Exane June 2006 Gerry Murphy, Group Chief Executive Mark Ladham,, Managing Director of B&Q China
Kingfisher market leading brands UK France Poland Italy Ireland Spain Russia Turkey China Taiwan Korea No of stores 322 100 Plus 21% interest in Hornbach, 119 stores in 8 European countries 15 75 30 27 7 7 1 8 49 21 1 Market ranking No 1 No 1 No 1 No 2 No 4 No 1 No 1 No 1
Consistent strategy Strengthen in developed markets UK and France Expand in developing markets Poland, Italy, China and Taiwan Establish in high growth markets UK Trade, Spain, Russia, Korea, Turkey Harness scale and international diversity
UK home improvement market evolving Changing consumer needs Most projects initiated by women More women doing DIY More Do-it it-for-me More home delivery/installation More consumer choice Traditional DIY + Specialists General merchants Hypermarkets On-line
B&Q response Better Prices More Choice More Service Modern Stores Lower Costs
B&Q More Choice More SKU s per store Over 3000 new products in 2006 New Select Leisure ranges Retro BBQ and Patio Heater Free-standing bedrooms
B&Q Modern stores: Warehouse format New Warehouse format 5 trial stores Room set displays Broader ranges More Shop Within A Shop Double digit ATV uplift Final trial store opens in July Wednesbury revamp
France Addressing the full market opportunity with two strong brands Castorama (102 stores) Targets mainstream consumer Broad choice, low price and ideas and inspiration Big stores, prime locations 12% 10% 8% 6% 4% 2% 0% -2% Q1 03/04 Q2 03/04 Q3 03/04 Q4 05/06 Q3 05/06 Q2 05/06 Q1 05/06 Q4 04/05 Q3 04/05 Q2 04/05 Q1 04/05 Q4 03/04 Brico Dépôt (73 stores) Targets the light trade and heavy DIY Very low price, limited range, stocked project quantities Mid-size stores, secondary locations Banque de France comparable stores (adjusted for Brico)_ Kingfisher France LFL
France significant progress since 2002 Jan 2002 Jan 2006 Stores 149 175 +26 stores Staff 15,816 17,025 +1,209 Sales 1.8bn 2.7bn +48% EBIT 120m 230m +92%
Castorama revitalisation Better Prices Better Products More Service Modern Stores Lower Costs
Castorama better products 2005 range renewal of 25% Decorative Kitchen Bathroom 2006 more range reviews Outdoor kitchen Internal/external moveable furniture Saunas Colours own-brand paint Home security
Castorama better stores Stores 1/4 of space in new format, 1/3rd by end 2006 Revamps and relocations performing strongly New/relocated stores: 15% uplift in sales density Revamped stores: high single digit sales uplift
Brico Dépôt continuing growth Highest ROIC in the Group 73 stores now Accelerated expansion in 2006 7 new stores 6 Castorama transfers Store target 120+ (up from 100) Investing for continued growth New IT system (SAP) New distribution centre
Focused capital allocation on high return and improving return formats Returns B&Q revamps B&Q Mini Warehouse Casto France B&Q Warehouse Poland Brico Dépôt Italy China (ex OBI) Group WACC (7.9%) Russia Spain Trade Depot Growth in Invested Capital
Focused capital allocation on high return and improving return formats Returns B&Q revamps B&Q Mini Warehouse Casto France B&Q Warehouse Poland Brico Dépôt Italy China (ex OBI) Group WACC (7.9%) Russia Spain Trade Depot Growth in Invested Capital
Focused capital allocation on high return and improving return formats Returns B&Q revamps B&Q Mini Warehouse Casto France B&Q Warehouse Poland Brico Dépôt Italy China (ex OBI) Group WACC (7.9%) Russia Spain Trade Depot Growth in Invested Capital
Focused capital allocation on high return and improving return formats Returns B&Q revamps B&Q Mini Warehouse Casto France B&Q Warehouse Poland Brico Dépôt Italy China (ex OBI) Group WACC (7.9%) Russia Spain Trade Depot Growth in Invested Capital
Rest of Europe and Asia continued expansion Tripled the stores in 4 years 179 146 57 77 99 2002/03 2003/04 2004/05 2005/06 2006/07E Rest of Europe Asia
Poland expanding profitably Market size: 2.6bn Castorama Poland No 1 rank by sales, space and brand 3 year CAGR sales and profits over 20% Harnessing Kingfisher s scale Own brand 3% of sales Direct imports: +300% YOY 30 stores now double in 5 years
Italy expanding profitably Market size: 12.7bn Castorama Italy Number 1 ranked brand Strong growth Sales +20% 3 year CAGR Profit +40% 3 year CAGR Harnessing Kingfisher s scale Own brand penetration over 5% Direct sourcing up 200% YoY 26 stores now double in 5 years
China expanding profitably Harbin 1 Clear Number 1 in the world s 4 th largest economy 2005 27 stores added 48 in total 2006 Complete OBI integration 10 new stores Targeting 100+ stores by 2010 Underlying business profitable Chengdu 2 Chongqing 2 Shenyang 2 Beijing 6 1 Dalian 1 Xian Tianjin 1 3 Qingdao Nanjing 3 2 Wuxi 1 Suzhou Wuhan 1 Kunming 1 Guangzhou Yangzhou 1 2 Dongguan 2 5 3 9 Hangzhou 1 Fuzhou 1 Xiamen Shenzhen Shanghai
China - An attractive market Over 300 million households 45 cities with population over 1 million and more through rapid urbanization Growing middle class over 10% of population earn over US$ 3,000 annually compared to 3% 5 years ago Retail sales worth around US$ 728.9 billion growing at 8-10% 8 per year One of the largest home improvement markets in the world currently worth over US$ 48.6 billion
But an extremely fragmented & competitive market Home Improvement Malls Big Box Home Improvement Retailers
Home improvement customers 5 5 categories: Budget constraint customers - Blue collar, low income, low savings, or heavy burden on Child and/or a Parent financial support - Very price sensitive, little sense of time value - Product features focus on Practicality Self expressionists - Young (typical age 25-30) - Good income and career potential, but limited accumulated savings - First-time time home owner (likely with financial assistance from parents) - More oriented towards Aesthetics and Convenience than Practicality, ty, but budget is relatively limited Modern family - Married and possibly have a child - White collar, mid-high income, stable career, have meaningful savings - Possibly moving from smaller dwell to bigger one, or better location - Experienced in home purchase and improvement - Look for quality (safety, health, comfort, functionality), service, convenience, and value time Upper Class - Very high income - Not price sensitive - Look for unique styles - Home as a statement of his/her success Middle men - Labor or contractors who work on customers decoration projects - Convenience is important - Price sensitive on selected items (which they pay the bill) but not sensitive at all on other items (which they pass the bill to customs) - Fringe benefit is liked
* Incl. 13 OBI Stores B&Q leads organised HI market Number of Stores Sales (RMB bn) 2004 2005 2006 YTD Chg 2005/06 21 48* +3 7.3 13 - - - 22 26-3 2.5-3.0 22 27-1 2.2-2.5 11 12-1.0 No.9 4 5 +1 0.5 1 1-0.1 0 1 +1 0.1
B&Q China - History 1997 General Manager appointed to establish B&Q in China. Shanghai entry city. 1999 JV established. First store opened in Hutai,, Shanghai. 2002 Ranked no. 1 by China Retail Association. Regional offices established. Profitable before pre-opening costs. 2005 Acquired 13 OBI Stores, opened 14 new stores Total store number reached 48 by year end. Retail Profit almost doubles that of 04. 2006 (As of May) Another 3 stores opened, bring the total to 51.
* Excl. OBI Acquisition Store progression since 1999 Primary City Secondary City 21 35 18 15 9 2 1 2 3 1 2 5 8 6 3 12 9 5 1999 2000 2001 2002 2003 2004 2005 17 *
Strong sales growth 95% CAGR 1999-2005 Sales LFL% YOY Unit: RMB m 3,209 4,147 15.5% 1,799 9.2% 7.3% 1,101 64 201 432 * 1999 2000 2001 2002 2003 2004 2005 2003 2004 2005* * Excl. OBI Acquisition
B&Q China - Store network Chengdu 2 Kunming 1 Xi an 1 Chongqing 2 Guangzhou 2 Dongguan Wuhan 1 Shenyang Beijing Dalian 6 1 1 Tianjin Qingdao Nanjing 3 3 Xiamen Shenzhen 2 5 Harbin 1 Wuxi 2 Suzhou 1 3 Fuzhou 1 2 2 9 Shanghai Hangzhou 51 Stores In Total Market Share: National #1 Primary Cities* #1 *Beijing, Shanghai, Guangzhou, and Shenzhen Note: Up to May 2005
B&Q China - Formats Average store size 13,000 sqm,, range of 6,000-18,000 sqm. Primary City Shanghai, Beijing, Shenzhen, Guangzhou Target size: 12,000-15,000 15,000 sqm Two floor Core home improvement plus furniture and finishing products Secondary City High growth cities Target size: 8,000-10,000 sqm Single storey + mezzanine (optional) Core home improvement
Note: Sales mix is based on 2006 P4 YTD result B&Q China 2 main customer groups, 3 main revenue channels RETAIL CUSTOMERS (80% of Sales) - Majority of customers are still empty shell customers who are decorating their entire home either through a third party decoration company (DC) or with B&Q as their DC TRADE CUSTOMERS (20% of Sales) -Both B2B and trade card holders are targeted RETAIL CHANNEL DC CHANNEL TRADE CHANNEL Majority of customers are shopping for empty shell apartments either with their DC often selecting specific products from B&Q where we holds the market leading position eg: Flooring Majority BIY customers One-Stop shopping Price transparency Wide range and quality products guaranteed Stores encourage customers to trade up by using B&Q as their DC Excellent service by DC will result in repeat purchases Customers use B&Q to complete their empty shell decoration. Customers select a decoration package depending on their choice of style and price. All products are then installed Allows B&Q to obtain a greater share of the room capturing products that otherwise may have been bought elsewhere Allows customers to see B&Q as a complete home solution provider encouraging repeat purchases B&Q has a dedicated department that deals with trade customers Trade card holders receive a discount, but margins remain in line with the retail business B2B Sales 20% Property developers eg: Vanke Wholesale sales Trade Sales 80% Hotels, restaurants etc.. that use B&Q products for repairs and maintenance Third party DCs that use B&Q products in their own decoration projects
Decoration service is a key differentiator Driving sales growth 25+% of sales B&Q China installed over 15000 apartments in 2005 (2004: 11000) Taking the customer from design to completion c. 55 days process ATV driver Lock in complete projects of retail customers An average contract value of over RMB80k including product New RMB49m Package for lower-income families Highly skilled labour pool available 800+ certified contractors employing 20000 workers Management and guarantee administered by B&Q China
B&Q China Senior Management Team David Wei President Mark Ladham MD-Retail Albert Ho CFO Ivan Chin EVP - Property Benjamin Yuan Executive VP - Commercial Chris Sprake Executive VP - Operation Robert Zhang SVP - DC Arnd Kraemer EVP-Finance Wayne Fitton SVP - Property Winston Wang VP Regional Buying Dan Wen SVP RGM South Angie Ko VP Marketing Thomas Hsu VP Legal Lily Chen Executive VP - HR Shawn Ai VP DRGM South Sophia Zhang VP - IT Chris Fan VP Strategy Winfield Tang VP - HR Jason Zong VP RGM East Eric Ai VP RGM North Larry Zheng VP RGM West Sam Yang VP - Trade Andy Farrow HK Total: 24 Chinese 19, Expat. 5 Wayne Chen VP - Training
B&Q China well positioned China is a huge opportunity National network of over 100 stores within five years B&Q is well placed No 1 More than 10 years of experience in China 10,000+ direct employees Result-driven Chinese management with strong track record expectations
Ellen McArthur in China