B&Q owner Kingfisher reports slight dip in profits

Kingfisher, Europe's biggest home improvements retailer, reported a slight dip in profits today and said it was too early to call an economic recovery in Britain, though it was encouraged by recent data pointing to an upturn.

British retailers are still taking a cautious view of the market for the year ahead even though official data and surveys have shown an improving outlook for UK consumer spending, which generates about two-thirds of gross domestic product.

Kingfisher’s Irish B&Q stores went into liquidation in January this year after one third of its revenue was wiped out in the recession and its rent.

British finance minister George Osborne said on Monday that the UK economy has turned a corner and that its accelerating economy vindicated the government's austerity programme.

"While we're really welcoming the change in atmosphere and certainly the UK lending environment has fundamentally changed, I'm not sure we're there yet in calling a sustained economic recovery," Kingfisher's chief executive Ian Cheshire told reporters today. "The critical indicator for us is not so much the forward indicators (such as mortgage approval data) it's really what goes through the tills," he said, noting an expectation of a six to nine months lag in any improvement to the housing market feeding through to do-it-yourself expenditure.

He was speaking after the firm, which runs the B&Q and Screwfix chains in Britain as well as Castorama and Brico Depot in France, met forecasts with a 1.6 per cent fall in first-half profits as a better second quarter was not enough to fully offset the impact of record cold weather in the first quarter.

Mr Cheshire said the outlook for the French market, Kingfisher’s biggest profit earner, was more uncertain than the UK, with its housing market and consumer confidence deteriorating.

Shares in Kingfisher, which have risen 48 per cent over the last 12 months and hit a year high on Monday, were down 2.2 per cent at 410 pence earlier today, valuing the business at £9.6 billion.

That fall reflected the firm’s cautious outlook and no return of cash to shareholders. Having released an exceptional provision of £145 million relating to the resolution of a French tax case, Kingfisher ended the half with net cash of £259 million. “As it stands at the moment we’re not calling any capital surplus,” said Mr Cheshire, explaining there was still uncertainty over trading and a lack of clarity on future leases as the firm attempts to reduce B&Q’s space.

Kingfisher, which trades from around 1,070 stores in nine countries in Europe and Asia, is the world's third-biggest home improvements retailer behind US groups Lowe's and Home Depot. It has offset weak demand in many of its markets with a drive to improve profitability by buying more goods centrally, and directly, from places like China.

Mr Cheshire said the firm would continue to focus on internal initiatives to drive growth, profit margins and cost savings. “Investments in stores, a focus on value and the continued development of ranges and services put it in a strong position to take advantage of the upturn, when it eventually materialises,” said analysts at Conlumino.