Kingfisher paints dismal picture of B&Q's prospects

Kingfisher held out no prospect of its core UK market picking up as it revealed profits at B&Q had more than halved last year.

Analysts warned forecasts for this year looked vulnerable after the group said the home improvement market had deteriorated since the start of the year. Investors drew some relief from its decision to hold the dividend despite a 64 per cent drop in pre-tax profit to £231.8m.

Gerry Murphy, the chief executive, said a "dramatic downturn" in the UK do-it-yourself market, which was the weakest in 10 years, was behind the collapse in profits at B&Q. "Disposable incomes are likely to remain under pressure but we take some encouragement from stronger housing trends," he said.

In the 12 months to 28 January, retail profit at B&Q fell 52 per cent to £208.5m. Operating margins halved to 5 per cent as the group invested heavily in lower prices and absorbed sharply higher wage and rent bills. B&Q shut 25 stores last year and is downsizing 17 of its biggest warehouses to compensate for the surfeit of retail space in the DIY market.

To reverse the profit slide B&Q is seeking to capture a bigger share of the decorating pound by expanding product ranges and offering new installation services. Of every £5 spent on decorating projects only £1 is spent at B&Q, the market leader. The chain is testing the UK appetite for "do-it-for-me" services including decorating and flooring. It already offers a kitchen fitting service.

Ian Cheshire, who runs B&Q, said the initiative "clearly had scope". To get round the age-old problem of a lack of competent UK builders, B&Q is looking at employing Polish tradesmen. The group has strong links with Poland, where it operates 30 stores and employs 5,352 people. B&Q also wants to make its stores more appealing to women, who initiate 80 per cent of all home improvement projects, it said.

Analysts at CSFB, the company's broker, said: "We believe the UK business has not yet bottomed out and talk of a recovery is very premature."

Shares in the group gained 5p to 248p on speculation Kingfisher was an attractive target for private-equity groups. But Mr Murphy said he spent "virtually no time" considering the possibility of a takeover offer.

Kingfisher's overseas operations, the Castorama and Brico Depot chains, grew retail profit by 9 per cent to £230m. Excluding a £215.4m exceptional charge, pre-tax profits fell 33 per cent to £447.2m on turnover up 5 per cent at £8bn.