to do here and I was very pleased that Loïc Dubois agreed
to join us as CEO B&Q China to lead the next phase of our plan and
return the business to profi tability. Loïc spent 15 years in senior roles
with Carrefour in China and other Asian markets.
Poland seems to go from strength to strength, but is it about
to run out of steam?
The business has done very well to continue to grow its top line and
maintain its high operating profi t in what was a slower market in 2009.
However, I believe there is more to come yet from our Polish business.
The market still has a lot of pent up demand for more and better housing
and we have many more stores to open before we reach our full store
potential. Importantly, our excellent profi tability is driven by high sales,
not high gross margin percentage. Over time there is opportunity to
improve gross margins by introducing centralised distribution, more
direct sourcing, broader ranges and Group own brands. In fact we will
be opening our fi rst distribution centre in Poland in 2010 to start tapping
this potential. Poland is a long term growth story for Kingfi sher as is
Russia, where we are continuing to expand and open new stores.
Kingfi sher plc
Annual Report
and Accounts
2009/10
You are responsible for Group sourcing and innovation – what’s
in the pipeline?
Given my 13 years at IKEA it will not surprise you that I see huge potential
from driving more range commonality across Kingfi sher. Véronique
Laury-Deroubaix did a great job modernising the ranges at Castorama
France, where she was commercial director, and she is now helping
me drive change across the Group. The fi rst priority is simply to raise
the level of direct global sourcing in each of the individual businesses.
After that, the big prize is to create common, Kingfi sher-wide ranges
to leverage our Group scale.
Kevin O’Byrne – Group Finance Director
Last year you said “Cash is King” and set working capital
reduction as a key priority. It seems to have gone better than
planned. Was it just a one off?
It did go well and we generated £761 million of cash well ahead
of expectations. We set ambitious internal targets and aligned our
remuneration schemes behind this goal. This improved cash fl ow
was generated from several sources, improved trading, a more selective
approach to capital investment and a focus on reducing our net working
capital. Thanks to these efforts we were able to repay approximately
£550 million of outstanding bonds and loans early, reducing our ongoing
fi nancial costs. The business reduced stocks by 15 days, whilst
improving on-shelf stock availability for customers, contributing
to a £315 million reduction in net working capital.
But what’s really important is that this increased focus on better
free cash fl ow generation isn’t a short lived initiative, it’s now fi rmly
embedded as an ongoing business priority across Kingfi sher.
Having improved cash generation are acquisitions, special
dividends or share buybacks on the agenda?
Whilst it’s true that our headline reported fi nancial net debt of
£250 million looks low we also take into account our store leases and
pension scheme when thinking about total debt and appropriate
balance sheet leverage. On this broader basis we have gearing of
some 50%, putting us at still only the lower end of investment grade.
For this reason the uses you mention above are not really on our
radar at the moment.
So looking forward we will adopt a prudent and balanced approach
to cash. We will continue to use our cash generation to strengthen
our balance sheet, invest in the business and pay our shareholders
a dividend. We will, of course, look carefully at any opportunities to
accelerate growth but our hurdle criteria are much tougher these days.