last updated: Wednesday 2 April 2008, 11:59am

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B&Q owner warns of hard times ahead

B&Q owner Kingfisher has slashed its dividend by half while warning investors that things may get worse before they get better.

The DIY giant unveiled its third successive fall in annual profits with underlying pre-tax profits for 2007 at £386 million, almost 3 per cent lower than the previous year.

The chain produced its first like-for-like sales growth after three years of decline, with comparative sales up 0.6 per cent, but retail profits fell 20 per cent to £131 million after spending on its new stores but added that early trading signals from its revamped sites were encouraging.

Chief executive Ian Cheshire said the 50 per cent dividend cut was necessary in the tougher trading conditions as the group focuses on tight cash control and reducing debts.

Mr Cheshire said: 'No business can fully shield itself from economic cycles and given the current state of the financial markets, most commentators are expecting the short-term outlook to worsen before it improves.'

Having taken over the helm in January, Mr Cheshire said his main focus would be on generating more cash from Kingfisher's retail businesses under a reshaped management structure.

He will also slow the pace of capital investment in the group, with spending geared towards projects offering the best returns.

In the UK, where the group also trades as Screwfix and Trade Depot, Kingfisher said the home improvement market weakened in the second half of the year as concerns over more expensive debt and falling house prices weighed on shoppers.

Kingfisher is moving away from its traditional aisle-based format to a more modern layout displaying the group's kitchen and bathroom wares more extensively.

The company said the revamped stores had delivered sales 13 per cent higher on average than the older-format sites.

Of B&Q's 117 larger stores, 38 are trading in the latest format, while 151 of the chain's 206 medium sized stores have been modernised.

The group also has international operations across Europe and Asia which accounted for more than half of the group's £9.36 billion overall sales last year.

Kingfisher reported a good performance from its French businesses, Castorama and Brico Depot, with like-for-like sales up 2.7 per cent.

But the company booked a £22 million restructuring charge in China as Kingfisher looked to consolidate the recent rapid growth of the business.

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