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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.
Kingfi sher plc Annual Report and Accounts 2009/10 09 Delivering Value Key UK & Ireland France Other International Group programmes Environment Driving up B&Q UK & Ireland’s profi t Operating margins Growing Group sourcing Direct shipments US$m See p2, p7 & p20 for more details 07/08 08/09 09/10 See p2, p8 & p17 for more details Exploiting our UK Trade opportunity Total trade sales Reducing working capital See p2, p7 & p21 for more details 08/09 09/10 See p2, p8 & p24 for more details Expanding our total French business Sales Profi ts Engaging our people Gallup Q12 staff engagement survey See p2, p7 & p20 for more details 07/08 08/09 09/10 See p16 for more details Rolling out in Eastern Europe Sales Minimising our impact on the environment Climate change CO 2 emissions from store energy (kg CO 2 equivalent per m 2 total sales area) See p2, p8 & p21 for more details 07/08 08/09 09/10 See p18 for more details Turning around B&Q China Profi t/(loss) 3.2% † £4.1bn* 2.8% † £747m Eco-product sales (% contribution to total retail sales) (£60m)* See p2, p8 & p21 for more details See p18 for more details * restated at constant currency. † restated to include Ireland. Key Performance Indicators 4.9% £768m £4.3bn* £4.2bn £305m* £311m* £322m £1.1bn* (£27m)* £1.4bn £1.6bn* 07/08 08/09 09/10 (£34m) 821 696 794 07/08 08/09 09/10 3.75 -£180m -£315m 08/09 09/10 3.95 4.23 07/08 08/09 09/10 83.0 79.8 72.3 07/08 08/09 09/10 7% 10% 08/09 09/10
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9 10 Kingfi sher is included in two
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