Road map and milestones

 

We have a very clear longer-term road map for our strategy, together with strategic milestones for the first year.

Our road map

The longer-term roadmap is aligned to the three key strategic pillars: creating a unified, unique and leading offer, driving our digital capability and optimising out operational efficiency, alongside work on our retail operations.

Roadmap Diagram

ONE Kingfisher update

The ONE Kingfisher five year plan, which started in FY 2016/17, will leverage the scale of the business by creating a unified company, where customer needs always come first.

Our intention is that this five year transformation plan will deliver a £500m sustainable annual profit uplift by the end of Year 5, over and above BAU. Furthermore, until we have unified our customer offer, we will have limited expansion, the focus of which will be Screwfix UK and Europe in the medium-term. The total expected cash cost of the transformation is £800m (P&L, exceptional and capex).

The focus of the transformation plan is on three key strategic pillars:

  1. creating a unified, unique and leading home improvement offer;
  2. driving our digital capability; and
  3. optimising our operational efficiency.

Progress against the FY 2016/17 strategic milestones:

 

1. Unified, unique and leading offer

We have started unifying our offer. This will deliver significant customer benefits (newer products, higher quality, better sustainability, lower prices, simpler ranges, clearer merchandising and better packaging) alongside significant business benefits (higher sales, fewer SKUs*, fewer suppliers, cost price reduction (CPR*) and improved processes).

Achieve 4% unified cost of goods sold (COGS)

We have unified 4% of COGS across the year with an exit rate of 8%, including air treatment, light bulbs, kitchen sinks and ladders. Sales excluding clearance on those ranges were slightly ahead of last year with cost of change and CPR delivering in line with expectations. On these ranges we have reduced the total number of SKUs across the company from c.28,000 to c.7,000, without impacting the choice on offer to customers in each country. The number of suppliers of these ranges has reduced from 840 to 130.

In addition, having undertaken in-depth studies of customer needs for outdoor and bathroom ranges, we are starting to land our first unique ranges to Kingfisher. These comprise features such as slim bathroom storage solutions which make the most of limited space; easy to store, space efficient outdoor furniture and low maintenance, easy to install modular fencing.

Deliver new ONE Offer & Supply Chain Organisation

We are moving away from an organisation structure with nine buying and logistics teams, in nine operating companies which source and merchandise their own ranges independently. Instead, we are reorganising as ONE organisation, starting with our offer, with planning underway to develop an integrated supply chain network.

New unified global functions and roles started from June, mostly as a result of internal moves, leading to lower transformation exceptional costs than originally anticipated for this year. New range teams, located across the UK and France are working closely with operating companies, who retain responsibility for activities such as trading, range implementation, local pricing and customer needs.

2. Driving our digital capability

Implementation of a unified IT system is a key enabler of our ONE Kingfisher plan. It will also provide a significant opportunity, with a seamless and stronger digital offer for our customers, to substantially increase sales and digital penetration.

Complete unified IT platform roll out in B&Q and start Castorama France roll out

The B&Q store roll out was completed in Q1 ahead of plan, with back office and supply chain now substantially complete. Six Castorama pilot stores were launched successfully in H2 with the wider roll out now underway.

Build Digital ‘Brilliant Basics’ platform for B&Q

This involves investing in our core e-commerce platforms, enabled by the new unified IT platform, and leveraging our Screwfix best-in-class capability.

The UK has started to benefit from upweighted digital marketing, improved site search and new checkout at Screwfix. All these areas are being further developed for both diy.com and castorama.fr. We are also developing a new company wide mobile platform due for launch during 2017.

3. Optimising our operational efficiency

The main driver will come from unifying c.90% of the £1.2bn annual spend on GNFR. This programme is a combination of cost savings, and an opportunity to work in a simpler and more effective way across the business.

Complete closure of c.15% surplus space at B&Q (65 stores)

Closure programme now completed with 35 stores closed during 2016/17, taking the total to 65. LFL sales transference benefit of 2.6% during the year has supported the business case for the closures. In Q1 B&Q outsourced the remaining lease exits to a third party via a lease liability transaction. Of the 15 exits secured in FY 2016/17, 11 were undertaken by this third party. Of the 65 stores, we have now secured exits on a total of 55.

Deliver £20m benefits from unified GNFR programme

Alongside helping us to work in a simpler more effective way, we have achieved cost savings on categories reviewed so far. During the year we achieved a £30m benefit, £10m ahead of our target at the start of the year, reflecting early delivery of the plan.

Alongside these three pillars which collectively drive the £500m sustainable profit uplift by the end of Year 5, we are also working on our Retail Operations. In this area last year, we launched four Big Box best practice stores in the UK, France, Poland and Russia in a first step towards convergence and early results are encouraging. In addition, we opened 60 Screwfix outlets in the UK and ten in Germany.

FY 2017/18 and beyond:

We are well set up to deliver Year 2 alongside preparing for Year 3. We have taken on board key learnings, as outlined below, and we are aware of the challenges as the level of transformation activity increases:

  • Clearing of old ranges - how and when we clear is now supported by group best practice to enable a consistent approach, to maximise customer availability and proposition whilst minimising the financial cost. Clearance has started and is so far on track
  • Remerchandising of new ranges - how we physically remerchandise 25% of our company wide store space is now supported by group best practice with resourcing plans in place and;
  • Managing the volume of organisational change - we have identified the need to approach the wider transformation as a series of sequential ‘change releases’ to ensure appropriate cross visibility and prioritisation.

Strategic milestones for 2017/18:

Milestones Diagram

Summary:

Key Year 1 strategic milestones have been delivered, we are well set up for Year 2 and key learnings have been taken on board. We are reaffirming our five year financial targets and although total transformation costs for Year 1 were lower than originally guided, reflecting lower initial reorganisation costs and phasing on spend, we are not changing our five year total transformation cost guidance of £800m. It is early days and given the nature of the plan, phasing differences are to be expected.

We continue to monitor our progress against our financial and strategic milestones, and we will update as we progress.