We currently operate in eight countries, spanning over 500 million households. Over £100 billion is spent per year on repairing, maintaining and improving these homes. Spending in developed markets has tended to reflect underlying consumption patterns whilst in the developing markets rising wealth is fuelling accelerated growth as home owners catch up with developed country standards. As well as growth potential, the home improvement market is also attractive to retailers because of the relatively small number of well-known manufacturer brands. This means a specialist home improvement retailer provides a vital role for the consumer by offering a wide product choice and expert advice. They can offer a high proportion of ‘own brand’ product, achieve economies of buying scale and have a more defensible position against online or generalist operators when compared with other retail segments.

However, the lack of sizeable, global manufacturer brands in our sector has meant there has been relatively limited product innovation in recent years to make home improvement easier and more accessible for the consumer. As a result demand has not been stimulated to its full potential. This is particularly true in the more developed markets, such as the UK and France where householders generally have a list of work needed to be done but their repair, maintenance or improvement jobs are thought to be too complicated or too costly. We believe there is a big opportunity for a real retail leader to emerge to address this opportunity and unlock the latent demand in these markets.

CREATING THE LEADER
We start this new and exciting phase with a clear sense of purpose and new ambition, having now repositioned Kingfisher as a stronger business in the attractive home improvement market.

Our unique contribution as a business to our customers is that we can harness our international scale, sourcing capability, our heritage as a leader in sustainability and our home improvement experience to bring new, more sustainable and more affordable products to market. By also providing our customers with project advice and new shopping channels to complement our stores we will make it easier for them to adapt their homes to their evolving needs. Our shorthand for describing this new purpose is ‘Better Homes, Better Lives’.

Creating the Leader – a clear sense of purpose

By working towards this purpose we will unlock more benefit for all our stakeholders, creating a more valuable business for our shareholders, a better partner for our suppliers and a more secure and bright future for our colleagues, as well as a more sustainable business for our local communities.

In March 2011 we set out the key elements of the ‘Creating the Leader’ phase that will form the cornerstones of our strategy for the coming years. In September 2011 we announced more details on the opportunity and the progress we have made with common ranging.

In March 2012 we provided more detail, including the specific eight steps that make up the new medium-term plan, along with their associated key success measures and short-term milestones, which are detailed below.

These eight steps are grouped under our four strategic pillars of Easier, Common, Expand and One Team:

Creating the Leader – eight steps

EASIER – We believe we can stimulate the overall market, grow our like-for-like (‘LFL’) sales and our market share by becoming the world’s expert at making home improvement easier for our customers.

COMMON – By having a 50% core common range across all our businesses we will use our scale to accelerate innovation, stimulating overall market demand and growing our LFL sales and our market share. Our scale will also make home improvement more affordable for our customers whilst boosting our margins.

EXPAND – By becoming the best at making home improvement easier and developing a core common range we will be able to accelerate and improve our expansion, thereby growing total sales and market share.

ONE TEAM – Create a unique networked organisation, stronger than the sum of its parts, whilst harnessing our diversity and closeness to the local customer.

Successful delivery of the next phase will require us to complete the journey from our origins as a retail conglomerate to a single, unified retailer. Much progress has been made in recent years and the organisation is now ready to complete the final steps in our journey, thereby unlocking the full potential of our unique international talent and scale.

Organisational structure

FINANCIAL BENEFITS
Becoming the best at making home improvement easier for our customers whilst at the same time driving more commonality throughout our business will drive significant financial benefits.

Five years from now we expect to have largely completed the work streams announced in March. Predicting the potential retail profit benefits from this programme today, when we don’t know the economic conditions or competitive landscape we will face in five years’ time is very difficult. However, whatever the conditions, we believe our efforts will drive higher LFL sales, higher gross margin and more cost efficiencies than would have been delivered without this programme.

We anticipate that around two additional percentage points of LFL sales growth*, one additional percentage point of gross margin (after reinvesting some sourcing gains into lower prices) and a one percentage point reduction in the cost to sales ratio will arise from this programme. In total, we estimate that this would create an additional £300 million of annualised retail profit in the fifth year, net of price reinvestment and based on the size of the business and market conditions today.

Annualised benefits targeted for year five

• * Adding profit at the gross margin rate

Further details of the aims, measures and milestones of the ‘Creating the Leader’ programme can be found below.