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.

The following update covers:

  • Progress against these three strategic pillars and our FY 17/18 strategic milestones
  • Adapting our transformation approach as we progress

Progress against our three strategic pillars

 

1. Unified, unique and leading offer

We are unifying our offer, with the same products, presented everywhere in the same way. 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).

HY 17/18 strategic milestone: Achieve 20% unified cost of goods sold (COGS)

We have now achieved 16% unified COGS* and are on track to deliver the full year target of 20% with an exit rate of c.30%. By year end we will have significantly reduced the number of global suppliers and SKUs, relating to the 20% unified COGS target, by around 80%, but are still offering customers similar breadth of choice. In H1 we landed our first unique ranges (outdoor & bathroom).

Sales of categories that have been unified were impacted by last year’s B&Q store closures. Despite this, unified and unique sales, excluding clearance, were broadly flat compared to last year. Including clearance, they were only slightly down on last year. The new bathroom ranges which have been widely implemented (except the UK where they are launching now), are outperforming old ranges with improving sales trends. We have also received positive feedback from both colleagues and customers about these ranges.

Cost of change (including clearance) and CPR remain in-line with expectations and we remain confident in our target to deliver £350m annual profit uplift by FY 20/21, which broadly equates to a 5% reduction in cost of goods sold. Group gross margins were flat in H1 but were up 0.3% before clearance of old ranges

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. This is expected to generate £50m annual profit uplift by FY 20/21.

HY 17/18 strategic milestone: Deliver Year 2 of 3 year unified IT platform roll out alongside Brilliant Basics

This involves investing in our core e-commerce platforms, enabled by the new unified IT infrastructure, and leveraging our Screwfix best-in-class capability covering e.g. upweighted digital marketing, improved site search and new checkout.

The unified IT rollout remains on track to be completed by the end of FY 18/19. During H1 we implemented all Castorama France stores with back office and supply chain to be completed in Q1 2018, meaning that by the end of FY 17/18 over 50% of Group sales will be operating on the new platform. We will also start implementation at Brico Dépôt France in H2.

Our Brilliant Basics initiatives continue to progress well. We have now built a new group mobile platform, which will be launching soon at B&Q, and we are on track to re-launch the new castorama.fr website in H2 with mobile to follow shortly after. One hour click & collect is now available in all B&Q stores. Total group online sales* are now at 5%, up from 4% last year.

3. Optimising our operational efficiency

The main driver will come from unifying as ONE the c.£1bn 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, and is expected to generate £100m annual profit uplift by FY20/21.

HY 17/18 strategic milestone: Deliver a further £20m benefits from unified GNFR programme

Having achieved £30m of cost savings in FY 16/17, in H1 17/18 we delivered a further £10m benefit. This included categories such as media buying, moving to a global supplier for the first time; standardising the way we operate (e.g. security, mechanical handling equipment); and several local retenders consolidating the number of suppliers. We have now raised our FY 17/18 target benefit to c.£25m (from up to c.£20m previously).

Adapting our transformation approach as we progress

Aware of the challenges this year given the significant increase in the level of transformation activity, we continue to adapt our approach as our transformation progresses.

During H1 we experienced some business disruption principally reflecting product availability issues and the clearance of old ranges. We estimate a c.2% LFL impact from business disruption during H1. Availability of this year’s unified and unique ranges has improved during H1 and is now approaching normal levels.

The root causes of this disruption relate to the combined impact of:

  • Clearing of old ranges and remerchandising of new ranges as we physically impact 25% of our company wide store space this year (with a lot more change to come in H2)
  • Systems and data - the roll out of our unified IT platform remains on track, however the implementation process applies stress to some of the business functions
  • New processes - transitioning to new ways of working takes time e.g. our new Offer and Supply Chain organisation has only been in place for around a year, working as ONE team with unified global functions with new processes and accountabilities for the first time

We are acting on these root causes of business disruption and we are adapting our approach as we progress. Given the increased level of change, we have appointed Steve Willett as Chief Transformation Officer, and we are prioritising the multiple transformation workstreams with a new phased approach e.g.

  • to prioritise the larger operating companies first and to enable their earlier launch of a stronger digital offer, the roll out of our unified IT platform is being re-phased, to commence their implementation in H2 17/18 instead of FY 18/19
  • having reviewed the phasing of our initial unified COGS roll out plans for the next two years, and whilst maintaining our 90% target for FY 20/21, we have decided to smooth the profile for FY 18/19 and FY 19/20, moving from 55% to 40% and from 80% to 65% respectively

Summary & outlook:

We are on track to achieve our FY 17/18 strategic milestones and our FY 20/21 targets remain unchanged. However, we have experienced some business disruption reflecting the significant increase in transformation activity. We understand and are acting on the root causes, continuing to have a flexible approach, adapting as necessary as our transformation progresses.

We always recognised that this year would be challenging and we already have self-help plans in place to support our overall FY 17/18 performance. We therefore remain comfortable with consensus full year expectations(1) though remain cautious on the backdrop for the second half in the UK and France, as previously guided.

(1) Analyst consensus of underlying earnings per share* of 26p for FY 2017/18, see Analyst Estimates at FX Euro GBP rate of 1.13