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