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Kingfisher to split in two
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September 13, 2000: 6:17 a.m. ET
UK retailer warns on profit after first-half decline; takeover plans boost shares
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LONDON (CNNfn) - Kingfisher PLC announced Wednesday it plans to split itself into two separate companies housing the different parts of its retail business, after the U.K. operator of Woolworth stores posted a 10 percent drop in half-year profit and warned that spending on investments would crimp future profit.
The company's shares rose after Chief Executive Geoffrey Mulcahy said Kingfisher was looking for European takeovers or mergers to expand its home-improvement and electricals arm - one of the two units that will emerge from the demerger. The other new company will contain Kingfisher's general merchandise interests.
Kingfisher said profit before tax, exceptional items, and the cost of e-commerce developments fell to £232.5 million ($327.8 million) in the 26 weeks ended July 29, from £258.6 million a year earlier. 
Kingfisher still counts general goods retailer Woolworth as one of its best-known units. It also operates home improvement stores under the B&Q and Castorama names in the U.K. and France, and electrical-goods chains Comet, Darty and BUT in the same countries. In electronic media, it has a 35 percent stake in French free Internet access provider Liberty Surf, which listed its shares in Paris in March.
Kingfisher warned that profit in the short term "will be impacted by ongoing revenue investment costs." The company said it expected to return to "solid profit growth thereafter."
The company blamed accounting changes and the weakness of the euro for part of the decline in half-year profit. Exchange rate changes cut earnings by £10 million.
Mulcahy told reporters that the investment in e-commerce would peak this year, but declined to elaborate.
Shares gain on takeover hints
Shares in Kingfisher rose 1.5 percent to 460 pence after the company said it was looking for partners, rebounding from a drop of as much as 6.8 percent in early trading.
"We've made it quite clear our number one priority is to consolidate our position in Europe," Mulcahy said at a news conference.
Retail analyst Iain McDonald of CCF Charterhouse told Reuters that the plan to split "makes each of the separate bits a little bit more digestible if someone wants them." But he said the profit fall was bound to prompt downgrades for the stock.
Net profit for the half-year rose two-thirds to £212.8 million, swelled by a £120.8 million pretax gain from the sale of shares in Liberty Surf's flotation, which lifted earnings per share by 73 percent to 15.4 pence.
First-half sales in Kingfisher's home improvement business rose 12.2 percent to £2.6 billion while sales in the electrical-goods sector rose 14.4 percent to £1.5 billion. These two divisions will be combined to create a "New Kingfisher", the company said. General merchandise sales rose 7.8 percent to £1.3 billion.
"The demerger will both facilitate growth in General Merchandise and enable 'New Kingfisher' to grow more rapidly by focusing on leading international consolidation" in home improvement and electricals. Mulcahy said the general merchandise sector is "capable of major growth."
Kingfisher said costs associated with the demerger wouldn't impact this year's earnings. 
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Kingfisher
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