Kingfisher swoops to conquer

The final year of do-it-yourself (DIY) retailer Kingfisher's 'Delivering Value' initiative did what it says on the tin, with the full year dividend up by a quarter.

The group announced a 23.8% increase in the final dividend to 6.37p from 5.145p the year before, making the total payment in respect of the year to January 31st, 2012, was up 25.0% to 8.84p from 7.07p the year before, ahead of market expectations of 8.44p.

Sales rose 3.6%, or 3.3% on a constant currency basis, to £10,831m from £10,450m the year before. Like-for-like (LFL) sales were up 1.3%. The market had been expecting turnover of £10.8bn.

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Adjusted pre-tax profit jumped 20.4% to £807m from £670m the year before, slightly ahead of the £801.9m the market had been expecting. Profit before tax after exceptional items was up 18.8% to £797m from £671m the year before.

Adjusted basic earnings per share (EPS) advanced 22.4% to 25.1p from 20.5p the year before; the market had pencilled in a figure of 24.73p for EPS.

The group ended the year with net debt of £88m, compared to a surplus at the end of the previous financial year of £14m. To put that level of debt into context, Kingfisher's property portfolio has been independently valued at £3.5bn, up from £3.3bn the year before. The company as a whole is valued at £7bn by the market.

Self-help initiatives - cost-cutting, operational efficiencies and the like - drove strong growth in each of the three main operating divisions in what remained challenging consumer markets, the group said.

French retail profits were up 20.0% to £423m, driven by strong sales growth (+3.7% LFL) and continuing margin initiatives. Credit Suisse had predicted earnings before interest and tax (EBIT) of £425m for the French operations.

In the UK & Ireland retail profits were up 11.6% to £271m (Credit Suisse forecast: £260m). B&Q's retail profit margin continued to improve, benefiting from margin and cost initiatives. Of the 29 ex-Focus DIY stores acquired, 27 were converted during the year to the B&Q format. The Screwfix chain's retail profit was up 16.2%.

What Kingfisher calls its "Other International" division, retail profits were up 13.2% to £188m (CS forecast: £187m), with Poland, Turkey, Germany and Russia putting in good shifts while lower losses were experienced in China.

In a move keenly anticipated, at least by investment analysts following the B&Q and Castorama owner, Kingfisher has unveiled the next phase of its 'Creating the Leader' programme, which management hopes will establish the group as a world-class retailer.

There are eight phases to the new programme, briefly outlined below.

1) Making it easier for customers to improve their home. This entails initiatives such as stocking products that are easier to use, providing online research, design and forums, not forgetting keeping prices low and competitive.

2) Giving customers more ways to shop. We are talking mobile apps, click-pay-collect-in-store initiatives to augment the edge-of-town DIY barn offering.

3) Building innovative common brands. Kingfisher's definition of common brands is: the same product or same supplier used for similar product lines across all stores in the group. At the moment, only 2% of product sales fall into this category; Kingfisher aims to get this up to 50%. It also plans to increase the proportion of direct sourced products up to 35% from 15% at present, which will probably send a shiver through Kingfisher's wholesale suppliers.

4) Driving efficiency and effectiveness everywhere, to improve retail margins.

5) Growing presence in existing markets. The group plans to open 67 new stores this year; 50 of them in the UK, two in France, six in Poland, four in Turkey and three in Spain.

6) Expanding in new and developing markets. The group will be testing a new "do it for me" store format in China this year,

7) Developing leaders and connecting people. The group plans to launch its Kingfisher Academy this year.

8) Sustainability: becoming 'Net Positive' - a nod towards ecological concerns.

"We have much more to do, but I believe Kingfisher is now well on the way to fulfilling its potential as the industry leader in home improvement. This is an exciting prospect for both our colleagues and our shareholders. Industry leadership will bring with it an out-performance in sales, profit and economic return, making Kingfisher a more valuable business," said Group Chief Executive, Ian Cheshire.

"Whilst the immediate economic outlook remains uncertain, we face the future in robust shape and with our successful self-help approach now embedded in the way we do business," Cheshire added.

The market proved hard to please, with the shares dipping 3.1p to 296.9p in the first hour of trading, but still within spitting distance of its 52-week high.

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