Steve Gilman Managing Director - B&Q Asia

Steve Gilman Managing Director - B&Q Asia

Vietnam Phillipines Asia is a massive opportunity. Estimated RMI Market Size 60 50 40 30 20 US$bn 10 0 UK Japan China Korea India Turkey Indonesia Malaysia Thailand Taiwan Source: internal estimates

with fragmented competition China India Country % HI Big Box / Organised Retailing 2% < 1% % Traditional Home Improvement Supply 98% > 99% Indonesia Japan Malaysia/Singapore Philippines South Korea Taiwan Thailand Vietnam 0% 80% 1% 0% 0% 10% 12% 0% 100% 20% 99% 100% 100% 90% 88% 100% Kingfisher current markets Source: Govt statistics, market research, Dresdner Kleinwort Wasserstein, EME, internal analysis

B&Q Asia - Market Development Principles Adapt B&Q format template to suit local requirements Applying learnings about the customer and market Leveraging pan-asian experience identifying similarities and differences across markets Open first store as a low cost trial Roll-out stores: move to retail profit within five years Low cost culture: small central support team Learnings shared with European businesses

B&Q Asia: Current Markets Turkey: 5 stores South Korea: Store Opening 2005 Mainland China: 20 stores Taiwan: 18 stores

B&Q in Asia a Brief History 1993 - Small team sent to Taiwan to evaluate the home improvement market opportunity 1996 - First store opened in Nankan, Taiwan Significant learning from first store understanding of customer and market 1997-2 stores in Taiwan confidence to enter a new market began looking at China June 1999 opened first China store in Hutai district, Shanghai May 2000 acquired a 50% stake in Koctas in Turkey 2001 - Team established in South Korea

B&Q Te Li Wu - Taiwan 50/50 joint venture with Testrite Strong no. 1 market position First store opened 1996 17 stores open by end 2003, 19 stores by end 2004 One of the highest home improvement retailer sales/sq.m in the world

B&Q Te Li Wu - Store Details Stores range from 2,500 sq.m to 8,000 sq.m Average store size: 4,900 sq.m Formats: Stand alone Basement to 3 rd floor trading Multi-level stores All leasehold stores land expensive

B&Q Te Li Wu Progress 2004 One new store added to strengthen leading market position Own brand and global sourcing development Developed Installations service Total Solutions: c. 30% growth YOY with product sales accounting for 15% of total sales Strengthening of the management team new General Manager and Commercial Director

Koctas - Turkey 50% share of existing business acquired in 2000 50/50 JV with Koc Group Five stores in Istanbul and coastal regions Stores range from 2,500 sq.m to 10,000 sq.m Average store size 4,800 sq.m No. 3 home improvement retailer in Turkey 3 new stores planned for 2005-6

Koctas - Turkey Successful example of benefits of group sourcing: Over 10% of products sold come from Group Allows Koctas to differentiate itself within the market unique products at fantastic value Increased net margins by 3% Own brand range development increases differentiation to drive sales and margins

B&Q Home - South Korea First store opening in Seoul in 2005 6,000 sq.m store colocated with a hypermarket Currently identifying next two sites Opportunity for up to 50 B&Q Home stores in South Korea

Key differences of running a home improvement retail business in Asia Not DIY, but BIY/CIY 25% of all products sold in B&Q China are installed by B&Q 10% are sold to trade Of the remaining 65%, the majority will be installed by a 3 rd party

Key differences of running a home improvement retail business in Asia Understanding the customer is key and adapting the format accordingly UK is not Asia

.. B&Q China

China an attractive market Over 300 million households 37 cities with population over 1 million and more through rapid urbanisation Growing middle class over 10% of population earn over US$3,000 compared to 3% five years ago Retail sales worth over 300 billion growing at 7-8% per year Third largest home improvement market in the world - currently estimated at 22 billion

with strong growth prospects 2004 2005 2008 GDP growth % (average per year over previous 5 years) 7.8% 7.9% 7.1% Population (million) Population growth (average per year over previous five years) 1,305 0.8% p.a 1,315 0.8% p.a 1,343 0.7% p.a. Percentage of urbanised population 34% 35% 36% Inflation/Deflation (Asia Monitor March 04) 1.8% 2.1% N/A Disposable consumer income per capita - Actual US$ 674 748 931 Home Improvement Market Size (US$bn) 42 44 55 Source: EIU/ Asia monitor 2004

China an extremely competitive environment Home Improvement Malls Big Box Home Improvement Retailers

China - big box home improvement retailers (ranked by market share) Number of Stores 2003 2004 Jan-Oct Coverage 15 20 National 13 22 North & West 21 22 National (Mainly East) 6 8 10 8 East (Mainly Shanghai) North No.9 5 6 Shanghai

B&Q China - History 1997 General Manager appointed to establish B&Q in China. Shanghai selected as first entry city 1999 JV established. First store opened in Hutai, Shanghai 2000 Second store opened in Shanghai. Decoration Service launched 2001 First store outside Shanghai opened Suzhou. First twofloor store format opened in Yang Pu, Shanghai. First store opened in the West - Kunming 2002 Ranked no. 1 by China Retail Association. Regional offices established. 2003 Turnover doubles and B&Q China becomes a truly national Home Improvement retailer with openings in Beijing and Guangzhou. Business becomes profitable 2004 Strengthened leading position in all markets.

B&Q China - Store Expansion 1999-2004 21 1 15 20 1 2 5 8 1999 2000 2001 2002 2003 2004 Currently open Additional store openings for 2004

B&Q China - Store Network No 1 with 1% market share: 75 store potential 20 th store opened in September 2004 Will be present in 26 cities. Half these stores will be in core cities

B&Q China - Formats Average store size 13,000 sqm, range of 6,000-18,000 sqm. Core City Shanghai, Beijing, Shenzhen, Guangzhou c. 15,000 sqm Two floor Core home improvement plus furniture and finishing products Non Core City Large, high growth cities with populations in excess of 2 million c. 10,000 sqm Single storey Core home improvement

B&Q China - 3 main customer groups Retail 65% sales One-stop Shopping Price transparency Wide range offer and availability Quality guarantees Mainly BIY/CIY customers Decoration Service 25% sales Full installation service Transform concrete shells into homes Trade 10% sales B2B Decoration companies/property developers

Decoration service is a key differentiator Driving sales growth 25% of sales B&Q China installed over 5000 apartments in 2003/4 (2001/2: 722) Taking the customer from design to completion c. 60 days process ATV driver An average contract value of over RMB100,000 including in-store product purchase Highly skilled market to tap Regular contracts with 360 certified contractors employing 8229 workers

Strong Sales Growth. 125% CAGR 1999-2003 131 88 85 33 5 15 1999/00 2000/01 2001/02 2002/03 2003/04 H1 2004/05 Sales in m at reported rates

Accompanied by Rapid Growth in Chinese Employees 95% CAGR 1999-2003 5300 4400 2600 1300 300 500 1999 2000 2001 2002 2003 2004

B&Q China - market share* in Shanghai Market Share: Number of Stores: OBI No. 9 15.9% 16.9% 18.1% 18.4% 15.3% 17.1% 2002 2003 Aug 2004 B&Q 4 4 4 Homemart 36.1% 33.9% 32.9% Homemart 7 8 9 B&Q 31.1% 29.5% 34.7% No.9 OBI 4 2 5 3 4 3 2002 2003 Aug 2004 Source: Shanghai Retail Association *For big box home improvement retailers

B&Q China improving profitability Break-even in 2003/4 after costs of doubling space Margins significantly below UK, but growing Future margin drivers: Continued product innovation Increased penetration of own-brand product On-going strategic supplier management Consolidation of vendor base Scale efficiencies on operating costs

Local Management for a Local Business Chinese European President Managing Director Property Chief Operating Officer Finance VP HR VP Operations VP Commercial VP 6 expats (UK and Singapore) in B&Q China down from 12 in 2003 Plans to localise more positions in the near future