Cost of Kingfisher's profit boost plan worries investors

By James Davey

LONDON (Reuters) - Kingfisher (KGF.L), Europe's largest home improvement retailer, announced a plan on Monday to boost profit by 500 million pounds a year from 2021 that will cost 800 million pounds over the next five years to deliver.

In a strategy update, Kingfisher, which trades as B&Q and Screwfix in Britain and Castorama and Brico Depot in France and other countries, also said it planned to return 600 million pounds to shareholders over the next three years through share buybacks, in addition to annual dividend payments.

Kingfisher sees a huge opportunity in Europe's 235 billion pound home improvement market but says it needs to become a more unified company to take advantage of it.

Shares in the group fell up to 4.8 percent as investors baulked at the cost of the plan, which entails improving the company's operational and ecommerce capabilities and driving efficiencies across the group.

"The issue here is the credibility of the plan and the market's view of the likelihood of successful execution," said Haitong Research analyst Tony Shiret.

"We remain sellers because we do not believe that Kingfisher will deliver this plan."

Analysts also said Kingfisher Chief Executive Véronique Laury's assessment that the company's "pre-transformation performance" would be broadly in line with the macroeconomic backdrop in its respective markets, was pretty downbeat.

Laury succeeded Ian Cheshire as CEO in December 2014 and in March detailed plans to reshape Kingfisher, including closing 60 B&Q stores while opening more Screwfix outlets, cutting product lines, developing unified garden and bathroom businesses and revitalising its big stores across Europe.

"With a clear roadmap now in place alongside clear long-term targets, the size of the five-year opportunity is significant," said Laury.

Kingfisher made a pretax profit of 675 million pounds in the 2014-15 financial year and prior to Monday's update analysts were on average forecasting 667 million pounds for 2015-16.

The company, the world's No. 3 home improvement player behind U.S. firms Lowe's (LOW.N) and Home Depot (HD.N), said its five-year plan would hit profits in the first year by about 50 million pounds and by about 70-100 million pounds in the second.

The 800 million pound cost of the plan was made up of profit and loss costs of 220 million pounds, one off costs of 270 million pounds and capital expenditure of 310 million pounds.

Chief Financial Officer Karen Witts said the recent sale of B&Q rival Homebase by Home Retail (HOME.L) to Wesfarmers (WES.AX), which intends to rebrand the chain as Bunnings, would have no bearing on B&Q's strategy.

Kingfisher shares were down 14.5 pence at 330.4 pence at 0947 GMT, valuing the business at 7.6 billion pounds.

($1 = 0.7018 pounds)

(Editing by Kate Holton and David Clarke)