Kingfisher says first quarter earnings will be 'flat' and announces Chinese acquisition

European
Kingfisher says first quarter earnings will be 'flat' and announces Chinese acquisition
By Finfacts Team
Apr 27, 2005, 17:49

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Kingfisher, which owns DIY department store B&Q and has 599 stores in nine countries in Europe and Asia announced today, ahead of their scheduled first quarter results that they expect the results to post a decrease from the 2004 first quarter results due to slowed consumer spending and poor spring weather.

Europe’s largest home improvement company, Kingfisher plc which owns the chain stores today announced that they expect first quarter profit to fall, due to B&Q slowing of consumer spending and poor spring weather. Kingfisher made the announcement today prior to the release of its formal quarterly results in May, 26th.

Trading has continued to be weak since Kingfisher last updated the market at the time of its preliminary results announcement on 17 March. The company said in a statement released today that the trading environment continues to be very tough for UK retailers with consumer spending increasingly impacted by higher taxes, debt costs and inflation.

Poor spring weather and an early Easter presented additional challenges for Kingfisher’s UK and French consumer businesses, the company said today. Official statistics confirm that household goods markets have been particularly slow in the UK and France, Kingfisher added.

As a result, Kingfisher expects to announce broadly flat total sales for the quarter to 30 April 2005 compared with the previous year. Sales at B&Q UK and Castorama France are expected to decline, offset by continued growth at Brico Dépôt in France.

Kingfisher said that its other businesses in Europe and Asia continued to grow, with the exception of Castorama Poland which continues to be affected by higher VAT imposed in May 2004 and strong sales comparisons with the prior year.

On a like-for-like basis, Kingfisher’s overall sales are expected to decline around 6 per cent in the first quarter. Continuing focus on margin and costs is not expected to be enough to offset weaker sales, with the result that reported retail profit for the first quarter is expected to decline by around 15 per cent.

Kingfisher Chief Executive, Gerry Murphy said, “The weakening trends experienced by UK retailers in the last quarter of 2004 seem to have continued into 2005. Whilst it is too early to judge the full year, it is clear that demand is weak in the UK and any sales growth will be hard won in very competitive markets.

The company also announced today that it has accelerated expansion of B&Q China with an agreement to buy OBI Asia Holding Ltd, the holding company for OBI’s majority equity interest in its Chinese operations. The purchase price is at this stage, undisclosed.

B&Q China is already the market leader in the fast-growing Chinese home improvement market where it currently operates 22 stores and had 2004/05 sales of £212 million and retail profit of £5 million, after the costs of a rapid store opening programme, Kingfisher said today.

OBI is the second-largest western home improvement retailer in China with 13 stores and a further five due to open in 2005. Net assets with a fair value of around £85 million are included in the purchase, subject to final completion.

The addition and conversion of OBI’s stores will significantly accelerate B&Q China’s growth to around 50 stores trading within the next 12 months, more than doubling current store numbers.

"The acquisition of OBI China will help double the size of B&Q's operations in China, in terms of sales and store numbers, within 12 months. OBI China also adds to B&Q China’s existing 5,000 strong team a further 2,000 experienced staff and an excellent local management team. China is a tremendous opportunity for Kingfisher and this move underlines our commitment to, and belief in, the Chinese market and our own Chinese management team,” Mr Murphy added.