Jeremy Warner's Outlook: Blaming the weather just isn't good enough as Kingfisher sales take a battering

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The Independent Online

Gerry Murphy, chief executive of Kingfisher, has been warning the markets about a likely consumer slowdown for the best part of a year now, but nothing could have prepared them for the 6 per cent, first-quarter fall in like-for-like sales disclosed yesterday. This looks more like meltdown than a gentle contraction in demand. The shares duly plunged 6.5 per cent, and would have fallen even further but for Home Depot's known interest in eventually bidding for the company.

Gerry Murphy, chief executive of Kingfisher, has been warning the markets about a likely consumer slowdown for the best part of a year now, but nothing could have prepared them for the 6 per cent, first-quarter fall in like-for-like sales disclosed yesterday. This looks more like meltdown than a gentle contraction in demand. The shares duly plunged 6.5 per cent, and would have fallen even further but for Home Depot's known interest in eventually bidding for the company.

In the circumstances, news of the smallish Chinese acquisition with which Kingfisher chose to lead off its trading update seemed completely irrelevant. Mr Murphy surely didn't think it would deflect attention from the collapse in sales, or even help sugar the pill? Nor was the company's attempt to blame the whole thing on external factors a persuasive one.

Poor spring weather and the early Easter cannot have helped. Interest rates are a bit higher, and so are taxes, but what on earth does "inflation" have to do with it? The story at Kingfisher is meant to be one of price deflation, not inflation. Across the high street things are bad, but in few other companies do they appear to be as bad as this. Worryingly for Kingfisher, smaller, niche rivals seem to be doing rather better. Kingfisher is the market leader by a country mile, but there's plainly no Tesco effect going on here.

If the UK and France are ex-growth, then the B&Q chain's push into the emerging markets of Eastern Europe, China, Turkey and Russia looks a sensible enough strategy. Yet can it really afford the present break-neck pace of expansion overseas? The worry has to be that in pursuing foreign adventure, the company may have taken its eye off the ball back home.

With higher taxes a racing certainty the other side of the election, and possibly interest rates too, the trading environment can only get worse before it gets better. Retailers may have to learn to live with lower levels of consumption, in which case the name of the game will become that of stealing sales from each other. Not a happy state of affairs.

Lift off for Airbus's super-jumbo?

Is it a bird, is it a plane or is it the biggest white elephant the aviation world has ever seen? Well, actually, it's a glowing example of European industrial co-operation at its best, declared Jacques Chirac as he interrupted his weekly cabinet meeting to watch the Airbus A380 take off on its maiden test flight from Toulouse.

Everything about the 555-seater aircraft is big, and that includes the gamble that the governments of Britain, France, Germany and Spain have taken with taxpayers money in funding a third of the A380's $12bn development costs.

Airbus reckons the A380 will be a sure-fire winner which will repay its investment many times over. But on the other side of the pond, the Americans scratch their heads and ask why in that case it was not possible to finance the plane through the capital markets alone. The answer, they believe, is that the passenger market is not big enough. Boeing reckons Airbus will be lucky to sell 500 aircraft. Airbus puts the market at 1,600, including freighter versions.

If Airbus is right, then its state-owned sponsors have nothing to worry about. The project should more than wash its face. Earlier models, such as the A320 have paid back their launch aid handsomely. If it is wrong, it will put Europe's aircraft industry back 20 years and leave Boeing in the ascendancy once again. The consolation is that at least Airbus will not have to repay a penny of the launch aid.

Down in Toulouse, it was recently admitted that sales of the A380 will need to reach at least 300 for the project to break even, rather higher than before. What's more, Airbus needs to shift several times that number to declare the plane a genuine success. So far it has sold just 154 and almost all the airlines that are likely to want it have placed their orders, save for British Airways. That beats sales of Concorde, but is it heading for a similar fate?

An issue of trust in UK savings

Legal & General has been widely portrayed as a brave campaigner for natural justice against an oppressive financial regulator in standing up to the Financial Services Authority over a £1.1m fine for endowment mis-selling. Is this the right way to look at it?

L&G was at it again earlier this week, complaining in a hearing to determine by how much the fine should be reduced and who should pay the legal costs that the FSA had deliberately set out to harm the life assurer's reputation. FSA bashing is a favourite sport among City editors, and the financial pages just lapped up this broadside attack on the regulator's motives and integrity.

Full marks to L&G for challenging the FSA, and full marks too for forcing the regulator to review its enforcement procedures, which leave a lot to be desired. Let's hope the FSA's new director of enforcement, Margaret Cole, of the City law firm White & Case, does better than her predecessor.

But if I were L&G's David Prosser, I'd quit the crusade while still ahead. I don't want to defend the FSA, which by stretching the sample evidence of mis-selling too far, badly mishandled the L&G case. Yet the basic principles behind the FSA's judgement were reasonable enough.

This is an industry characterised by repeated failures in the suitability of the products it sells to its customers, from pensions to precipice bonds, and from endowments to split-caps. If you were sold a wonky car you would rightly expect compensation from the manufacturer, or at least its replacement with a vehicle that worked.

For some reason this basic, customer comes first, principle - which instructs the selling practices of virtually all other businesses - has passed the savings industry by. Too often the approach has been to whack the customer for whatever the latest product might be, without thought as to suitability. In extreme cases this has involved preying on the vulnerable and soft in the head to sell them the same inappropriate product over and over again. Adequate records and cross checks to prevent such mis-selling have been non existent.

As it happens, L&G is one of the least worst offenders, which is why the FSA's strictures were so unfortunate. The judgement wasn't entirely perverse, for L&G alongside everyone else did indeed mis-sell an awful lot of these policies, but the process used to find against L&G was wrong headed and the choice of target was a poor one.

As for the charge of reputational damage, L&G will find that a tough one to make stick. There was little sign of it in yesterday's first-quarter new business figures, which were up 43 per cent. Since becoming chief executive in the early 1990s, David Prosser has steered a clear and steady course through the many vicissitudes of this troubled industry, increasing his market share from 3 per cent back then to 9.5 per cent today.

There was but one act of hubris along the way, when he tried to merge with NatWest, yet even here luck was on his side. The deal was abandoned after the intervention of the Scottish banks, who rightly thought banking was for bankers and bid for NatWest themselves. He'll be a tough act to follow. Yet as the two internal front runners, Tim Breedon, investment director, and Andrew Parker, finance director, battle it out for the succession, they need to dwell long and hard on the industry's desperate need to win back public trust.

The savings and pensions market in Britain is a complete horlicks. The industry can blame the Government for this sorry state of affairs all it likes, yet the damage is largely self-inflicted. Life assurers brought the present chaos in public policy on themselves. Poorly performing industries get the regulators they deserve.

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