Kingfisher is the largest home improvement retailer in Europe and the third largest in the world. Kingfisher is a pure DIY business and is a market leader in the UK with B&Q (figure 6).

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Introduction

Kingfisher is the largest home improvement retailer in Europe and the third largest in the world. Kingfisher is a pure DIY business and is a market leader in the UK with B&Q (figure 6). The retail industry has grown over the past 10 years, as total growth since 1995 is 38% at current prices. DIY retailers accounts for under 4% of total retail sales, which will increase as consumers interests with their homes and owner-occupation continues to absorb growing amounts of disposable income. The DIY sector is dominated by three players who account for 90% of the sales; B&Q, Focus and Homebase.

Table 1

Table 1 shows a number of factors of why the industry has benefited in the last five years

Table 2

Table 2 shows the different strategies implemented by Kingfisher and how these strategies have benefited their performance.

It is impossible to choose an appropriate benchmark to assess Kingfisher performance due to there dominance in the market and restructuring in the last five years. Homebase is the second largest in the market and is owned by GUS and has changed its focus on the softer end of the market which means they have differing core activities compared to Kingfisher. Homebase and Focus don’t operate outside of the UK which also makes it pointless in using them as a comparison and they have a different business and geographical profiles.

Kingfisher’s expansion has forced many weaker competitors out of business by offering products at discount prices. They have been able to leverage this buying power and gather momentum. This led to them receiving larger rebates of over £1 billion over the next five years from suppliers that gives them the option to lower prices and price out the competition. Kingfisher has been able to pass these cost savings in form of enhanced customer services and merchandise displays as the consumer has become more sophisticated.

Kingfisher correctly predicted the massive increase in consumer demand for home improvement products by understanding the socio economic forces within the industry. The expansion of the UK economy and the increase in consumer expenditure on home improvement products fuelled Kingfisher to pursue a high growth strategy (figure 11).

Table 3

Table 3 summarises strategic and operational decisions and key success factors of B&Q during the last five years.

Table 4

The table below summarises the advantages that Kingfisher receives due to its quest program strategy in tackling important environmental issues to gain a competitive advantage over its competitors to gain the customers trust:

Financial Analysis (calculated ratios and industry averages are in appendix figure 7 and 8)

Cash increased from -£79.8m in 2003 to £27.2m in 2004 due to its demergers which generated a substantial amount of cash. This also assisted in the increase in operating profit by 4% and was driven by reduced shrinkage and the CPR generated material savings and fund investment via lower pricing providing additional staff training and investment in Warehouses. Net cash inflow from operating activities have fallen which is line with turnover due to the demerger which generated £819.2m. This increased net cash inflow from capital expenditure by £718.1m which helped to reduce their debt levels and increase investments. However, all of the figures stated in the accounts don’t take the rate of inflation into consideration.

Table 5

This table shows how Kingfisher’s turnover figures of the last five years, which can mislead potential investors, compare with the rate of inflation as the stated turnover decrease in 2004 was actually 4.19% higher than reported (figure 10).

Table 6

This shows how Kingfisher’s operating profit figures of the last five years compare with the rate of inflation as operating profits fell by 0.7% instead of a reported rise of 4.64% in 2004.    

Creative Accounting

New accounting policies such as revenue recognition have reduced sales by £13.7m and profit after tax by £0.4m. This led to an increase in provisions for customer returns by £5.1m, increase in deferred income of £13.2m, offset by a fall in deferred tax of £5m giving a rise to a decrease in reserves of 13.3m in 2004. ‘Accounting For EPOS Trusts’ has increased profit after tax by £4.9m and reduced profit and loss reserve and other investments by £132.3m in 2004. These policies have increased profit after tax by £0.9m and decreased reserves by £145.6m in 2004. These policies have overall improved the return on equity ratio and will affect the profitability of the company. Kingfisher has increased its provisions for liabilities and charges in order to smooth over earnings in its accounts from -53.8m in 2003 to 64.2m in 2004 which is due to increased UK pension scheme provisions.

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Liquidity Ratio

Current ratio has fallen to 0.91 in 2004 from 1.02 in 2003. This indicates that the liquid resources are slightly insufficient to cover the short-term payments. This is below the industry average of 1.2 and suggests that Kingfisher may have some problems in respect of liquidity. A majority of current assets fell as property debtors in 2003 included proceeds of £692.6m due to the disposal of 15 retail and 5 development sites by B&Q property. Also, £898.1m is made up of items other than trade and other creditors, even though Kingfisher has become more efficient by ...

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