Kingfisher under the microscope as new chairman stamps his mark

Francis Mackay's strategic review could lead to a further break-up of the retailing group
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The Independent Online

Kingfisher, the retail conglomerate which includes B&Q and Comet, yesterday failed to offer any firm guidance on its future strategy or the succession question surrounding its beleaguered chief executive, Sir Geoff Mulcahy.

The company also declined to comment on its plans to buy out the remaining 44 per cent stake in Castorama, the French DIY business which was merged with B&Q in 1998. And Kingfisher shed no light on the possibility of a demerger of its electricals division, which includes Darty in France and Promarkt in Germany as well as Comet in the UK.

Francis Mackay, the new Kingfisher chairman, said: "We are currently reviewing key strategic issues and will not comment further ahead of any decisions." The review is expected to take several months.

What the market did get yesterday was its first formal view of Mr Mackay's attempts to stamp his authority on a business which has been dominated by Sir Geoff for 20 years. Mr Mackay, who succeeded Sir John Banham as chairman, certainly edged ahead of his predecessor in one respect yesterday by actually showing up at the presentations for the press and City analysts.

At the meetings he did his best to play down suggestions he will soon remove Sir Geoff as chief executive of the group. These assurances came despite a decision to reduce Sir Geoff's service contract from two years to just one.

"We would be foolish to lose Geoff's expertise and knowledge of the marketplace while we're looking at these strategic challenges," Mr Mackay said. "Geoff has signed a 12-month contract and he has not been precious about it at all. But the contract is not relevant to his tenure in the job. It would be criminal to lose his talent."

Sir Geoff said. "We've got an excellent relationship. We are on the same page on the important issues."

Mr Mackay added: "This isn't a case of Geoff hanging on by his fingertips and me trying to push him over."

Some analysts appeared encouraged by the apparently good relationship between the two men, who were sharing jokes on the podium. "The body language looked good," one said. Others said it was hard to tell how much was real and how much was staged. "I believe Mackay will oversee Geoff's replacement within this calendar year," one said. "And from our talks with shareholders, that would be a popular outcome."

The Castorama issue is more pressing but even more complex. Kingfisher injected 100 per cent of B&Q into Castorama four years ago in return for a 56 per cent stake. But it only has 50 per cent of the voting rights with control resting with the French. While B&Q has been powering ahead in Britain, Castorama has been faltering in France and the planned synergy benefits have failed to come through.

Kingfisher said nothing new yesterday about how it would raise the £2.5bn to £3bn required to buy out the stake despite speculation regarding a possible rights issue.

One analyst said: "What they really need to do is persuade Castorama shareholders to accept some Kingfisher paper. It's hard to do that when you've just reported a fall in earnings. But if the first-quarter figures are better that is a much better hook to drag people in with."

Another analyst said: "You can understand all the spin-doctoring going on because they've got a difficult job to do. To buy out Castorama they need to have Kingfisher's share price as high as possible and Castorama's to be low."

However, under the terms of the contract signed by the two parties in 1998 Kingfisher must offer Castorama shareholders 100 per cent cash. Though the French shareholders may choose to take part of the proceeds in Kingfisher shares, the British company has no choice but to make a full cash offer.

One analyst said the Castorama issue had overshadowed the performance of B&Q. "B&Q is really the only business Kingfisher has grown organically for the last 20 years and they've given 45 per cent of it away. Now they are going to have to pay a fortune to get it back."

If Kingfisher chose a rights issue to fund the deal it may have to make management changes, including the likely removal of Sir Geoff. "There is no way we'd support a rights issue with the current management," one institutional investor said.

The comments came as Kingfisher reported full-year results marred by a string of exceptional charges. Though pre-tax profits rose by 5.3 per cent to £560m for the year to 2 February this was before exceptional charges of £470m. These included a £342m loss on the disposal of Superdrug to Dutch group Kruidvat last year, £41m of demerger costs relating to the separation of Woolworths and a £94m impairment charge against the goodwill value of Promarkt in Germany. One analyst described the list of charges as "the longest suicide note in corporate history".

Stripping out tax and the Castorama share of B&Q's profits, Kingfisher recorded a loss of £248.8m, the first loss in the group's history. The dividend was reduced to 12p a share.

Kingfisher said like-for-like sales growth across the business was 4 per cent while debt had been cut to £1bn.

B&Q was the star performer with profits up 14 per cent to £300m and underlying sales up 10.8 per cent. During the year 21 new B&Q Warehouse stores were opened with plans for another 15 this year.

In France the main Castorama chain reported like-for- like sales growth of just 0.5 per cent with profit in France slightly up at £120m.

Comet recorded strong growth with profits up 8 per cent at £43.7m and underlying sales up 5.2 per cent, driven by wide-screen televisions, DVD players and computer game consoles. However in Germany losses at the Promarkt chain increased to £27.7m from £18.8m the previous year.

Kingfisher shares rose 2p to 390p.

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