Kingfisher Plans Turnaround As Chinese Sales Pull Profits Down

Kingfisher, owner of B&Q, dished out disappointing results, which showed its annual profits register a drop and prompted the company to think about closing its stores in China even as its chief executive Ian Cheshire stated that the company's future was bright. Kingfisher was also forced to cut down its final dividend by 50% to 3.4p.

The company saw its retail sales increase to 9.4 billion pounds, which was a climb up by 7.9% over the previous year. But profits were down and the company posted pre-tax profits of 386 million pounds, which were down by 2.8% over the previous year. Shares of the company also fell to 129.55p. Kingfisher also runs Castorama and Brico Depot in France and had expanded into Korea, Taiwan and China. It is facing a tough time as it already had to shut shop in Korea and sell off its business in Taiwan. China too seems to be going the same way and Mr. Cheshire said that they had already begun talks with the Government of China to go about restructuring its 62 stores as its losses mounted to 12 million pounds in that country.

Mr. Cheshire has been associated with the company since the past 10 years and was recently promoted to the chief executive's position in January. He commented that the previous year had been tough but also added that he was seeing some encouraging signs in the UK. He said that he could not comment on the sales of garden and outdoor furniture and other products in spring since it was too early and due to the current Easter season getting snowed out. He also cautioned that it could take around 4 years for the group to attain a turnaround. He explained that there would be an “escalator of improvement” in the next 4 years as the company planned to centralize all its dealings around the world by co-ordinating purchases, IT and product development.

Mr. Cheshire also indicated that they would now be more ruthless in exploiting those areas in the business where the returns were not up to expectations. He also blamed Kingfisher for not supporting their Chinese operations by providing enough management after the group had started operating its stores during the previous 3 years. The company has also paid the price as the Chinese government reacted to the booming real estate market. This move has resulted in some cities like Shenzhen registering a 80% fall in sales of new homes in the previous year. The company has now drawn up a 3 year plan, which according to Mr. Cheshire will be “stretching but achievable”. Mr. Cheshire will himself net a cool 16 million pounds as bonuses in case his proposed turnaround plan succeeds. He also did not dismiss the idea of selling off assets as part of the turnaround plan, saying there were no particularly sacred cows. He also commented on the company's share prices going southwards by saying that future prospects for retailers looked gloomy to the market and hence the effect was felt in the share prices. A new head was slated to be appointed to look after the UK division consisting of B&Q, Screwfix and Trade Depot. The company also had plans to cut down on capital expenditure across the group to 400 million in the current year.

The group's plan to cut dividend, which could result in savings and plans to restructure the entire group to run it in a centralized manner could start showing results if the economy does not register another major downturn in the future. Kingfisher's restructuring plan in China could also enable the group to save some millions but will put pressure on sales in the coming years. It all depends on whether Mr. Cheshire's plans can put the company back on track in the coming 4 years.

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Article written by: Craig Parker - Make Money Expert