One year into its “ambitious” five-year turnaround plan, Kingfisher PLC (LON:KGF) posted a rise in sales and profits last year.
The Screwfix and B&Q owner reported an 8% increase in adjusted pre-tax profits for the 12 months to 31 January 2017 of £743mln, on adjusted sales of £11.2bn (2016: £10.3bn).
On the surface, that seems like steady progress. Nearly all of that growth came from its UK & Ireland division though, which saw like-for-like sales rise by 6% to £5bn, with Screwfix the star performer.
READ: Kingfisher turnaround plan on track; but warns on France outlook
READ: Results in full
On top of that, there were also some currency benefits, all of which masked the underperformance and problems in its French business.
“The currency boost masks more challenging times in Europe,” said Hargreaves Lansdown equity analyst George Salmon.
“Trading in Poland has been strong, but in France the group is going backwards in a weak market.”
He’s right, too. Its two DIY retail brands across the Channel, Castorama and Brico Dépôt, saw total sales decline 1.4% in 2016 to £4.3bn on a constant currency basis.
Kingfisher said a downturn in the home improvement market across the channel was to blame, although both businesses delivered weaker sales compared to the market.
Bleak outlook
The outlook for France isn’t that good either according to chief executive Véronique Laury, who said the group remains “cautious” on the country’s economic future, “especially in light of the forthcoming presidential elections”.
“What is disappointing investors is another poor show from key market France,” said Accendo Markets’ head of research Mike van Dulken.
“With outlook always key, a cautious view on the geography due to a looming presidential election is hurting.”
That has led to some analysts wondering whether or not the time has come for Kingfisher to either split up the group or sell off its French brands for good.
Synergies?
From the outside looking in, synergies between its UK and French businesses seem few and far between, although Kingfisher is understandably keen to increase efficiencies between the two.
That would provide some benefit to the group as a whole, but Hargreaves Lansdown’s Salmon is sceptical if it will ever materialise as well as Kingfisher hopes.
“The longer term plan is to increase efficiencies between its businesses on both sides of the Channel and unify the group’s fragmented supply chains, enabling Kingfisher to better leverage its considerable scale,” explained Salmon.
“The group can point to some decent early progress, but with the changes going to the very core of the business, there is still a long road ahead.”
So could Kingfisher sell its French businesses?
ETX Capital analyst Neil Wilson certainly thinks so, especially if the underperformance across the Channel continues to drag on the share price here in London.
“Today’s final results largely followed the same pattern we’ve seen from trading statements throughout the year, with strong growth in the UK and Poland but weaker performance in France,” said ETX Capital analyst Neil Wilson.
“Indeed France clearly dragged on the group sales in the second half. Having been positive (+0.3%) for adjusted sales in constant currencies in the first half it turned negative (-1.4%) for the full year.
“Kingfisher may consider offloading its French business in due course if it continues to degrade shareholder value and act as a drag on the UK business.”
CEO under pressure
As mentioned at the top of the article, today's results were the first published since chief executive Véronique Laury introduced the One Kingfisher strategy in 2016.
Laury brought in the new strategy at the bgeinning of last year with the aim of boosting profits at the company by £500mln over the coming five years.
She's had two years now to turn the group around so the pressure is on, and after a mildly successful first year she won't want issues in France weighing on the share price for too long.
Shares were down almost 6% to 326p midway through the morning session.