a transformation strategy - kingfisher plc · • local marketing but leveraging international...

A Transformation Strategy

Francis MackayChairman

Today’s agenda Today’s agenda

• Transformation– rationale– update on process– management

• Our strategy for Home Improvement– strengths and opportunities– reinvigoration plans

• Questions

Our plan for the future

• Two independent pan-European businesses

Our plan for the future

• Two independent pan-European businesses

• Clear, accountable management structures

Our plan for the future

• Two independent pan-European businesses

• Clear, accountable management structures

• Local marketing but leveraging international scale

Our plan for the future

• Two independent pan-European businesses

• Clear, accountable management structures

• Local marketing but leveraging international scale

superior returns on invested capital

Transformation creates value

• Clear management of Home Improvement to enhance performance

• Separation provides transparency • Separation creates focus

Funding plan

• £3.3 billion cost funded by £2 billion rights issue and new debt

• 1-for-1 rights issue at 155p• 50% discount to 5 July price• 33% discount to TERP

Impact of buy-out

• Dilutive due to fall in world equity markets since our 15th May announcement– KGF down 20% – FTSE 100 down 12%– UK general retail sector down 12%– CAC 40 down 13%

Impact of buy-out

• Only modest integration benefits assumed

•• Only modest integration benefits Only modest integration benefits assumed assumed

Note: Based on 310p per share

Impact of buy-out

• Only modest integration benefits assumed

• EPS dilutive in 2003/4

•• Only modest integration benefits Only modest integration benefits assumed assumed

•• EPS EPS dilutivedilutive in 2003/4in 2003/4

Note: Based on 310p per share

Impact of buy-out

• Only modest integration benefits assumed

• EPS dilutive in 2003/4• Modestly enhancing in 2004/5

•• Only modest integration benefits Only modest integration benefits assumed assumed

•• EPS EPS dilutivedilutive in 2003/4in 2003/4•• Modestly enhancing in 2004/5Modestly enhancing in 2004/5

Note: Based on 310p per share

Impact of buy-out

• Only modest integration benefits assumed

• EPS dilutive in 2003/4• Modestly enhancing in 2004/5• Further EPS upside on delivery of full

integration benefits

•• Only modest integration benefits Only modest integration benefits assumed assumed

•• EPS EPS dilutivedilutive in 2003/4in 2003/4•• Modestly enhancing in 2004/5Modestly enhancing in 2004/5•• Further EPS upside on delivery of full Further EPS upside on delivery of full

integration benefits integration benefits

Note: Based on 310p per share

Key MilestonesOffer• Nil paid dealing commences 11th July• Last date for acceptance 2nd August• EU anti trust clearance Mid August• Offer submitted to CMF/COB Mid August

Management control passes• Offer period (5 weeks) End September• Acquisition complete End September

KESA separation should unlock potential value

• Leading European brands• Second most profitable electricals retailer in

Europe• Strong cash generator • Proven, experienced management team • Separation following offer completion

– management fully focused– transparency enables full valuation

Separation of Electrical & Furniture

• By most appropriate option for long term shareholder value

• Cash in excess of requirements to be returned to shareholders

A Transformation Strategy

Geoff MulcahyChief Executive

No 1 in European home improvement

• Market size €130 billion

No 1 in European home improvement

• Market size €130 billion• Forecast to grow strongly

No 1 in European home improvement

• Market size €130 billion• Forecast to grow strongly• Common products

No 1 in European home improvement

• Market size €130 billion• Forecast to grow strongly• Common products• Fragmented supplier base

No 1 in European home improvement

• Market size €130 billion• Forecast to grow strongly• Common products• Fragmented supplier base

Winners will maximise advantages of scale

Sources of CDI profit growth % of 99-2001 ebit growth

140

International& Other

120

6080

100

40200

UK BricoDépôt

Poland-20Castorama

France-40-60

Our three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix

Our three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix• Restoring Castorama France as a winner

Our three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix• Restoring Castorama France as a winner• Focusing our international efforts

Building on B&Q, a world class business

• Leading operating practices:• Leadership • Cost Price Reduction Programme• Far East sourcing• Own brand range development• Profitable catalogue and internet business

Building on B&Q, a world class business

• Leading operating practices:• Leadership • Cost Price Reduction Programme• Far East sourcing• Own brand range development• Profitable catalogue and internet business

• Category killing warehouse format

Building on B&Q, a world class business

• Leading operating practices:• Leadership • Cost Price Reduction Programme• Far East sourcing• Own brand range development• Profitable catalogue and internet business

• Category killing warehouse format• Successful expansion in Asia

Growing strongly in FranceGrowing strongly in France

•• Limited but consistent product rangeLimited but consistent product range

Growing strongly in FranceGrowing strongly in France

•• Limited but consistent product rangeLimited but consistent product range•• EDLPEDLP

Growing strongly in FranceGrowing strongly in France

•• Limited but consistent product rangeLimited but consistent product range•• EDLPEDLP•• Targeted offerTargeted offer

–– trade professionaltrade professional–– serious DIY enthusiastserious DIY enthusiast

Brico DépôtStore numbers

47

3426

Sales €m

CAGR: 34%

371

516

669

1999/00 2000/01 2001/02

1999/00 2000/01 2001/02

2001/02 LFL %9.2%

3.1%0.5%

Castorama Brico Dépôt FrenchFrance Market

Growing strongly in FranceGrowing strongly in France

•• Limited but consistent product rangeLimited but consistent product range•• EDLPEDLP•• Targeted offerTargeted offer

–– trade professionaltrade professional–– serious DIY enthusiastserious DIY enthusiast

•• Currently 47 stores Currently 47 stores -- 3,000 to 5,000 3,000 to 5,000 square metressquare metres

Growing strongly in FranceGrowing strongly in France

•• Limited but consistent product rangeLimited but consistent product range•• EDLPEDLP•• Targeted offerTargeted offer

–– trade professionaltrade professional–– serious DIY enthusiast serious DIY enthusiast

•• Currently 47 stores Currently 47 stores -- 3,000 to 5,000 3,000 to 5,000 square metressquare metres

•• Target of 100 storesTarget of 100 stores

Poland performance and market position is strong

6

12

14

14

32

0 5 10 15 20 25 30 35

Leroy Merlin

Casto Poland

Prakitker

OBI

Nomi

6.3%

5.2%

3.9%

2.7%

1.4%

0.3%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

Castorama

OBI

Praktiker

Nomi

Leroy Merlin

Bricomarche

Number of stores 2001

Market Share 2000

Sales

020406080

100120140160180200

1999/00 2000/01 2001/02

M PLN CAGR: 58%

French market growth has been good% householdspracticing DIY

Market growth% vs. previous year, nominal terms, 1992-2002

9.3

2.4

6.0

1.7 1.7

4.3 4.2

3.03.4

4.6

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002e

46.0

60.0

1995 2001

Source: Unibal, Castorama group

In close to half of Castorama France stores, sales have declined between 1999 and 2001

Number of Castorama France stores

16

38

36

4

Above 5% growth

Between 5% and 0%

Between 0% and -5% 42% of Total Castorama

store portfolio is in declineWorse than -5% decline

Source: CDI, Castorama stores with no change in 1999, 2000 and 2001

Focusing international resources where returns likely to be strongest

Estimated marketposition

Belgium 8Brazil n/aCanada 4China 1Germany 17Italy 3Taiwan 1Turkey n/a

Clear way forward

• Unify and simplify the management structure• Continue the expansion of B&Q, Brico Dépôt,

Castorama Poland and Screwfix• Reinvigorate Castorama France

– accelerate sales through a national Store Renewal Programme

– common range across France – Cost Price Reduction – benefits of centralisation and scale

• Decide where to focus internationally

We would manage via the existing strong teams

• Harness strong operational teams• Castorama and Brico Dépôt head

offices to stay in France• Some consolidation of the Kingfisher

and CDI small head office teams, but no compulsory redundancies

We already have some good examples of teamwork

• B&Q capital cost savings learnt from Réno-Dépôt

• Joint buying between B&Q and BricoDépôt

Higher LFL from store 6 12renewal programme and rangingCPR - Net buying benefits 22 40

Dual HQ cost elimination 5 5

Other 2 20

Target Operating Profit Uplift 35 77

2003/4(£m)

2004/5(£m)

Significant financial benefits will flow from our plans

Store Renewal programme in France

• Castorama stores to receive catch-up renewal investment

Store Renewal programme in France

• Castorama stores to receive catch-up renewal investment

• Best practices to be introduced – store layout (planograms)– overall SKU reduction– improved pricing strategy– range control

Store Renewal programme in France

• Castorama stores to receive catch-up renewal investment

• Best practices to be introduced – store layout (planograms)– overall SKU reduction– improved pricing strategy– range control

aiming for LFL above the market

Cost price reduction benefits Cumulative cost price reduction benefits £m - net

2000/01 2001/02 2002/03(e) 2003/04(e)

15

65

Over 100

Over 200

This programme drives product profitabilityProduct X

Cost Price / Unit £

2000 2001 2002

10.777.39 7.02

This programme drives product profitabilityProduct X ACTIONS

Cost Price / Unit £

2000 2001 2002

Retail Price £14.98

9.98 9.98

2000 2001 2002

10.777.39 7.02

This programme drives product profitabilityProduct X ACTIONS

Cost Price / Unit £

2000 2001 2002

Retail Price £14.98

9.98 9.98

2000 2001 2002

10.777.39 7.02

RESULTS

2000 2001 2002

15

88111

Quantity ‘000

This programme drives product profitabilityProduct X ACTIONS

Cost Price / Unit £

2000 2001 2002

Retail Price £14.98

9.98 9.98

2000 2001 2002

10.777.39 7.02

RESULTS

2000 2001 2002

45

188

316Margin £k

2000 2001 2002

15

88111

Quantity ‘000

Initial programme plan5 weeks 8 weeks18/8

Integration Plan

CPR implementation plan

Store renewal implementation planImplement

Head office integration plan

Identification of other opportunities

Overall programme mgt, reporting

Internal communications

1st half Q318/9 DEC

We believe the medium term offers enormous possibility

We believe the medium term offers enormous possibility

• Common buying – 30% to 40% common European ranges

• Common infrastructures

• Common buying – 30% to 40% common European ranges

• Common infrastructures

We believe our plan for Castorama in France will work

We believe our plan for Castorama in France will work

• We have a talented and motivated French team in place

• Successful DIY operating principles common to many countries

• We have a talented and motivated French team in place

• Successful DIY operating principles common to many countries

Our three point agenda for growthOur three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix

Our three point agenda for growthOur three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix• Restoring Castorama France as a winner

Our three point agenda for growthOur three point agenda for growth

• Backing the biggest winners:– B&Q, Brico Dépôt, Castorama Poland and

Screwfix• Restoring Castorama France as a winner• Focusing our international efforts

A Transformation Strategy