Kingfisher PLC Assignment Sample

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Introduction

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Expansion is one of the important elements for company in seeking to tap into new markets. The present report deals with Kingfisher PLC headquartered at UK and engaged in the retail sector. Its main competitors, Travis Perkins PLC will be also discussed with financial statements and comparisons to be made with reference to financials of both organisations as which one is performing well in the last three years.

Moreover, opportunities and problems of both companies are identified that have any similarities between them. Conclusion will be made with reference to corporate objectives that are formulated by Kingfisher PLC and also the report on the financial performance will be send to Board of Directors to make a joint venture with listed firm.

1. Company background by discussing corporate objectives and changes occurred in past three years

Kingfisher PLC is one of the largest British multinational corporations engaged in retail industry. It is earning good quantum of profits in accordance to stated objectives. The corporate objectives of company are to expand in every country by which it may be able to garner more sales and equivalent profits in the best possible manner. This is particularly important as business is operating in Poland, France, UK and Ireland in attaining profits from various segments quite effectually.

The corporate objectives have significantly changed as business in 2015 closed 30 B&Q stores which was divestiture. On the other hand, it had opened 42 new stores which is greater change as observed leading to attain objectives. It made announcement for opening new Screwfix stores in the UK of nearly 200. In the same year, 60 stores were shut down in UK and Ireland. In relation to this, 70 % of stake were being sold to Wumei Holdings for whopping GBP 140 million (Kingfisher PLC, 2018).

Kingfisher PLC announced in 2017 to acquire Praktiker Romania which would double the power in the best possible manner. Corporate expansion was taken place in February 2017 as 500^th store under brand name of Screwfix which was opened in London. Apart from it, distribution centre was opened in Poland leading to enhancement of profits of company quite effectually. It has made corporate objectives of 2019 financial year, where B&Q distribution centre in Swindon would be opened so as to streamline operations.

The corporate strategy of Kingfisher PLC is to expand operations in different locations to go ahead in retail sector. It has announced to minimise carbon footprint by effectively conversing energy in shops. Its objective to meet much power for using and passing surplus if any back grid would be successfully accomplished.

Key opportunities to Kingfisher PLC is to expand in retail stores in UK. It offers home improvement products, bathroom commodities, decorating items, bedroom accessories which clarifies that organisation has pretty presence in UK and as such, it can deploy more staff and open up new shops in the country quite effectively. In a report furnished, retail sales would be maximised in near future and would reach to GBP 52,669 million by the end of 2022. Figures are there to show about company that has more avenues to come (Kingfisher PLC, 2018).

Another major opportunity is that e-commerce has been growing at a faster rate in UK. Customers have become internet-oriented which has risen online sales quite phenomenally. Web portals are becoming user-friendly to company and as such, revenue has also maximised. Kingfisher PLC offers products on various websites such as diy.com, screwfix.com and bricodepot.fr. It can be said that company would be effectively attaining new markets in the future course of action.

Apart from opportunities, there are number of problems or issues associated with organisation which might hinder its stated corporate objectives up to a major extent. Manpower costs have been raised in the UK. This is particularly important for Kingfisher PLC as it has more than 78000 employees in the country itself and will be impacted adversely if it does not come down.

The government has increased wages on hourly basis, GBP 7.2 in 2016 to GBP 7.5 in next year. Moreover, for all age groups, wages have been maximised that is affecting the company's cost of operations. Competition is fierce for an organisation in retail industry, various giants prevail which are a serious threat to firm in attaining desired profits and consecutively market share. Wolseley PLC, Tesco PLC, Metro AG are the big names in sector. Hence, company has to make well-structured strategies to outreach rivals.

2. Assessing financial statements and related information and problems or opportunities identified

Key Ratios	2018	2017	2016
Gross profit margin	36.9	37.31	36.91
Operating Profit Margin	5.9	5.04	5.95
Net Profit Margin	4.16	3.95	5.23
Current ratio	1.15	1.28	1.28
Acid test ratio	0.22	0.54	0.54
Stock days	120.99	106.91	110.92
Debtor days	192.64	190.25	184.8
Creditor days	74.05	71.71	75.43
Return on Assets	4.71	4.25	5.9
Return on Capital Employed	9	7.47	9.36
Gearing	0.01	0.05	0.05
Interest coverage	41.12	40.95	31.12
P/E Ratio	18.36	13.45	21.54
Earnings per Share	0.44	0.18	0.24

The above ratios show the company's performance as a whole. Ratios calculated highlights that Kingfisher PLC has been performing well in its various segments in different countries. It is evident from figures that gross profit is increasing at a constant rate which shows that firm is maintaining its position and eradicating unwanted expenses up to a high extent.

Gross profit was 36.91 in 2016, reached to 37.31% and again increased to 36.91. Operating profit was 5.95 in 2016 and was constant over the years. This has been arrived as sales in UK have increased as more stores are opened leading to enhancement in profit (Kingfisher PLC Annual report, 2017).

Current ratio is around 1.2 which is not adequate as it should be nearer to 2 to be regarded as the ideal one. Moreover, this company has 0.54 of ratio in 2016 and 2017 but it got decreased to 0.22 in 2018.

Days inventory has been increased as it uses stock not constantly leading to delay in replenishing inventory. It is making faster payments to creditors as days are decreased. It is not quickly collecting money from credit customers as longer time is accomplished through receivable days' ratio. Return on capital employed had been good because it was 7.47 % in 2017 and reached to 9% in 2018. Gearing is low as debt is not at all used by it. Interest coverage ratio is good. EPS and P/E ratio are good.

3. Discussing company's performance with its main rival

Common size Income statement of Kingfisher PLC
Particulars	2015	% of Sales	2016	% of Sales	2017	% of Sales
Revenue	10966	100.00%	10441	100.00%	11225	100.00%
Cost of goods manufactured	6918	63.09%	6545	62.69%	7050	62.81%
Gross Profit	4048	36.91%	3896	37.31%	4175	37.19%
Selling and administrative expenses	3403	31.03%	3233	30.96%	3445	30.69%
Unusual Expense (Income)	38	0.35%	166	1.59%	-17	-0.15%
Other Operating Expenses	-40	-0.36%	-26	-0.25%	-19	-0.17%
Total Operating Expenses	10314	94.05%	9915	94.96%	10458	93.17%
Operating profit	652	5.95%	526	5.04%	767	6.83%
Other, Net	-4	-0.04%	1	0.01%	1	0.01%
EBIT	644	5.87%	512	4.90%	759	6.76%
Income tax provision	71	0.65%	100	0.96%	149	1.33%
Net Income Before Extra. Items	573	5.23%	412	3.95%	610	5.43%
Net Income	573	5.23%	412	3.95%	610	5.43%

Common size Balance sheet of Kingfisher PLC
Particulars	2015	% of Total assets	2016	% of Total assets	2017	% of Total assets
Cash	171	1.76%	220	2.27%	209	2.04%
Cash and cash equivalents	390	4.02%	510	5.26%	586	5.73%
Short Term Investments	48	0.49%	70	0.72%	0	0.00%
Short Term Investments and cash	609	6.27%	800	8.25%	795	7.77%
Trade receivable net	55	0.57%	58	0.60%	60	0.59%
Total receivables	422	4.34%	449	4.63%	426	4.16%
Inventory	2021	20.81%	1957	20.19%	2173	21.24%
Prepaid Expenditures	121	1.25%	124	1.28%	131	1.28%
Other Current Assets	344	3.54%	62	0.64%	36	0.35%
Total Current Assets	3517	36.21%	3392	34.99%	3561	34.80%
Accumulated Depreciation	-2060	-21.21%	-2246	-23.17%	-2354	-23.00%
Property, Plant, Equipment	3203	32.98%	3212	33.13%	3589	35.07%
Goodwill,	2414	24.85%	2397	24.73%	2399	23.44%
Intangible assets	258	2.66%	276	2.85%	308	3.01%
Long Term Investments	58	0.60%	110	1.13%	47	0.46%
Long Term (note receivable)	2	0.02%	2	0.02%	1	0.01%
Other Long Term assets	261	2.69%	305	3.15%	328	3.21%
Total Assets	9713	100.00%	9694	100.00%	10233	100.00%
% of Total liabilities and equity	% of Total liabilities and equity	% of Total liabilities and equity
Accounts Payable	1366	14.06%	1339	13.81%	1431	13.98%
Accrued Expenses	790	8.13%	858	8.85%	926	9.05%
Notes payable	91	0.94%	76	0.78%	0	0.00%
Long term debt (current portion)	14	0.14%	62	0.64%	14	0.14%
Other Current liabilities	486	5.00%	313	3.23%	368	3.60%
Total Current Liabilities	2747	28.28%	2648	27.32%	2739	26.77%
Long term borrowings	192	1.98%	145	1.50%	153	1.50%
Obligations of Capital Lease	40	0.41%	34	0.35%	31	0.30%
Total Long Term borrowings	232	2.39%	179	1.85%	184	1.80%
Total Debt	337	3.47%	317	3.27%	198	1.93%
Deferred Income Tax	324	3.34%	333	3.44%	282	2.76%
Minority Interest	10	0.10%	0	0.00%	0	0.00%
Other Liabilities	180	1.85%	348	3.59%	257	2.51%
Total Liabilities	3493	35.96%	3508	36.19%	3462	33.83%
Ordinary shares	369	3.80%	361	3.72%	352	3.44%
Paid-In Capital (Additional)	2214	22.79%	2218	22.88%	2221	21.70%
Retained Earnings	3816	39.29%	3811	39.31%	4018	39.27%
Treasury Stock - Common	-26	-0.27%	-24	-0.25%	-23	-0.22%
Other Equity	-153	-1.58%	-180	-1.86%	203	1.98%
Total Equity	6220	64.04%	6186	63.81%	6771	66.17%
Total Liabilities & Stockholders' equity	9713	100.00%	9694	100.00%	10233	100.00%

Common size Income statement of Travis Perkins PLC
Particulars	2015	% of Sales	2016	% of Sales	2017	% of Sales
Revenue	5942	100.00%	6217	100.00%	6433	100.00%
Cost of goods manufactured	4172	70.21%	4365	70.21%	4527.5	70.38%
Gross Profit	1769	29.77%	1852	29.79%	1905.6	29.62%
Selling and administrative expenses	1388	23.36%	1464	23.55%	1560.5	24.26%
Depreciation	18	0.30%	16.6	0.27%	12.3	0.19%
Unusual Expense (Income)	117	1.97%	275	4.42%	11.5	0.18%
Other Operating Expenses	-5	-0.08%	-5.7	-0.09%	-5.6	-0.09%
Total Operating Expenses	5687	95.71%	6116.8	98.39%	6106.2	94.92%
Operating profit	254	4.27%	100.4	1.61%	326.9	5.08%
Other, Net	-8.4	-0.14%	-5.6	-0.09%	-6.9	-0.11%
EBIT	223	3.75%	72.7	1.17%	289.7	4.50%
Income tax provision	55.8	0.94%	58.6	0.94%	55.7	0.87%
Net Income Before Extra. Items	167.7	2.82%	14.1	0.23%	234	3.64%
Minority Interest	-0.1	0.00%	-1.4	-0.02%	-1.2	-0.02%
Net Income	167.6	2.82%	12.7	0.20%	232.8	3.62%

Common size Balance sheet of Travis Perkins PLC
Particulars	2015	% of Total assets	2016	% of Total assets	2017	% of Total assets
Cash	83.8	1.73%	250.5	5.08%	276.8	5.38%
Short Term Investments and cash	83.8	1.73%	250.5	5.08%	276.8	5.38%
0.00%	0.00%
0.00%	0.00%
Trade receivable net	666.5	13.79%	687.6	13.96%	753	14.64%
Total receivables	912.6	18.89%	978.1	19.85%	1044.4	20.31%
Inventory	761.8	15.77%	768	15.59%	816.3	15.88%
Prepaid Expenditures	74.3	1.54%	81.2	1.65%	85.8	1.67%
Other Current Assets	16.2	0.34%	1.7	0.03%	0	0.00%
Total Current Assets	1848.7	38.26%	2079.5	42.21%	2223.3	43.24%
0.00%	0.00%
Property, Plant, Equipment	849.1	17.57%	929.5	18.87%	932	18.13%
Goodwill,	1740.2	36.01%	1528.3	31.02%	1539.2	29.94%
Intangible assets	371.7	7.69%	360.8	7.32%	387.1	7.53%
Long Term Investments	16.1	0.33%	20.6	0.42%	29.8	0.58%
0.00%	0.00%
Other Long Term assets	6.3	0.13%	8.3	0.17%	30.4	0.59%
Total Assets	4832.1	100.00%	4927	100.00%	5141.8	100.00%
2015	% of Total liabilities and equity	2016	% of Total liabilities and equity	2017
Accounts Payable	904.6	18.72%	940.2	19.08%	1065.9	20.73%
Accrued Expenses	172.4	3.57%	223.4	4.53%	211.7	4.12%
Notes payable	0	0.00%	0	0.00%	0	0.00%
Long term debt (current portion)	139.8	2.89%	6.9	0.14%	6.2	0.12%
Other Current liabilities	287.2	5.94%	285.5	5.79%	274.3	5.33%
Total Current Liabilities	1504	31.13%	1456	29.55%	1558.1	30.30%
Long term borrowings	411.4	8.51%	621.1	12.61%	612.1	11.90%
0.00%	0.00%	0.00%
Total Long Term borrowings	411.4	8.51%	621.1	12.61%	612.1	11.90%
Total Debt	551.2	11.41%	628	12.75%	618.3	12.02%
Deferred Income Tax	61.3	1.27%	45.8	0.93%	61	1.19%
Minority Interest	5.9	0.12%	7.3	0.15%	11.7	0.23%
Other Liabilities	59.6	1.23%	148.5	3.01%	50.3	0.98%
Total Liabilities	2042.2	42.26%	2278.7	46.25%	2293.2	44.60%
Ordinary shares	25	0.52%	25.1	0.51%	25.2	0.49%
Paid-In Capital (Additional)	518.9	10.74%	528.5	10.73%	543.4	10.57%
Retained Earnings	2243.2	46.42%	2086.6	42.35%	2279.6	44.33%
Treasury Stock - Common	-15.5	-0.32%	-8.7	-0.18%	-15.3	-0.30%
Unrealized Gain	18.4	0.38%	16.8	0.34%	15.7	0.31%
Other Equity	-0.1	0.00%	0	0.00%	0	0.00%
Total Equity	2789.9	57.74%	2648.3	53.75%	2848.6	55.40%
Total Liabilities & Stockholders' equity	4832.1	1	4927	100.00%	5141.8	1

It can be interpreted that both companies are competing with one another in order to gain market share. Kingfisher PLC has effectively accomplished profits in past three years. It is clarified from the common size financial statements that net income has increased. It was 573 in 2015, decreased by 3.95 % and then reached to 610 by getting over the hike of 5.43 % in 2017.

This organisation has been performing well as operating profits is also desired. Expenditures are controlled as well. On the other hand, Travis Perkins PLC which is a major competitor has also favourable profitability position. Net income has improved as disclosed by common size income statement. Income was 167.60 which however, reduced to 12.7 and again reached to 232.80 by 3.62 %. Opportunities and problems faced by Travel Perkins PLC are not same that of Kingfisher PLC.

This is clarified that it has acquired TF Solutions which is a distributor of air conditioning and related commodities (Travis Perkins PLC Annual report, 2017). Moreover, it can be analysed that acquisition have generated avenues with regards to company as BSS product offerings will be maximised. Plumbing & Heating business segment will be strengthened for gaining benefits for company.

Contracts have been made in the field of business credit cards of co-brands. Interest free-credit on purchases are being offered. Problem for company is that IT is becoming complex as company is expanding in multi-channels and security is important as well. While, skilled labour force is not available which can carry out work in effective manner and will have an impact on organisation's operational efficiency.

Conclusion

Hereby, it can be concluded that Kingfisher PLC has been performing well in all its market divisions. The Board of Directors should back the new joint venture with listed organisation as it could be analysed that profitability position is well enough and made corporate strategies which would enhance more growth in an effective manner. This is evident that UK and Ireland have been continuously increasing in making out sales and profits.

On the other hand, company has higher growth prospects in nearly every segment implying that Board of Directors can back new venture with this organisation as it has adequate financial position represented by financial ratios in terms of liquidity, solvency, efficiency and investment aspects. Moreover, it has opened 63 new stores in 2018 and has already announced B&Q distribution centre in Swindon which will be opened in February 2019. This will be beneficial for accelerating B&Q supply chain and making products available to customers. In relation to this, opportunities and issues identified in company's operational activities has been assessed and made corporate strategies for enhancing overall market share.

References

Online

Kingfisher PLC. 2018. [Online]. Available through: <https://www.kingfisher.com/index.asp?pageid=2>

Kingfisher PLC. 2018. [Online]. Available through: <https://www.kingfisher.com/index.asp?pageid=3>

Kingfisher PLC Annual report. 2017. [PDF]. Available through: <https://www.kingfisher.com/files/reports/annual_report_2018/files/pdf/annual_report_2018.pdf>

Travis Perkins PLC Annual report. 2017. [PDF]. Available through: <http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_TPK_2017.pdf>