strategic report page heading the common...

Strategic Report

Annual Report and Accounts 2013/14

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Our markets We currently operate in nine countries, spanning nearly 600 million households. Our research shows that spending on home improvement is a key priority for householders, making this an attractive sector for retailers. It is also attractive because of the relatively small number of well-known manufacturer brands. This means a specialist home improvement retailer provides a vital role for the consumer by offering a wide product choice and expert advice. We can offer a high proportion of own brand product, achieve economies of scale and have a more defensible position against online or generalist operators when compared with other retail segments. Read more about our business model on pages 6 to 7.

Our strategyOur unique contribution as a business to our customers is that we can harness our home improvement experience, our heritage as a leader in sustainability and our international scale and sourcing capability to bring new, more sustainable and more affordable products to market. This means our customers can have better homes, the planet’s resources can be protected and we generate value for our people, communities and shareholders.

By also providing our customers with project advice and new shopping channels to complement our stores, we will make it easier for them to adapt their homes to their evolving needs. Our shorthand for describing this purpose is Better Homes, Better Lives.

The next phase of our development towards this vision – Creating the Leader – builds on the success of the previous phase known as Delivering Value, which has repositioned Kingfisher as a stronger business in the attractive home improvement market.

Strategic Report

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CREATINGTHELEADER


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Strategic Report


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Our markets We currently operate in nine countries, spanning nearly 600 million households. Our research shows that spending on home improvement is a key priority for householders, making this an attractive sector for retailers. It is also attractive because of the relatively small number of well-known manufacturer brands. This means a specialist home improvement retailer provides a vital role for the consumer by offering a wide product choice and expert advice. We can offer a high proportion of own brand product, achieve economies of scale and have a more defensible position against online or generalist operators when compared with other retail segments. Read more about our business model on pages 6 to 7.

Our strategyOur unique contribution as a business to our customers is that we can harness our home improvement experience, our heritage as a leader in sustainability and our international scale and sourcing capability to bring new, more sustainable and more affordable products to market. This means our customers can have better homes, the planet’s resources can be protected and we generate value for our people, communities and shareholders.

By also providing our customers with project advice and new shopping channels to complement our stores, we will make it easier for them to adapt their homes to their evolving needs. Our shorthand for describing this purpose is Better Homes, Better Lives.

The next phase of our development towards this vision – Creating the Leader – builds on the success of the previous phase known as Delivering Value, which has repositioned Kingfisher as a stronger business in the attractive home improvement market.

www.kingfisher.com

9

Creating the Leader: Self-help initiatives Four Themes Eight Steps Key Performance Indicators (KPIs)

EASIER 1. Making it easier for customers to improve their home2. Giving our customers more ways to shop

For more information see pages 10 to 11.

• Like-for-like sales growth (LFL)

• Unique web users

COMMON 3. Building innovative common brands4. Driving efficiency and effectiveness everywhere


• % of Group sales direct sourced

• % of Group sales that are common

• Retail profit margin

EXPAND 5. Growing our presence in existing markets6. Expanding in new and developing markets


• Kingfisher Economic Profit (KEP)** A measure of profit after a charge for the capital used

by the business. (See page 24.)

ONE TEAM 7. Developing leaders and connecting people8. Sustainability: becoming Net Positive


• Group employee engagement scores

• Net Positive sustainability dashboard

Financial benefits Predicting the potential retail profit benefits from this programme today, when we don’t know the economic conditions or competitive landscape we will face in the future, is very difficult. However, whatever the conditions, we believe our efforts will drive higher LFL sales, higher gross margin and more cost

efficiencies than would have been delivered without thisprogramme. In total we estimate that this would create an additional £300 million of annualised retail profit in the fifth year (2016/17), net of price reinvestment and based on the size of the business and market conditions in 2011/12.

EAS IERCOMMONEXPAND

ONE TEAMONE TEAMHelping people have bet ter homes

www.kingfisher.com

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AccountsGovernanceStrategic Report

www.kingfisher.com

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Creating the Leader: Self-help initiatives Four Themes Eight Steps Key Performance Indicators (KPIs)

EASIER 1. Making it easier for customers to improve their home2. Giving our customers more ways to shop


• Like-for-like sales growth (LFL)

• Unique web users

COMMON 3. Building innovative common brands4. Driving efficiency and effectiveness everywhere


• % of Group sales direct sourced

• % of Group sales that are common

• Retail profit margin

EXPAND 5. Growing our presence in existing markets6. Expanding in new and developing markets


• Kingfisher Economic Profit (KEP)** A measure of profit after a charge for the capital used

by the business. (See page 24.)

ONE TEAM 7. Developing leaders and connecting people8. Sustainability: becoming Net Positive


• Group employee engagement scores

• Net Positive sustainability dashboard

Financial benefits Predicting the potential retail profit benefits from this programme today, when we don’t know the economic conditions or competitive landscape we will face in the future, is very difficult. However, whatever the conditions, we believe our efforts will drive higher LFL sales, higher gross margin and more cost

efficiencies than would have been delivered without thisprogramme. In total we estimate that this would create an additional £300 million of annualised retail profit in the fifth year (2016/17), net of price reinvestment and based on the size of the business and market conditions in 2011/12.

Strategic Report

Creating the leader


10

Our key steps

1. Making it easier for customers to improve their home

2. Giving our customers more ways to shop

What we did in 2013/14 Emphasised our affordability credentials: • Launched ‘handy prices’ marketing campaign in B&Q

• Invested in pricing in Castorama France and Poland

• Rolled out Brico Dépôt ‘back to basics’ marketing campaign

• Extended Brico Dépôt France and Spain programme of ‘arrivages’ (one-off special buys) to Turkey and Poland

• Launched UK Enterprise Finance Guarantee scheme for tradesmen

Extended our omnichannel offer: • Upgraded B&Q online offer (www.diy.com), including

20,000 extra products for home delivery (using Screwfix omnichannel infrastructure)

• Preparatory work to extend TradePoint (B&Q’s trade-only offer) website to main shop floor categories – e.g. kitchens – continues

• Launched upgraded websites in Turkey, China, Brico Dépôt France and Spain. Work to upgrade Poland’s website continues

• Trialled ‘click & collect’ in Castorama France and in Turkey

EASIER

Strategic Report

Creating the Leader

AFFORDABLEAFFORDABLE

INSPIRATION

CONFIDENCEEASIERCONFIDENCEEASIERTECHNOLOGY

RANGETECHNOLOGY

RANGETECHNOLOGY

HELPFULEASIER

HELPFULEASIERAFFORDABLE

HELPFULAFFORDABLE

ADVICEAVAILABILITYEDUCATIONCHOICE

AVAILABILITYCHOICE

AVAILABILITY


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Strategic Report

Creating the leader


10

Our key steps

1. Making it easier for customers to improve their home

2. Giving our customers more ways to shop

What we did in 2013/14 Emphasised our affordability credentials: • Launched ‘handy prices’ marketing campaign in B&Q

• Invested in pricing in Castorama France and Poland

• Rolled out Brico Dépôt ‘back to basics’ marketing campaign

• Extended Brico Dépôt France and Spain programme of ‘arrivages’ (one-off special buys) to Turkey and Poland

• Launched UK Enterprise Finance Guarantee scheme for tradesmen

Extended our omnichannel offer: • Upgraded B&Q online offer (www.diy.com), including

20,000 extra products for home delivery (using Screwfix omnichannel infrastructure)

• Preparatory work to extend TradePoint (B&Q’s trade-only offer) website to main shop floor categories – e.g. kitchens – continues

• Launched upgraded websites in Turkey, China, Brico Dépôt France and Spain. Work to upgrade Poland’s website continues

• Trialled ‘click & collect’ in Castorama France and in Turkey

Strategic Report Governance Accounts

www.kingfisher.com

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Key Performance Indicators (KPIs)

Key future prioritiesGoing forward from 2014/15, we are replacing the longer list of detailed milestones in favour of a summarised version that better highlights the key wider Group priorities within the Creating the Leader framework.

Our key priority in 2014/15 is to: • Extend omnichannel capabilities

across the Group

CONFIDENCECONVENIENTCONVENIENT

RESEARCHAVAILABILITY

CHOICERESEARCHCHOICERESEARCHAVAILABILITY

CHOICEAVAILABILITYOMNICHANNELAVAILABILITYOMNICHANNELAVAILABILITY

ACCESSIBLE

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Unique web users (m)Monthly Moving Annual Average

+0.7%

-2.9%12/13

+1.3%11/12

Like-for-like sales 13/14

www.kingfisher.com

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Our key priority in 2014/15 is to: • Extend omnichannel capabilities

across the Group

www.kingfisher.com

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11/12 1519

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Unique web users (m)Monthly Moving Annual Average

+0.7%

-2.9%12/13

+1.3%11/12

Like-for-like sales 13/14

TradePoint’s updated website is now transactional on 14,000 products. Further updates will include main shop floor categories

B&Q’s improved online offer includes 20,000 extra products for home delivery


Strategic Report

Creating the leader


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Our key steps

3. Building innovative common brands

4. Driving efficiency and effectiveness everywhere

What we did in 2013/14 Product: • Launched energy-efficient ‘iQE’ Group brand

• Extended common paint ranges

− Rolled out ‘Colours’ Group own-brand paint into Russia and Spain

− Commenced roll out of new ‘Colours’ own-brand emulsion paint range across B&Q UK & Ireland (in 120 stores) and Castorama France (all 105 stores completed)

− Launched exclusive ‘Valspar’ mixing desk paint into B&Q UK & Ireland (now in 120 stores) and China

• Launch of ‘Site’ workwear into Brico Dépôt France now planned during 2014/15 following ‘arrivages’ (one-off special buys) trial during 2013/14

• Held inaugural European product show, attended by 6,000 store and buying colleagues from the UK and France

• Achieved 9% common (up from 8% in 2012/13) and 20% direct sourcing (up from 19% in 2012/13) reflecting a re-emphasis of quality over quantity

• Extended French common supplier contracts to the wider Castorama and Brico Dépôt brands division

Efficiency: • Upweighted distribution centre and cross-docking capability in

Poland, Spain and Turkey

• SG&A(1) optimisation from media buying programmes across the UK and France. Achieved c.£40m total savings from Group SG&A initiatives since the start of Creating the Leader

• Extended Brico Dépôt shelf-ready packaging from 20% to 32%

• Rolled out France and Spain all-staff bonus programmes to Poland (linked to individual store sales and profit growth)

• Undertook IT process mapping analysis at Castorama France in readiness for Group-wide IT programme

(1) Selling, general & administrative expenses.

COMMON

WORLD’S BEST PRODUCTS

LOCAL MARKETSCOMMONLOCAL MARKETSCOMMON SCALEEXCLUSIVE BRANDSCOMMON

EXCLUSIVE BRANDSCOMMON

CUSTOMERCUSTOMERCHOICE

SCALECHOICE

SCALEUNIQUE

COMMONUNIQUE

COMMONCUSTOMER

UNIQUECUSTOMER

EFFICIENCYSCALEEFFICIENCYSCALEEXCLUSIVE BRANDSEFFICIENCYEXCLUSIVE BRANDSINNOVATION

WORLD’S BEST PRODUCTSINNOVATION

WORLD’S BEST PRODUCTS

EFFICIENCYINNOVATION EFFICIENCYINTERNATIONALEFFICIENCYINTERNATIONALEFFICIENCY


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Strategic Report

Creating the LeaderStrategic Report

Creating the leader


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Our key steps

3. Building innovative common brands

4. Driving efficiency and effectiveness everywhere

What we did in 2013/14 Product: • Launched energy-efficient ‘iQE’ Group brand

• Extended common paint ranges

− Rolled out ‘Colours’ Group own-brand paint into Russia and Spain

− Commenced roll out of new ‘Colours’ own-brand emulsion paint range across B&Q UK & Ireland (in 120 stores) and Castorama France (all 105 stores completed)

− Launched exclusive ‘Valspar’ mixing desk paint into B&Q UK & Ireland (now in 120 stores) and China

• Launch of ‘Site’ workwear into Brico Dépôt France now planned during 2014/15 following ‘arrivages’ (one-off special buys) trial during 2013/14

• Held inaugural European product show, attended by 6,000 store and buying colleagues from the UK and France

• Achieved 9% common (up from 8% in 2012/13) and 20% direct sourcing (up from 19% in 2012/13) reflecting a re-emphasis of quality over quantity

• Extended French common supplier contracts to the wider Castorama and Brico Dépôt brands division

Efficiency: • Upweighted distribution centre and cross-docking capability in

Poland, Spain and Turkey

• SG&A(1) optimisation from media buying programmes across the UK and France. Achieved c.£40m total savings from Group SG&A initiatives since the start of Creating the Leader

• Extended Brico Dépôt shelf-ready packaging from 20% to 32%

• Rolled out France and Spain all-staff bonus programmes to Poland (linked to individual store sales and profit growth)

• Undertook IT process mapping analysis at Castorama France in readiness for Group-wide IT programme

(1) Selling, general & administrative expenses.

www.kingfisher.com

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* The reduction in retail profit margin reflects difficult economic conditions in Europe and our decision to improve prices for customers in our major markets.


Our key priorities in 2014/15 are to: • Extend sourcing programmes

(e.g. new cross-Group MacAllister power and hand tools and Blooma BBQs)

• Start four-year Group-wide IT programme, consistent with our ongoing capital expenditure plans

SCALECHOICE

SCALECHOICE

SCALEEFFICIENCYSCALEEFFICIENCYSCALELOCAL TASTE

DIRECT SOURCINGINTERNATIONALEFFICIENCYINTERNATIONALEFFICIENCY EXCLUSIVEINTERNATIONALEXCLUSIVEINTERNATIONAL

STRONGER TOGETHER

DIVERSEDIVERSELOCAL TASTE

DIVERSELOCAL TASTEPRODUCTIVITYLOCAL TASTEPRODUCTIVITYLOCAL TASTE

www.kingfisher.com

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www.kingfisher.com

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* The reduction in retail profit margin reflects difficult economic conditions in Europe and our decision to improve prices for customers in our major markets.


Our key priorities in 2014/15 are to: • Extend sourcing programmes

(e.g. new cross-Group MacAllister power and hand tools and Blooma BBQs)

• Start four-year Group-wide IT programme, consistent with our ongoing capital expenditure plans

Kingfisher’s inaugural European product show was held in October 2013 involving 6,000 colleagues from the UK and France

Blooma BBQs, one of our Group own brands, feature dishwasher safe and reversible grills

Group own-brand MacAllister has developed a new drill with a light for easy use in confined spaces


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9

8.17.4

7.2*

Common product sales% of total sales

1519

2012/1313/14

11/12

Products direct sourced % of total sales

12/1313/14

11/12

Retail profit margin%

Strategic Report

Creating the leader


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Our key steps

5. Growing our presence in existing markets

6. Expanding in new and developing markets

What we did in 2013/14 Existing markets: • Opened 84 net new stores ahead of original target of 68

stores including UK 62 (principally Screwfix outlets), France 7,Poland 2, Russia 1, Spain 4, Turkey 8 (including a trial of 4 ‘Koçtas Fix’ outlets), representing 3% space growth

• Revamped and extended four Castorama France stores

• B&Q UK store rightsizing update

− First freehold store deal completed with a grocer last year

− Store reduced in size by 50%; sales density improvement of 75%

− Non-operational space sold to grocer in February 2014 at a good return for £32 million

− An additional store has received planning permission and seeking planning permission for another 16

New and developing markets: • Bought 15 stores in Romania, which contributed an additional

2% space growth. In total, Group space growth was 5%

• Evaluated Screwfix international opportunities – announcing a four-store pilot in Germany in summer 2014 and the launch of a country-wide website with next-day delivery

EXPANDGROWTHEXPANDGROWTHEXPANDHIGHER RETURNSEXPANDHIGHER RETURNSEXPANDTRADE

FLEXIBILITY

AMBITIONGROWTH

AMBITIONGROWTHINFILL CONSUMER REACH

GROWTHCONSUMER REACH

GROWTHBIG BOXFLEXIBILITYBIG BOXFLEXIBILITY

INTERNATIONAL CAPABILITYINTERNATIONAL CAPABILITY

LOCAL EXPERTISEAMBITION



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Strategic Report


Creating the leader


14

Our key steps

5. Growing our presence in existing markets

6. Expanding in new and developing markets

What we did in 2013/14 Existing markets: • Opened 84 net new stores ahead of original target of 68

stores including UK 62 (principally Screwfix outlets), France 7,Poland 2, Russia 1, Spain 4, Turkey 8 (including a trial of 4 ‘Koçtas Fix’ outlets), representing 3% space growth

• Revamped and extended four Castorama France stores

• B&Q UK store rightsizing update

− First freehold store deal completed with a grocer last year

− Store reduced in size by 50%; sales density improvement of 75%

− Non-operational space sold to grocer in February 2014 at a good return for £32 million

− An additional store has received planning permission and seeking planning permission for another 16

New and developing markets: • Bought 15 stores in Romania, which contributed an additional

2% space growth. In total, Group space growth was 5%

• Evaluated Screwfix international opportunities – announcing a four-store pilot in Germany in summer 2014 and the launch of a country-wide website with next-day delivery

www.kingfisher.com

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Key future priorities Going forward from 2014/15, we are replacing the longer list of detailed milestones in favour of a summarised version that better highlights the key wider Group priorities within the Creating the Leader framework.

Our key priorities in 2014/15 are: • Organic growth of 2% (71 net new

stores, of which 54 are Screwfix outlets) including entering two new markets

• To actively manage the portfolio including completing the disposal of Hornbach and looking for a strategic partner for B&Q China (see the Group CEO’s statement on page 5)

• To continue to capitalise on consolidation opportunities (as we did in Romania)

* See page 24.

HIGHER RETURNS

KINGFISHER ECONOMIC PROFITAMBITION

SMALL BOXOMNICHANNEL

NEW TERRITORIES

INTERNATIONAL CAPABILITYINTERNATIONAL CAPABILITY



OMNICHANNELLOCAL EXPERTISE

OMNICHANNEL

www.kingfisher.com

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www.kingfisher.com

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Key future priorities Going forward from 2014/15, we are replacing the longer list of detailed milestones in favour of a summarised version that better highlights the key wider Group priorities within the Creating the Leader framework.

Our key priorities in 2014/15 are: • Organic growth of 2% (71 net new

stores, of which 54 are Screwfix outlets) including entering two new markets

• To actively manage the portfolio including completing the disposal of Hornbach and looking for a strategic partner for B&Q China (see the Group CEO’s statement on page 5)

• To continue to capitalise on consolidation opportunities (as we did in Romania)

* See page 24.

Kingfisher acquired Bricostores’ 15 stores in Romania in 2013/14. They will be rebranded under the Brico Dépôt banner

Castorama France revamped two of its stores, including this one in Dunkerque

Screwfix opened 60 new stores in the year, taking the total to 335


12/1313/14

11/12 13144

74

Kingfisher Economic Profit (KEP)*(£m)

Strategic Report

Creating the leader


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Our key steps

7. Developing leaders and connecting people

8. Sustainability: becoming Net Positive

What we did in 2013/14 People: • Continued to extend the Kingfisher One Academy

Net Positive: • Published first Net Positive report and appointed Richard

Gillies from Marks and Spencer Group plc as Group Sustainability Director, to lead the Net Positive agenda (see www.kingfisher.com/netpositive)

• Over 1,400 Kingfisher employees shared an estimated gain of £10 million following the maturity of the ShareSave scheme in December 2013

ONE TEAMDEVELOPING LEADERSONE TEAMDEVELOPING LEADERSONE TEAMFORCE FOR GOOD

NET POSITIVENET POSITIVEDIVERSITY ONE TEAMDIVERSITY ONE TEAM

RECRUITMENTFORCE FOR GOODRECRUITMENTFORCE FOR GOOD

NET POSITIVERECRUITMENT

NET POSITIVEDIVERSITY RECRUITMENTDIVERSITY AMBITIONONE TEAMAMBITIONONE TEAM

RECRUITMENTAMBITION

RECRUITMENT

COLLABORATIONDEVELOPING LEADERS

COLLABORATIONDEVELOPING LEADERS

ACADEMYDEVELOPING LEADERS

ACADEMYDEVELOPING LEADERS

HARNESSONE TEAMHARNESSONE TEAMDIVERSITY HARNESSDIVERSITY ONE TEAMDIVERSITY ONE TEAMHARNESSONE TEAMDIVERSITY ONE TEAMRECRUITMENTHARNESS

RECRUITMENTDIVERSITY RECRUITMENTDIVERSITY HARNESSDIVERSITY RECRUITMENTDIVERSITY ENGAGEMENT


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Strategic Report


Creating the leader


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Our key steps

7. Developing leaders and connecting people

8. Sustainability: becoming Net Positive

What we did in 2013/14 People: • Continued to extend the Kingfisher One Academy

Net Positive: • Published first Net Positive report and appointed Richard

Gillies from Marks and Spencer Group plc as Group Sustainability Director, to lead the Net Positive agenda (see www.kingfisher.com/netpositive)

• Over 1,400 Kingfisher employees shared an estimated gain of £10 million following the maturity of the ShareSave scheme in December 2013

www.kingfisher.com

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* Based on a wider sample of employees with over 70,000 staff invited to participate in 2013/14. The 2012/13 figure of 4.11 for the leadership group rose to 4.25 in 2013/14.

** For full information go to www.kingfisher.com/netpositive/reporting


Our key priorities in 2014/15 are to:

People: • Increase focus on talent management

• Continue to develop Kingfisher One Academy with new programmes

Net Positive: • Establish processes to accelerate

Net Positive innovation and to apply what we learn across the Group

• Further integrate Net Positive into our Operating Company business plans

DEVELOPING LEADERSACADEMY

DEVELOPING LEADERSACADEMY

DEVELOPING LEADERSCONNECTING PEOPLE

ENGAGEMENT SKILLSMOBILITYDEVELOPING LEADERSMOBILITYDEVELOPING LEADERS

TALENTSKILLSTALENTSKILLSRETENTION

SKILLSRETENTION

SKILLSPOSITIVE IMPACTPOSITIVE IMPACT

ENGAGEMENTPOSITIVE IMPACT

ENGAGEMENT

www.kingfisher.com

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www.kingfisher.com

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* Based on a wider sample of employees with over 70,000 staff invited to participate in 2013/14. The 2012/13 figure of 4.11 for the leadership group rose to 4.25 in 2013/14.

** For full information go to www.kingfisher.com/netpositive/reporting


Our key priorities in 2014/15 are to:

People: • Increase focus on talent management

• Continue to develop Kingfisher One Academy with new programmes

Net Positive: • Establish processes to accelerate

Net Positive innovation and to apply what we learn across the Group

• Further integrate Net Positive into our Operating Company business plans

The Kingfisher One Academy ran 10 programmes for the Group’s top 200 leaders in 2013/14

The first report covering our performance against our Net Positive targets was published in June 2013

Kingfisher achieved Business in the Community’s Corporate Responsibility Index Platinum Big Tick in the 2013 survey. We are also included in two socially responsible indices, the FTSE4Good and Dow Jones Sustainability Index.


Engagement scoresGallup Q12 survey (out of 5)*

13/14 £2.3bn (eco-product sales)12/13 £2.1bn (eco-product sales)11/12 £2.2bn (eco-product sales)

12/1313/14

11/12 3.963.913.95

Sales of products with eco-credentials % of total sales**

12/1313/14

11/12 2020

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