Kingfisher to plough £75m into price cuts

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Kingfisher will reinvest £75m gleaned from shaking up its supply chain in lower prices this year, the do-it-yourself retailer said yesterday as it reported a sharp rise in interim profits.

The group said it was on track to save £100m in 2004 from its move to almost halve the number of suppliers it uses over the next four years. It expects to have recouped £1bn by 2008.

Despite poor sales of seasonal products at Kingfisher's core B&Q chain, the group reported an 18 per cent rise in profits before tax and exceptional items of £346m - ahead of analysts' expectations. Its shares rallied 3 per cent to 299.5p. Gerry Murphy, the chief executive, said demand for its products in the UK was "holding up well", quelling concerns that the recent string of interest rate rises were putting people off spending money on their homes. "We saw nothing in the first half to suggest there is a tailing off of consumption. The big ticket items held up well," he said.

Mr Murphy said the outlook for consumer spending in the UK was "less benign" than two years ago, but insisted the group's focus on selling cheap tools, paint and bathroom ranges gave it confidence. He also dismissed fears that a decline in the number of housing transactions could hit B&Q, pointing out that the number of homes sold fell 15 per cent during the first half, while sales at the DIY chain rose 10 per cent. He said a housing market slowdown would probably be "net neutral" for the group.

B&Q, the country's top seller of fitted kitchens and bathrooms, is seeking to increase its share of the fitted bedroom market. It is also planning to take on specialist home improvement retailers by expanding the number of products consumers can order direct from special catalogues.

Underlying sales at B&Q, which contributes more than half of Kingfisher's sales, rose 2.5 per cent, dented by falling sales of seasonal goods. The group's businesses outside the UK fared better, with underlying sales from its French Castorama group rising 5.3 per cent.

The group is planning to spend about £550m on capital expenditure this year, up from £350m last year, as it opens new stores, from China to Poland.