Kingfisher plots CEO succession as profits continue to wane
By Oliver Haill
Date: Wednesday 20 Mar 2019
(Sharecast News) - Kingfisher has begun the search for a new chief executive after a year when the DIY retailer's profits fell less than expected.
Having completed the third year of her five-year turnaround plan but still with plenty seemingly left to do in order to call it a success, the process of finding a successor for chief executive Véronique Laury has begun, though the board has not yet decided a date.
Laury's departure will be preceded by a wider rejig of the board, with chief transformation, digital & IT officer Steve Willett retiring after nearly 20 years with the business, and chief financial officer Karen Witts being replaced by John Wartig on an interim basis from 8 April.
Promising to "continue to give 100 per cent until the day I depart", Laury revealed further restructuring plans for the coming year included closing all 19 Screwfix outlets in Germany, with plans being considered to close 15 poor performing stores across the business over next two years, as well as accelerating the roll-out of Screwfix in the UK and new overseas markets.
Having made unification of the supply chain and product sourcing the cornerstone of her ONE Kingfisher turnaround strategy, Laury has found it tough to convert this into financial success amid a tough market, tepid UK and French economies and continued problems with the B&Q chain and France's Castorama.
Laury said she expects margins to remain flat in the current financial year, while she and her team address Castorama's underperformance and slims the store estate down.
For 2018, the Frenchwoman oversaw sales of £11.7bn, up £30m compared to the previous year, but like-for-like sales at constant currency rates shrank 1.6% as growth from Screwfix in the UK and Brico Dépôt in France and Poland was offset by declines at B&Q and Castorama, with some disruption from the 'yellow vest' protests in France on fourth-quarter sales.
Retail profit increases in the UK and Poland were more than offset by weakness in Castorama and losses in Russia and Romania, so while gross profit margin was flat at 36.9%, underlying pre-tax profit fell 13% to £693m. After including transformation costs adjusted pre-tax profit was down 16.1% to £573m.
Both profit measures were, however, better than the average analyst forecasts of £662m and £554m respectively, though statutory profit before tax plunged 52.8% to £322m after £251m of exceptional items, mostly property-related.
Underlying basic earnings per share were down 6.3% to 23.9p and the dividend was held at 10.8p. Net cash of £48m was down from £68m a year ago, with a £140m share buyback having completed the £600m cash return pledged three years ago.
Laury hailed the "radical organisational and behavioural change" achieved across Kingfisher over the last three years, against the backdrop of major structural change in the retail sector, with good performances from the UK, Poland and Brico Dépôt "leveraging the benefits of our transformation".
"However, Castorama France has been disappointing and we are implementing a clear plan to sustainably improve its performance.
"Screwfix's leading omnichannel proposition has consistently delivered strong growth in recent years and we have identified additional expansion opportunities in both the UK and in new markets, initially in the Republic of Ireland."
She also said that building a Kingfisher 'engine' over the last three years to improve the customer proposition, the group's agility to succeed in the new retail environment was starting to create benefits for customers and over the next year she aims to accelerate product activity and "making our innovation more visible to customers including testing new store concepts".
On the external outlook, the UK market remains uncertain and management are mindful of softer housing market activity in France, though the Polish market remains supportive.
MARKET REACTION AND ANALYSIS
Kingfisher's shares fell more than 2% to 239.5p on Wednesday.
It was a "mixed set" of results, said analysts at RBC Capital Markets, seeing sales worse than expected and PBT slightly below consensus but a bit better than its own forecast.
"Net cash is slightly stronger andKingfisher has made the decision to exit from Screwfix Germany which we think is a sensible move, however gross margin guidance for FY20 at flat is worse than our +20bps forecast."
On Laury's vague departure plans and Willett's retiring, they added: "We think a new CEO has an opportunity to set out a strategy to reshape and modernise the business with more realistic expectations, however we also think there is a strong chance of a margin reset to try to drive stronger sales."
Neil Wilson at Markets.com said Laury was been getting the chop "after failing to deliver" on her ONE strategy, with "quarter after quarter of disappointing results", with CFO Witts and Willetts preceding her out the door, while sourcing failures last year claimed the scalp of supply chain boss Arja Taaveniku.
"A complete C-suite clear-out is really rather unusual, showing just how much shareholders and the board have lost patience. Whilst it may be the right move longer term, it does create uncertainty over management direction going forward," Wilson said.
"Nevertheless, there should be scope for new management to drive change and carry out disposals that are necessary to make this a leaner business."
He said Laury's entire sourcing strategy "was suspect from the off given that, for instance, the fittings and fixtures in Poland and Germany are not necessarily the same that are needed in France or the UK" and he said the result was flat sales and profit declines. "Some of it's structural, some cyclical, but a lot of this has been down to execution failings."
Richard Hunter, head of markets at Interactive Investor, saw "signs of progress" within the transformation plan, but felt "any early benefits arising from the transformation plan are being negated by the weak performance of the underlying business" and tepid markets in UK and France.
"Although the shares have bounced off recent lows, clocking up a gain of 14% over the last three months, the price has nonetheless declined 27% over the last year, during which time the wider FTSE100 has posted a rise of 3.7%. With more questions than answers remaining on the transformation plan, investors' patience seems to have evaporated," Hunter said.
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