Kingfisher Public Limited Company - Essay Example

Case Study – KINGFISHER PLC Table of Content Kingfisher plc – The Company 3 Background of the Company 3 Strategy 3 Brands 4 Customers 4 Market 4 Financial Statements 4 Use of Financial Statements by Organizations 4 Strengths of Kingfisher plc 5 Weakness of Kingfisher plc 6 Financial Analysis of Kingfisher plc 7 Recommendation and Conclusion 8 References 9 Appendix KINGFISHER PLC Background Kingfisher originated in the year of 1982. “The acquisition of Woolworth by Paternoster made ways for a fairly small chain consisting of home development stores, known as B&Q. This was the commencement of decade comprising of chief expansions that led to one of the widest retail conglomerates of Europe. The chain of Comet electrical was bought by the company in 1984 followed by buying stores of Superdrug health and beauty in 1987”. (Kingfisher, 2011) In the meantime, B&Q was expanding its out of town appearance in order to become the leader of home development retailers around UK. “In 1990s, Kingfisher attempted to continue its expansion of retail businesses. With the beginning of bigger Warehouse styled stores designed in 1994, B&Q developed speedily. In 1994, home improvement zone expanded internationally. In 1998, France’s foremost retailer of home improvement as well as the owner of a fast growing but smaller in size, known as the Brico Depot chain merged with B&Q”. (Liow K., 1997) In 1999, B&Q managed to open its first store in China. “Various other mergers in that year included buying of French electrical chain and Darty by Kingfisher in 1993. Additionally, Kingfisher bought Screwfix, the catalogue and e-commerce seller of fixings and screws in 1999. In the year of 2001, Woolworths was separated and Superdrug was sold. In 2002 the left over stake in Castorama was obtained for creation in Europe of leading home improvement retailer”. (Kingfisher, 2011) Strategy The main objective of Kingfisher Plc is to distribute superior and consistent returns to its shareholders. “Strategy of the company is to accomplish its objective via serious concentration on markets that are concentrating on families and home base, which are known as well as understood by the company”. (Kingfisher, 2011) Brands The chief brands of Kingfisher include Castorama, Srewfix, Brico Depot, Koctas and B&Q. Furthermore, “Kingfisher has a 21% planned agreement with Germanys leading DIY retailer, Hornbach”. (Liow K., 1997) Customers “People of all classes are catered by Kingfisher worldwide”. (Alexander N., 1995) Market Kingfisher is the leading retailer of home improvement in Asia and Europe having 900 stores in eight countries. It has market-leading status internationally in Asia and Europe along with the emergence of businesses in Russia, Spain and Turkey. “Moreover, its core businesses were developed in France, Poland as well as UK”. (Wolfe B. and Asch D., 1992) Financial Statement The financial statement of a company illustrates the “performance summary comprising the income statements, cash flows as well as balance sheets of usually five years and often of ten years period”. (Francis J. and Schipper K., 1999) Use of Financial Statements by Organizations The aim of financial statements is to offer information regarding financial performance, position as well as modifications in financial position of a firm that is helpful for various users in transforming economic decisions. “The owners, potential investors and shareholders are to be interested most in profitability. Several investors try to find a lofty payout ratio. Speculators give more concentration to stock valuation because growing companies inclined to possess a low payout ratio due to the reason that these companies reinvest their earnings. Furthermore, financial statements are used by bondholders for the indication of long-run solvency. Moreover, temporary creditors, like bankers, forfeit special consideration to cash flow as well as interim liquidity indicators, like current ratio. Creditors of both classes have a preference to lend to firms with lowest possible leverage ratios, like debt to total assets”. (Delta Publishing Company, 2006) Strengths of Kingfisher plc Firstly, Kingfisher is the biggest home development retailer in Europe as well as the third biggest retailer worldwide. “It controls 38 Screwfix and 324 B&Q stores in the UK, 81 Brico Depot and 98 Castorama stores in France. In the French market, Castorama France is the leading home improvement retailer. Possessing 34 stores, Castorama Poland is blessed with the market leading position in Poland. Additionally, in the Italian market Castorama Italy the second major retailer. The equal merger of the group in Turkey, known as Koctas consists of 10 stores along with being the market leader”. (Kumar N., 2005) References and further reading may be available for this article. To view references and further reading you must purchase this article. In addition to this, the group appears as the leader in the fast growing markets of Asia including Taiwan as well as China. “Having the position of one of the major home improvement retailers around the world, Kingfisher is able to offer its customers with a varied range of products at affordable prices, which results in stable revenue generation”. (Wolfe B. and Asch D., 1992) Secondly, Kingfisher possesses a powerful brand portfolio consisting of well-known brands as well as own brands. “The group attempts to market products of famous brands entailing AEG, Whirlpool and Bosch. Moreover, the group provides an assortment of own brands comprising Mann, Airforce and Bodner. During the fiscal year of 2007, the group made attempts to launch the Performance Power along with the MacAllister variety of power tools as well as the ’Colours’ variety of decorative and paint ranges. Furthermore, the group initiated MacAllister laser stages throughout the fiscal year. A wide portfolio of own brands offers a powerful competitive advantage for the group as contrasting national brands, they are accessible solitary at the stores of the group. The products of own brands also supplies improved margins as well as reduced dependence on famous brands”. (Kumar N., 2005) In order to cater the increasing demand for environment-friendly and energy efficient products, B&Q UK instigated various related products in 2007. “These products entail solar panels, light bulbs and domestic wind turbines with advanced designs. A balanced and powerful brand mix makes the group able to serve numerous customer areas and advance its margins”. (Kumar N., 2005) Thirdly, the financial performance of the company in emerging markets of Asia and Europe was excellent. Even though the market conditions were difficult, sales and retail profits in Italy were increasing. “The company’s impressive performance in Europe and Asia generated 11% of the total revenues that helped it to overcome the weak performance in UK, its home market”. (Alexander N., 1995) Weaknesses of Kingfisher plc The major weakness of the company was the meager customer service’s quality. “Secondly, it had expanded in British Isles in 1950s even though it was unprofitable. Thirdly, the high staff turnover was one of the reasons of consumer dissatisfaction. Fourthly, various sites were located at places not suitable for chain outlets. Fifthly, the company had launched itself into new brands in erroneous way. Sixthly, even the revenue growth was consistent from 2003-07 but the organization’s margins have traced the average of the industry” (Kumar N., 2005). Seventhly, the average net profit margin and average operating margin were considerably inferior to the industry average. References and further reading may be available for this article. To view references and further reading you must purchase this article. Moreover, Kingfisher has submitted weak returns since few years that reflected the incapability of management to organize assets in gainful opportunities. Lastly, “Kingfisher performed sluggishly in established markets despite of leading markets. The Kingfisher’s consistent weak performance in France and UK might affect adversely its general market position and proceeds”. (Kumar N., 2005) References and further reading may be available for this article. To view references and further reading you must purchase this article. Financial Analysis of Kingfisher Plc Total revenue generated from sales has decreased from 10,503 million in 2011 relative to 10,450 million in last year. This may be due to decreased demand for the Kingfisher’s products. Moreover, operating profit margin has increased from 6% to 7%. This indicates the increment in success of company’s management in producing income from business operations. This increase might be because of revenues from sales growing faster than the expenses of the company. Additionally, the Return on Total Assets has increased from 4% to 5% over the year. This indicates the ability of Kingfisher of utilizing its assets efficiently, thus increasing its profits. Besides this, liquidity has increased, with current ratio increasing from 0.98 to 0.99 over the year. It points out improved position of the company enabling it to repay its debts easily. Furthermore, the gearing ratio has increased from 42% to 64% representing that the company is principally financed by borrowings and not from equity. Consequently, the company is getting very risky. Further, there is no change in the creditor days over the year. This ensures that the company is efficient in repaying its creditors on time. Consequently, the reputation of the company is maintained. The return on capital employed was constant in both years being 13% which shows the company’s capability of generating profits from the capital employed resulting from improved economic conditions of country. Recommendation and Conclusion After the analysis of the financial accounts and strengths as well as weaknesses of the Kingfisher plc, I would advise Ginny to avoid buying shares in Kingfisher due to several reasons. Most importantly, the company is facing fast increased percentage of gearing ratio in 2011 relative to 2010 which makes it extremely risky to be invested in. Even though Kingfisher plc is liquid enough as well as efficient at repaying its creditors but the speedy increased gearing ratio indicates that they are significantly being paid by the borrowings. Additionally, despite numerous strengths Kingfisher is suffering from various major weaknesses which deteriorate its reputation as well as its performance. Even though it expanded rapidly worldwide, the expansion was not planned adequately which led to decreased profits in British Isles. Moreover, the customers were dissatisfied due to low customer service quality as well as high staff turnover which have led to decreased revenue. In accordance with above analysis, I am to conclude that besides increase in the profitability ratio, the profits were relatively lower than the previous years due to inefficiency of the management. In my opinion the company in this financial position like the Kingfisher plc is not suitable for the investment. References Alexander N., (1995) “UK Retail Expansion In North America and Europe A Strategic Dilemma”, Journal of Retailing and Consumer Services, vol. 2 no. 2, p. 75-81, Northern Ireland, Elsevier Science Ltd Delta Publishing Company, (2006) “Analysis and Uses of Financial Statements”, Los Alamitos Francis J. and Schipper K., (1999) “Have Financial Statements Lost Their Relevance”, Journal of Accounting Research, vol. 37 no. 2, USA, Institute of Professional Accounting Hung M., (2000) “Accounting Standards and Value Relevance of Financial Statements: An International Analysis”, Journal of Accounting and Economics, vol. 30 no. 3, p. 401-420, USA, Elsevier Science Ltd Kingfisher (2011), “Kingfisher at a Glance” Retrieved August 5, 2011 from http://www.kingfisher.com/files/pdf/at_a_glance.pdf Kingfisher (2011), “The Kingfisher Story” Retrieved August 5, 2011 from http://www.kingfisher.com/index.asp?pageid=176 Kumar N., (2005) “The Global Retail Challenge”, Business Strategy Review, vol. 16 no. 1, p. 5–13 Liow K., (1997) "An Empirical Investigation of UK Retail Companies’ Property Asset Strategies", Journal of Property Finance, vol. 8 no. 1, p.24-34, Singapore, MCB UP Ltd References and further reading may be available for this article. To view references and further reading you must purchase this article. Wolfe B. and Asch D., (1992) “Retailers Squeeze Electric Appliance Manufacturers”, Long Range Planning, vol. 25 no. 6, p. 102-109, USA, Elsevier Science Ltd Appendix Data from excel sheet will be attach on this page References and further reading may be available for this article. To view references and further reading you must purchase this article. Read More