A five year plan where we will:
Leverage the scale of the business.
Create a unified company.
Put customer needs first always.
The ONE Kingfisher transformation plan, which started in 2016/17, is leveraging the scale of the business by creating a unified company, where customers' needs come first.
The ONE Kingfisher transformation plan, which started in FY 16/17, is focused on creating a unified company by leveraging the scale of the business, where customer needs always come first. Transformation on this scale is a significant undertaking but necessary to ensure a strong, sustainable and agile business with a superior customer proposition.
The plan focuses on building the Kingfisher 'engine' through three strategic pillars:
In January 2016 we set out the financial targets of our transformation plan, with the intention for the transformation to deliver a sustainable annual profit uplift of £500m by the end of FY 20/21, over and above what the business would have delivered without the plan. The total expected cash cost of the transformation was £800m (P&L, exceptional and capex).
Three years into the five-year plan, we have significantly reorganised our business including establishing a single buying organisation, which is leveraging the scale of the Group, and implementing a unified IT infrastructure. For the third year in a row we have substantially delivered our strategic milestones, against the backdrop of profound changes in the retail landscape and an uncertain macroeconomic environment. We have unified 44% of our products (COGS) (exiting FY18/19 at 50%) with the sales and margin from unified & unique ranges continuing to grow and outperforming our non-unified ranges. Our unified IT platform implementation is substantially complete and our digital sales continue to grow, now reaching 6% of the Group. And finally, our operational efficiency initiatives have delivered £100m of savings to date.
The transformation plan is delivering. After the first three years, the benefits from the transformation are in line with our initial plan. However, this has been outweighed by weakness in our base business, or 'business as usual' (BAU), due to a combination of 'internal' factors and 'external' challenges. Over the same time, a significant proportion of the costs to deliver the transformation has already been incurred, meaning that much of the 'heavy lifting' has been completed. We are now well positioned to benefit from future sales growth and will progressively start to see the benefits of operational leverage. To date, transformation costs (P&L, exceptional and capex) have totalled £490m, and we anticipate the total cash cost of the transformation over the five-year period will be less than the £800m guidance.
'External' challenges have included weaker than expected economic growth in the UK, significant cost price inflation (commodity prices and FX) and higher wage inflation in the UK and Polan'Internal' factors, include transformation-related disruption and the underperformance of Castorama France.
We continue to believe in the significant opportunity the transformation provides to grow sales, margin and returns. However, it is increasingly evident that separating transformation benefits ('£500m profit uplift in FY 20/21') from the rest of the business ('BAU') no longer reflects how we manage the business. Having established a single buying organisation, unified half of our offer, and substantially implemented our unified IT platform, transformation and business as usual are increasingly indistinguishable.
We are therefore targeting the following financial outcomes for the Group over the medium term, which combine market dynamics with our initiatives to drive profitable growth:
We are unifying our offer, with the same products, available to all our customers. This is delivering customer benefits (newer products, higher quality, better sustainability, lower prices, simpler ranges, clearer merchandising and better packaging) alongside business benefits (higher sales, fewer SKUs*, fewer suppliers, cost price reduction (CPR*) and improved processes).
Implementation of a new unified IT system is a key enabler of our transformation plan. It is providing the foundation to deliver a seamless and stronger digital offer for our customers, and to increase sales and digital penetration.
We are delivering operational efficiency benefits through several initiatives including unifying our annual spend on GNFR*. This programme is a combination of cost savings together with an opportunity to work in a simpler and more effective way across the business.