Kingfisher sells Italian business for eur560m

Click to follow
The Independent Online

Kingfisher's chief executive Ian Cheshire said the disposal of its Italian business demonstrates the commitment of the board to create value for shareholders.

The retailer said it had agreed to sell its 31-store Italian DIY retail chain, Castorama Italy, for €560m to the French home improvement retailer Groupe Adeo and expects to complete the deal in the final quarter of 2008.

Mr Cheshire said: “It means the new team is starting to move forward and get serious about value creation and not flag planting. It underlines the latent value of the business.”

An industry source said the sale is a real sign of intent about how Ian Cheshire, who took the helm in January after stepping up from being the boss of B&Q, plans to revitalise Europe’s biggest home improvement retail group, which has been battling tough trading in the UK and plummeting sales in China.

Mr Cheshire said: “If we could value the rest of the business as we have just done then we would be around £2.50 a share, instead of about £1.20p [a share currently].”

The sale of Castorama Italy will substantially strengthen Kingfisher’s balance sheet, which currently has about £1.5bn of net debt.

Following yesterday’s announcement, Kingfisher’s shares rose 5.8p to 124.20p.

Mr Cheshire said that Kingfisher decided to sell Castorama Italy because of its perceived low growth potential, the expensive and slow-moving nature of the Italian residential property market and the fact it found a trade buyer willing to offer a more favourable price than a pure-financial buyer.

“We identified it as one of our lower return businesses and harder to grow. We could not see a way of getting round it,” Mr Cheshire said.

While he again reiterated there are no “sacred cows” in Kingfisher’s portfolio, Mr Cheshire said he did not anticipate any further disposals for the foreseeable future.

Kingfisher has 850 stores, including its B&Q, Castorama and Brico Depot brands, in nine countries in Europe and Asia.

In the year to 2 February 2008, Castorama delivered a retail profit of £29m, compared with £31m the previous year. Over the same period, Castorama Italy increased sales marginally to £314m.

Mr Cheshire said that Kingfisher can achieve higher incremental returns on capital elsewhere in Europe. “There is a lot of growth opportunity in Eastern Europe, such as Poland and Russia and we will look at other opportunities in Eastern Europe. We have a lot of work to do to fix China, which the other big opportunity.”

Credit Suisse analyst Tony Shiret said: “This news – a very reasonable price in difficult markets allowing Kingfisher to exit a non-core market and reduce its actual debt levels – should be regarded as positive, albeit not entirely unexpected.” However, Mr Shiret said it was not decisive enough to change Credit Suisse’s neutral stance on Kingfisher.

Groupe Adeo owns the market leading retail chain in Italy, Leroy Merlin.