Kingfisher prepared for retail spending squeeze

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The Independent Online

Kingfisher brushed aside concerns that rising UK interest rates would derail its core B&Q do-it-yourself chain, despite predicting that the overall retail climate would be squeezed.

Gerry Murphy, the chief executive, said pressure on consumers' disposable incomes from higher taxes, interest rates and pension contributions would squeeze the overall retail environment - but he insisted the group was not "nervous".

"When people are challenged financially the home becomes more important to them and they become more value conscious. DIY speaks loudly to all those concerns," he said.

Kingfisher, which over the past three years has transformed itself from a sprawling conglomerate into a focused DIY retailer, reported a 15 per cent rise in pre-tax profits to £591m. This was after the impact of the overhaul, which saw it demerge its electricals arm last spring and sell businesses around the world.

Although profits were towards the top end of City forecasts, the group's shares dipped 3.4 per cent, reflecting a decision by UBS, its joint house broker, to stop recommending that investors buy its stock. UBS cut its price target for the group to 320p from 355p, saying: "The core DIY market has slowed materially, possibly reflecting the 15 per cent decline in housing transactions in 2003." Kingfisher's shares fell 10.25p to 289.5p.

Mr Murphy said the group was making "good progress" with its mission to slash the number of suppliers that it uses from 8,000 to 5,000 over the next five years by taking out the middlemen and buying direct from countries such as China. It is aiming to save £1bn from the move, which it will re-invest in lower prices to woo customers from rivals such as GUS's Homebase. Mr Murphy said the group would import about $500m (£275m) of goods from China this year, about 20 per cent up from last year.

Underlying UK sales rose by 4.7 per cent last year, while profit rose 12 per cent to £391m.

Other highlights included its first profit in China, where it has seven B&Q stores, and its first profit from its online business.