B&Q's owner Kingfisher unveiled an austerity drive yesterday that will see investment slashed by 25 per cent and the dividend cut in half.
Chief executive Ian Cheshire, the former B&Q head who took over the running of the group in January, said the pain was necessary to deal with tough trading conditions and ensure the dividend better reflected the company's current earnings.
However, despite the spending cuts – which will see capital expenditure reduced to £400m from about £530m – the company will press ahead with planned refurbishments of B&Q stores, which have paid dividends in terms of sharply increased sales.
Mr Cheshire said: "The re-vamps in the UK are some of our best-performing investments and it is very unlikely that they will change. "What we have been trying to do is make them more efficient. We want to focus spending on customer-facing activities. The cuts will affect spending on things such as the supply chain and systems."
The cut means Kingfisher's final dividend will be 3.4p. The company also warned that the next interim dividend will face a similar reduction after which the payout will move forward from its reduced level.
"The dividend was based on four years ago when the business was making profits significantly higher and while we have a conviction that the business will build it back to a higher level, we needed to set a more sensible level," said Mr Cheshire.
He plans to centralise management, with the creation of three new roles at the head of three new divisions – UK, France and other international. Philippe Tible will head France with a UK announcement promised "shortly".
Pre-tax profits for the year ending 2 February fell by nearly 3 per cent to £386m. Same-store sales picked up 2.9 per cent while overall sales were up 7.9 per cent to £9.4bn. However, profits at B&Q fell to £131m from £163m although like-for-like sales edged up by 0.6 per cent after three years of falls.
The company's foreign businesses – which include Castorama of France – performed better. Same-store sales at Castorama gained 2.6 per cent and profits surged by 15 per cent. The company also did well in the rest of Europe although same-store sales were flat in Asia.
Mr Cheshire said he was "excited at the opportunities presented by China" but the business is set for a restructuring that will cost £33m in the wake of a slowdown in the country's housing market. "Overall we have nearly £10bn of sales and a good position. We just need to do what we do better," said Mr Cheshire.
While major acquisitions are not on the cards, he said the company had an "open mind" about smaller deals but could also sell businesses where it "makes sense".
The dividend cut was not unexpected in the City and the profits were in line with expectations. However, investors were unhappy and the shares still fell, closing down 4.7p to 130.4p.
Despite this, Credit Suisse analyst Tony Shiret said: "At B&Q we expect that bulls will take encouragement that the first 11 stores to trade in the latest format have achieved £200 per sq ft sales density, offering hope that Mr Cheshire's strategy will work."Reuse content