Bloomberg News

Kingfisher Chief May Consider Special Dividend or Share Buybacks

November 05, 2012

Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, said it may consider a special dividend or share buybacks as a scarcity of major acquisition opportunities and a smaller rent bill leave it with more cash.

“As we look forward next year, we would consider our cash position and if we felt there was a systemic cash generation above what we needed for our growth plans, which we’ve got quite a lot to shoot for, then of course we would hand it back,” Chief Executive Officer Ian Cheshire said in an interview in London. “I don’t think you can see many major deals that would use a lot of cash.”

The owner of the B&Q and Castorama home-improvement chains has eliminated net debt that reached 1.6 billion pounds ($2.5 billion) in 2008 and may end the fiscal year with a net cash surplus for the first time since at least 1988, according to analyst estimates. The retailer hasn’t made an acquisition since buying 31 U.K. stores from a failed competitor 18 months ago and future deals are likely to be “bolt-ons” in existing markets costing no more than 100 million pounds, Cheshire said.

Returning money to shareholders “would signify quite a lot of confidence in the environment in their core markets,” said Simon Irwin, an analyst at Credit Suisse with an outperform rating on the stock. “I’d take it as being quite encouraging in terms of their confidence in their own execution.”

Kingfisher may have net cash of 11.3 million pounds at the end of the fiscal year through January 2013, rising to 111.6 million pounds in January 2014, according to the average of analysts’ estimates compiled by Bloomberg.

Store Leases

Kingfisher sees a long-term opportunity to reduce its 4.9 billion pounds of leases as the growth of online shopping lessens the need for store space, the CEO said. The retailer would ideally cut its U.K. estate by about 20 percent, he said.

The company is looking at sub-dividing leases such as at the Belvedere store in Kent, southeast England, where Wal-Mart Stores Inc.’s (WMT:US) Asda supermarket chain has taken half the store space, thereby reducing Kingfisher’s rent and leaving the retailer with the “right-size store.”

“If we could get out of the dead weight of historic leases in the U.K. that would potentially be quite transformational for us,” Cheshire said. The retailer typically has seven-to-nine years of unexpired leases on its 360 U.K. stores, with rents being reduced by 10 percent when renegotiated.

After reporting a slump in first-half earnings in September, Cheshire said there was “a broad feeling that the U.K. macro-economic situation is gently getting better.”

Better Christmas?

The executive said he sees pent-up demand among consumers who want to enjoy Christmas after a difficult few years. “There are some signs it should be better” this year, said the CEO, who is also the chairman of the British Retail Consortium.

With U.K. employment showing signs of improvement, Cheshire said he’s “more and more comfortable with the next six months.” U.K. jobless claims unexpectedly fell in September and a wider measure of unemployment dropped to the lowest rate in more than a year, boosted by the London Olympics.

In France, Kingfisher’s largest market with 47 percent of operating profit last year, “consumer trends are generally uncertain,” Cheshire said. Still, the French do-it-yourself market is “much more robust” than the U.K., he said. France now has higher home ownership and greater propensity for DIY projects than the U.K., he said.

“The basic household situation is a bit better,” Cheshire said. “There is a sense that no miracle, but no catastrophe for France, but a little better in the U.K.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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