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Kingfisher Should Try the Deconstruction Trade

Andrea Felsted
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Kingfisher Should Try the Deconstruction Trade

(Bloomberg Opinion) -- Before you can start the renovation, you have to clear the site.

It looks as if that is what’s about to happen at DIY retailer Kingfisher Plc.

The board is considering sacking Chief Executive Officer Veronique Laury, who has led the chain since the end of 2014, according to the Sunday Times.

Parting ways with her looks inevitable. She is three years into a five year plan to increase annual profit by 500 million pounds ($658.9 million) beyond what it would have been by the end of fiscal 2021.

But so far, this is bearing little fruit. Underlying pre-tax profit fell 8 percent in fiscal 2018 and it is expected to decline again this year, according to the consensus of Bloomberg estimates.

True, the retail sector has faced a turbulent period. But Laury failed to capitalize on the problems of rival Homebase, which was sold by Australia's Wesfarmers Ltd to retail restructuring firm Hilco in May for a nominal sum. In addition, Kingfisher has seen a high turnover of senior executives since Laury arrived.

Investors aren’t thrilled – the shares are down by almost a third since she unveiled her strategic blueprint in January 2016.

The plan, dubbed "One Kingfisher," was an effort to get the group's disparate divisions working more closely together, for example with more joint purchases of goods such as bulbs or bathroom fittings for operations in the U.K. and France. Some progress has been made: 42 percent of products are now common stock. But the benefits are yet to come through to the bottom line.

She's not the first to go down this path: her predecessor, Ian Cheshire, also sought to create synergies by exploiting Kingfisher's scale, with little success.

This raises the question as to whether unification will ever pay off in a meaningful way. Customer tastes differ across geographies. What's more, there are two cultures within the organisation: British and French. Laury has done little to bridge the divide.

A new approach is needed, and a break-up is the obvious alternative.

Kingfisher could have an breakup value of about 9.5 billion pounds, according to estimates of the worth of its individual assets by analysts at Morgan Stanley. That’s roughly twice the current enterprise value.

Within this, the obvious candidate for a sale or demerger is Screwfix, which serves the building trade, and which Morgan Stanley estimates could be worth 2.25 billion pounds.

If the board of Kingfisher does remove Laury – and it would not comment on Monday – it has the perfect opportunity to explore a separation. It should seriously consider this option. No new CEO likes to come in and take an ax to their empire, but if Chairman Andy Cosslett sets the direction, then any successor will have to sign up to the strategy.

The danger is that while the board deliberates on Laury's fate, an activist investor decides that this disassembly is just too tempting a DIY project to pass up.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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