Annual Review and Summary Financial Statements 2004/05 Improving homes growing value
Growing markets strong pos UK No.1 France No.1 Poland No.1 China No.1 Taiwan No.1 Italy No.2 Turkey No.3 Ireland Spain Strategic alliance. Kingfisher has a 21% stake in Hornbach, Germany s leading DIY warehouse retailer. Russia Sweden Ireland UK Netherlands Luxembourg Germany Czech Republic Poland Slovakia France Switzerland Austria Italy Spain Turkey
Contents tionsstore Sales by region numbers: UK 334 stores UK and Ireland 56.4% UK and Ireland 28.8% Contribution to sales growth by region* Rest of world 31.7% France 33.3% Rest of world 10.3% France 39.5% * in constant currencies Ireland 3 stores France Castorama 103 stores Brico Dépôt 64 stores Poland 25 stores Italy 22 stores Spain 4 stores China 21 stores Taiwan 18 stores Turkey 5 stores Fi i l highlight & Ch i m stat nt I e i g e h eati g al Chi f E e uti e e ie I p o i g h g o i g al UK: M F a e a pi g e h i e l R p i i g e it li i g R st f G o i g pp rt ld ity S ppli s Top al d t p p od ct S i l e p ibility: R p ibl g owth B d f Di ect s d E e uti e C itt 2 4 8 10 12 14 16 18 S ry Di ectors d 20 o p ate go e n e ep rts S ry Di ectors 21 e ati ep rt S ry fi i l e ie 24 China Taiwan South Korea Kingfisher s growing international reach Nine markets where Kingfisher trades Eight markets where Hornbach trades Two markets planned for entry I d p d nt ditors state nt 26 S ry on olidated 27 p ofit d loss co nt S ry on olidated b l e 28 h et d a h flo state nt Fi e ye history 29 Sh eh ld info mati (B k o e )
2 Retail sales* ( bn) 6.1 03 7.1 04 7.7 05 Increasing Retail profit* ( m) 706.5 638.2 519.9 03 04 05 Adjusted basic EPS* (p) 20.8 17.8 13.4 03 04 05 Underlying return on invested capital* (%) 8.7 8.9 7.6 January year end 03 04 05 *relates to continuing operations Chairman s statement I am pleased to report a year of solid progress for Kingfisher. Sales and profits grew, with adjusted pre-tax profits of 687 million, up 16.2%, despite a tougher market environment for our biggest businesses in the UK, France and Poland. Kingfisher has also continued to establish its operations in its other international markets, such as Taiwan, China, Italy, Spain and Turkey. In line with our focus on both growth and improving returns, Kingfisher s return on invested capital increased from 8.7% to 8.9%, with Total Shareholder Return of more than 13% in the financial year. The Board is pleased to recommend that shareholders receive a total dividend for the year of 10.65p per share for the year, an increase of 10.4% on the previous year. In the UK, B&Q continued to grow sales and profits at the same time as investing for the future. As well as opening new stores, B&Q has continued to modernise existing stores, add new product ranges and improve its home delivery and service capabilities. In France, Kingfisher now has two successful store formats. Serving the professional and serious DIY enthusiast is our smaller, hard discount format Brico Dépôt. At the other end of the market, Castorama s network of large stores continues to improve its product ranges aimed at the mainstream consumer. The revitalisation of Castorama continued, with customers enjoying more product choice at competitive prices. The refurbishment of the store estate also continued with good results. I have been delighted by the exceptional performance of Brico Dépôt which grew sales at six times the rate of the French market. With the French consumer becoming increasingly price aware, this highly successful format has proved to be a great asset in France and, more recently, in Spain. It has been a particularly good year for the development of Kingfisher s businesses outside of the UK and France, with profits in
Financial highlights millions 2004/05 2003/04 % change Retail sales 7,649.6 7,038.2 +8.7% Retail profit 706.5 638.2 +10.7% Adjusted pre-tax profit 686.5 590.7 +16.2% Adjusted basic earnings per share 20.8p 17.8p +16.9% Full year dividend per share 10.65p 9.65p +10.4% Underlying return on invested capital 8.9% 8.7% +0.2pps * reach creatingvalue *percentage points this rest of world category reaching 83.4 million, up 39% in constant currencies on sales of 787 million. Kingfisher now trades in nine countries and plans to open its first store in South Korea this summer, and in Russia in 2006. We have continued to invest in all our businesses and to improve the offer to customers by opening new stores, modernising existing stores, broadening product ranges and increasing the focus on staff training. Kingfisher s geographic scale and diversity gives the Group unrivalled buying power, delivering lower prices to customers and driving sales and profits. The co-ordination of Kingfisher s supply chain enables the sharing of ideas in areas such as product development and own-brand extension. The transfer of people-skills and knowledge around the Group is a focus of our top managers. We recognise that Kingfisher s international scope brings responsibilities with it. Kingfisher has continued to make progress in Sailing into the record books In February, Ellen MacArthur received worldwide acclaim when she broke the sailing record for a solo round the world voyage on her 75 foot trimaran B&Q/Castorama. the area of social responsibility during the year and recently established a new set of social responsibility principles. I would like to pay tribute to the Group s management, which I believe has great strength in depth. In addition to the main Board, Kingfisher has an Executive Committee which is chaired by the Group Chief Executive, Gerry Murphy, and includes the directors in charge of all our main businesses. I would like to take this opportunity to thank Bill Whiting, who stepped down from the Kingfisher Board at the end of the financial year and retired from the company in March. Bill has been a tremendous asset to Kingfisher during his 23 years with the company. We wish him well. In addition, I want to congratulate Dame Ellen MacArthur for her tremendous record-breaking round the world voyage. Ellen s website, www.teamellen.com, received 3 million unique visits as people around the world followed her progress on the B&Q/Castorama trimaran. She also received more than 70,000 emails via the site. In March, B&Q received the Retail Week Outstanding Achievement Award for its work with Ellen. Finally, I would like to extend the Board s sincerest thanks to Kingfisher s 75,000 staff for their continued loyalty, hard work and professionalism. I look forward to delivering another year of real value for customers and shareholders, at the same time as providing fulfilling careers for all our employees. Sir Francis Mackay Chairman
Chief Executive s review Improving homes 4 Our customers Nearly six million customers shop at Kingfisher s 600 stores around the world every week, demonstrating the popularity of B&Q, Castorama, Brico Dépôt and Screwfix Direct. Kingfisher s aim is to help customers improve their homes and to enhance their shopping experience by constantly improving stores and ranges, offering best value prices and improving service. Putting customers at the heart of any retail business is a prerequisite for delivering sustainable growth and returns to shareholders. Our markets Home improvement is a very attractive retail sector. Consumers are spending more of their disposable income on improving their homes and this trend is well established across the developed markets in Western Europe. Increasingly, the emerging Eastern European and Asian markets are experiencing the same trends. As the home becomes more important as a base for both leisure and work, the longer-term growth prospects for home improvement markets look very attractive. However, growth has slowed somewhat over the past year in Kingfisher s main markets. In the UK, consumers have been faced with higher interest rates, higher taxes and rising utility bills, leading to a stronger focus on value for money and, consequently, increasingly price-led competition. In France, growth in the home improvement market has also slowed, and the French retail market has become even more discount driven. Kingfisher s strengths In these tougher conditions, companies with the scale and cost efficiency to deliver better value to their customers will be best placed to prosper. Kingfisher has these strengths, providing real advantage in increasingly competitive markets. Kingfisher s buying scale enables it to work in partnership with the best suppliers to obtain the best products, often on an exclusive basis, and offer the best prices to customers. Kingfisher s international dimension is another great strength. Over 40% of Group sales and profits come from outside the UK and Ireland, giving good geographic balance and increasing opportunities to share ideas and best practice. Developing closer relationships between Kingfisher s retail companies has been a top priority and several case studies are included in this Annual Review to demonstrate this practical co-operation in action. One example is the successful development of mid-sized Warehouse store formats for congested urban areas or for smaller markets. These were first opened by B&Q in Taiwan, a densely populated country where retail space is scarce and expensive. This year, they have been tested successfully by Castorama Italy and Castorama Poland, greatly expanding the number of towns and cities which these companies can target with smaller format stores. B&Q Taiwan s stores also provided the blueprint for the increasingly successful B&Q mini-warehouse format in the UK. Another example of shared retail inspiration is B&Q UK s newlook Warehouse stores in East Kilbride and Bristol which have taken decorative ideas from B&Q China and Castorama France. These stretch stores mark a step-change in approach, designed both to inspire home improvement consumers and deliver a more compelling offer to trade customers. The marketplace areas at the front of these stores provide more retail theatre while the larger and higher profile displays of softer goods, as well as the centrally located cafés, make the stores more accessible. Trade customers benefit from better tool ranges and easier entry and exit. Kingfisher has also made good progress on developing its proprietary, exclusive brands, now accounting for almost a quarter of sales. The Colours paint brand, which has already been extended from the UK to Taiwan and China, will be launched in most of Kingfisher s other operating companies by early 2006. New, low-cost air conditioning units have also been developed and will be on sale in the UK and France this year under Kingfisherowned brands. Progress in 2004/05 Kingfisher continued to balance improving short-term financial performance with investing for future growth potential. During the year, Kingfisher delivered a solid financial performance in very competitive markets with total sales of 7.7 billion, up 9.9% in constant currencies, and up 3.9% on a like-for-like (LFL) basis. Adjusted pre-tax profits rose 16% to 687 million and the Group continued to generate value with the return on invested capital rising from 8.7% to 8.9%. Kingfisher also made good progress in underpinning its longerterm growth prospects with continuing investment in modernising and expanding its established businesses in the UK and France, and growing its developing businesses in Poland, Italy, China, Taiwan, Spain and Turkey. Capital expenditure totalled just over 400 million in the year with investment in 30 net new store openings, as well as continued growth in funding for information systems and supply chain improvements. Staff training continued to be a key focus during the year and the B&Q University will increase its customer service training by a further third during the current year. B&Q China has also established a similar programme to train its fast-growing workforce. Looking briefly at Kingfisher s key operations: UK & Ireland B&Q delivered total sales growth of 4.9% to 4.1 billion, with LFL sales up 1.3% in a tougher market. Retail profit grew 7.7% to 401 million. This performance was achieved in spite of a slowdown in consumer spending as well as an increasingly competitive and promotional market. B&Q outperformed the UK s repair,
Each week, Kingfisher s businesses serve six million customers in nine countries across Europe and Asia. Our goal is to create the best shopping experience for them by continually modernising stores, updating products, lowering prices and adding new customer services. growing value In March, B&Q opened a new mini-warehouse store in Cork, its fourth in Ireland. The picture shows Gerry Murphy, Kingfisher s Chief Executive, with Tony Boullier, Manager of the Cork store. The smaller mini-warehouse format has proved very popular with customers and enables B&Q to open stores in locations which might not be suitable for a fullsized Warehouse store.
Chief Executive s review continued 6 maintenance and improvement (RMI) market, growing its share from 14.4% to 14.7%. B&Q continues to evolve its customer offer and a number of new and improved product ranges were introduced during the year. More new ranges are being launched for spring/summer 2005 in Horticulture and Garden Leisure as well as Speedstone granite worktops. These new ranges are being supported by stronger marketing with a 5,000 product Price Reverse campaign aimed at reinforcing B&Q s leadership in Every Day Low Pricing (EDLP) value for money and a new Do More campaign aimed at broadening B&Q s appeal to style-conscious consumers. B&Q continued to grow its trading space, opening 12 new Warehouse stores, closing two and revamping one. B&Q also opened six new mini-warehouses and continued the pace of the mini-warehouse conversion programme, converting a total of 26 stores during the year. These converted stores have been performing well. Also in the UK, Screwfix Direct grew sales by 3.6% to 229 million and generated profits of 7.7 million, 11.4 million lower than last year. The lower sales growth and profit decline were a result of operational disruption following a complete reconfiguration of Screwfix Direct s fulfilment and distribution operations. A new semi-automated centre near Stoke, which has increased Screwfix Direct s capacity by 40%, is now fully operational. Screwfix Direct has also opened two Trade Counter stores to test a possible additional route to market in the attractive and growing trade RMI sector. In addition, Kingfisher has established a new UK trade division to optimise the Group s presence in this large market. France (All sales and profit growth figures are in constant currencies.) Castorama s sales reached 1.6 billion, up 4.4%, and retail profit was 134 million, up 9%. LFL sales rose 2.6%. The revitalisation programme progressed with revamped stores, new ranges and lower prices driving sales ahead. Importantly, Castorama improved its perceived value ranking during the year, rising from ninth to fifth in the French DIY sector, according to market research group Inforco. This improvement follows Castorama s increased focus on premier prix (entry price) products in key ranges and more prominent communication of value in its stores and through its marketing. New ranges were launched during the year and substantially renewed ranges of bathrooms, showers, kitchens and decorative products will be launched in 2005. Castorama continued its store revitalisation programme with three stores being relocated and seven existing stores being refurbished. These stores have been trading well and a further seven will be revamped during 2005, with two relocations and two new stores also planned. Brico Dépôt continued to deliver impressive growth with sales of 976 million, up 27% (17.7% LFL) and profits of 81 million, up 38%. Sales were boosted by the launch in April of its first national catalogue which showcased the entire product range. Brico Dépôt also opened four new stores, revamped two and converted two ex-castorama stores. A further six new store openings and four revamps are planned for 2005/06. Rest of world (All sales and profit growth figures are in constant currencies.) Outside the UK, Ireland and France, expansion accelerated with total sales of 787 million, up 39% in total and up 6.5% on a LFL basis. Retail profits were 83.4 million, up 39%. A total of 20 new stores were opened taking the total in this division to 95. Castorama Poland performed strongly at the start of the year as customers bought ahead of higher VAT rates, which were introduced when Poland joined the EU in May 2004. Sales were subsequently depressed by the tax changes as the consumer economy weakened, though the underlying Castorama business remains strong. Castorama Italy delivered good sales and profit growth with the new medium box store format proving very successful. B&Q China performed well and delivered a substantial increase in profits. Six new stores opened, taking the total to 21. B&Q Taiwan also performed strongly. In Spain, Brico Dépôt opened three stores during the year taking the total to four. Brico Dépôt s progress in Spain means that all three of Kingfisher s main retail brands have now been exported successfully to other international markets. Kingfisher continues to expand into new markets which fit its development criteria of scale and opportunity, to create value for shareholders. The first B&Q Home store is due to open in South Korea in the summer and Kingfisher announced plans to enter the Russian market during the year, with the first store expected to open in 2006. Hornbach, Kingfisher s strategic partner in Germany and surrounding markets, performed well, increasing its contribution to profits by 39% to 19 million. Hornbach is participating fully in Kingfisher s Group buying programme, delivering better value to both groups customers. Growing responsibly Kingfisher made good progress with its social responsibility agenda and reviewed its policies in this important area (see pages 16 and 17 for details). Kingfisher also donated 100,000 to the Red Cross following the tsunami in South East Asia in December, as well as raising a further 449,000 from staff and customers. The Group also used its supply chain expertise to offer practical help. Outlook It is already clear that trading conditions in the UK and France will be tough again in 2005. Competition will be intense to win sales from increasingly value-conscious customers with greater shopping choice. The Board believes that its scale, operating efficiency, international spread and value for money brands position Kingfisher well to continue delivering sustainable business growth and improving returns to shareholders over the longer-term. Gerry Murphy Chief Executive
Sharing Sharing ideas around the Group Kingfisher s international diversity is a great strength, enabling the business to share ideas and best practice around the Group. Cross- Group initiatives have included work on adapting store formats, improving merchandising, introducing new products and international sourcing. One example is the development of the medium box store format, such as the new Castorama Market stores in Italy (pictured above). This smaller store concept was based on the successful B&Q mini-warehouse stores in the UK. Other case studies ideasare included stimulating growth on the following pages.
Operating review UK UK sales ( bn) 4.1 3.7 4.3 UK profit ( m) 391 408 348 B&Q market share* (%) 14.4 14.7 13.5 12.3 8 More choice 03 04 05 03 04 05 01 02 03 04 *UK repair, maintenance and improvement market more sales B&Q grew sales in the UK and Ireland by 4.9% to 4.1 billion, (+1.3% like-for-like (LFL)). Retail profit grew by 7.7% to 400.5 million. This growth was achieved in spite of a slowdown in consumer spending which led to an increasingly competitive and promotional market as the year progressed. In the face of this increasing competition, B&Q still outperformed the UK s repair, maintenance and improvement market, growing its share from 14.4% to 14.7%. This underlined the success of B&Q s core strategy to expand and modernise its store network and introduce more and better home enhancement products, whilst consistently lowering prices for customers. B&Q opened 12 new Warehouse stores, closed two and opened six new mini-warehouses, adding 157,000 square metres of selling space, an increase of over 7%. During the year, B&Q trialled a new Warehouse format in East Kilbride in Scotland and refurbished an existing Warehouse store in Bristol in the same format. These stores are testing new ideas which are designed to provide customers with more inspiration to improve their homes, and also to increase B&Q s appeal to professional trade customers. B&Q continued the pace of the mini-warehouse conversion programme, converting a total of 26 stores during the year. Forty two stores have now been converted and are showing a sales uplift of 12% compared to a control group of stores. Over the course of the next financial year, B&Q expects to open a further 15 stores, including five Warehouse stores and 10 mini- Warehouses. A further 22 Supercentres are planned to be converted into mini-warehouses this year. B&Q continues to improve its product offer and new kitchen, bathroom, bedroom and radiator ranges proved to be very popular with customers. Poor weather affected sales of seasonal ranges Last year B&Q invested in more customer advisors, more staff training and piloted a new initiative called Service Squad. This involves a team of staff with radio headsets who are freed from other work in the store to concentrate solely on helping customers.
B&Q s programme to convert its older Supercentre stores to the more modern mini-warehouse format has been progressing well, with encouraging sales uplifts. There are now 62 mini- Warehouses, including 26 conversions in the past year. Sharing ideas: case study Full of Eastern promise ideas from Eastern China to East Kilbride When B&Q was designing the next generation of its Warehouse format, it sought ideas and inspiration from around the Group. The result is B&Q s two new stretch stores in Bristol and East Kilbride, near Glasgow (pictured left) which are designed to provide customers with more inspiration to improve their homes, and also to increase B&Q s appeal to professional trade customers. These draw heavily on B&Q China s expertise at displaying kitchens, bedrooms and bathrooms, with ideas for store zoning and female appeal coming from Castorama France. The stores also feature a new marketplace area at the front of the store with project finishes, such as cushions and indoor plants, displayed on lower racking. The stores include more centrally located cafes and colour zones to make decoration choices easier. Many of the new ideas can be repeated in the other 110 UK Warehouse stores. which were due for renewal in 2005. Substantially renewed horticultural and garden leisure ranges have been launched since the end of the financial year, in preparation for the key 2005 summer season. New, innovative products, such as low-priced fixed air conditioning, easy-to-lay Edge tiling and Speedstone granite worktops have been introduced. All of this will be supported by an Every Day Low Pricing marketing campaign Price Reverse and a new Do More advertising campaign to broaden B&Q s appeal. B&Q s operating margin increased to 9.8% during the year, driven by reduced shrinkage, the ongoing benefits of the Strategic Supplier Management (SSM) programme, and a focus on cost control. B&Q has applied the skills developed through the SSM programme to its overhead costs, saving 10 million in the year. Screwfix Direct s new fulfilment centre near Stoke-on-Trent will increase capacity by 40% and reduce the cost of order fulfilment. Screwfix Direct, the UK s leading direct supplier of tools and materials for the trade, grew sales by 3.6% to 228.6 million and generated profits of 7.7 million, 11.4 million lower than last year. The lower sales growth and profit decline was a result of operational disruption following a complete reconfiguration of the business s fulfilment operations. Order taking through the call centre and internet was restricted during the changeover to ensure Screwfix Direct met its overnight delivery promise, impacting sales and profits. A new fulfilment centre was completed in December, which will increase capacity by 40%. Sales growth has been positive since then. During the year, Screwfix Direct opened a new Trade Counter, a possible new route to market, offering local availability of the catalogue range. The early results are encouraging and further trials will be conducted this year. UK Trade In February 2005, George Adams was appointed Head of UK Trade, a new role aimed at accelerating Kingfisher s development in the UK trade and business-to-business markets. This new team will include Screwfix Direct and will work closely with B&Q to optimise Kingfisher's overall position in the UK consumer and trade markets.
Operating review continued 10 France France sales ( bn) 2.5 2.3 1.9 03 04 05 France profit ( m) 215 186 134 03 04 05 In France, the Group benefited from an increasingly revitalised Castorama format, with its broad range and high service offer, and an expanded network of hard discount Brico Dépôt stores. According to Banque de France, DIY comparable store sales growth in France was 2.8% in the year. Kingfisher s market share grew with total sales up 12.0% in constant currencies, +7.7% like-for-like (LFL). Castorama s sales increased to 1.6 billion, up 4.4% (+2.6% LFL) and retail profit reached 134.2 million, up 9.2%. The revitalisation programme continued with new product ranges introduced, more stores modernised, prices lowered and costs streamlined. Sales of those categories where Castorama has range authority, such as Hardware and Seasonal, were strong, particularly in the first half of the year. The Hardware category was boosted by sales of air conditioning products and pressure washers. Seasonal sales were driven by garden furniture and maintenance equipment. In the second half, as the emphasis moved to Decorative and Showroom, sales were weaker. The focus in 2004 was on developing improved ranges in these categories. During the first quarter of 2005, Castorama will complete seven major range reviews in the Decorative category, changing nearly half of these ranges. In addition, Castorama will make significant changes to bathroom, shower and kitchen ranges during the year. Castorama continued its store modernisation programme, revamping seven stores, relocating three and transferring two to Brico Dépôt. In total, 13 stores have now been revitalised. The three stores relocated in 2003 continue to trade well with sales More aspirational, decorative and showroom ranges Building on its strengths in Garden and Building, Castorama has improved its ranges in the key decorative and showroom areas. With the launch of new ranges and the development of more modern stores in which to display them, Castorama is revitalising its offer. Repricing, revamping, revitali
16% higher than a control group of comparable stores and a similar increase in profit. After a period of disruption, the revamped stores have delivered encouraging single digit sales uplifts compared with those stores yet to be revamped and are gathering pace. Seven store revamps were started in December 2004 ready for the key 2005 spring season. A further two store relocations and two new stores are planned this year. With a continued focus on price competitiveness, Castorama improved its ranking for price perception from ninth to fifth, demonstrating the success of recent initiatives. These included the introduction of premier prix (entry price) products and HIT Casto (quality at a low price) products. In 2005, Castorama will continue to reinforce a competitive price message with more promotional mailings and three major catalogues (Outdoor, Decoration and Showroom). Castorama France increased its participation in the Group sourcing programmes, with own-brand sales up to 14% of total sales and direct sourcing up to 7%, a three-fold increase in two years. In-store efficiency has also improved. These cost savings more than funded the initiatives on lower prices, improved product ranges and store refurbishment, with retail profit margins improving from 8.2% to 8.5%. Brico Dépôt, a discount format which caters for the professional and serious DIY enthusiast, continued to deliver strong growth with sales of 975.6 million, up 27.1% (+17.7% LFL) and retail profit of 80.7 million, up 38.4%. Sales were strong in all categories, stimulated by the launch in April of Brico Dépôt s first national catalogue and related promotional activity, including increased arrivages (special buys) and further monthly brochures. Brico Dépôt s powerful discount offer has proved increasingly popular with French consumers, and Brico Dépôt was confirmed in surveys as the lowest price DIY retailer in France for the third year running. Brico Dépôt opened four new stores, revamped two and converted two ex-castorama stores. A further six new stores and four revamps are planned for 2005. In April 2005, the first national central distribution centre will be fully operational and new IT systems are being introduced to support its continued growth. Brico Dépôt continued to benefit from growing scale efficiencies and Group buying synergies, boosting retail profit margins from 7.6% to 8.3%. (All sales and profit growth figures are in constant currencies.) 11 sing Sharing ideas: case study The benefits of scale Castorama has been able to secure key competitive advantages in France by tapping into Kingfisher s established sourcing network. It has accelerated the expansion of its exclusive own-brand product ranges, such as the Colours range of paint and decorative products, which will be in stores from early 2006, and increased direct sourcing from Asia. Ownbrand sales now account for 14% of sales and direct sourcing has tripled in two years. Brico Dépôt performed particularly strongly, benefiting from a more promotional French DIY retail market and French consumers increasingly favouring discount retail formats. Sales were boosted by the launch of a new national catalogue.
Operating review continued Rest of world Rest of world sales ( m) 787 Rest of world profit ( m) 83.4 Rest of world (store numbers) 95 593 463 38.0 61.8 57 75 03 04 05 03 04 05 03 04 05 12 Outside the UK, Ireland and France, expansion in Kingfisher s international home improvement businesses accelerated with a total of 20 store openings. B&Q China acquired an option to buy five hypermarket stores from PriceSmart which will be converted and opened in 2005. Construction began on the first store in South Korea, due to open in 2005 and Castorama Russia has been established with the first store planned to open in 2006. Growing opport Poland Castorama Poland delivered sales of 321.9 million, up 16.1% (+2.9% like-for-like (LFL)) and retail profit of 46.4 million, up 15.5%. Castorama Poland had an exceptionally strong start to the year with customers purchasing ahead of higher VAT rates which came into effect with EU accession in May 2004. This generated LFL sales growth of over 50% in the first three months of the year and consequent weakness in the following months. Consumer spending has weakened generally in Poland due to the higher VAT rates, rising interest rates and higher inflation. On a two year basis, Castorama Poland s LFL sales are up 14.4%. In these difficult market conditions Castorama Poland continued to make strong progress. Over 50 own-label products were introduced, an increase of over 20%, and sales of MacAllister power tools more than doubled. Space expansion accelerated with six new stores opened during the year, consolidating Castorama Poland s position as the market leader. Six new stores are planned for 2005. Italy Castorama Italy had a successful year, delivering sales of 229.5 million, up 35.3% (+6.1% LFL), and retail profit of 19.8 million, up 50.5%. All categories performed well, particularly new ranges of doors and windows. Sales also benefited from improved stock availability and cross-marketing. Four new stores opened and one was relocated during the year. Two of these were smaller medium box stores, trading under the name Castorama Market. These stores build on experience gained from the mini-warehouse stores in the UK and Taiwan, and have proved popular with customers. Four new stores and one relocation are planned for next year, two of which will be medium box stores. Retail profit margins increased from 7.8% to 8.6% due to the benefits of the Strategic Supplier Management (SSM) programme and volume-related cost efficiencies. China B&Q China, in which the Group has a majority controlling interest, delivered sales of 211.7 million, up 78.5% (+15.5% LFL). Retail profit increased from 0.4 million to 4.6 million despite the costs of
B&Q China expands apartment fit-out service Adapting to local needs is the key to operating stores in nine different countries and cultures across Europe and Asia. In China, B&Q has developed a full design and decoration service for Chinese apartments which transforms an empty concrete shell into a stylish home. Customers select the designs, furnishings and colours they want from the store, and a B&Q service team undertakes all the work, from the installation of the kitchen and bathroom, to the painting of the walls. B&Q China completed the design and fit-out of 10,000 homes last year. This service has now been adopted by B&Q Taiwan. Sharing ideas: case study Greater flexibility of the medium box stores Castorama Poland and Castorama Italy have both opened new medium-sized stores based on the successful mini-warehouse format being rolled out by B&Q in the UK. These new, smaller stores will enable faster expansion in Poland and Italy as they target smaller catchment areas and are subject to less stringent local planning controls. unity rapid expansion. Sales from B&Q China s installation service grew over 30% during the year and sales to trade customers increased strongly. Six new stores opened, including three in new cities. In November, B&Q China purchased an option to acquire five leasehold hypermarket stores from PriceSmart for 6.95 million. The stores will be converted to the B&Q format. The acquisition will accelerate B&Q China s expansion with a further eight new stores planned for 2005, taking the expected total to 34 by the end of the year. Taiwan B&Q Taiwan, a 50% joint venture, delivered 21.3% profit growth, driven by good sales growth and benefits of the SSM programme. Customers continued to choose the Total Solutions installation service which grew by over 30%. One new store opened during the year, and three were revamped with good sales uplifts. Two new stores are planned for 2005. Germany, Spain, Turkey, South Korea and Russia Kingfisher s other international businesses increased retail profit from 1.1 million to 6.6 million. Hornbach, in which Kingfisher has a 21% economic interest, increased its contribution to profits by 38.7% to 19.2 million, driven by LFL sales growth, new store openings and participation in Kingfisher s SSM programme. In Spain, Brico Dépôt continues to develop and three new stores were opened, taking the total to four. Four new stores are planned for 2005. Koc 5 tas 5, a 50% joint venture in Turkey, benefited from introducing exclusive, competitively priced, direct sourced products from Kingfisher s global supply base. Work continues on constructing a new store in Ankara. The first B&Q Home store in South Korea is expected to open in July 2005. Castorama Russia has been established and is working towards its first store opening in 2006. (All sales and profit growth figures are in constant currencies.)
Operating review continued Buying ower means top value and top products UK 2004 2005 Sa i g Real wood flooring (m 2 ) 19.98 14.07 30% Ripon curved chrome towel warmer 89.00 67.00 25% Qualcast electric rotary lawnmower (32cm cut) 64.98 49.98 23% France Performance Power garden vac PP2000 128.77 49.00 62% Swimming pool (auto inflate) 305.00 129.00 58% Aluminium garden gate (3m) 497.39 419.00 16% 14 Suppliers Strategic Supplier Management programme (SSM) Own-brand accounts for 24% of Group sales Direct sourcing up 40% Top 100 suppliers now account for 50% of Group cost of goods sold A central part of Kingfisher s strategy is to work in partnership with its suppliers, using the Group s scale and international reach to ensure that customers are offered the best possible products at the best possible prices. Over a year ago, Kingfisher launched the Strategic Supplier Management programme (SSM) under which the Group aims to make its relationships with its suppliers closer and more long-term in order to secure more innovative products and more exclusive ranges. Good progress has been made against these objectives during the past year. Cumulative cash savings are running ahead of schedule and SSM has been established in all of Kingfisher s major operating companies. Long-term agreements with suppliers now account for 32% of B&Q s product buying by value and 7% in Castorama France. Online auctions for supply contracts are now being used in the UK, France and China, with two e-auctions in China resulting in 20% cost savings. New supplier systems are being introduced, including an internet portal which enables manufacturers to share real-time information with Kingfisher s operating companies. A key priority for the year was to encourage our best local suppliers to work with more of Kingfisher s retail businesses on an international basis. There have been many successes in this area during the year. Soudal, a French business which has been supplying Castorama France with sealants, will now be supplying the whole Group. Hozelock, a supplier to B&Q in the UK, is now supplying Koc 5 tas 5 in Turkey. There have been other examples in
Cutting prices for customers Buying gains are systematically re-invested in lower prices to drive more sales for the Group and its suppliers. This virtuous circle benefits Kingfisher s customers, suppliers and shareholders. categories such as garage doors, power tools and air conditioning units. In Indonesia, one of Kingfisher s suppliers of wooden furniture is forecast to increase its turnover by a third this year after closely aligning itself with Kingfisher s supplier programmes. It added a new factory last year to enable it to cope with an increase in orders from the Group, which is expected to account for 30% of its turnover in the current year. The company also built a 200 container capacity storage facility in order to manufacture in advance and meet Kingfisher s delivery requirements. A key target for Kingfisher is to increase the volume of goods sourced direct from factories around the world, particularly from Asia, as a means of securing the best deals for customers. Last year, direct shipments totalled over US$500 million, up 40% on the previous year. A quality control office opened in Indonesia with a full sourcing office due to open in Thailand. These are in addition to existing sourcing offices in Hong Kong, Shanghai, Milan, Warsaw, Pietermaritzburg in South Africa and an agency arrangement in India. Good progress has been made in the development of Kingfisher s own-brands. These now account for 24% of Group sales, up from 21% in the previous year. New power tool ranges, under the brand names Performance Power and MacAllister, have been rolled out across the Group in the year. The Colours range of paint and decorative products, which is already sold in the UK, China and Taiwan, will be launched in most other operating companies by early 2006. New, low-cost split unit air conditioning systems will also be available in Kingfisher stores this year under the AirForce brand in the UK and the Bodner & Mann brand in France. Kingfisher was able to use its supply chain knowledge in China, as well as its experience of air conditioning sales in its Taiwanese and Turkish businesses, to secure a dramatic reduction in the price of these units. Other major initiatives on own-brand development are planned for 2005. Sharing ideas: case study Low-cost air conditioning New easy-to-fit, low-cost air conditioning units went on sale this spring at B&Q stores in the UK and at the Castorama stores in France. Kingfisher was able to use its international supply chain network to source the units at market-leading prices.
Operating review continued 16 We will ensure that the long-term development of our business is sustainable and reflects the values and expectations of our communities.
As an international retailer with stores in nine countries and supplier relationships in many more, Kingfisher recognises that it has a responsibility to the environment and to the communities in which it operates around the world. This presents complex and difficult challenges but Kingfisher believes that addressing these challenges is crucial for long-term commercial success. Kingfisher has adopted a programme of Steps to Responsible Growth which provides a framework for actions to improve the environmental and social performance of its businesses. Central to this framework is a social responsibility policy which sets objectives and targets in the areas of product stewardship, energy management, sustainable operation, respect for the diversity of people, factory working conditions and store neighbourhoods. These policy commitments are designed to be implemented throughout the Group and they provide an independently verifiable framework which can be used to monitor progress. Kingfisher s social responsibility policy is governed by its Social Responsibility Committee, which includes the heads of all the Group s main operating companies. The committee is chaired by Margaret Salmon, a Non-Executive Director. Social It is fundamental to Kingfisher s social responsibility philosophy that the Group s stores should understand and respond to the needs of the communities in which they operate. By combining the products the Group sells with the skills of its people, Kingfisher has been able to offer a portfolio of support for a vast range of local projects worldwide that help support community initiatives. This has ranged from supporting local schools and community groups through grants and materials, such as the Screwfix Direct Great Neighbours scheme, to B&Q China helping young people with their education. Kingfisher also works with partner organisations to provide targeted support. For example, Castorama Italy has been working with the Pescara municipality to provide local unemployed people with DIY skills training and has recruited 41 participants as a result. As part of B&Q UK s community regeneration strategy, several London Warehouse stores have worked with the Government and the Metropolitan police to reduce local crime through crimeawareness and prevention seminars held in-store. Kingfisher remains committed to diversity. B&Q Taiwan has a programme to raise awareness of its over 40s employment policy and in 2004, its Hsien-Dien store has been actively recruiting people aged 40-plus. Meanwhile B&Q China is progressively increasing the number of disabled people it employs. In the UK, B&Q has a well-established diversity programme addressing the areas of disability, age, culture and gender. Last year it teamed up with the Department for Works and Pensions to promote awareness of the Disability Discrimination Act (DDA), using its knowledge of disabled access to B&Q stores to help small businesses improve disabled access to their premises. Environmental Regarding environmental issues, Castorama France has responded to the challenge of the responsible disposal of used batteries by offering an in-store take-back scheme for customers old batteries, and B&Q in Scotland has introduced a pilot scheme to reduce the Social responsibility Kingfisher s social responsibility programme addresses social and environmental issues in the areas of: Social Factory working conditions Respect for the diversity of people Store neighbourhoods Environmental Product stewardship Energy management Sustainable operation Kingfisher continues to support the UK charity Motivation, helping it to build wheelchairs for people in developing countries, as well as providing training and factory audits. A total of 1,500 wheelchairs will be shipped to Sri Lanka, India, Nepal and Papua New Guinea by autumn 2005. number of plastic bags distributed, whilst supporting the Keep Scotland Beautiful campaign. The Group remains committed to increasing the quantity of timber sourced from independently certified well-managed forests. For example, during 2004, Koc 5 tas 5 in Turkey has been promoting Forest Stewardship Council products through in-store promotional material and catalogues. Castorama Poland will continue to work with partner organisations and suppliers to increase their range of garden furniture sourced from forests working towards FSC certification. Within its wider supply chain, the Kingfisher sourcing office in South Africa, where the Group buys timber-based products such as garden furniture, has been working with its factories in their attempt to raise awareness of HIV/Aids in the workplace. In partnership with the local Government s Provincial Aids Action Group, Kingfisher has helped to sponsor a mobile clinic which provides on-site primary health care, testing and supplies to the factory workers and their local communities. In addition, the Group continues to support the UK charity Motivation in helping it to build and provide wheelchairs for people in developing countries. Good progress is being made and Motivation intends to ship a total of 1,500 wheelchairs to Sri Lanka, India, South Africa, Nepal and Papua New Guinea by autumn 2005.
Board ofdirectors Sir Francis Mackay* Chairman Appointed Non-Executive Chairman of Kingfisher plc in December 2001 following his appointment to the Board a month earlier. He is also Chairman of Compass Group PLC, which he joined in 1986 as Finance Director. He became Chief Executive of Compass in 1991 and Executive Chairman in July 1999. Age 60. Chairman of the Nomination Committee. Gerry Murphy Group Chief Executive Appointed Chief Executive Officer and joined the Board in February 2003. Previously he was Chief Executive Officer of media group Carlton Communications plc, global logistics firm Exel plc and food manufacturer Greencore Group plc. Earlier in his career he held various senior positions with food and drink group Grand Metropolitan plc (now Diageo plc) in Ireland, the UK and USA. Age 49. Member of the Nomination, Finance and Social Responsibility Committees. Duncan Tatton-Brown Group Finance Director Appointed Group Finance Director and a Director of the Company in February 2004. He was Finance Director of B&Q plc from January 2001. Previously he was CFO at Virgin Entertainment Group and has held various finance positions at Burton Group plc. Age 40. Member of the Finance Committee. Ian Cheshire Chief Executive, International and Development Appointed Executive Director in June 2000 and Chief Executive International and Development in September 2002. He was appointed Chief Executive of e-kingfisher in May 2000 and was Group Director of Strategy & Development. Before joining Kingfisher he worked for Boston Consulting Group, Guinness plc and a number of retail businesses including Sears plc where he was Group Commercial Director. He is also a Non-Executive Director of Bradford & Bingley plc. Age 45. Member of the Social Responsibility Committee. * Non-Executive Director The Executive Committee is chaired by Group Chief Executive Gerry Murphy and comprises Duncan Tatton-Brown, Finance Director, and Ian Cheshire, CEO International and Development, as well as the members of the senior management shown below. 18 Executive Committee Rob Cissell Chief Executive, B&Q Appointed Chief Executive of B&Q in February 2004 after spending a year as Managing Director, Commercial. He was previously Managing Director of Comet and Commercial Director at Woolworths. Before this he spent 10 years at Argos. Age 45. Philippe Tible Chief Executive, Castorama France Joined Castorama as Chief Executive in February 2003. He began his retail career at the hypermarket group Euromarché before joining Leroy Merlin where he was Operations Director for France and later Managing Director for Asia. Age 53. Patrick Langlade Chief Executive, Brico Dépôt Head of Brico Dépôt since January 1995. He joined Castorama in 1984 as a store manager, then became regional director in 1987. He started his commercial career in 1967 with Thomson / CSF, then joined Citroën. Age 57. George Adams Chief Executive, Commercial Responsible for Kingfisher s Strategic Supplier Management programme. In February 2005 he was also appointed Head of the new UK Trade team. He was Commercial Director at B&Q from 1998 to 2002 and was previously a director of Woolworths which he joined in 1992. Age 48. Paul Worthington Group Chief Information Officer Chief Information Officer for Kingfisher and IT Director of B&Q. He has worked for Kingfisher companies since 1998, with Woolworths, e-kingfisher, Kingfisher Group and B&Q. Prior to Kingfisher, he worked for Nationwide Building Society. Age 42.
John Nelson* Deputy Chairman and Senior Independent Director Appointed Non-Executive Deputy Chairman in January 2002. He is also a Non-Executive Director and Chairman designate of Hammerson plc and a Non-Executive Director of BT Group plc. He retired as Chairman of Credit Suisse First Boston Europe in 2002 and was formerly Vice Chairman of Lazard Brothers and Non-Executive Director of Woolwich plc. Aged 57. Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. Phil Bentley* Appointed to the Board in October 2002. He is Group Finance Director of Centrica plc and was formerly Group Treasurer and Director of Risk Management of Diageo plc from 1997 and Group Treasurer of Grand Metropolitan plc from 1995. He previously spent 15 years in finance roles at BP. Age 46. Chairman of the Audit Committee and a member of the Nomination Committee. Hartmut Krämer* Appointed to the Board in November 2002, having been CEO of the retail clothing group, Peek & Cloppenburg, and subsequently of Groupe Redcats, the home shopping division of Pinault- Printemps-Redoute. He is also a Non- Executive Director of SIF, a quoted Icelandic food business. Age 58. Member of the Nomination Committee. Margaret Salmon* Appointed to the Board in September 1997. She is Chair of the Sector Skills Development Agency, Director of the University for Industry, and the University for Industry Charitable Trust. She is also a Non-Executive Director of Alliance and Leicester. Age 57. Chairman of the Social Responsibility Committee and a member of the Remuneration and Nomination Committees. Michael Hepher* Appointed to the Board in September 1997. He is Chairman of TeleCity plc and of Lane Clark and Peacock LLP and is a Non-Executive Director of Catlin Group Ltd and Canada Life (U.K.) Ltd. His former roles include Chairman and Chief Executive of Charterhouse plc, Group Managing Director of BT Group plc and Non-Executive Director of Diageo plc and Lloyds Bank plc. Age 61. Member of the Audit, Remuneration and Nomination Committees. 19 Terry Hartwell Group Property Director Group Property Director and holds the same role at B&Q. He is a Chartered Surveyor and has been involved in commercial property development for over 20 years, principally in the out-of-town sector. He was appointed to the B&Q Board in 1990. Age 48. Ian Harding Group Communications Director Responsible for investor relations, media relations and internal communications. He has worked for Kingfisher for eight years. He is a Chartered Accountant, spending eight years with PricewaterhouseCoopers before joining Kingfisher. Age 40. Régis Schultz Group Strategy, Development and Planning Director Appointed to his current role in February 2005. He joined Kingfisher in 2000 as Group Financial and Business Analysis Controller for Castorama Dubois Investissements. He then became Finance Director of Castorama France in 2001. Age 37. Helen Jones Director of Governance and Corporate Services Responsible for Company Secretarial and Legal Affairs, Corporate Governance matters and Group Corporate Social Responsibility. She has spent 18 years at Kingfisher. Age 49. Tony Stanworth Group Human Resources Director Appointed to his current role in 1998. He was previously Human Resources Director of B&Q for five years and prior to that, Human Resources Director of Superdrug. Tony is Chairman of the Pension Trustee Board. Age 54.