international review - kingfisher plc · • networking with international business heads....

Gerry MurphyGerry Murphy

Group Chief ExecutiveGroup Chief Executive

International Review

Today’s agendaToday’s agenda

•• Formal presentationFormal presentation•• General Q&AGeneral Q&A•• Buffet lunchBuffet lunch•• Networking with International business headsNetworking with International business heads

International business heads International business heads

Gerry Murphy

Philippe TibleCastorama France

Claude AcquartCastorama Poland

Peter PartmaCastorama Russia

Patrick LangladeBrico Depot France

Mariusz GliwinskiB&Q China

Yi LiuB&Q Taiwan

David WilliamsB&Q Home, Korea

Levent CakirogluKoctas, Turkey

Steve GilmanB&Q Asia

George AdamsEuropean

Development

Giulio MaleciCastorama Italy

Didier CantreauBrico Depot Spain

Kingfisher at a glanceKingfisher at a glance

•• World’s third largest home improvement retailerWorld’s third largest home improvement retailer•• Retail sales: £8bn, 50% non UKRetail sales: £8bn, 50% non UK•• Over 680 stores in 11 countries in Europe and Over 680 stores in 11 countries in Europe and

AsiaAsia

Kingfisher Kingfisher –– Europe’s no 1 home Europe’s no 1 home improvement retailer improvement retailer

11.1

5.2 5

32.2 2.2 1.9 1.7 1.3 1.3

0

2

4

6

8

10

12

Kingfisher

Leroy M

erlin OBI

Praktik

erHomebas

eBau

haus

Hornbac

hBric

omarche

FocusWicke

s

Source: Verdict - 2005

Sales €m

Consistent strategy…Consistent strategy…

•• Build on strong leadership positionsBuild on strong leadership positions–– UK,UK, FranceFrance

•• Expand proven growth businessesExpand proven growth businesses–– Screwfix,Screwfix, Poland, Italy, China and TaiwanPoland, Italy, China and Taiwan

•• Invest in new opportunitiesInvest in new opportunities–– UK Trade,UK Trade, Spain, Russia, Korea, TurkeySpain, Russia, Korea, Turkey

•• Capitalise on buying scale and international Capitalise on buying scale and international diversitydiversity

18 years of experience outside main 18 years of experience outside main domestic markets domestic markets

•• In Europe since 1988In Europe since 1988–– Italy,1988Italy,1988–– Poland,1997Poland,1997–– Turkey, 2001Turkey, 2001–– Ireland, 2002 Ireland, 2002 –– Spain, 2003Spain, 2003–– Russia, 2006Russia, 2006

•• In Asia since 1996In Asia since 1996–– Taiwan,1996Taiwan,1996–– China,1999China,1999–– South Korea, 2005South Korea, 2005

Successful, sustainable international Successful, sustainable international development takes...development takes...

•• Time and moneyTime and money•• Vision and longVision and long--term supportterm support•• Champions/evangelistsChampions/evangelists•• Strong local managementStrong local management•• RealismRealism•• And the ability to adapt, adapt and adapt…And the ability to adapt, adapt and adapt…

International International –– a huge opportunitya huge opportunity

•• GROWTHGROWTH–– Big markets developing fastBig markets developing fast–– £100 billion in International markets £100 billion in International markets

•• RETURNS RETURNS –– Ahead of the cost of capitalAhead of the cost of capital–– Supported by Group supply scale Supported by Group supply scale

•• ACCELERATED INNOVATIONACCELERATED INNOVATION–– Global consumer trendsGlobal consumer trends–– Sharing of products, ideas and talentSharing of products, ideas and talent

Duncan TattonDuncan Tatton--BrownBrown

Group Finance DirectorGroup Finance Director


26

31

46128

25

UK France Proven New Total

Our international markets are four Our international markets are four times the size of the UK…times the size of the UK…

Markets size in £Markets size in £bnbn

…with faster forecast growth…with faster forecast growth

14.0%

10.0%

7.2% 7.1% 6.9%5.5% 5.1% 4.9%

4.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

China

Russia

Poland

Irelan

d

Spain

Taiwan UK

France Ita

ly

*

* Based on historical growth* Based on historical growthSource: Source: EuromonitorEuromonitor DIY markets 2005DIY markets 2005

Forecast DIY Annual Market Growth 2006Forecast DIY Annual Market Growth 2006--20092009

Weighted Weighted AverageAverage

International International –– a balanced approacha balanced approach

62%62%85%85%81%81%DevelopedDeveloped

33%33%69%69%47%47%B&Q UKB&Q UK

28%28%14%14%17%17%ProvenProven

2%2%

34%34%

Sales Sales 11

10%10%1%1%NewNew

29%29%16%16%FranceFrance

CapexCapex 33Invested Invested Capital Capital 22

1.1. 6 months to 29 July 20066 months to 29 July 20062.2. As at 28 January 2006As at 28 January 20063.3. 2006/07e2006/07e

Attractive returnsAttractive returns

AboveAbove

Group Group averageaverage

BelowBelow

ReturnsReturns

France

China exc. OBI

Korea

Taiwan

Poland

Italy

Ireland

Spain

TurkeyRussia

2005/06 ROIC 2005/06 ROIC –– size of bubble reflects invested capital weightingsize of bubble reflects invested capital weighting

Spain Spain -- the Marketthe Market

•• SpainSpain Population 44.1 millionPopulation 44.1 million•• Larger cities population:Larger cities population:

MadridMadrid 2.9m2.9mBarcelonaBarcelona 1.5m1.5mValenciaValencia 0.7m0.7mSevilleSeville 0.7m0.7mZaragozaZaragoza 0.6m0.6mc. 20 towns c. 20 towns 0.2m0.2m--0.5m0.5m

Sources: CIA World factbook Mongabay.com

Spain Spain -- profitable stores provide roll out profitable stores provide roll out confidenceconfidence

0.90.9Underlying store contributionUnderlying store contribution

(4.3)(4.3)Central head office costsCentral head office costs(2.1)(2.1)PrePre--opening costsopening costs

(5.5)(5.5)Overall retail lossOverall retail loss

£m£m2005/062005/06

Spain Spain -- overall profits expected soonoverall profits expected soon

-10

-5

0

5

10

15

20

200220032004200520062007e2008e2009e2010e2011e

€m

Store rollout

International International -- strong control mechanismsstrong control mechanisms

•• Extensive country research prior to entryExtensive country research prior to entry•• Board approval for new country entryBoard approval for new country entry•• Low cost entry modelLow cost entry model•• All store commitments agreed by CEO/CFOAll store commitments agreed by CEO/CFO•• 5 year development plan 5 year development plan –– updated annuallyupdated annually•• Annual budget sign offAnnual budget sign off•• 3 monthly review with CEO/CFO3 monthly review with CEO/CFO•• Monthly accountsMonthly accounts•• Daily salesDaily sales

International International -- funding and property funding and property strategystrategy

•• Local borrowing is a natural Local borrowing is a natural hedgehedge

•• Freehold preferableFreehold preferable–– Helps exit Helps exit –– e.g. Brazile.g. Brazil–– Helps reconfigure Helps reconfigure –– e.g. Chinae.g. China–– Potential for additional valuePotential for additional value

–– Poland property cost £208mPoland property cost £208m–– Market value £269m*Market value £269m*

* As at 28 January 2006* As at 28 January 2006

Freehold property Freehold property -- a key asseta key asset

9%9%£0.2bn£0.2bnAsiaAsia

77--10%10%£0.7bn£0.7bnRest of EuropeRest of Europe

5%5%£1.2bn£1.2bnUKUK

£3.0bn£3.0bn

£0.9bn£0.9bn

Market Values* Market Values*

8%8%FranceFrance

Yields Yields

* As at 28 January 2006* As at 28 January 2006

Access to new products and suppliersAccess to new products and suppliers

PolandPoland

ChinaChina

TurkeyTurkey

+204%+204%EBIT EBIT

+500bps+500bpsBuying marginBuying margin

+12%+12%

20022002--2006 2006 growthgrowth

Group product rangesGroup product ranges

Buying power Buying power -- a local advantagea local advantage

Gerry MurphyGerry Murphy

Group Chief ExecutiveGroup Chief Executive


International International -- key principleskey principles

•• Retail rules! Retail rules! •• Vive la difference!Vive la difference!•• Work together where it mattersWork together where it matters•• Work independently where it doesn’tWork independently where it doesn’t•• Expand at the right rateExpand at the right rate•• Be prepared to exit Be prepared to exit

International International -- use local teamsuse local teams

•• CastoCasto Poland Poland –– 6,000 FTE Polish6,000 FTE Polish–– 1 French 1 French

•• China China –– 10,000 FTE Chinese10,000 FTE Chinese–– 5 Europeans5 Europeans

InternationalInternational expansion expansion -- choosing choosing the right marketsthe right markets

•• Potential RMI market Potential RMI market big enough big enough

•• No1 or 2 position No1 or 2 position achievableachievable

•• Economics potentially Economics potentially attractiveattractive

•• Availability of Availability of products/employeesproducts/employees

•• Short time to economic Short time to economic scalescale

International International -- using the right formatusing the right format

•• Castorama, Castorama, BricoBrico DépôtDépôt or B&Q?or B&Q?•• Big box versus small box?Big box versus small box?•• Consumer offer versus trade? Consumer offer versus trade?

Brand?....usually Brand?....usually notnot critical critical

Planning regime?Planning regime?

Property costs?Property costs?

Russia Russia -- a good example a good example

•• Population 144 m Population 144 m •• 70% of wealth west of the Urals70% of wealth west of the Urals•• 2 cities > 4 m2 cities > 4 m

•• 11 cities > 1 m 11 cities > 1 m •• 20 cities > 0.5 m20 cities > 0.5 m

0

1,000

2 ,000

3 ,000

4 ,000

5 ,000

6 ,000

7 ,000

8 ,000

9 ,000

10 ,000Consumer SpendConsumer Spend £m

1995 1997 1999 2001 2003 2005

CAGR 5.9%

ActualForecast

0

2000

4000

6000

8000GDP Per Head at PPPGDP Per Head at PPP

1995 1997 1999 2001 2003 2005

ActualForecast

£

CAGR 5.2%

Source: EIU 2004

Russia Russia -- growing economy growing economy

Sources: Euromonitor 2004; Verdict On European DIY retailingSources: Euromonitor 2004; Verdict On European DIY retailing

3%

70%

27%Organised Stores

Open markets

Market Fragmentation

Total market size 2004 £3.8bn0

1,000

2 ,000

3 ,000

4 ,000

5 ,000

6 ,000

199 9 2000 2 001 20 02 20 03 20 04

Russian DIY Market Size£m

CAGR: 10.9% Wholesalers

Russia Russia -- attractive home attractive home improvement market improvement market

The market is large and growing The market is large and growing

EstEst £5bn in £5bn in Moscow alone!Moscow alone!

Free transfer from State

45% own a “dacha”Apartments delivered bare

80m sq.m new housing p.a

85% of flats need total “remont”

Mortgage market developing, property prices rising

Castorama Russia Castorama Russia

Castorama Russia Castorama Russia -- store formatstore format

•• Format based on Castorama PolandFormat based on Castorama Poland•• Harder offerHarder offer•• Focused on building/maintenanceFocused on building/maintenance•• EDLPEDLP

B&Q China B&Q China -- adapting adapting

•• 300m+ households300m+ households•• Growing middle classGrowing middle class•• Home consciousHome conscious•• HI market £27bnHI market £27bn•• Western brands popularWestern brands popular•• Limited DIY knowledgeLimited DIY knowledge

B&Q China B&Q China -- adapting adapting

Offer heavily adapted by local management:Offer heavily adapted by local management:•• Different store formatDifferent store format•• Authenticity promiseAuthenticity promise•• Different rangesDifferent ranges•• Different service/services modelDifferent service/services model

B&Q China B&Q China -- store environmentstore environment

B&Q China B&Q China -- authenticity promise authenticity promise

B&Q China B&Q China -- adapted product rangesadapted product ranges

B&Q China B&Q China -- adapted service modeladapted service model

•• More serviceMore service–– More staff per storeMore staff per store–– 350 350 vsvs 180 in UK180 in UK–– Inc 200 vendor repsInc 200 vendor reps

•• Full decoration serviceFull decoration service–– New apartment fitNew apartment fit--out out

B&Q China B&Q China -- full decoration servicefull decoration service

15,000 apartment 15,000 apartment fitfit--outs in 2005outs in 2005

B&Q China B&Q China -- clubs and DIY trainingclubs and DIY training

Children’s clubs and DIY trainingChildren’s clubs and DIY training

B&Q China Comparison with B&Q UK B&Q China Comparison with B&Q UK (Warehouse stores)(Warehouse stores)

32,00032,00050,00050,000Number of SKUsNumber of SKUs

£155£155£40**£40**Rent/sq. Rent/sq. metremetre£1,700£1,700£980*£980*Sales/sq. Sales/sq. metremetre

180180350350Staff/storeStaff/store

Warehouse Warehouse –– 1 floor1 floorTwo floor/one floor with Two floor/one floor with mezzaninemezzanineFormatFormat

1010--15,000 sq.m15,000 sq.m88--20,000 sq.m20,000 sq.mStore SizeStore SizeB&Q UKB&Q UKB&Q ChinaB&Q China

* £1900 on purchasing power parity basis (* £1900 on purchasing power parity basis (pppppp))** £80 on ** £80 on pppppp basisbasis

B&Q China Comparison with B&Q UK B&Q China Comparison with B&Q UK (Warehouse stores)(Warehouse stores)

11%11%18%18%

20%20%1%1%

TradeTradeGardeningGardening

2%2%30%30%Installed ProductInstalled ProductSales Mix:Sales Mix:

B&Q UKB&Q UKB&Q ChinaB&Q China

Sharing format ideas Sharing format ideas

FranceFrance

SpainSpain

PolandPoland

Sharing merchandising ideasSharing merchandising ideas

B&Q, B&Q, WednesburyWednesbury

Castorama, Castorama, EnglosEnglos

Sharing new product ideas Sharing new product ideas

Disney in ChinaDisney in China Disney in TurkeyDisney in Turkey

Sharing international retail talent Sharing international retail talent

Claude AcquartClaude Acquart–– Castorama France 16 yearsCastorama France 16 years–– Castorama Poland CEO 9 yearsCastorama Poland CEO 9 years

MariuszMariusz GliwinskiGliwinski–– Nomi Poland 7 yearsNomi Poland 7 years–– B&Q Taiwan CEO 3 yearsB&Q Taiwan CEO 3 years–– B&Q China CEO from November 06B&Q China CEO from November 06

Steve GilmanSteve Gilman–– B&Q UK 18 yearsB&Q UK 18 years–– B&Q Asia CEO 10 yearsB&Q Asia CEO 10 years

Working together on global trendsWorking together on global trends

Busy livesFeminisation

Global trends Global trends -- Feminisation, busy lives Feminisation, busy lives

“Dressed” rooms“Dressed” rooms InstallationInstallation

TradesmanTradesman

International International –– a huge opportunitya huge opportunity

•• GROWTHGROWTH–– Big markets developing fastBig markets developing fast–– £90 billion International markets £90 billion International markets

•• RETURNS RETURNS –– Ahead of the cost of capitalAhead of the cost of capital–– Buying power Buying power

•• ACCELERATED INNOVATIONACCELERATED INNOVATION–– Global consumer trendsGlobal consumer trends–– Sharing of products, ideas and talentSharing of products, ideas and talent

QuestionsQuestions


AppendixAppendix

Country level information….sourcesCountry level information….sources

•• Population and GDP data Population and GDP data –– EIU 2004EIU 2004•• RMI market sizes and own brand penetration RMI market sizes and own brand penetration ––

Kingfisher estimatesKingfisher estimates•• Sales, EBIT, KPI data Sales, EBIT, KPI data –– as reportedas reported

FranceFrance

1.6%1.6%GDP growth: forecast 2006GDP growth: forecast 2006

61m61mPopulationPopulation1.1%1.1%GDP growth: average last 5 years GDP growth: average last 5 years

£31bn£31bnEstimated market sizeEstimated market size9% (24% UNIBAL DIY & gardening)9% (24% UNIBAL DIY & gardening)Estimated market shareEstimated market share

£2.7bn£2.7bnSales 2005/06Sales 2005/06£230m£230mEBIT 2005/06EBIT 2005/06

181181Store numbers H1 2006/07Store numbers H1 2006/0718,66718,667FTE employee numbers H1 2006/07FTE employee numbers H1 2006/0717.4%17.4%Own brand penetrationOwn brand penetration

Leroy Merlin, Leroy Merlin, BricomarchéBricomarché , La , La PlatformePlatforme, , BâtimentBâtiment, , BricomanBricoman, ,

Saint Saint GobainGobain GroupGroupCompetitorsCompetitors

ChinaChina


1.3bn1.3bnPopulationPopulation8.1%8.1%GDP growth: average last 5 years GDP growth: average last 5 years

£27bn£27bnEstimated market sizeEstimated market size1%1%Estimated market shareEstimated market share

£312.8m£312.8mSales 2005/06Sales 2005/06£0.2m£0.2mEBIT 2005/06EBIT 2005/06


Orient Home, Orient Home, HomemartHomemart, , HomewayHomeway, Home Improvement , Home Improvement

mallsmallsCompetitorsCompetitors

PolandPoland






Leroy Merlin, OBI, Leroy Merlin, OBI, PraktikerPraktiker, , PlatformaPlatforma, NOMI, NOMICompetitorsCompetitors

ItalyItaly






Leroy Merlin, OBILeroy Merlin, OBICompetitorsCompetitors

TaiwanTaiwan




Not consolidatedNot consolidatedSales 2005/06Sales 2005/06£7.4m£7.4mEBIT 2005/06EBIT 2005/06


Hypermarkets, Department stores, Hypermarkets, Department stores, HomeboxHomeboxCompetitorsCompetitors

SpainSpain


44.1m44.1mPopulationPopulation3.5%3.5%GDP growth: average last 5 years GDP growth: average last 5 years


£49.3m£49.3mSales 2005/06Sales 2005/06£(5.5)m£(5.5)mEBIT 2005/06EBIT 2005/06

77Store numbers H1 2006/07Store numbers H1 2006/07473473FTE employee numbers H1 2006/07FTE employee numbers H1 2006/07n/an/aOwn brand penetrationOwn brand penetration

Leroy Merlin, Leroy Merlin, BricomanBricoman, , BricorBricor, , BricoramaBricorama, , BricoGroupBricoGroup, Bauhaus, , Bauhaus,

Saint Saint GobainGobain Group, AKIGroup, AKICompetitorsCompetitors

TurkeyTurkey




Not consolidatedNot consolidatedSales 2005/06Sales 2005/06£2.0m£2.0mEBIT 2005/06EBIT 2005/06

99Store numbers H1 2006/07Store numbers H1 2006/071,0391,039FTE employee numbers H1 2006/07FTE employee numbers H1 2006/0717%17%Own brand penetrationOwn brand penetration

PraktikerPraktiker, Bauhaus, , Bauhaus, TekzenTekzen, IKEA, IKEACompetitorsCompetitors

RussiaRussia


142.8m142.8mPopulationPopulation6.0%6.0%GDP growth: average last 5 years GDP growth: average last 5 years

£10bn£10bnEstimated market sizeEstimated market sizen/an/aEstimated market shareEstimated market sharen/an/aSales 2005/06Sales 2005/06

£(5.4)m£(5.4)mEBIT 2005/06EBIT 2005/0622Store numbers H1 2006/07Store numbers H1 2006/07

565565FTE employee numbers H1 2006/07FTE employee numbers H1 2006/07n/an/aOwn brand penetrationOwn brand penetration

OBI, Leroy Merlin, KOBI, Leroy Merlin, K--rautarauta, , MaxidomMaxidom, , MetrikaMetrika, , StarikStarik

KhottabychKhottabychCompetitorsCompetitors

South KoreaSouth Korea



£6bn£6bnEstimated market sizeEstimated market sizen/an/aEstimated market shareEstimated market share

£5.2m£5.2mSales 2005/06Sales 2005/06£(6.3)m£(6.3)mEBIT 2005/06EBIT 2005/06

11Store numbers H1 2006/07Store numbers H1 2006/07161161FTE employee numbers H1 2006/07FTE employee numbers H1 2006/07n/an/aOwn brand penetrationOwn brand penetration

HanssemHanssem, LG , LG DecovileDecovile, , EnexEnexCompetitorsCompetitors

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