Annual Report and Accounts 2007/08

Other International Operating review

Targeted expansion

Kingfisher’s sales in the Rest of Europe increased 22.8% to £1,273 million (+12.2% LFL) with 12 more stores trading* compared to the prior year. Retail profit increased 5.9% to £122 million. Asia sales increased 7.0% to £472 million (-0.1% LFL) with retail losses of £14 million (2006/07: £5 million profit).

Rest of Europe sales increased 22.8% to £1,273 million (+12.2% LFL) with 12 more stores (excluding Turkey JV) trading compared to the prior year. Retail profit increased 5.9% to £122 million, reflecting strong growth in Poland offset by weaker performances from Castorama Italy and Hornbach (21% economic interest) in a difficult German market.

Seventeen new stores were opened in the year across six countries, including seven in Poland, five in Turkey and two in Russia.

Sales for Castorama and Brico Dépôt in Poland increased 31.1% to £703 million (+22.5% LFL), boosted by buoyant consumer spending, strong property and construction markets and favourable weather. Retail profit increased 41.8% to £87 million as good cost control, a year on year doubling in direct sourcing and increased own-brand penetration, helped to offset increasing wage inflation. New ranges, including exclusive own-brand professional tools and decorative products, performed well.

Seven new stores opened including the second Brico Dépôt, launched to meet the demand for a more trade-orientated offer.

Operating in a generally weak retail market, Castorama Italy sales declined 1.2% to £314 million (-2.4% LFL). Sales benefited from relocated and revamped stores, together with successful targeted promotional activity in bathroom accessory and flooring categories. Retail profit of £29 million was down slightly on the prior year (2006/07: £31 million), with higher pre-opening and revamp costs. Increased own-brand penetration and good cost control helped to offset the slow market.

One new store was opened taking the total to 28. Two stores were revamped and one was relocated.

In Ireland, where B&Q has eight stores, sales grew 6.8%, reflecting one new store opening in the second half of the year. Brico Dépôt’s expansion into Spain continued, with 11 stores now trading with underlying trading encouraging. In Russia, two new Castorama stores were opened taking the total to five. Sales more than doubled compared to the prior year (+25.6% LFL).

Koçtaş in Turkey, a 50% joint venture, continued to grow sales and retail profit strongly, benefiting from Kingfisher sourcing buying power and own-brand penetration. Five new stores opened taking the total to 15. Hornbach, in which Kingfisher has a 21% economic interest, contributed £13 million to retail profit; £6 million lower than last year, due to a difficult German market.

Asia sales increased 7.0% to £472 million (-0.1% LFL) with retail losses of £14 million (2006/07: £5 million profit).

B&Q China sales increased 7.9% to £465 million reflecting new store openings and the development of new ranges. Sales were flat on a LFL basis, impacted by a slowdown of new apartment sales in the major Chinese markets, and new regulations covering trading terms between retailers and suppliers.

Following the regulation change, finalisation of B&Q China’s 2007 supplier agreements was delayed until clarification with the authorities in August 2007. As a result of the required changes to some of its supplier arrangements, B&Q China’s result for the year was impacted by £11 million, contributing to a retail loss of £12 million (2006/07: £8 million profit).

The Chinese market remains fundamentally attractive with B&Q’s operations in the major cities continuing to show attractive returns. B&Q has expanded rapidly over the last three years, adding 42 stores, tripling its store base. However, after several years of dramatic growth the business now needs a period of consolidation. Following a Group-led review, B&Q China will be restructured giving rise to an operating exceptional cost of £22 million in 2007/08, relating to the accelerated write-down of assets. A further exceptional charge of around £11 million is expected to be recognised in 2008/09. Of the total £33 million exceptional charge, the cash cost is expected to be £9 million.

Other Asia
B&Q Taiwan delivered a small profit for the year prior to it being sold to its 50% joint venture partner on 4 January 2008. The exit from the two stores in South Korea was completed towards the end of the year. Following the disposal of Taiwan and Korea, the B&Q Asia head office in Hong Kong will close in the first half of 2008/09.